10-K 1 d304879d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

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

For the fiscal year ended December 31, 2011

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 333-110122

 

 

LBI MEDIA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   05-0584918

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1845 West Empire Avenue, Burbank, CA   91504
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (818) 563-5722

 

 

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

None

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

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  x    No  ¨

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. (Note: As a voluntary filer, the registrant has filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, but the registrant is not subject to such filing requirements.    Yes  ¨    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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 (§ 229.405 of this chapter) of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    x

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    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 March 30, 2012, no shares of LBI Media Holdings, Inc.’s voting stock were held by non-affiliates.

As of March 30, 2012, there were 100 shares of common stock, $0.01 par value per share, of LBI Media Holdings, Inc. issued and outstanding.

 

 

Documents Incorporated by Reference:

None.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  
   PART I      2   

ITEM 1.

   BUSINESS      2   

ITEM 1A.

   RISK FACTORS      17   

ITEM 1B.

   UNRESOLVED STAFF COMMENTS      28   

ITEM 2.

   PROPERTIES      28   

ITEM 3.

   LEGAL PROCEEDINGS      28   

ITEM 4.

   MINE SAFETY DISCLOSURES      29   
   PART II      30   

ITEM 5.

   MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES      30   

ITEM 6.

   SELECTED FINANCIAL DATA      31   

ITEM 7.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      33   

ITEM 7A.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      48   

ITEM 8.

   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA      49   

ITEM 9.

   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE      49   

ITEM 9A.

   CONTROLS AND PROCEDURES      49   

ITEM 9B.

   OTHER INFORMATION      50   
   PART III      51   

ITEM 10.

   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      51   

ITEM 11.

   EXECUTIVE COMPENSATION      54   

ITEM 12.

   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS      65   

ITEM 13.

   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE      67   

ITEM 14.

   PRINCIPAL ACCOUNTANT FEES AND SERVICES      68   
   PART IV      68   

ITEM 15.

   EXHIBITS, FINANCIAL STATEMENT SCHEDULES      68   


Table of Contents

PART 1

 

ITEM 1. BUSINESS

Market data and other statistical information included in this Business section are based on industry publications, government publications and reports by market research firms or other published independent sources, including the U.S. Census Bureau, Arbitron and Nielsen surveys, Television Bureau Advertising (TVB) and Geoscape American Marketspace DataStream.

Overview

We are a leading Spanish-language entertainment company and one of the largest Spanish-language radio and television broadcasters in the U.S. based on revenues and number of stations. We own 21 radio stations (fifteen FM and six AM), nine television stations and “EstrellaTV,” a leading Spanish-language television broadcast network in the U.S., with programming up to 24 hours a day, seven days a week. Through EstrellaTV, we are affiliated with television stations in 31 U.S. designated market areas, or DMAs. We operate in markets that comprise approximately 76% of U.S. Hispanic television households. In addition, we syndicate and air on our owned and operated radio stations our popular radio morning show, El Show de Don Cheto, in 21 DMAs.

Our Los Angeles, California cluster consists of five FM Spanish-language radio stations, one AM Spanish-language radio station, one AM radio station with time-brokered programming and one Spanish-language television station. Our Houston, Texas cluster consists of five Spanish-language FM radio stations, two Spanish-language AM radio stations, one AM radio station with time-brokered programming and one Spanish-language television station. Our Dallas-Fort Worth, Texas cluster consists of four Spanish-language radio stations, one FM radio station with time-brokered programming, one AM radio station with time-brokered programming and one Spanish-language television station. We also own additional television stations serving the following markets: New York, New York; Chicago, Illinois; Phoenix, Arizona; San Diego, California; Denver, Colorado; and Salt Lake City, Utah. Our television station affiliates service 31 DMAs, including seven each in California and Texas, four in Florida, two each in Arizona, Nevada and Oklahoma and one each in Georgia, Nebraska, New Mexico, New York, North Carolina, Oregon and Washington.

We seek to own, operate, and/or affiliate with radio and television stations in the largest and most densely populated Hispanic markets in the U.S. Our strategy is to increase revenue and cash flow in our markets, primarily through affiliation agreements and secondarily by reformatting acquired stations with programming that is focused on the demographic composition of the market, providing creative advertising solutions for clients, executing targeted marketing campaigns to develop a local audience and implementing strict cost controls.

We were incorporated in Delaware on June 23, 2003. We are a wholly owned subsidiary of Liberman Broadcasting, Inc., a Delaware corporation (successor in interest to LBI Holdings I, Inc.).

We are highly leveraged. As of December 31, 2011, we had total indebtedness of $486.8 million.

EstrellaTV

We broadcast all of our television programming in the U.S. on both our owned and affiliated television stations through EstrellaTV, our highly rated Spanish-language television broadcast network. We began affiliating with television stations in order to distribute our programming through EstrellaTV, which was launched in September 2009. In its first Nielsen ratings book, EstrellaTV became the number 4 Hispanic television network in the U.S. Currently, EstrellaTV consists of television stations located in 39 DMAs that deliver our entertaining and informative programming up to 24 hours a day, seven days a week to Hispanic communities. We believe that the network serves as a valuable platform for advertisers that seek creative advertising solutions, talent endorsements, organic product integration, and cross promotional opportunities. Through our affiliation agreements, we share in the available advertising time that may be sold while the respective affiliate station is broadcasting our EstrellaTV programming. We expect that our percentage of gross advertising revenue from national advertising will increase as a result of EstrellaTV.

 

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Our Business Strengths

Our competitive strengths include:

Highly rated, internally produced television programming based on proven formats. Our television programming strategy is to counter-program traditional Hispanic programming that is broadcast by our competitors. We focus on entertainment variety, music, reality and comedy shows that utilize proven formats and feature top Latin American talent. Through the ownership of radio stations, we seek to leverage relationships and knowledge of music industries to create new and innovative television programming.

National footprint in key Hispanic markets. Our television network, EstrellaTV, consisting of owned and operated stations and an affiliate network, covers DMAs comprising approximately 76% of the U.S. Hispanic market and our radio stations are located in highly concentrated Hispanic markets. We believe that the combination of our owned and operated stations and affiliate stations provides a structure allowing distribution of programming to our targeted audience. We also syndicate and air on our owned and operated radio stations and affiliates our popular radio morning show, El Show de Don Cheto, in 21 markets.

Strategically located stations. We own and operate television and radio stations in DMAs that represent approximately 41% of U.S. Hispanic households. Our owned and operated television stations are in five of the top six Hispanic DMAs.

Growth of the EstrellaTV network. Our EstrellaTV network was launched in September 2009, at which time we began to distribute our programming to affiliated television stations. Through our affiliation agreements, we share in the available advertising time that may be sold while the affiliate station is broadcasting our programming. We believe that EstrellaTV will continue to attract existing and new advertisers as the network continues to grow. By utilizing our internally created programming, we believe we will be able to capture an increasing share of the estimated $3.0 billion Hispanic television network advertising market. In addition to the advertising time that we retain, through our wholly owned national sales organization, Spanish Media Rep Team, we also sell national air time for the affiliates and earn a commission based on those sales.

Capital efficient business model. We expect to be able to operate our current business with minimal capital expenditures allowing us to dedicate funds to service debt and to fund the expansion of EstrellaTV. We have not purchased a radio station asset since 2007 and have only made select, focused investments in the EstrellaTV network by investing in programming content and television station acquisitions in key markets. Our television facilities provide an opportunity to produce quality programming, while controlling costs, for our owned and operated stations and affiliate network.

Experienced and successful management team. Our senior management team has an average of over 20 years in the media industry. Our management team is led by Lenard Liberman, our Chief Executive Officer, President, and Secretary, who has overseen operations since our formation. Our management team has extensive experience in implementing operational changes that increase efficiency and profitability and in growing our business organically through the successful integration of acquired entities and affiliate agreements. Additionally, we have made select additions in key functions to further provide seasoned leadership in distribution, network affiliation, finance, and sales.

Strong, organic growth prospects. We believe that the combination of our EstrellaTV network, our television stations and our radio station assets represents a platform for strong, organic growth. As we expect to increase the number of Hispanic households that we cover with our television network and leverage our existing ratings success over the expanded viewing base, we believe that we will be able to capture a larger portion of the estimated $3.0 billion Hispanic television network advertising market. Given our relatively fixed cost structure and experience in producing popular programming efficiently, we believe that we can strongly benefit from operating leverage as our network grows. As we expect to continue to acquire additional affiliates for our Don Cheto syndicated network, we anticipate additional opportunities for organic revenue growth in that business as well.

