form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 (MARK ONE)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM              TO
 
COMMISSION FILE NUMBER 1-15997
 
ENTRAVISION COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
     
Delaware
  
95-4783236
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
2425 Olympic Boulevard, Suite 6000 West, Santa Monica, California 90404
(Address of principal executive offices) (Zip Code)
 
(310) 447-3870
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
   Large accelerated filer ¨  Accelerated filer x  
   Non-accelerated filer ¨  Smaller reporting company ¨  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x
 
As of November 2, 2009, there were 51,882,443 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 22,587,433 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 9,352,729 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.
 
 
 
ENTRAVISION COMMUNICATIONS CORPORATION

FORM 10-Q FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009
 
TABLE OF CONTENTS
 
         
 
  
  
  
Page
Number
 
 
PART I. FINANCIAL INFORMATION
     
ITEM 1.
  
FINANCIAL STATEMENTS
  
 3
     
 
  
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
  
3
     
 
  
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
  
4
     
 
  
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
  
5
     
 
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  
6
     
ITEM 2.
  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
16
     
ITEM 3.
  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
30
     
ITEM 4.
  
CONTROLS AND PROCEDURES
  
31
 
PART II. OTHER INFORMATION
     
ITEM 1.
  
LEGAL PROCEEDINGS
  
31
         
ITEM 1A.
  
RISK FACTORS
  
31
     
ITEM 2.
  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
31
     
ITEM 3.
  
DEFAULTS UPON SENIOR SECURITIES
  
32
     
ITEM 4.
  
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
32
     
ITEM 5.
  
OTHER INFORMATION
  
32
     
ITEM 6.
  
EXHIBITS
  
32
         
 
 
1
 
Forward-Looking Statements
 
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
 
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this annual report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.
 
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:
 
 
•
risks related to our history of operating losses, our substantial indebtedness or our ability to raise capital;
 
 
•
provisions of the agreements governing our debt instruments, including the amended credit facility agreement governing our syndicated bank credit facility, or the amended credit facility agreement, which restricts certain aspects of the operation of our business;

 
•
our continued compliance with all of our obligations, including financial covenants and ratios, under the amended credit facility agreement;
 
 
•
cancellations or reductions of advertising, whether due to the ongoing global financial crisis, the recession or otherwise;
 
 
•
our relationship with Univision Communications Inc., or Univision;
 
 
•
subject to limitations contained in the amended credit facility agreement, the overall success of our acquisition strategy, which includes developing media clusters in key U.S. Hispanic markets, and the integration of any acquired assets with our existing business;
 
 
•
the impact of rigorous competition in Spanish-language media and in the advertising industry generally;
 
 
•
industry-wide market factors and regulatory and other developments affecting our operations;

 
•
the duration and severity of the ongoing global financial crisis and the recession;

 
•
the effectiveness of our recently-implemented cost-saving measures; and

 
•
the impact of any impairment of our assets.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors,” beginning on page 24 of our Annual Report on Form 10-K for the year ended December 31, 2008.
 
2
 
PART I
 
FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
ASSETS
  
Current assets
            
Cash and cash equivalents
   $ 20,824     $ 64,294  
Trade receivables, net of allowance for doubtful accounts of $5,141 and $5,640 (including related parties of $4,807 and $0)
     48,316       44,855  
Prepaid expenses and other current assets (including related parties of $274 and $274)
     5,532       5,252  
Total current assets
     74,672       114,401  
Property and equipment, net
     83,298       90,898  
Intangible assets subject to amortization, net (including related parties of $28,421 and $30,161)
     29,381       31,380  
Intangible assets not subject to amortization
     294,127       298,042  
Goodwill
     45,845       45,845  
Other assets
     9,661       10,473  
Total assets
   $ 536,984     $ 591,039  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current liabilities
                
Current maturities of long-term debt (including related parties of $1,000 and $1,000)
   $ 1,000     $ 1,002  
Advances payable, related parties
     118       118  
Accounts payable, accrued expenses and other liabilities (including related parties of $3,890 and $4,092)
     52,208       57,647  
Total current liabilities
     53,326       58,767  
Long-term debt, less current maturities (including related parties of $1,000 and $2,000)
     362,949       405,521  
Other long-term liabilities
     12,872       14,038  
Deferred income taxes
     9,388       -  
Total liabilities
     438,535       478,326  
                 
Commitments and contingencies (note 4)
                
                 
Stockholders' equity
                
Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued
                
2009 53,027,123; 2008 45,877,400
     5       5  
Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and
                
outstanding 2009 22,587,433; 2008 22,887,433
     2       2  
Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and
                
outstanding 2009 9,352,729; 2008 15,652,729
     1       2  
Additional paid-in capital
     936,134       934,749  
Accumulated deficit
     (837,693 )     (822,045 )
      98,449       112,713  
Treasury stock, Class A common stock, $0.0001 par value, 2009 1,232,680 shares; 2008 None
     -       -  
Total stockholders' equity
     98,449       112,713  
Total liabilities and stockholders' equity
   $ 536,984     $ 591,039  
 
See Notes to Consolidated Financial Statements
 
3
 
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)

   
Three-Month Period
    
Nine-Month Period
  
   
Ended September 30,
    
Ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
                         
Net revenue (including related parties of $0, $0, $0 and $182)
   $ 50,754     $ 60,988     $ 141,165     $ 179,573  
                                 
Expenses:
                                
Direct operating expenses (including related parties of
                                
$1,676, $3,010, $5,407 and $8,582) (including non-cash stock-
                                
based compensation of $159, $173, $489 and $462)
     21,030       25,583       63,690       76,258  
Selling, general and administrative expenses (including non-cash
                                
stock-based compensation of $204, $217, $618 and $579)
     9,542       11,394       28,341       33,026  
Corporate expenses (including non-cash stock-based
                                
compensation of $339, $506, $1,098 and $1,409)
     3,351       3,772       10,602       12,703  
Depreciation and amortization (includes direct
                                
operating of $3,806, $4,706, $11,724 and $13,432;
                                
selling, general and administrative of $1,156, $1,006, $3,245 and
                                
$2,991; and corporate of $310, $286, $924 and $762) (including
                                
related parties of $580, $580, $1,740 and $1,740)
     5,272       5,998       15,893       17,185  
Impairment charge
     -       440,020       2,720       440,020  
      39,195       486,767       121,246       579,192  
Operating income (loss)
     11,559       (425,779 )     19,919       (399,619 )
Interest expense (including related parties of $29, $44, $89 and $156) (note 2)
     (8,227 )     (8,172 )     (21,762 )     (27,595 )
Interest income
     70       622       388       1,339  
Loss on debt extinguishment
     -       -       (4,716 )     -  
Income (loss) before income taxes
     3,402       (433,329 )     (6,171 )     (425,875 )
Income tax (expense) benefit
     (2,802 )     78,847       (9,311 )     76,167  
Income (loss) before equity in net income (loss) of
                                
nonconsolidated affiliate and discontinued operations
     600       (354,482 )     (15,482 )     (349,708 )
Equity in net income (loss) of nonconsolidated affiliate, net of tax
     73       (9 )     (166 )     (173 )
Income (loss) from continuing operations
     673       (354,491 )     (15,648 )     (349,881 )
Loss from discontinued operations,
                                
net of tax benefit of $0, $0, $0 and $604
     -       -       -       (1,573 )
Net income (loss) applicable to common stockholders
   $ 673     $ (354,491 )   $ (15,648 )   $ (351,454 )
                                 
