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.

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.

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.

(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.