Our Business Strategy

The principal components of our operating strategy are set forth below:

Develop popular stations by creating compelling programming

In order to attract the largest audience, we seek to create radio and television programming that resonates with Hispanics of different cultural and ethnic backgrounds. We have generally been able to achieve and maintain strong station ratings in our markets. Our television programming is designed and created to compete with our primary competitors, Univision Communications, Inc. and Telemundo Communications Group, Inc. By offering an alternative that resonates with Hispanic viewers, we have been able to generate competitive ratings and attract a large and growing television audience.

 

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Cross-promote our radio and television stations

We utilize a portion of our commercial inventory time at both our radio and television stations to run advertisements promoting our other stations and programming, which helps us capitalize on the strong ratings and targeted audience of our stations with no incremental cash outlay. In addition, we benefit from our knowledge in operating successful music oriented radio stations by obtaining valuable insights into the trends in the Hispanic market. With this experience, we produce musical variety television shows that feature music industry news, interviews and live performances of artists featured and created on our popular radio stations.

Capitalize on our complementary radio and television stations to capture a greater share of advertising revenue

We create cross-selling opportunities by offering our advertisers customized marketing programs that allows them to cross-advertise on radio and television, as well as to cross-merchandise through product integration in our programming. We believe that this allows us to compete for a significant portion of an advertiser’s Hispanic budget since advertisers have historically spent approximately 80% of their Hispanic advertising budgets on radio and television. We believe that we are able to capture a larger share of advertising revenues in our markets through our ability to cross-sell and cross-promote our radio and television stations.

Offer cost-effective advertising and value-added services to our advertisers

We differentiate ourselves from other Spanish-language broadcasters by offering advertisers what we believe is substantial value for their advertising dollar. By supporting advertisers’ media campaigns with creative promotions and offering our studio facilities to provide value-added services, such as free production of television commercials, we are able to cross-sell our broadcasting properties and attract new customers currently not advertising on radio or television.

Provide product integration that allows us to differentiate ourselves from our competition

Because we broadcast over 60 hours of our internally produced programming each week on our television network, we are able to integrate the products of our advertisers into our television shows. We believe that the ability to provide product integration to our advertisers in our television programming is a competitive advantage given the growing popularity of imbedding advertisers’ products and services in television shows and the inability of many of our primary competitors, who do not internally produce their own programs, to provide such services.

Develop talent relationships

Many of the television shows that we produce at our studios feature musical talent that we develop. Many of our television shows also feature, on a regular basis, famous actors from Latin America. Both the musical talent we develop and the established Latin American actors that appear in our internally produced programming are generally available to endorse the products or services of our advertisers.

Develop a diverse advertising base

Our sales strategy focuses on establishing direct relationships with the local and national advertising community. Local advertising accounted for approximately 61% of our gross advertising revenue, while our regional and national advertising accounted for approximately 39% of our gross advertising revenue in 2011. Our large and diverse client base has resulted in no single advertiser accounting for more than 4% of our gross advertising revenues in 2011.

Utilize cost-effective television programming to drive cash flow growth

We broadcast over 60 hours of our internally produced television programming each week. Our weekday programming generally consists primarily of internally produced shows, which we believe forms a compelling programming line-up for our television stations. Most of our programming has been produced at our production facilities located in Burbank, California. These in-house television production facilities have provided us with an efficient cost structure to create programming.

Furthermore, we supplement our internally produced programming with purchased programs, primarily Spanish-language movies, and scripted dramas, which we obtain from producers in Latin America. If we acquire additional television stations or enter into additional affiliation agreements, we expect to further leverage our programming library across a broader base of stations, thereby potentially increasing our revenue base over fixed expenses.

 

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Capitalize on our valuable programming library

Our internal production of television programming allows us to assemble a valuable programming library that can be exploited at limited additional cost through the EstrellaTV television network, syndication and by use on our other stations, DVDs, video on demand, the internet and other formats.

In September 2009, we began distributing our original programming through our EstrellaTV network to both our owned and operated and affiliated stations. Currently, this network consists of television stations in 39 DMAs in various states, including nine each in California and Texas, four in Florida, three in Arizona, two each in Nevada and Oklahoma, and one each in Colorado, Georgia, Illinois, Nebraska, New Mexico, New York, North Carolina, Oregon, Utah and Washington. Collectively, EstrellaTV operates in markets that comprise approximately 76% of the U.S. Hispanic television households. Through our affiliation agreements, we share in the available advertising time that may be sold while the affiliate station is broadcasting our programming. We expect that our percentage of gross advertising revenue from national advertising will increase as a result of our recent entry into different markets and as we continue to enter into new markets through additional affiliation agreements.

Capitalize on our talent relationships

We also broadcast the programming of our nationally recognized radio personality, Don Cheto, through a network of 21 syndicate and owned and operated stations, including seven in California, three in Texas, two each in Arkansas and Washington, and one each in Arizona, Colorado, Idaho, Kentucky, Mexico, Minnesota, and Utah. In Los Angeles, the largest Hispanic DMA in the U.S., our Don Cheto morning show was the number 1 ranked program from 6 A.M. to 10 A.M. among Hispanic adults 18 to 34 years old, in every Arbitron ratings book between January 2009 and August 2011. We expect to leverage this popular radio personality and the strong ratings our morning show has generated to further increase penetration into new markets through additional radio syndication agreements.

Growth Strategy

Our growth strategy primarily focuses on identifying strong affiliate relationships with television stations as well as acquiring selected assets of radio and television stations in the largest, most densely populated and fastest growing U.S. Hispanic markets to build market-leading Hispanic radio and television clusters.

Affiliations

Our affiliate network currently consists of television stations in 31 DMAs located in 13 states. We plan to add additional television affiliate stations throughout the U.S., focusing on markets with large Hispanic populations. By utilizing the current network infrastructure and our own programming content we have been able to add additional affiliate stations with minimal incremental costs. Increasing the number of Hispanic households that our television network covers is expected to provide a more attractive platform to existing and new national advertisers.

Acquisitions

We have acquired assets of radio and television stations in select locations throughout the U.S. We may also acquire assets of radio and television stations in other U.S. markets that we have yet to enter. Although the stations whose assets we acquire often do not target the local Hispanic market at the time of acquisition, we believe they can be successfully reformatted to capture this audience. We have built a long-term track record of acquiring and developing assets of underperforming radio and television stations that has enabled us to achieve significant increases in our net revenue over the past decade. Excluding stations that have been sold or that operate under time brokerage agreements, we have acquired and programmed 17 radio stations and 8 television stations since our inception through our indirect, wholly owned subsidiary in 1987. By reformatting these 25 stations with our own original Spanish language programming, implementing strict cost controls and providing creative marketing programs to our clients, we believe we have successfully developed and grown our stations in each of our markets. We believe that our record of successfully executing our acquisition strategy in new Hispanic markets will position us to continue creating top-ranked Hispanic station clusters in other Hispanic markets.

Hispanic Market Opportunity

We believe the Hispanic community represents an attractive market for future growth. According to the U.S. Census Bureau, the U.S. Hispanic population was the largest and fastest-growing minority group in the U.S, growing 43% between 2000 and 2010, accounting for more than one-half of all the U.S. population growth during that period. Further, California

 

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had the largest Hispanic population of any state in 2010, followed by Texas, the two states in which we primarily operate. By 2020, the U.S. Hispanic population is expected to reach approximately 66.4 million people, or 20% of the total U.S. population.

In addition, advertisers have been directing more advertising dollars towards U.S. Hispanics. It is estimated that approximately $6.3 billion was spent on Hispanic media in 2009, and that media spending in the Hispanic market is expected to continue to outperform the general market.

Spanish-language advertising rates have been rising faster in recent years when compared to the general media, yet these rates are still lower than those for English-language media. As advertisers continue to recognize the buying power of the U.S. Hispanic population, especially in areas where the concentration of Hispanics is very high and where a growing percentage of the retail purchases are made by Hispanic customers, we expect the gap in advertising rates between Spanish-language and English-language media to narrow. As U.S. Hispanic consumer spending continues to grow relative to overall consumer spending, industry analysts expect that advertising expenditures targeted to Hispanics will increase significantly, eventually closing the gap between the current level of advertising targeted to Hispanic stations and the current level of advertising targeted to general market stations.

We believe we are well positioned to capitalize on the growing Hispanic advertising market given the concentration of the Hispanic population in certain markets in the U.S. and our affiliations or ownership of stations in all of the ten largest Hispanic DMAs in the U.S. based on Hispanic television households (Los Angeles, New York, Miami-Fort Lauderdale, Houston, Chicago, Dallas-Fort Worth, San Antonio, San Francisco-Oakland-San Jose, Phoenix and Harlingen-Weslaco-Brownsville-McAllen), as well as our track record of successfully executing our affiliate and acquisition strategy in new Hispanic markets.