Basic and diluted earnings per share:
                                
Net income (loss) per share from continuing operations applicable to
                                
common stockholders, basic and diluted
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.80 )
Net loss per share from discontinued operations, basic and diluted
   $ -     $ -     $ -     $ (0.02 )
Net income (loss) per share applicable to common stockholders,
                                
basic and diluted
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.82 )
                                 
Weighted average common shares outstanding, basic
     83,683,908       89,130,413       84,049,423       92,029,671  
Weighted average common shares outstanding, diluted
     83,935,319       89,130,413       84,049,423       92,029,671  

See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
   
Nine-Month Period
  
   
Ended September 30,
  
   
2009
    
2008
  
Cash flows from operating activities:
            
Net loss
   $ (15,648 )   $ (351,454 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                
Depreciation and amortization
     15,893       17,185  
Impairment charge
     2,720       440,020  
Deferred income taxes
     8,534       (77,537 )
Amortization of debt issue costs
     298       302  
Amortization of syndication contracts
     1,689       2,255  
Payments on syndication contracts
     (2,119 )     (2,135 )
Equity in net loss of nonconsolidated affiliate
     166       173  
Non-cash stock-based compensation
     2,205       2,450  
Gain on sale of media properties and other assets
     (102 )     -  
Non-cash expenses related to debt extinguishment
     945       -  
Change in fair value of interest rate swap agreements
     (3,850 )     3,647  
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
                
(Increase) decrease in accounts receivable
     (3,100 )     3,648  
Increase in prepaid expenses and other assets
     (621 )     (100 )
Increase (decrease) in accounts payable, accrued expenses and other liabilities
     3,187       (3,205 )
Effect of discontinued operations
     -       (2,230 )
Net cash provided by operating activities
     10,197       33,019  
Cash flows from investing activities:
                
Proceeds from sale of property and equipment and intangibles
     114       101,498  
Purchases of property and equipment and intangibles
     (9,207 )     (13,415 )
Purchase of a business
     -       (22,885 )
Deposits on acquisitions
     -       (200 )
Effect of discontinued operations
     -       (194 )
Net cash provided by (used in) investing activities
     (9,093 )     64,804  
Cash flows from financing activities:
                
Proceeds from issuance of common stock
     255       785  
Payments on long-term debt
     (42,572 )     (11,036 )
Repurchase of Class U common stock
     -       (10,380 )
Repurchase of Class A common stock
     (1,075 )     (46,538 )
Excess tax benefits from exercise of stock options
     -       (25 )
Payments of deferred debt and offering costs
     (1,182 )     -  
Net cash used in financing activities
     (44,574 )     (67,194 )
Net increase (decrease) in cash and cash equivalents
     (43,470 )     30,629  
Cash and cash equivalents:
                
Beginning
     64,294       86,945  
Ending
   $ 20,824     $ 117,574  
                 
Supplemental disclosures of cash flow information:
                
Cash payments for:
                
Interest
   $ 22,583     $ 23,716  
Income taxes
   $ 777     $ 1,395  

See Notes to Consolidated Financial Statements
 
5
 
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 
1. BASIS OF PRESENTATION
 
Presentation
 
The consolidated financial statements included herein have been prepared by Entravision Communications Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2008 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2009 or any other future period.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”).  SFAS 168 made the FASB Accounting Standards Codification (“ASC”), also known as the “Codification”, the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), except for additional authoritative rules and interpretive releases issued by the SEC.  The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by organizing all the authoritative literature related to a particular topic within a consistent structure.  The Codification was effective for the Company’s financial statements issued beginning in the quarter ending September 30, 2009.  All accounting references have been updated, and therefore SFAS references have been replaced with ASC references.

Certain amounts in the Company’s prior period notes to the financial statements have been reclassified to conform to current period presentation. All discussions and amounts in the consolidated financial statements and the related notes to consolidated statements, for all periods presented relate to continuing operations only, unless otherwise noted.

Discontinued Operations

The Company sold the outdoor advertising business in May 2008 and no longer has outdoor operations.  In accordance with ASC 360-10-45, “Impairment or Disposal of Long-Lived Assets”, the Company has reported the results of its outdoor advertising operations for all periods in discontinued operations within the consolidated statements of operations. In the consolidated statements of cash flows, the cash flows of discontinued operations have been reclassified for all periods presented and are separately classified within the respective categories with those of continuing operations.

Liquidity and Capital Resources
 
As a result of the ongoing global financial crisis and the recession, and their impact on the advertising marketplace and its customers, the Company has experienced declining net revenues, which have had a significant negative impact on its cash flows and consolidated adjusted EBITDA as defined as net income (loss) plus loss (gain) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, loss on debt extinguishment, loss from discontinued operations, income tax expense (benefit), equity in net income (loss) of nonconsolidated affiliate and syndication programming amortization less syndication programming payments.  At September 30, 2009, the Company’s total consolidated debt outstanding was $363.9 million.
 
6
 
The Company has taken a number of steps to address its liquidity as result of the decline in its consolidated adjusted EBITDA. As a result of management’s budgeting process for 2009, taking into consideration the impact that the further rapid deterioration of the economy could have on its results of operations, the Company amended its syndicated bank credit facility agreement on March 16, 2009. Among other things, the amendment requires compliance with a maximum allowed leverage ratio covenant, calculated as the ratio of consolidated total debt outstanding to trailing-twelve-month consolidated adjusted EBITDA. In addition, the amendment imposes certain additional restrictions on liquidity and operations, including a significantly higher interest rate on outstanding principal and a sweep of 75% of quarterly excess cash flow, as defined in the amendment, to repay principal on the outstanding consolidated debt. At the time the Company entered into the amendment to the syndicated bank credit facility agreement in the first quarter of 2009, the Company made a prepayment of $40 million to reduce the outstanding amount of its term loans.
 