Our Markets

The following table sets forth certain demographic information about the markets in which our radio and television stations operate.

 

Market

   Total
Population
     Hispanic
Population
     %
Hispanic
Population
    Hispanic
Population
Growth (10)
 

Los Angeles(1)

     17,920,862         8,068,460         45     69

New York(2)

     22,111,682         4,815,702         22     81

Houston(3)

     6,082,028         2,142,225         35     177

Chicago(4)

     9,699,178         1,984,243         20     170

Dallas(5)

     6,762,256         1,812,333         27     245

Phoenix(6)

     4,211,213         1,245,954         30     261

San Diego(7)

     3,105,989         998,141         32     95

Denver(8)

     3,109,965         689,097         22     205

Salt Lake City(9)

     1,680,161         252,042         15     307

Total U.S. (for comparison)

     309,349,689         50,740,089         16     127

 

Source: American Community Survey Profile 2010 by the U.S. Census Bureau

 

(1) Represents the Los Angeles-Long Beach-Riverside, CA combined statistical area.
(2) Represents the New York-Newark-Bridgeport, NY-NJ-CT-PA combined statistical area.
(3) Represents the Houston-Baytown-Huntsville, TX combined statistical area.
(4) Represents the Chicago-Naperville-Michigan city, IL combined statistical area.
(5) Represents the Dallas-Fort Worth, TX combined statistical area.
(6) Represents the Phoenix-Mesa-Glendale, AZ metro area.
(7) Represents the San Diego-Carlsbad-San Marcos, CA metropolitan statistical area.
(8) Represents the Denver-Aurora-Boulder, CO combined statistical areas
(9) Represents the Salt Lake City-Ogden-Clearfield, Utah metropolitan statistical areas.
(10) Represents growth from 1990 to 2010.

 

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Our Television and Radio Stations

The following tables set forth certain information about our television and radio stations and their broadcast markets. For financial information on our television and radio segments, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations”.

 

Television Stations (1)

   Channel      Market    DMA
Rank(2)
     Hispanic
DMA
Rank (3)
     Number of
Hispanic TV
Households
 

KRCA

     62       Los Angeles      2         1         1,876,110   

WASA

     25       New York      1         2         1,345,140   

KZJL

     61       Houston      10         4         607,290   

WESV

     40       Chicago      3         5         511,680   

KMPX

     29       Dallas-Fort Worth      5         6         504,610   

KVPA

     42       Phoenix      13         9         350,450   

KSDX

     29       San Diego      28         13         254,650   

KETD

     53       Denver      17         16         237,280   

KPNZ

     24       Salt Lake City      33         30         96,490   

 

Source: Nielsen Media Research-NSI, January 2012

 

(1) Represents our owned television stations.
(2) Represents rank among U.S. designated market areas by television households. Designated market areas are geographic markets as defined by A.C. Nielsen Company based on historical television viewing patterns and are updated annually.
(3) Represents rank among U.S. Hispanic markets by number of persons in Hispanic TV households. A ranking of 1, for example, means that Los Angeles has the most Hispanic television households in the U.S.

 

Radio Stations/Designated Market Area (1)

   DMA
Rank (2)
     Hispanic
DMA
Rank (3)
     Frequency    Format

Los Angeles

     2         1         

KBUE-FM/KBUA-FM/KEBN-FM(4)

         105.5/94.3/94.3    Regional Mexican

KRQB-FM

         96.1    Regional Mexican

KHJ-AM

         930    Ranchera

KWIZ-FM

         96.7    Spanish Dance

KVNR-AM(5)

         1480    Time Brokered

Houston

     10         4         

KQQK-FM/KXGJ-FM(6)

         107.9/101.7    Norteña

KTJM-FM/KJOJ-FM(7)

         98.5/103.3    Regional Mexican

KNTE-FM/KJOJ-AM/KQUE-AM(8)

         96.9/880/1230    Spanish Dance

KEYH-AM

         850    Ranchera/Sports

Dallas-Fort Worth

     5         6         

KNOR-FM(9)

         93.7    Regional Mexican

KBOC-FM

         98.3    Regional Mexican

KTCY-FM

         101.7    Spanish Dance

KZZA-FM

         106.7    Spanish Adult Contemporary

KZMP-AM(5)

         1540    Time Brokered

KZMP-FM(5)

         104.9    Time Brokered

 

(1) Our radio stations are in some instances licensed to communities other than the named principal community for the market.
(2) Represents rank among U.S. designated market areas by television households. Designated market areas are geographic markets as defined by A.C. Nielsen Company based on historical television viewing patterns and are updated annually.
(3) Represents rank among U.S. Hispanic markets by Hispanic television households. A ranking of 1, for example, means that Los Angeles has the most Hispanic television households in the U.S.
(4) KBUA-FM and KEBN-FM simulcast the signal of KBUE-FM in the San Fernando Valley and Orange County, respectively. We have upgraded the signals of KBUA-FM and KEBN-FM from 3kW to 6kW, thereby improving our coverage of the Los Angeles market and enabling us to use the stations for purposes other than to simulcast with KBUE-FM, if we so choose.

 

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(5) Three of our stations, KVNR-AM, KZMP-AM and KZMP-FM, are operated by third parties under time brokerage agreements. We receive a monthly fee from the third parties for the air time and the third parties receive revenues from their sale of advertising spots.
(6) KXGJ-FM simulcasts the signal of KQQK-FM.
(7) KJOJ-FM simulcasts the signal of KTJM-FM.
(8) KJOJ-AM and KQUE-AM simulcast the signal of KNTE-FM.
(9) In August 2010, we upgraded the signal of KNOR-FM from 15kW to 43kW, thereby improving our coverage in the Dallas-Fort Worth market.

Programming

Television. Our programming content consists primarily of internally produced programs such as comedy programs, news, procedural dramas, musical variety shows, a talent show, a celebrity dance competition, a celebrity gossip show and a talk show, as well as purchased programs including Spanish-language movies. We own or have the rights to a library of more than 5,000 hours of Spanish language programming content, including musical variety shows, drama, talent shows, movies, children’s shows and other shows available for broadcast on our owned and operated and affiliate television stations. Currently, we broadcast over 60 hours of our internally produced television programming each week.

In September 2009, we began distributing our EstrellaTV programming through a network of affiliated and owned and operated stations. Currently, this network consists of television stations in 39 DMAs located in various states, including nine each in California and Texas, four in Florida, three in Arizona, two each in Nevada and Oklahoma, and one each in Colorado, Georgia, Illinois, Nebraska, New Mexico, New York, North Carolina, Oregon, Utah and Washington. We seek to maximize our television group’s profitability by broadcasting internally produced Spanish-language programming to stations we own and to our affiliated stations, marketing commercial time to advertisers and selling infomercial advertising.

Radio. Our Spanish-language radio stations are targeted to the Spanish-speaking portion of the Hispanic population that is dominant in the local markets in which we operate. We seek to tailor the format of each of our radio stations to appeal to a specific target demographic in order to maximize our overall listener base without causing direct format competition among our stations. We determine the format for each of our stations based upon local market research. To create brand awareness and loyalty in the local community, we seek to enhance our market positions by sending on-air talent to participate in local promotional activities, such as concerts and live special events or promotions at client locations and other street level activities. These types of events may also provide attractive promotional and advertising opportunities for our clients. We also promote our radio stations on our television stations in these markets.

The following provides a brief description of our Spanish-language radio station formats:

 

   

KBUE-FM/KBUA-FM/KEBN-FM (Que Buena) plays contemporary, up-tempo, regional Mexican music that includes Norteña, Banda, Corrido and Ranchera music. The target audience for these stations is adult listeners aged 18 to 34. The station features morning programming with our nationally recognized radio personality, Don Cheto.

 

   

KHJ-AM (La Ranchera) plays traditional Ranchera, also known as Mariachi music. The target audience for this station is adult listeners aged 25 to 54.

 

   

KWIZ-FM (La Rockola) plays popular dance music, including Cumbia, Banda, Salsa, Merengue, Tropical, International, and others. The target audience for this station is adult listeners aged 18 to 49.

 

   

KRQB-FM (Que Buena) plays contemporary, up-tempo, regional Mexican music that includes Norteña, Banda, Corrido and Ranchera music. The target audience for this station is adult listeners 18 to 34. The station features morning programming with our nationally recognized radio personality, Don Cheto.

 

   

KTJM-FM/KJOJ-FM (La Raza) plays contemporary, up-tempo, regional Mexican music, which includes Norteña, Banda, Corrido and Ranchera music. The target audience for these stations is adult listeners aged 18 to 34 and the station adjusts its music to the preferences of Hispanics in the Houston market.

 

   

KQQK-FM/KXGJ-FM (El Norte) plays Norteña music from the northern portion of Mexico. The target audience for these stations is adult listeners aged 18 to 49.

 

   

KEYH-AM (La Ranchera) plays traditional Ranchera music, which is also known as Mariachi, and carries various soccer tournaments, the Houston Rockets National Basketball Association team and the Houston Dynamos Major League Soccer team. The station features morning programming with our nationally recognized radio personality, Don Cheto. The target audience for this station is adult listeners aged 25 to 54.

 

   

KNTE-FM/KJOJ-AM/KQUE-AM (Baila) plays tropical Spanish dance music. The target audience for these stations is adult listeners aged 18 to 34.

 

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KNOR-FM (La Raza) plays contemporary, up-tempo, regional Mexican music, which includes Norteña, Banda, Corrido and Ranchera music. The station adjusts its music to the preferences of Hispanics in the Dallas market. The target audience for this station is adult listeners 18 to 34. The station features morning programming with our nationally recognized radio personality, Don Cheto.

 

   

KTCY-FM (Baila) Spanish tropical dance music. The target audience for this station is adult listeners 18 to 49.

 

   

KZZA-FM (La Bonita) plays hit music of the 70’s, 80’s and 90’s. The target audience for this station is adult listeners 25 to 54.

 

   

KBOC-FM (La Zeta) plays top 40 regional Mexican music. The target audience for this station is adult listeners 18 to 49.

Three of our radio stations, KVNR-AM, KZMP-AM and KZMP-FM, are currently operated by third parties under time brokerage agreements. Currently, KVNR-AM, which operates in the greater Los Angeles market, broadcasts Vietnamese-language programming. KZMP-AM in Dallas broadcasts talk sports programming and KZMP-FM in Dallas-Fort Worth broadcasts South Asian and Hindi-language programming.

In April 2009, we began broadcasting the morning show of our nationally recognized radio personality, Don Cheto, which currently consists of a network of 21 syndicate and owned and operated stations, including seven in California, three in Texas, two each in Arkansas and Washington, and one each in Arizona, Colorado, Idaho, Kentucky, Mexico, Minnesota, and Utah. We expect to further increase penetration into new markets through additional radio syndication agreements.

Production Facilities

We own Empire Burbank Studios, a fully equipped television production complex next to our corporate offices in Burbank, California. We also own studios and production facilities in Houston and Dallas, enabling us to produce local programming in those markets. We produce our own Spanish-language television programming in these studio facilities. In December 2010, we acquired a 22,000 square foot television production facility within close proximity to our corporate offices and existing studio facility in Burbank, California. We currently produce Tengo Talento Mucho Talento as well as Mi Sueno Es Bailar at the new production facilities. Producing these shows (and other shows that we may begin production on) at our own facilities provides us the benefit of not incurring variable rental expense. Overall, we believe this strategy has enabled us to produce our programming at a low cost relative to our competitors. By owning our production facilities, we are able to control the content and expenses of these programs we produce and air. We currently produce the following Spanish-language programs at our Burbank facilities:

 

   

Noticias 62 En Vivo: three daily local newscasts airing on KRCA-TV, Channel 62, in Los Angeles;

 

   

En Vivo: a half-hour live mid-day show featuring two hosts and a team of reporters covering current topics and events, including on-air contests and live product integration from sponsors;

 

   

Alarma TV: a fast-paced news program featuring lifestyle stories taken from around the world;

 

   

El Show de Lagrimita y Costel: a musical variety and comedy show hosted by famous father and son comedy/clown team;

 

   

Estudio 2: a musical variety show that features live performances by hit musical artists, a talent search and the performances of famous comedians;

 

   

Estrella TV News: a half-hour national newscast which includes daily stories from STN reporters stationed in various locations throughout Mexico and Central and South America;

 

   

Noticiero con Enrique Gratas: a half-hour national network newscast hosted by award winning Spanish-language journalist that presents a daily in-depth review and analysis of important events affecting the U.S. Hispanic community;

 

   

A Que No Puedes: an hour-long entertainment game show featuring famous personalities competing for charities by performing challenging physical activities presented by famous actors and who are judged by some of the top celebrities in Latin America;

 

   

Estrellas Hoy: an entertainment newscast that keeps viewers up-to-date with today’s hottest stars from telenovela headliners to movie magnets and musicians;

 

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Tengo Talento Mucho Talento: a reality talent show that features singers, dancers, magicians, comedians and other performers of all ages, competing for a large cash prize and the launch of a career in the entertainment industry. The judges are top celebrities within the Hispanic entertainment industry;

 

   

Estrellitas Sabados: a two hour family entertainment program that includes a talent contest, comedy, and visiting recording stars;

 

   

Mi Sueno es Bailar: a one hour competition program that pairs celebrities with professional dancers, competing for charity; and

 

   

Patty: an hour long daytime talk show hosted by famous actress and singer Patti Manterola.

We also produce the following shows at locations other than at our Burbank facilities:

 

   

El Shaka: a fictional drama series that portrays the trials and tribulations of Mexico’s biggest and most notorious drug lord and shows how he balances family, friends, religion, and his job;

 

   

Historias Delirantes: a drama series based on psychological thrillers;

 

   

Quiero Triunfar: a reality series hosted by novela star Francisco Gattorno as a life coach who strives to help Hispanic immigrants get their lives back on track or give them the option of returning to their home country; and

 

   

El Humor de Hector Suarez: a one hour program that features the comedy of legendary Mexican actor and comedian, Hector Suarez.

Throughout the year, we program musical specials based on some of our bigger premier events from different markets. Premios de la Radio is a live, televised special of our musical awards show, which was held at the Gibson Amphitheatre in Los Angeles in November 2011. The awards show features some of the top artists in the Hispanic music industry performing and receiving awards. We also televise a number of concert specials featuring top artists in the Hispanic music industry throughout the year.

Sales and Advertising

The majority of our net revenues are generated from the sale of local, regional and national advertising for broadcast on our radio and television stations. For the year ended December 31, 2011, approximately 61% of our gross advertising revenues were generated from the sale of local advertising and approximately 39% of our gross advertising revenues were generated from the sale of regional and national advertising (including network sales). Local sales are made by our sales staffs located in Los Angeles, Riverside/San Bernardino and Santa Ana, California, Houston and Dallas, Texas, Salt Lake City, Utah and Denver, Colorado. Our national sales are made by our sales staffs in Los Angeles, California, Atlanta, Georgia, Chicago, Illinois, Miami, Florida, New York, New York and Dallas, Texas. Through December 31, 2011, we had entered into affiliation agreements with television stations in California, Texas, Florida, Arizona, Nevada, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Oregon, and Washington. We expect that the majority of advertising revenues we will generate from the affiliate stations will be from national advertisers. As such, we expect that our percentage of advertising revenue from national advertisers will continue to increase.

We believe that advertisers can reach the Hispanic community more cost effectively through radio and television broadcasting than through outdoor advertising and printed advertisements. Advertising rates charged by radio and television stations are based primarily on:

 

   

A station’s audience share within the demographic groups targeted by the advertisers;

 

   

The number of radio and television stations in the market competing for the same demographic groups; and

 

   

The supply and demand for radio and television advertising time.

A radio or television station’s listenership or viewership is reflected in ratings surveys that estimate the number of listeners or viewers tuned to the station. Each station’s ratings are used by its advertisers to consider advertising with the radio or television station and are used by us to, among other things, chart audience growth, set advertising rates and adjust programming.

Competition

Radio and television broadcasting are highly competitive businesses. The financial success of each of our radio and television stations depends in large part on our ability to increase our market share of the available advertising revenue, the economic health of the market and our audience ratings. In addition, our advertising revenue depends upon the desire of advertisers to reach our audience demographic.

 

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Our owned television stations, as well as our affiliated stations, primarily compete against Univision Communications, Inc. and Telemundo Communications Group, Inc. for audiences and advertising revenue.

Our Spanish-language radio stations compete against other Spanish-language radio stations in their markets for audiences and advertising revenue. In Los Angeles (including Riverside and San Bernardino Counties), our radio stations compete primarily against Univision Radio, Spanish Broadcasting System, Inc. and Entravision Communications Corporation, three of the largest Hispanic group radio station operators in the U.S. In both our Houston and Dallas-Fort Worth markets, our radio stations compete primarily against Univision Radio.