In order to maintain compliance with the maximum allowed leverage ratio covenant, the Company will need to achieve certain quarterly, trailing-twelve-month consolidated adjusted EBITDA targets. The Company believes that, as a result of the cost-saving measures and the amendment of the syndicated bank credit facility agreement discussed above, the Company will be able to achieve the trailing-twelve-month consolidated adjusted EBITDA targets under its amended syndicated bank credit facility agreement, and, therefore, the Company believes that it will be able to maintain compliance with the maximum allowed leverage ratio covenant for at least the next twelve months. Under the amended syndicated bank credit facility agreement, the debt to trailing-twelve-month consolidated adjusted EBITDA ratio is required to be below 6.75 at the end of the fourth quarter of 2009, below 6.50 at the end of the first two quarters of 2010 and below 6.25 at the end of the third quarter of 2010.
 
The Company has also implemented significant cost-saving measures, including reductions in personnel, executive bonuses, employee benefits, general corporate expense and capital expenditures in the fourth quarter of 2008, and reductions in salary expense, promotional expense, bonuses, general corporate expense and capital expenditures in the first quarter of 2009. The Company currently estimates that these cost-saving measures have resulted in an expense reduction of approximately $14 million for the nine-month period ended September 30, 2009.  The Company currently anticipates that these cost-saving measures will result in additional expense reductions of approximately $6 million during the fourth quarter of 2009. Through the Company’s ongoing efforts to improve its profitability and cash flows, the Company is continuing to review its business for areas of possible additional improvement, greater efficiency and further cost reductions.

While the Company has had a history of operating losses in some periods and operating income in other periods, the Company also has a history of generating significant positive cash flows from its operations. The Company reported a net loss of $15.6 million and had positive cash flow from operations of $10.2 million for the nine-month period ended September 30, 2009. Additionally, as of September 30, 2009, the Company had a cash balance of $20.8 million, debt outstanding under the syndicated bank credit facility of $361.9 million, other debt of $2.0 million and an accumulated deficit of $837.7 million. The Company expects to fund its working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand, and cash flows from operations. The Company currently anticipates that funds generated from operations, including cost-saving measures the Company has taken, and available borrowings under its syndicated bank credit facility will be sufficient to meet the Company’s anticipated cash requirements for at least the next twelve months.


2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
 
Related Party
 
Univision currently owns approximately 10% of the Company’s common stock on a fully-converted basis based on public filings made by Univision. In connection with Univision’s merger with Hispanic Broadcasting Corporation (“HBC”) in September 2003, Univision entered into an agreement with the U.S. Department of Justice (“DOJ”), pursuant to which Univision agreed, among other things, to ensure that its percentage ownership of the Company would not exceed 15% by March 26, 2006 and would not exceed 10% by March 26, 2009.

In February 2008, the Company repurchased 1.5 million shares of Class U common stock held by Univision for $10.4 million.  In May 2009, the Company repurchased an additional 0.9 million shares of Class A common stock held by Univision for $0.5 million.

The Company’s Class U common stock held by Univision has limited voting rights and does not include the right to elect directors. However, as the holder of all of the Company’s issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving the Company, any dissolution of the Company and any assignment of the Federal Communications Commission, or FCC, licenses for any of the Company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share of the Company’s Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer to a third party that is not an affiliate of Univision.
 
7
 
Univision acts as the Company’s exclusive sales representative for the sale of all national advertising aired on Univision-affiliate television stations. During the three-month periods ended September 30, 2009 and 2008, the amount paid by the Company to Univision in this capacity was $1.7 million and $2.5 million, respectively.  During the nine-month periods ended September 30, 2009 and 2008, the amount paid by the Company to Univision in this capacity was $4.8 million and $7.1 million, respectively.

In August 2008, the Company entered into an agreement with Univision pursuant to which it granted Univision the right to negotiate the terms of agreements providing for the carriage of the Company’s Univision- and TeleFutura-affiliated television station signals by cable, satellite and internet-based television service providers. The agreement also provides terms relating to compensation to be paid to the Company with respect to agreements that are entered into for the carriage of its Univision- and TeleFutura-affiliated television station signals.  As of September 30, 2009, the amount due to the Company from Univision was $4.8 million related to the agreements for the carriage of its Univision and TeleFutura-affiliated television station signals.
 
 Stock-Based Compensation

The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the consolidated financial statements over the requisite service period.  As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

Stock-based compensation expense related to grants of stock options and restricted stock units was $0.7 million and $0.8 million for the three-month periods ended September 30, 2009 and 2008, respectively. Stock-based compensation expense related to grants of stock options and restricted stock units was $2.2 million and $2.2 million for the nine-month periods ended September 30, 2009 and 2008, respectively.

Stock Options

Stock-based compensation expense related to stock options is based on the fair value on the date of grant using the Black-Scholes option pricing model and is amortized over the vesting period, generally between 1 to 3 years.

The fair value of each stock option granted was estimated using the following weighted-average assumptions:

   
Nine-Month Period
  
   
Ended September 30,
  
   
2009
  
Fair value of options granted
   $ 1.20  
Expected volatility
     80 %
Risk-free interest rate
     2.9 %
Expected lives
  
7.0 years
  
Dividend rate
     ―  

As of September 30, 2009, there was approximately $2.7 million of total unrecognized compensation expense related to grants of stock options that is expected to be recognized over a weighted-average period of 1.2 years.

Restricted Stock Units

Stock-based compensation expense related to restricted stock units is based on the fair value of the Company’s stock price on the date of grant and is amortized over the vesting period, generally between 1 to 4 years.

As of September 30, 2009, there was approximately $1.9 million of total unrecognized compensation expense related to grants of restricted stock units that is expected to be recognized over a weighted-average period of 0.9 years.
8
Income (Loss) Per Share
 
The following table illustrates the reconciliation of the basic and diluted income per share computations required by ASC 260-10, “Earnings Per Share” (in thousands, except per share and per share data):
   
Three-Month Period
    
Nine-Month Period
  
   
Ended September 30,
    
Ended September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Basic earnings per share:
                        
Numerator:
                        
Income (loss) from continuing operations
   $ 673     $ (354,491 )   $ (15,648 )   $ (349,881 )
Loss from discontinued operations
     -       -       -       (1,573 )
Net income (loss) applicable to common stockholders
   $ 673     $ (354,491 )   $ (15,648 )   $ (351,454 )
                                 
Denominator:
                                
Weighted average common shares outstanding
     83,683,908       89,130,413       84,049,423       92,029,671  
                                 
Per share:
                                
Net income (loss) per share from continuing operations
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.80 )
Net loss per share from discontinued operations
     -       -       -       (0.02 )
Net income (loss) per share applicable to common stockholders
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.82 )
                                 
Diluted earnings per share:
                                
Numerator:
                                
Income (loss) from continuing operations
   $ 673     $ (354,491 )   $ (15,648 )   $ (349,881 )
Loss from discontinued operations
     -       -       -       (1,573 )
Net income (loss) applicable to common stockholders
   $ 673     $ (354,491 )   $ (15,648 )   $ (351,454 )
                                 
Denominator:
                                
Weighted average common shares outstanding
     83,683,908       89,130,413       84,049,423       92,029,671  
Dilutive securities:
                                
Stock options, restricted stock units
                                
and employee stock purchase plan
     251,411       -       -       -  
Diluted shares outstanding
     83,935,319       89,130,413       84,049,423       92,029,671  
                                 
Per share:
                                
Net income (loss) per share from continuing operations
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.80 )
Net loss per share from discontinued operations
     -       -       -       (0.02 )
Net income (loss) per share applicable to common stockholders
   $ 0.01     $ (3.98 )   $ (0.19 )   $ (3.82 )
 
Basic income (loss) per share is computed as net loss divided by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options, restricted stock units and convertible securities.
 
For the three-month period ended September 31, 2009, a total of 11,311,649 shares of dilutive securities were not included in the computation of diluted income per share because the exercise prices of the dilutive securities were greater than the average market price of the Company's common stock.  For the nine-month period ended September 30, 2009, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was 158,546 equivalent shares of dilutive securities for the nine-month period ended September 30, 2009.

For the three- and nine-month periods ended September 30, 2008, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was 99,629 and 244,376 equivalent shares of dilutive securities for the three- and nine-month periods ended September 30, 2008, respectively.
 
9
 
Acquisition of Assets

In April 2009, the Company acquired the assets of television station KREN-TV in the Reno, Nevada market for approximately $4.3 million.  The Company reduced the carrying value of the assets of television station KREN-TV to its fair value of $1.6 million by recording a carrying value adjustment of $2.7 million.  This charge is included in the consolidated statements of operations for continuing operations.

The following is a summary of the carrying value of the Company’s acquisition of the net assets of television station KREN-TV in Reno, Nevada (in millions):
       
Property and equipment
   $ 1.4  
Intangible assets subject to amortization - Favorable lease
     0.1  
Intangible assets not subject to amortization - FCC license
     0.1  
      1.6  

In accordance with ASC 805, “Business Combinations”, the Company evaluated the transferred set of activities, assets, inputs, outputs and processes in this acquisition and determined that the acquisition did not constitute a business.

Assets Held for Sale and Discontinued Operations

In May 2008, the Company sold the outdoor advertising business to Lamar Advertising Co. for $101.5 million.  The Company reviewed the portfolio of media properties and decided to sell its outdoor advertising business as it was a non-core business where the opportunity to grow to scale was limited.  The Company decided that the net proceeds of the sale would improve financial flexibility, including debt and stock repurchases.

As a result of the disposition, the Company no longer has outdoor advertising operations. Accordingly, the financial statements reflect the outdoor segment revenue and expenses as discontinued operations.

Summarized financial information in the consolidated statements of operations for the discontinued outdoor operations is as follows (in thousands):
   
Nine-Month Period
  
   
Ended September 30,
  
   
2008
  
Net revenue
   $ 13,730  
         
Loss before income taxes
     (2,177 )
Income tax benefit
     604  
Loss from discontinued operations, net of tax
   $ (1,573 )

In presenting discontinued operations, corporate overhead expenses have not been allocated consistent with historical outdoor segment presentation.

Syndicated Bank Credit Facility

In September 2005, the Company entered into a syndicated bank credit facility with a $650 million senior secured syndicated bank credit facility, consisting of a 7 ½ year $500 million term loan and a 6 ½ year $150 million revolving facility. The term loan under the syndicated bank credit facility has been drawn in full, the proceeds of which were used (i) to refinance $250 million outstanding under the former syndicated bank credit facility, (ii) to complete a tender offer for the previously outstanding $225 million senior subordinated notes, and (iii) for general corporate purposes.  The term loan matures in 2013 and the revolving facility expires in 2012. The Company’s ability to make additional borrowings under the syndicated bank credit facility is subject to compliance with certain financial covenants, including financial ratios, and other conditions set forth in the syndicated bank credit facility.
 
10
 
On March 16, 2009, the Company entered into an amendment to the syndicated bank credit facility agreement. Pursuant to this amendment, among other things:

 
•
The interest that the Company pays under the credit facility increased.  Both the revolver and term loan borrowings under the amendment bear interest at a variable interest rate based on either LIBOR or a base rate, in either case plus an applicable margin that varies depending upon the leverage ratio. Borrowings under both the revolver and term loan bear interest at LIBOR plus a margin of 5.25% when the leverage ratio is greater than or equal to 5.0.  When the leverage ratio is less than 5.0 but greater than or equal to 4.0, borrowings under both the revolver and term loan will bear interest at LIBOR plus a margin of 4.25%. When the leverage ratio is less than 4.0, borrowings under both the revolver and term loan will bear interest at LIBOR plus a margin of 3.25%.  The term loan bears interest at LIBOR plus a margin of 5.25%, for a total interest rate of 5.54% at September 30, 2009. As of September 30, 2009, $361.9 million of the term loan was outstanding.

 
•
The total amount of the revolver facility was reduced from $150 million to $50 million. Borrowings under the revolver are restricted to $5 million in the aggregate during any rolling 30-day period when the leverage ratio is less than 1.0 of the maximum allowable ratio during the applicable period. New conditions have been added for loans under the revolver facility greater than $5 million. The revolving facility bears interest at LIBOR plus a margin ranging from 3.25% to 5.25% based on leverage covenants. As of September 30, 2009, the Company had approximately $1 million in outstanding letters of credit and $49 million was available under the revolving facility for future borrowings. In addition, the Company pays a quarterly unused commitment fee ranging from 0.25% to 0.50% per annum, depending on the level of facility used.