Employees

As of December 31, 2011, we had 697 employees, of which 586 were full-time employees. Of the full-time employees, 336 were in television, 215 were in radio and 35 were corporate employees. None of our employees are represented by labor unions, and we have not entered into any collective bargaining agreements. We believe that we maintain good relations with our employees.

REGULATION OF TELEVISION AND RADIO BROADCASTING

General

Under the Communications Act of 1934, as amended (the “Communications Act”), television and radio broadcast operations such as ours are subject to the jurisdiction of the FCC. Among other things, the Communications Act empowers the FCC to: (i) issue, revoke and modify broadcasting licenses; (ii) regulate stations’ operations and equipment; and (iii) impose penalties for violations of the Communications Act or FCC regulations. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior FCC approval.

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

Congress and the FCC have had under consideration or reconsideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of our television and radio stations, result in the loss of audience share and advertising revenue for our television and radio broadcast stations or affect our ability to acquire additional television and radio broadcast stations or finance such acquisitions. We cannot predict what changes, if any, might be adopted, nor can we predict what other matters might be considered in the future, nor can we judge in advance what impact, if any, the implementation of any particular proposal or change might have on our business.

FCC Licenses

Television and radio stations operate pursuant to licenses that are granted by the FCC for a term of eight years, subject to renewal upon application to the FCC. Renewal of our television and radio broadcast licenses are of the utmost importance to our broadcast operations. The Communications Act requires the FCC to renew a licensee’s broadcast license if the FCC finds that (i) the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act or the FCC’s rules and regulations; and (iii) there have been no other violations which, taken together, would constitute a pattern of abuse. During the periods when renewal applications are pending, petitions to deny license renewal applications may be filed by interested parties, including members of the public. In certain instances, the FCC may hold hearings on renewal applications, but historically the FCC has renewed broadcast licenses in substantially all cases. We have no reason to believe that our licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of our stations’ licenses could have a material adverse effect on our business.

Foreign Ownership Rules

Under the Communications Act, a broadcast license may not be granted to or held by persons who are not U.S. citizens, by any corporation that has more than 20% of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives or by non-U.S. corporations. Furthermore, the Communications Act provides that no FCC broadcast license may be granted to or held by any corporation directly or indirectly controlled by any other corporation of which more than 25% of its capital stock is owned of record or voted by non-U.S. citizens or entities or their representatives, foreign governments or their representatives or by non-U.S.

 

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corporations, if the FCC finds the public interest will be served by the refusal or revocation of such license. These restrictions apply similarly to partnerships, limited liability companies and other business organizations. Thus, the licenses for our stations could be revoked if more than 25% of our outstanding capital stock is issued to or for the benefit of non-U.S. citizens in excess of these limitations.

Multiple Ownership and Cross-Ownership Rules

The FCC’s ownership rules affect the number, type, and location of broadcast and newspaper properties that we may hold or acquire. The rules now in effect limit the common ownership, operation, or control of radio stations serving the same area; television stations serving the same area; television and radio stations serving the same area; and television stations and daily newspapers serving the same area; as well as the aggregate national audience of commonly-owned television stations. The FCC’s rules also define the types of positions and interests that are considered attributable for purposes of the ownership limits, and thus may also apply to certain of our principals and investors.

The FCC generally applies these broadcast ownership limits, as described below, to “attributable” interests held by an individual, corporation or other association or entity. In the case of a corporation holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the stock of a licensee corporation are generally deemed attributable interests, as are positions as an officer or director of a corporate parent of a broadcast licensee.

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

A time brokerage agreement with another television or radio station in the same market creates an attributable interest in the brokered television or radio station as well for purposes of the FCC’s local television or radio station ownership rules, if the agreement affects more than 15% of the brokered television or radio station’s weekly broadcast hours.

Debt instruments, non-voting stock, options and warrants for voting stock that have not yet been exercised, insulated limited partnership interests where the limited partner is not “materially involved” in the media-related activities of the partnership and minority voting stock interests in corporations where there is a single holder of more than 50% of the outstanding voting stock whose vote is sufficient to affirmatively direct the affairs of the corporation generally do not subject their holders to attribution.

However, the FCC also applies a rule, known as the equity-debt-plus rule, that causes certain creditors or investors to be attributable owners of a station, regardless of whether there is a single majority shareholder or other applicable exception to the FCC’s attribution rules. Under this rule, a major programming supplier (any programming supplier that provides more than 15% of the station’s weekly programming hours) or a same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity. For purposes of the equity-debt-plus rule, equity includes all stock, whether voting or nonvoting, and, equity held by insulated limited partners in limited partnerships. Debt includes all liabilities, whether long-term or short-term. If a party were to purchase stock which, in combination with other of our debt or equity interests, amounts to more than 33% of the value of one or more of our station’s total debt plus equity and such party were a major programming supplier or held an attributable interest in a same-market media entity, such interest could result in a violation of one of the ownership rules. As a result of such violation, we may be unable to obtain from the FCC one or more authorizations needed to conduct our broadcast business and may be unable to obtain FCC consents for certain future acquisitions unless either we or the investor were to remedy the violation.

In 2007, the FCC adopted a Report and Order that left most existing ownership restrictions in place, but made modifications to the newspaper/broadcast cross-ownership restriction. A number of parties appealed the FCC’s order, and those appeals were consolidated in the U.S. Court of Appeals for the Third Circuit. In May 2010, while these appeals were pending, the FCC issued a Notice of Inquiry (NOI), the first step in conducting a comprehensive review of its broadcast ownership rules pursuant to a statutory obligation to review the rules every four years in order to determine whether they remain necessary in the public interest. In July 2011, the Third Circuit vacated and remanded the Commission’s 2007 changes to the newspaper/broadcast cross-ownership rule, but upheld the FCC’s retention of the remainder of its media ownership rules. Several parties filed a petition for certiorari seeking Supreme Court review of the Third Circuit’s decision. A Notice of Proposed Rulemaking (NPRM) in the FCC’s review proceeding, which also addresses issues remanded by the Third Circuit, was released in December 2011. We cannot predict the outcome of FCC action or further judicial review in this area.

 

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Local Television Ownership Rule

The FCC’s 2007 action left in place the Commission’s current local television ownership rules. Under those rules, one entity may own two commercial television stations in a DMA as long as no more than one of those stations is ranked among the top four stations in the DMA and eight independently owned, full-power stations will remain in the DMA.

Local Radio Ownership Rule

The Communications Act and the FCC’s rules impose specific limits on the number of commercial radio stations an entity can own in a single market. The maximum allowable number of radio stations that may be commonly owned in a market is based on the size of the market. In the largest radio markets, defined as those with 45 or more stations, one entity may have an attributable interest in up to 8 stations, not more than 5 of which are in the same service (AM or FM). At the other end of the scale, in radio markets with 14 or fewer stations, one entity may have an attributable interest in up to 5 stations, of which no more than 3 are in the same service, so long as the entity does not have an interest in more than 50% of all stations in the market.

Generally, the FCC defines local radio markets using a geographic market approach assigned by Arbitron rather than a signal contour method. An FCC rulemaking is pending to determine how to define radio markets for stations located outside Arbitron Metro Survey Areas. We cannot predict what changes, if any, the FCC might adopt, nor can we predict what other matters might be considered in the future, nor can we judge in advance what impact, if any, the implementation of any particular proposal or change might have on our business.

Cross-Ownership Restrictions

The newspaper/broadcast cross-ownership rule generally prohibits one entity from owning both a commercial broadcast station and a daily newspaper in the same community as it is not viewed by the FCC to be in the public interest. The radio/television cross-ownership rule allows a party to own one or two TV stations and a varying number of radio stations within a single market. The FCC’s 2007 decision left the newspaper/broadcast and radio/television cross-ownership restrictions in place, but provided that the FCC would evaluate newly proposed newspaper/broadcast combinations under a non-exhaustive list of four public interest factors and apply positive or negative presumptions in specific circumstances. The Third Circuit reversed and remanded the FCC’s 2007 changes to the newspaper/broadcast cross-ownership rule, leaving the original prohibition in place. The NPRM proposes a rule based largely on the FCC’s 2007 decision and seeks comment on its proposal to adopt a newspaper/broadcast cross-ownership rule that would presumptively permit waivers of the newspaper/broadcast cross-ownership restrictions in the top 20 DMAs when the television station is not ranked among the top four television stations in the DMA and at least eight independently owned and operated major media voices remain in the DMA.