 
•
There are more stringent financial covenants relating to maximum allowed leverage ratio, maximum capital expenditures and fixed charge coverage ratio. Beginning March 16, 2009 through December 31, 2009, the maximum allowed leverage ratio, or the ratio of consolidated total debt to trailing-twelve-month consolidated adjusted EBITDA, is 6.75. The maximum allowed leverage ratio decreases to 6.50 in the first quarter of 2010. On September 30, 2010 the maximum allowed leverage ratio decreases to 6.25 and on December 31, 2010 the maximum allowed leverage ratio decreases to 6.0. Beginning March 31, 2011 and through the term of the agreement, the maximum allowed leverage ratio is 5.50. The actual leverage ratio was 6.7 to 1 as of September 30, 2009.  Therefore, the Company was in compliance with this covenant as of this date.  From March 31, 2009, through the term of the agreement, the minimum required fixed charge coverage ratio is 1.15.

 
•
There is a mandatory prepayment clause for 100% of the proceeds of certain asset dispositions, regardless of the leverage ratio.  In addition, if the Company has excess cash flow, as defined in the syndicated bank credit facility, 75% of such excess cash flow must be used to reduce the outstanding loan balance on a quarterly basis.

 
•
Beginning March 31, 2009, the senior leverage ratio and net leverage ratio were eliminated.

 
•
Capital expenditures may not exceed $10 million in each of 2009 and 2010.

 
•
The Company is restricted from making acquisitions and investments when the leverage ratio is greater than 4.0, with an exception to permit the completion of the acquisition of television assets serving the Reno, Nevada market.

 
•
The Company is restricted from making future repurchases of shares of common stock, except under a limited circumstance, which the Company utilized in May 2009 and may utilize again in the future.

 
•
The Company is restricted from making any further debt repurchases in the secondary market.

The amendment also contains additional covenants, representations and provisions that are usual and customary for credit facilities of this type.  All other provisions of the credit facility agreement, as amended, remain in full force and effect unless expressly amended or modified by the amendment.

At the time of entering into this amendment, the Company made a prepayment of $40 million to reduce the outstanding amount of the term loans and paid the lenders an amendment fee.

The Company recorded a loss on debt extinguishment of $4.7 million for fees, unamortized finance costs and interest rate swap agreement termination costs associated with the amendment to the syndicated bank credit facility during the nine-month period ended September 30, 2009.
 
11
 
    The syndicated bank credit facility is secured by substantially all of the assets, as well as the pledge of the stock of substantially all of the subsidiaries, including the special purpose subsidiary formed to hold our FCC licenses. The syndicated bank credit facility contains customary events of default. If an event of default occurs and is continuing, the Company might be required to repay all amounts then outstanding under the syndicated bank credit facility. Lenders holding more than 50% of the loans and commitments under the syndicated bank credit facility may elect to accelerate the maturity of loans upon the occurrence and during the continuation of an event of default.

The syndicated bank credit facility contains certain financial covenants relating to maximum leverage ratio, maximum capital expenditures and minimum fixed charge coverage ratio. The covenants become increasingly restrictive in the later years of the syndicated bank credit facility. The syndicated bank credit facility also requires the Company to maintain FCC licenses for broadcast properties and contains restrictions on the incurrence of additional debt, the payment of dividends, the repurchase of shares of the Company’s common stock, the making of acquisitions and the sale of assets.

The carrying amount and estimated fair value of our term loan as of September 30, 2009 was $361.9 million and $355.2 million, respectively.  The estimated fair value of our term loan is based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments with similar terms.

Derivative Instruments

The Company uses interest rate swap agreements to manage its exposure to the risks associated with changes in interest rates.  The Company does not enter into derivative instruments for speculation or trading purposes.  As of September 30, 2009, the Company had three interest rate swap agreements with a $206 million aggregate notional amount, with quarterly reductions, that expire on October 1, 2010, and a fourth interest rate swap agreement with a $155.9 million notional amount, with quarterly increases, that also expires on October 1, 2010.  The three interest rate swap agreements convert a portion of the variable rate term loan into a fixed rate obligation of 9.71%, which includes a margin of 5.25%.  The fourth interest rate swap agreement converts a portion of the variable rate term loan into a fixed rate obligation of 10.31%, which includes a margin of 5.25%.  It is expected that the term loan amount will not exceed the notional amount of the four interest rate swap agreements.  As of September 30, 2009 and 2008, these interest rate swap agreements were not designated for hedge accounting treatment, and as a result, changes in their fair values are reflected in earnings.

For the three-month period ended September 30, 2009, the Company recognized a decrease of $1.3 million in interest expense related to the increase in fair value of the interest rate swap agreements.  For the three-month period ended September 30, 2008, the Company recognized an increase of $0.4 million in interest expense related to the decrease in fair value of the interest rate swap agreements.

For the nine-month period ended September 30, 2009, the Company recognized a decrease of $3.8 million in interest expense related to the increase in fair value of the interest rate swap agreements.  For the nine-month period ended September 30, 2008, the Company recognized an increase of $3.6 million in interest expense related to the decrease in fair value of the interest rate swap agreements.

The fair value of the interest rate swap agreements at each balance sheet date was as follows (in millions):
 
     
September 30, 2009
    
December 31, 2008
  
Derivatives Not Designated As Hedging Instruments
Balance Sheet Location
  
Fair Value
    
Fair Value
  
Interest rate swap agreements
Accounts payable, accrued expenses and other liabilities
   $ 19.4     $ 23.2  

The following table presents the effect of the interest rate swap agreements on our consolidated statements of operations for the three-and nine month periods ended September 30, 2009 and 2008 (in millions):
 
     
Three-Month Period
    
Nine-Month Period
  
Derivatives Not Designated As Hedging
Location of
  
Ended September 30,
    
Ended September 30,
  
Instruments
Income (Loss)
  
2009
    
2008
    
2009
    
2008
  
Interest rate swap agreements
Interest expense
   $ 1.3     $ (0.4 )   $ 3.8     $ (3.6 )

 
12
 
Fair Value Measurements

    On January 1, 2008, the Company adopted ASC 820, “Fair Value Measurements and Disclosures”, which defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date.

Level 2 – Financial assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The following table presents the financial liabilities measured at fair value on a recurring basis, based on the fair value hierarchy as of September 30, 2009 and December 31, 2008 (in millions):
   
September 30, 2009
    
December 31, 2008
  
Liabilities
  
Level 2
    
Level 2
  
Interest rate swap agreements
   $ 19.4     $ 23.2  

Interest Rate Swap Agreements
     
The fair values of the interest rate swap agreements represent the present value of expected future cash flows estimated to be received from or paid to a marketplace participant in settlement of these instruments. They are valued using inputs including broker/dealer quotes, adjusted for non-performance risk, based on valuation models that incorporate observable market information and are classified within Level 2 of the fair value hierarchy.