National TV Ownership Limit

The maximum percentage of U.S. households that a single owner can reach through commonly owned television stations is 39 percent. This limit was specified by Congress in 2004 and is not affected by the December 2007 FCC decision. The FCC applies a 50 percent “discount” for ultra-high frequency (“UHF”) stations, but the FCC indicated in the 2007 decision that it will conduct a separate proceeding to determine how or whether the UHF discount will operate in the future.

The FCC’s actions concerning media ownership have been challenged in court, and we cannot predict the outcome of this litigation or of threatened Congressional intervention that would void the FCC’s new ownership rules. Our ability to acquire additional television and radio stations, our acquisition strategy and our business may be significantly affected by changes to the multiple ownership and cross-ownership rules, ongoing FCC or Congressional review or amendment to the rules, as well as litigation challenging and possible court action upon the rules.

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

 

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Programming and Operation

The Communications Act requires broadcasters to serve the “public interest.” Since 1981, the FCC has gradually relaxed or eliminated many of the more formalized procedures it developed to promote the broadcast of certain types of programming responsive to the needs of a broadcast station’s community of license. Nevertheless, a broadcast licensee continues to be required to present programming in response to community problems, needs and interests and to maintain certain records demonstrating its responsiveness. The FCC will consider complaints from the public about a broadcast station’s programming when it evaluates the licensee’s renewal application, but complaints also may be filed and considered at any time. Stations also must follow various FCC rules that regulate, among other things, political broadcasting, children’s programming, the broadcast of obscene or indecent programming, sponsorship identification, the broadcast of contests and lotteries, certain types of advertising such as for out-of-state lotteries and gambling casinos, closed captioning and video description, and technical operation. FCC complaints and/or investigations are pending with respect to alleged violation of the laws concerning the broadcast of indecent programming by our television stations in the Los Angeles, San Diego, Houston, Dallas and Salt Lake City markets, and we cannot predict the outcome of these complaints and/or investigations. The FCC has indicated that there may be additional complaints pending against our radio and television stations for alleged violations of FCC rules, and we cannot predict the outcome of these complaints.

Federal law prohibits the payment of consideration to a broadcast station for the broadcast of material unless appropriate disclosure is made. FCC investigations are pending with respect to alleged violations of such law by certain of our radio stations in the Los Angeles and Houston markets, and we cannot predict the outcome of these investigations.

The Children’s Television Act of 1990 limits commercial matter in children’s television programs and requires stations to provide at least three hours of children’s educational programming per week on their primary digital channels. This requirement increases proportionally with each free video programming stream a station broadcasts simultaneously (or multicasts). The FCC also restricts commercialization of children’s programming, including certain promotions of other programs and displays of Web site addresses during children’s programming. In October 2009, the FCC issued a Notice of Inquiry (NOI) seeking comment on a broad range of issues related to children’s usage of electronic media and the current regulatory landscape that governs the availability of electronic media to children. The NOI remains pending and we cannot predict what recommendations or further action, if any, will result from it.

Furthermore, the 1996 Act contains a number of provisions related to television violence and the FCC has issued a report to Congress recommending that the government assume a greater role in regulating violent program content. We cannot predict the effect of the FCC’s present rules or future actions on our television broadcasting operations.

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

Cable and Satellite Transmission of Local Television Signals

Under FCC regulations, cable systems must devote a specified portion of their channel capacity to the carriage of the signals of local television stations. Television stations may elect between “must-carry rights” or a right to restrict or prevent cable systems from carrying the station’s signal without the station’s permission (retransmission consent). Stations must make this election once every three years, and did so most recently on October 1, 2011. All broadcast stations that made carriage decisions on October 1, 2011 will be bound by their decisions throughout the 2009-2014 cycle and will not be allowed to change their carriage decisions at the end of the digital television transition. The next election deadline will be October 1, 2014. The FCC has established a market-specific requirement for mandatory carriage of local television stations by direct broadcast satellite, or DBS, operators, similar to that applicable to cable systems, for those markets in which a DBS carrier provides any local signal. In addition, the FCC has adopted rules relating to station eligibility for DBS carriage and subscriber eligibility for receiving signals. There are also specific statutory requirements relating to satellite distribution of distant network signals to “unserved households” (that is, households that do not receive a Grade B analog signal or do not fall within the predicted noise-limited contour of a local network affiliate).

We have elected “must carry” status for our Los Angeles, Houston, Dallas-Fort Worth, Denver and Salt Lake City stations on cable systems in those DMAs. These elections will entitle our stations to carriage on those systems until December 31, 2014. Our low-power transmission stations in the Chicago, New York, Phoenix and San Diego markets have entered into retransmission agreements with cable systems in those markets. We may also enter into retransmission consent agreements for carriage of our other stations on certain cable systems. The FCC has launched a proceeding through which it may revise the rules governing retransmission consent negotiations, and we cannot predict how these changes will impact our leverage in our negotiations with cable and satellite operators.

 

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We have also secured DBS carriage for our full-service television stations in the Los Angeles, Houston, Dallas-Fort Worth, Denver and Salt Lake City markets through 2014.

In November 2007, the Commission decided that after the digital television transition, cable operators will have two options to ensure that all analog cable subscribers will continue to be able to receive the signals of stations electing must-carry status. Cable operators can choose to either broadcast the signal in digital format for digital customers and “down-convert” the signal to analog format for analog customers, or the cable operator may deliver the signal in digital format to all subscribers as long as the cable operator has ensured that all subscribers with analog service have set-top boxes that will convert the digital signal to analog format.

Time Brokerage Agreements

We have, from time to time, entered into time brokerage agreements giving third parties the right to broker time on our stations. We may also enter into agreements to broker time on stations owned by third parties. Historically, we have only purchased time on stations owned by third parties prior to purchasing selected assets of that station. By using time brokerage agreements, we can provide programming and other services to a station we expect to acquire before we receive all applicable FCC and other governmental approvals. We may also enter into agreements to broker time on stations owned by third parties outside of the acquisition context.

FCC rules and policies generally permit time brokerage agreements if the station licensee retains ultimate responsibility for and control of the applicable station. As a part of that requirement, the licensee of a time-brokered station is required to maintain certain personnel at the time-brokered station. We may not be able to air all of our scheduled programming on a station with which we have time brokerage agreements and we may not receive the anticipated revenue from the sale of advertising for that programming. Likewise, we may not receive the payments from the time brokers to whom we have sold time on our stations.

Stations may enter into cooperative arrangements known as joint sales agreements. Under the typical joint sales agreement, a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately owned and licensed station in the same market. It also involves the provision by the selling party of certain sales, accounting and services to the station whose advertising is being sold. Unlike a time brokerage agreement, the typical joint sales agreement does not involve programming. Radio joint sales agreements are attributable for multiple ownership purposes, and the FCC has initiated a rulemaking proceeding to consider whether television joint sales agreements should be attributable for purposes of its media ownership rules.

As part of its increased scrutiny of television and radio station acquisitions, the Department of Justice has stated publicly that it believes that time brokerage agreements and joint sales agreements could violate the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if such agreements take effect prior to the expiration of the waiting period under that act. Furthermore, the Department of Justice has noted that joint sales agreements may raise antitrust concerns under Section 1 of the Sherman Antitrust Act and has challenged them in certain locations. The Department of Justice also has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to television and radio station acquisitions, above which a transaction may receive additional antitrust scrutiny.

Digital Television Services

The FCC has adopted rules for implementing digital television service in the U.S. Implementation of digital television improves the technical quality of television signals and provides broadcasters the flexibility to offer new services, including, but not limited to, high-definition television and data broadcasting. Each of our full-service television stations has completed the transition to digital broadcasting.

Broadcasters may either provide a single DTV signal or “multicast” several lower resolution DTV program streams. Broadcasters also may use some of their digital spectrum to provide non-broadcast “ancillary” services (i.e., subscription video, data transfer or audio signals), provided broadcasters pay the government a fee of five percent of gross revenues received from such services. The potential also exists for new sources of revenue to be derived from digital television. We cannot predict the overall effect the transition to digital television might have on our business.

The FCC licenses some television stations as low power television stations. Low power television stations generally operate at lower power and cover a smaller geographic area than full-service television stations, are not entitled to carriage by cable television and direct broadcast satellite operators and must accept interference from, and eliminate interference to, full-service television stations. The FCC recently adopted rules and procedures regarding the digital conversion of low power television stations, TV translator stations and TV booster stations and set a deadline of September 1, 2015 for these stations to convert to digital operations. Our stations in Phoenix (KVPA), San Diego (KSDX), Chicago (WESV) and New York (WASA) are low power television stations, and each has converted to digital operations.

 

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Broadcast Spectrum

In February 2012, Congress passed and the President signed legislation authorizing the FCC to conduct an incentive auction in which television broadcasters could participate on a voluntary basis and receive a portion of the proceeds in return for relinquishing some or all of their licensed spectrum. This legislation implements a portion of the “National Broadband Plan,” delivered to Congress by the FCC on March 16, 2010, which made recommendations regarding the reallocation of spectrum, including spectrum currently allocated to television broadcasters, for use by other wireless communications services. The legislation also authorized the FCC to make reassignments of television channels as part of a “repacking” process following the auction. The Commission, however, is required to make all reasonable efforts to preserve a station’s coverage area and population served. The Commission also is prohibited from involuntarily relocating a station from the UHF to the VHF band or from a high VHF to a low VHF channel. The legislation also establishes a $1.75 million fund for reimbursement of expenses incurred by television broadcasters in connection with such repacking. Prior to adoption of the legislation, the Commission issued a Notice of Proposed Rulemaking proposing preliminary rule changes to allow a portion of the spectrum currently allocated to broadcasters to be repurposed for wireless broadband use. These proposals include, (i) making broadcast spectrum allocations available for flexible use, (ii) allowing two or more broadcast stations to enter into voluntary agreements to share a 6Mhz channel, and (iii) improving the reception of VHF signals. The FCC also will need to adopt rules to implement the February 2012 legislation. We cannot predict the outcome of any further FCC or other regulatory action or legislation; however, the reallocation of all or some portions of our television stations’ spectrum and increased competition from new mobile communications technologies could materially affect our operations.

Indecency

Provisions of federal law regulate the broadcast of obscene, indecent or profane material. The FCC has increased its enforcement efforts regarding broadcast indecency and profanity over the past few years. In June 2006, the statutory maximum fine for broadcast indecency material increased from $32,500 to $325,000 per incident. Several judicial appeals of FCC indecency enforcement actions are currently pending, and their outcomes could affect future Commission policies in this area. FCC investigations are currently pending with respect to allegedly indecent programming broadcast on our Los Angeles, San Diego, Houston, Dallas and Salt Lake City television stations, and we cannot predict the outcome of those investigations.

Public Interest Programming

The FCC adopted an order imposing new public file and public interest reporting requirements on broadcasters in 2007, which was subsequently vacated by an Order on Reconsideration and Further Notice of Proposed Rulemaking (FNPRM) released in October 2011. The FNPRM proposes to require television stations to place their public files online at an FCC-hosted website, disclose sponsorship identification information, and post copies of shared services agreements in the online public file. In a related proceeding in November 2011, the FCC issued a Notice of Inquiry (NOI) proposing a new standardized disclosure form to replace the current method of reporting issues and programs and the disclosure form previously proposed in 2007 and subsequently rejected. The NOI proposes to require television broadcasters to report public interest programming broadcast during a sample or composite week in the previous quarter on a standardized, electronically filed form.

Equal Employment Opportunity

The FCC’s Equal Employment Opportunity (“EEO”) rules impose job information dissemination, recruitment, documentation and reporting requirements on broadcast station licensees. Broadcasters are subject to random audits to ensure compliance with the EEO rules and could be sanctioned for noncompliance.

Digital Radio Services

The FCC has established rules for the provision of digital radio broadcasting, and has allowed radio broadcasters to convert to a hybrid mode of digital/analog operation on their existing frequencies. Recently, the FCC approved an increase in the maximum allowable power for FM digital operations, which will improve the geographic coverage of digital FM signals. It is still considering whether to place limitations on subscription services offered by digital radio broadcasters or whether to apply new public interest requirements to this service.

 

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Radio Frequency Radiation

The FCC has adopted rules limiting human exposure to levels of radio frequency radiation. These rules require applicants for renewal of broadcast licenses or modification of existing licenses to inform the FCC whether the applicant’s broadcast facility would expose people or employees to excessive radio frequency radiation. We believe that all of our stations are in compliance with the FCC’s current rules regarding radio frequency radiation exposure.

Low-Power Radio Broadcast Service

The Commission has adopted rules implementing a new low power FM, or LPFM, service and approximately 800 such stations are in operation. In November 2007, the FCC adopted rules that, among other things, enhance LPFMs’ interference protection from subsequently authorized full-service stations. Congress has now passed legislation which relaxes the FCC’s interference protections afforded to full-service FM stations in order to make more frequencies available for low-power FM stations. We cannot predict whether any LPFM stations will interfere with the coverage of our radio stations.

Other Regulations Affecting Broadcast Stations

Finally, Congress and the FCC from time to time consider, and may in the future adopt, new laws, regulations and policies regarding a wide variety of other matters that could affect, directly or indirectly, the operation and ownership of our broadcast properties. For example, legislation has been considered in Congress which could remove radio stations’ current exemption from payment of copyright royalties to record companies and performers for music broadcast on radio stations. In 2011, the FCC revised its policies and procedures relating to community of license changes for FM and AM stations which could make it more difficult for a radio station to move its community of license closer to a larger city; the FCC adopted rules pursuant to a statutory mandate which generally require television stations to acquire new equipment and ensure that the volume level of commercials match that of contiguous programming; the FCC adopted rules requiring certain video material to be closed captioned on websites if it first aired on television with closed captions; and the FCC adopted rules requiring certain television stations to provide a certain amount of video described programming per calendar quarter.

The foregoing does not purport to be a complete summary of the Communications Act, other applicable statutes or the FCC’s rules, regulations and policies. Proposals for additional or revised regulations and requirements are pending before, and are considered by, Congress and federal regulatory agencies from time to time. We cannot predict the effect of existing and proposed federal legislation, regulations and policies on our business. Also, several of the foregoing matters are now, or may become, the subject of litigation and we cannot predict the outcome of any such litigation or the effect on our business.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports and other information with the SEC. You may read and copy our SEC filings at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our electronic SEC filings are available on the internet through the SEC’s website at http://www.sec.gov.

 

ITEM 1A. RISK FACTORS

Our significant level of indebtedness could limit cash flow available for our operations, adversely affect our financial health and prevent us from fulfilling our obligations under our debt agreements.

We currently have a substantial amount of debt. As of December 31, 2011, our total outstanding indebtedness was approximately $486.8 million, consisting of LBI Media’s senior secured notes, LBI Media’s senior subordinated notes, our senior discount notes and a mortgage of one of our indirect, wholly owned subsidiaries. Our total stockholder’s deficit was approximately $215.1 million at December 31, 2011. In addition, LBI Media entered into a new $50.0 million senior secured revolving credit facility in March 2011, which had approximately $5.4 million outstanding as of March 29, 2012.

Based on interest rates as of December 31, 2011 and assuming no additional borrowings or principal payments on LBI Media’s senior secured revolving credit facility until its maturity in March 2016 and on our and LBI Media’s other indebtedness, as of December 31, 2011, we would need approximately $251.3 million over the next five years to meet our principal and interest payments under our debt agreements, of which approximately $44.7 million would be due in 2012 and $86.5 million would be due in 2013.

The table below shows our total capitalization as of December 31, 2011:

 

Total indebtedness

   $ 486,805   

Stockholder’s deficiency

     (218,176
  

 

 

 

Total capitalization

   $ 268,629   
  

 

 

 

Debt to total capitalization

     181

Since our total capitalization consists of 181% debt, we are considered to be highly leveraged and will have to devote much of our resources to repaying this debt and interest thereon on our scheduled payment dates. If our debt levels were lower we would have more flexibility in using our cash flow because we would have lower debt service obligations and potentially fewer restrictive covenants under our debt agreements. Our substantial indebtedness could have other important consequences. For example, it could:

 

   

make it more difficult for us to satisfy our obligations with respect to our debt;

 

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limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes;

 

   

require us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our debt, which would reduce availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

 

   

limit our flexibility in planning for, and reacting to, changes in our business and our industry that could make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and

 

   

place us at a competitive disadvantage compared to our competitors that have less debt.

Despite our indebtedness levels, we and our subsidiaries may incur additional debt in the future, which could further exacerbate the risks described above.