Recent Accounting Pronouncements

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 clarifies ASC 820, “Fair Value Measurements and Disclosures”.  ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. This standard is effective beginning in the fourth quarter 2009. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration shall be measured and allocated to the separate units of accounting in the arrangement.  ASU 2009-13 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In June 2009, the FASB issued an amendment to ASC 860, “Transfers and Servicing”. The amendment eliminates the concept of a qualifying special-purpose entity (“QSPE”), therefore requiring these entities to be evaluated under the accounting guidance for consolidation of variable interest entities (“VIE”). Other changes include additional considerations when determining if sale accounting is appropriate, as well as enhanced disclosures requirements.  This standard is effective January 1, 2010. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
 
13
 
    In June 2009, the FASB issued an amendment to ASC 810, “Consolidation”. The amendment eliminates the scope exception for QSPEs and requires an entity to reconsider its previous consolidation conclusions reached under the VIE consolidation model, including (i) whether an entity is a VIE, (ii) whether the enterprise is the VIE’s primary beneficiary, and (iii) the required financial statement disclosures. The new standard can be applied as of the effective date, with a cumulative-effect adjustment to retained earnings recognized on that date, or retrospectively, with a cumulative-effect adjustment to retained earnings recognized as of the beginning of the first year adjusted. This standard is effective January 1, 2010. The Company is currently evaluating the impact of this standard on the consolidated financial statements.


3. SEGMENT INFORMATION
 
The Company operates in two reportable segments: television broadcasting and radio broadcasting.
 
Television Broadcasting
 
The Company owns and/or operates 53 primary television stations located primarily in California, Colorado, Connecticut, Florida, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C.
 
Radio Broadcasting
 
The Company owns and operates 48 radio stations (37 FM and 11 AM) located  primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

Separate financial data for each of the Company’s operating segments is provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses and impairment charge. There were no significant sources of revenue generated outside the United States during the three- and nine-month periods ended September 30, 2009 and 2008. The Company evaluates the performance of its operating segments based on the following (in thousands):
14
 
   
Three-Month Period
      % Change    
Nine-Month Period
      % Change  
   
Ended September 30,
    
2009 to
    
Ended September 30,
    
2009 to
  
   
2009
    
2008
    
2008
    
2009
    
2008
    
2008
  
Net Revenue
                                    
Television
   $ 32,019     $ 37,479       (15 )%   $ 92,037     $ 112,528       (18 )%
Radio
     18,735       23,509       (20 )%     49,128       67,045       (27 )%
Consolidated
     50,754       60,988       (17 )%     141,165       179,573       (21 )%
                                                 
Direct operating expenses
                                                
Television
     13,022       16,421       (21 )%     40,202       48,535       (17 )%
Radio
     8,008       9,162       (13 )%     23,488       27,723       (15 )%
Consolidated
     21,030       25,583       (18 )%     63,690       76,258       (16 )%
                                                 
Selling, general and administrative expenses
                                                
Television
     4,579       5,487       (17 )%     14,861       16,598       (10 )%
Radio
     4,963       5,907       (16 )%     13,480       16,428       (18 )%
Consolidated
     9,542       11,394       (16 )%     28,341       33,026       (14 )%
                                                 
Depreciation and amortization
                                                
Television
     3,897       4,527       (14 )%     11,764       13,104       (10 )%
Radio
     1,375       1,471       (7 )%     4,129       4,081       1 %
Consolidated
     5,272       5,998       (12 )%     15,893       17,185       (8 )%
                                                 
Segment operating profit
                                                
Television
     10,521       11,044       (5 )%     25,210       34,291       (26 )%
Radio
     4,389       6,969       (37 )%     8,031       18,813       (57 )%
Consolidated
     14,910       18,013       (17 )%     33,241       53,104       (37 )%
                                                 
Corporate expenses
     3,351       3,772       (11 )%     10,602       12,703       (17 )%
Impairment charge
     -       440,020       *       2,720       440,020       (99 )%
Operating income
     11,559       (425,779 )     *       19,919       (399,619 )     *  
                                                 
Interest expense
     (8,227 )     (8,172 )     1 %     (21,762 )     (27,595 )     (21 )%
Interest income
     70       622       (89 )%     388       1,339       (71 )%
Loss on debt extinguishment
     -       -       *       (4,716 )     -       *  
Income (loss) before income taxes from continuing operations
   $ 3,402     $ (433,329 )     *     $ (6,171 )   $ (425,875 )     (99 )%
                                                 
                                                 
Capital expenditures
                                                
Television
   $ 2,151     $ 4,198             $ 4,667     $ 10,709          
Radio
     252       824               628       2,786          
Consolidated
   $ 2,403     $ 5,022             $ 5,295     $ 13,495          
                                                 
                                                 
                           
September 30,
    
December 31,
          
Total assets
                             2009       2008          
Television
                           $ 344,959     $ 394,287          
Radio
                             192,025       196,752          
Consolidated
                           $ 536,984     $ 591,039          
 
*
Percentage not meaningful.
 
15
 
4. LITIGATION
 
The Company is subject to various outstanding claims and other legal proceedings that arose in the ordinary course of business. In the opinion of management, any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations or cash flows of the Company.

5. SUBSEQUENT EVENTS

In accordance with ASC 855, “Subsequent Events”, the Company evaluated all events or transactions that occurred after September 30, 2009 through November 6, 2009, the date the Company issued its consolidated financial statements, and determined that none met the definition of a subsequent event for purposes of recognition or disclosure in the consolidated financial statements for the period ended September 30, 2009.


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
We are a diversified Spanish-language media company with a unique portfolio of television and radio assets that reach Hispanic consumers across the United States, as well as the border markets of Mexico. We operate in two reportable segments: television broadcasting and radio broadcasting. Our net revenue for the three-month period ended September 30, 2009, was $50.8 million. Of that amount, revenue generated by our television segment accounted for 63% and revenue generated by our radio segment accounted for 37%.
 
As of the date of filing this report, we own and/or operate 53 primary television stations located primarily in California, Colorado, Connecticut, Florida, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. We own and operate 48 radio stations (37 FM and 11 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.
  
We generate revenue from sales of national and local advertising time on television and radio stations. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. We recognize advertising revenue when commercials are broadcast. We do not obtain long-term commitments from our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay commissions to agencies for local, regional and national advertising. For contracts directly with agencies, we record net revenue from these agencies. Seasonal revenue fluctuations are common in the broadcasting industry and are due primarily to variations in advertising expenditures by both local and national advertisers.
 
Our primary expenses are employee compensation, including commissions paid to our sales staff and amounts paid to our national representative firms, as well as expenses for marketing, promotion and selling, technical, local programming, engineering, and general and administrative. Our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets.

The comparability of our results between 2009 and 2008 is affected by acquisitions and dispositions in those periods. In those years, we primarily acquired new media properties in markets where we already owned existing media properties. While new media properties contribute to the financial results of their markets, we do not attempt to measure their effect as they typically are integrated into existing operations.

Highlights
 
During the third quarter of 2009, we continued to face a significant advertising downturn, both in television and radio, primarily as a result of the ongoing global financial crisis and the recession.  Nevertheless, our audience shares remained strong in the nation’s most densely populated Hispanic markets.
 
Net revenue for our television segment decreased to $32.0 million in the third quarter of 2009, from $37.5 million in the third quarter of 2008.  This decrease of $5.5 million, or 15%, in net revenue was primarily due to a decrease in local and national advertising rates, which in turn was primarily due to the continuing weak economy. On the other hand, we generated $2.4 million of revenue from retransmission consent agreements, or retransmission consent revenue, that have been entered into for the carriage of our television station signals by cable, satellite and internet-based television service providers. See “Consolidated Operations – Net Revenue” below.
 
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Net revenue for our radio segment decreased to $18.7 million in the third quarter of 2009, from $23.5 million in the third quarter of 2008.  This decrease of $4.8 million, or 20%, in net revenue was primarily due to a decrease in local and national advertising sales and advertising rates, which in turn was primarily due to the continuing weak economy. Nevertheless, we continued to concentrate our efforts on local sales, which accounted for 75% of total radio segment sales in the third quarter of 2009. 

We continue to experience solid ratings growth in our radio markets where we broadcast “José: Nunca Sabes Lo Que Va A Tocar” (“You never know what he’ll play”), which features a mix of Spanish-language adult contemporary and Mexican regional hits from the 1970s through the present, as well as our stations that are broadcasting the “Piolin por la Mañana,” syndicated morning show, one of the highest-rated Spanish-language radio programs in the country. In January 2009, we converted one of our Los Angeles radio stations from English-language to Spanish-language and introduced a new format, “El Gato,” an upbeat and energetic regional Mexican format, and our ratings for this station have since increased by 133% year over year for adults 18-34 years of age.

In response to our previously announced cost-savings measures undertaken in the fourth quarter of 2008 and the first quarter of 2009, we are benefiting from reductions in our expenses. We anticipate that these savings will continue at least for the remainder of 2009. We intend to continue to evaluate the extent and effectiveness of our cost-saving measures based on changing future economic conditions and our achieving or not achieving budgeted revenues, and will consider taking additional measures if and as circumstances warrant.

Acquisition of Assets

In April 2009, we acquired the assets of television station KREN-TV in the Reno, Nevada market for approximately $4.3 million.  We reduced the carrying value of the assets of television station KREN-TV to its fair value of $1.6 million by recording a carrying value adjustment of $2.7 million.  This charge is included in our consolidated statements of operations for continuing operations.

In accordance with ASC 805, “Business Combinations”, we evaluated the transferred set of activities, assets, inputs, outputs and processes in this acquisition and determined that the acquisition did not constitute a business.

Relationship with Univision
 
Based on our review of public filings made by Univision, we believe that Univision currently owns approximately 10% of our common stock on a fully-converted basis. In connection with its merger with Hispanic Broadcasting Corporation in September 2003, Univision entered into an agreement with the U.S. Department of Justice, or DOJ, pursuant to which Univision agreed, among other things, to ensure that its percentage ownership of our company would not exceed 15% by March 26, 2006 and would not exceed 10% by March 26, 2009.

In February 2008, we repurchased 1.5 million shares of Class U common stock held by Univision for $10.4 million.  In May 2009, we repurchased an additional 0.9 million shares of Class A common stock held by Univision for $0.5 million.
 
Univision is the holder of all of our issued and outstanding Class U common stock.  The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of our issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving our company, any dissolution of our company and any assignment of the Federal Communications Commission, or FCC, licenses for any of our company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share of our Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer to a third party that is not an affiliate of Univision.

Univision acts as our exclusive sales representative for the sale of all national advertising aired on Univision-affiliate television stations. During the three-month periods ended September 30, 2009 and 2008, the amount we paid to Univision in this capacity was $1.7 million and $2.5 million, respectively.  During the nine-month periods ended September 30, 2009 and 2008, the amount we paid to Univision in this capacity was $4.8 million and $7.1 million, respectively.
 
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In August 2008, we entered into an agreement with Univision pursuant to which Univision has negotiated the terms of retransmission consent agreements providing for the carriage of our Univision- and TeleFutura-affiliated television station signals by cable, satellite and internet-based television service providers. The agreement also provides terms relating to retransmission consent revenue with respect to agreements that have been entered into for the carriage of our Univision- and TeleFutura-affiliated television station signals.  As of September 30, 2009, the amount due to us from Univision was $4.8 million related to our agreements for the carriage of our Univision and TeleFutura-affiliated television station signals.
 

Recent Accounting Pronouncements

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 clarifies ASC 820, “Fair Value Measurements and Disclosures”.  ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. This standard is effective beginning in the fourth quarter 2009. We are currently evaluating the impact of this standard on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration shall be measured and allocated to the separate units of accounting in the arrangement.  ASU 2009-13 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  We are currently evaluating the impact of this standard on our consolidated financial statements.

In June 2009, the FASB issued an amendment to ASC 860, “Transfers and Servicing”. The amendment eliminates the concept of a qualifying special-purpose entity (“QSPE”), therefore requiring these entities to be evaluated under the accounting guidance for consolidation of variable interest entities (“VIE”). Other changes include additional considerations when determining if sale accounting is appropriate, as well as enhanced disclosures requirements.  This standard is effective January 1, 2010. We are currently evaluating the impact of this standard on our consolidated financial statements.

In June 2009, the FASB issued an amendment to ASC 810, “Consolidation”. The amendment eliminates the scope exception for QSPEs and requires an entity to reconsider its previous consolidation conclusions reached under the VIE consolidation model, including (i) whether an entity is a VIE, (ii) whether the enterprise is the VIE’s primary beneficiary, and (iii) the required financial statement disclosures. The new standard can be applied as of the effective date, with a cumulative-effect adjustment to retained earnings recognized on that date, or retrospectively, with a cumulative-effect adjustment to retained earnings recognized as of the beginning of the first year adjusted. This standard is effective January 1, 2010. We are currently evaluating the impact of this standard on our consolidated financial statements.
 
Three- and Nine-Month Periods Ended September 30, 2009 and 2008
 
The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2009 and 2008 (in thousands):
 
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Three-Month Period
          
Nine-Month Period
        
   
Ended September 30,
    
%
    
Ended September 30,
    
%
  
   
2009
    
2008
    
Change
    
2009
    
2008
    
Change
  
Statements of Operations Data:
                                    
Net revenue
   $ 50,754     $ 60,988       (17 )%   $ 141,165     $ 179,573       (21 )%
Direct operating expenses
     21,030       25,583       (18 )%     63,690       76,258       (16 )%
Selling, general and administrative expenses
     9,542       11,394       (16 )%     28,341       33,026       (14 )%
Corporate expenses
     3,351       3,772       (11 )%     10,602       12,703       (17 )%
Depreciation and amortization
     5,272       5,998       (12 )%     15,893       17,185       (8 )%
Impairment charge
     -       440,020       *       2,720       440,020       (99 )%
      39,195       486,767       (92 )%     121,246       579,192       (79 )%
    Operating income (loss)
     11,559       (425,779 )     *       19,919       (399,619 )     *  
Interest expense
     (8,227 )     (8,172 )     1 %     (21,762 )     (27,595 )     (21 )%
Interest income
     70       622       (89 )%     388       1,339       (71 )%
Loss on debt extinguishment
     -       -       *       (4,716 )     -       *  
    Income (loss) before income                                                
    taxes
     3,402       (433,329 )     *       (6,171 )     (425,875 )     (99 )%
Income tax (expense) benefit
     (2,802 )     78,847       *       (9,311 )     76,167       *  
Income (loss) before equity in net
                                                
 loss of nonconsolidated affiliate                                                
 and discontinued operations
     600       (354,482 )     *       (15,482 )     (349,708 )     (96 )%
Equity in net income (loss) of
                                                
   nonconsolidate affiliate, net of tax
     73       (9 )     *       (166 )     (173 )     (4 )%
Income (loss) from continuing operations
     673       (354,491 )     *       (15,648 )     (349,881 )     (96 )%
Loss from discontinued operations
     -       -       *       -       (1,573 )     *  
    Net income (loss) applicable
                                                
    to common stockholders
   $ 673     $ (354,491 )     *     $ (15,648 )   $ (351,454 )     (96 )%
                                                 
Other Data:
                                                
Capital expenditures
     2,403       5,022               5,295       13,495          
Consolidated adjusted EBITDA
                                                
(adjusted for non-cash                                                
stock-based compensation) (1)
                             40,307       60,156          
Net cash provided by operating activities
                             10,197       33,019          
Net cash provided by (used in) investing activities
                             (9,093 )     64,804          
Net cash used in financing activities
                             (44,574 )     (67,194 )        
                                                 
*
Percentage not meaningful.
 
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(1)
Consolidated adjusted EBITDA means net income (loss) plus loss (gain) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses,  net interest expense, loss on debt extinguishment, loss from discontinued operations, income tax expense (benefit), equity in net income (loss) of nonconsolidated affiliate and syndication programming amortization less syndication programming payments. We use the term consolidated adjusted EBITDA because that measure is defined in our syndicated bank credit facility and does not include loss (gain) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, loss on debt extinguishment, loss from discontinued operations, income tax expense (benefit), equity in net income (loss) of nonconsolidated affiliate and syndication programming amortization and does include syndication programming payments.
 
Since our ability to borrow from our syndicated bank credit facility is based on a consolidated adjusted EBITDA financial covenant, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. Our syndicated bank credit facility contains certain financial covenants relating to the maximum allowed leverage ratio, maximum capital expenditures and minimum fixed charge coverage ratio. The maximum allowed leverage ratio, or the ratio of consolidated total debt to trailing-twelve-month consolidated adjusted EBITDA, affects our ability to borrow from our syndicated bank credit facility. The maximum allowed leverage ratio also affects the interest rate charged for revolving loans, thus affecting our interest expense. Under our syndicated bank credit facility, our maximum allowed leverage ratio may not exceed 6.75 to 1. The actual leverage ratio was as follows (in each case as of September 30): 2009, 6.7 to 1; 2008, 5.7 to 1. Therefore, we were in compliance with this covenant at each of those dates. We entered into an amendment to our credit facility agreement in March 2009, so we were not subject to the same calculations and covenants in prior years. However, for consistency of presentation, the foregoing historical ratios assume that our current definition had been applicable for all periods presented.
 
While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income and net income.  As consolidated adjusted EBITDA excludes non-cash (gain) loss on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, loss on debt extinguishment, loss from discontinued operations, income tax expense (benefit), equity in net income (loss) of nonconsolidated affiliate and syndication programming amortization and includes syndication programming payments, consolidated adjusted EBITDA has certain limitations because it excludes and includes several important non-cash financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.
 
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Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated adjusted EBITDA is cash flows from operating activities. A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):

   
Nine-Month Period
  
   
Ended September 30,
  
   
2009
    
2008
  
             
Consolidated adjusted EBITDA (1)
   $ 40,307     $ 60,156  
                 
Interest expense
     (21,762 )     (27,595 )
Interest income
     388       1,339  
Loss on debt extinguishment
     (4,716 )     -  
Income tax (expense) benefit
     (9,311 )     76,167  
Amortization of syndication contracts
     (1,689 )     (2,255 )
Payments on syndication contracts
     2,119       2,135  
Non-cash stock-based compensation included in direct operating
                
 expenses
     (489 )     (462 )
Non-cash stock-based compensation included in selling, general
                
and administrative expenses
     (618 )     (579 )
Non-cash stock-based compensation included in corporate expenses
     (1,098 )     (1,409 )
Depreciation and amortization
     (15,893 )     (17,185 )
Impairment charge
     (2,720 )     (440,020 )
Equity in net loss of nonconsolidated affiliates
     (166 )     (173 )
Loss from discontinued operations
     -       (1,573 )
Net loss
     (15,648 )     (351,454 )
                 
                 
Depreciation and amortization
     15,893       17,185  
Impairment charge
     2,720       440,020  
Deferred income taxes
     8,534       (77,537 )
Amortization of debt issue costs
     298       302  
Amortization of syndication contracts
     1,689       2,255  
Payments on syndication contracts
     (2,119 )     (2,135 )
Equity in net loss of nonconsolidated affiliate
     166       173  
Non-cash stock-based compensation
     2,205       2,450  
Gain on sale of media properties and other assets
     (102 )     -  
Non-cash expenses related to debt extinguishment
     945       -  
Change in fair value of interest rate swap agreements
     (3,850 )     3,647  
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
                
(Increase) decrease in accounts receivable
     (3,100 )     3,64