We and our subsidiaries may incur additional debt in the future. The terms of LBI Media’s senior secured revolving credit facility and the indentures governing LBI Media’s senior secured notes, LBI Media’s senior subordinated notes and our senior discount notes will allow us to incur additional debt under certain specified circumstances and do not fully prohibit us or our subsidiaries from doing so. LBI Media’s senior secured revolving credit facility requires us to maintain an amount of revolver facility indebtedness (which, as defined in the credit agreement, includes only amounts outstanding under the senior secured revolving credit facility and does not include LBI Media’s senior secured notes and the mortgage notes of our indirect, wholly owned subsidiary, Empire Burbank Studies LLC or Empire Burbank) that would not result in a ratio of revolver facility debt to EBITDA (as defined in the credit agreement) of more than 3.5 to 1.0. The indenture governing LBI Media’s senior secured notes, LBI Media’s senior subordinated notes and our senior discount notes will allow us to incur additional indebtedness, in addition to certain specified debt that is permitted, so long as our leverage ratio (as defined in the indentures) does not exceed 7.0 to 1.0. We may also incur certain additional senior secured debt under the terms of the indenture governing LBI Media’s senior secured notes so long as after giving effect to the granting of such additional senior secured debt, our consolidated secured leverage ratio (as defined in the indenture) does not exceed (i) 4.0 to 1.0 (excluding certain subordinated and junior secured indebtedness) in the case of certain senior secured debt or other indebtedness of LBI Media or any of its subsidiaries (except Empire Burbank) that are pari passu with the senior secured notes and other senior secured debt or (ii) 5.0 to 1.0 in the case of secured indebtedness that is subordinated or junior to the senior secured notes and other senior secured debt. If new debt is added to our and our subsidiaries’ debt levels, the related risks discussed above under “Our significant level of indebtedness could limit cash flow available for our operations, adversely affect our financial health and prevent us from fulfilling our obligations under our debt agreements.” could intensify.

To service our indebtedness, we will require a significant amount of cash, and if we are unable to meet our debt obligations through the cash flow generated by our operations, or, if necessary, future borrowings, we may not be able to make payments on our indebtedness.

Our ability to make payments on indebtedness and to refinance indebtedness when necessary will depend on our financial and operating performance, each of which is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond our control. At December 31, 2011, we had cash and cash equivalents of approximately $1.2 million.

Because LBI Media’s senior secured revolving credit facility has floating rate borrowings, we are exposed to changes in market interest rates. If market interest rates rise, the interest expense on our floating rate debt will also increase and could reduce our cash available to, among other things, fund working capital, capital expenditures, acquisitions and other general corporate purposes. For the years ended December 31, 2011, 2010 and 2009, our earnings were insufficient to cover fixed charges by $31.1 million, $12.9 million and $134.3 million, respectively.

If our business does not generate cash flow from operations in the amounts that we expect or our interest expense is higher than we expect, we would need to rely on borrowings under LBI Media’s senior secured revolving credit facility or from other sources to enable us to pay our debt and to fund our other liquidity needs. Future borrowings may not be available to us under the senior secured revolving credit facility or from other sources. The ability to borrow funds under the senior secured revolving credit facility depends on LBI Media meeting certain conditions to funding, including the financial covenants in the agreements governing the facility, which includes a maximum ratio of revolver facility debt (which, as defined in the credit agreement, includes only borrowings under the senior secured revolving credit facility and does not include LBI Media’s senior secured notes and the mortgage notes of Empire Burbank) to EBITDA (as defined in the credit agreement) of 3.5 to 1.0. Borrowing availability under the facility also depends on the ability and willingness of the lenders to fund loans when required under the facility, which may be subject to risks associated with the lenders’ creditworthiness or other factors.

If we are unable to pay our debts, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance any of our debt or sell additional debt or equity securities or our assets on favorable terms, if at all. In addition, the current uncertain economic environment has had and may continue to have an impact on our liquidity and capital resources. Because of these and other factors beyond our control, we may be unable to pay the principal, premium (if any), interest or

 

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other amounts on our indebtedness. If we are unable to generate sufficient cash flow, refinance our debt on favorable terms or sell additional debt or equity securities or our assets, it could have a material adverse effect on our financial condition and on our ability to make payments on our indebtedness.

The restrictive covenants in our debt instruments may affect our ability to operate our business successfully.

The indenture governing the terms of LBI Media’s senior secured revolving credit facility and the indentures governing LBI Media’s senior secured notes, LBI Media’s senior subordinated notes and our senior discount notes contain various provisions that limit our ability to, among other things:

 

   

incur or guarantee additional debt and issue preferred stock;

 

   

pay dividends or distributions on, or redeem or repurchase, capital stock;

 

   

make investments and other restricted payments;

 

   

issue or sell capital stock of restricted subsidiaries;

 

   

incur liens;

 

   

transfer or sell assets;

 

   

engage in different lines of business;

 

   

consolidate, merge or transfer all or substantially all of our assets; and

 

   

enter into transactions with affiliates.

These covenants may affect our ability to operate and finance our business as we deem appropriate. If we are unable to meet our obligations as they become due or to comply with various financial covenants contained in the instruments governing our current or future indebtedness, this could constitute an event of default under the instruments governing our indebtedness.

In addition, LBI Media’s senior secured revolving credit facility requires us to maintain an amount of revolving facility indebtedness (which, as defined in the credit agreement, only includes amounts outstanding under the senior secured revolving credit facility and does not include LBI Media’s senior secured notes and the mortgage notes of Empire Burbank) that would not result in a ratio of revolving facility debt to EBITDA (as defined in the credit agreement) of more than 3.5 to 1.0. Further, we are not permitted to borrow under our senior secured revolving credit facility if, after giving effect to amounts borrowed under the senior secured revolving credit facility and the use of such proceeds, we have cash on hand in an aggregate amount greater than $7.5 million. As a result, although we have the capacity to borrow up to $50.0 million under the senior secured revolving credit facility, we may not be permitted to borrow any amount that would cause us to exceed the revolving facility leverage ratio or exceed the maximum cash on hand permitted at the time of a borrowing under the credit agreement. If we fail to comply with the restrictive and financial covenants contained in the indentures governing our indebtedness, it would be an event of default.

If there were an event of default under the instruments governing our indebtedness, the holders of the affected indebtedness could declare all of that indebtedness immediately due and payable, which, in turn, could cause the acceleration of the maturity of all of our other indebtedness. We may not have sufficient funds available, or we may not have access to sufficient capital from other sources, to repay any accelerated debt. Even if we could obtain additional financing, the terms of the financing may not be favorable to us. In addition, substantially all of our assets are subject to liens securing LBI Media’s senior secured revolving credit facility and senior secured notes. If amounts outstanding under the senior secured revolving credit facility are accelerated, our lenders could foreclose on these liens. Any event of default under the instruments governing our indebtedness could have a material adverse effect on our business, financial condition and results of operations.

We have incurred net losses since 2007 and we expect our operating expenses to increase in the foreseeable future. As a result, we may not be able to generate sufficient revenue to be profitable.

We reported net losses of $33.0 million, $14.9 million and $112.6 million for the years ended December 31, 2011, 2010 and 2009, respectively, and had an accumulated deficit of $278.2 million and $245.2 million as of December 31, 2011 and 2010. If we cannot successfully earn revenue at a rate that exceeds our operating expenses, we may not be able to achieve or sustain profitability or fulfill our obligations under our debt agreements. See “Our significant level of indebtedness could limit cash flow available for our operations, adversely affect our financial health and prevent us from fulfilling our obligations under our debt agreements” and “We have recently experienced fluctuating net revenues, net losses and Adjusted EBITDA, primarily as a result of the current economic conditions. If these conditions were to continue for an extended period of time or worsen, our ability to comply with our debt agreements, including financial covenants and ratios, and continue to operate our business as it is presently conducted, could be jeopardized.”

 

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We anticipate that our operating expenses will increase in the foreseeable future as we anticipate higher programming costs for our television segment and continue to invest in the expansion of our EstrellaTV network through increased personnel and promotional expenses. As a result, we expect to continue to incur operating losses on an annual basis through at least our year ended December 31, 2012.

We have recently experienced fluctuating net revenues, net losses and Adjusted EBITDA, primarily as a result of the current economic conditions. If these conditions were to continue for an extended period of time or worsen, our ability to comply with our debt agreements, including financial covenants and ratios, and continue to operate our business as it is presently conducted, could be jeopardized.

We reported net revenues of $117.5 million, $115.7 million and $102.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. We reported net losses of $33.0 million, $14.9 million, and $112.6 million and Adjusted EBITDA of $27.7 million, $35.7 million and $34.6 million, each for the years ended December 31, 2011, 2010 and 2009, respectively. If we were to experience continuing net losses and our net revenues and Adjusted EBITDA continued to fluctuate, there could be an adverse effect on our liquidity and capital resources, including, but not limited to, our failure to comply with the financial covenants or ratios included in our debt agreements. For instance, our senior secured revolving credit facility requires us to maintain a revolving facility debt leverage ratio. We have also had negative cash flow from operations of $21.3 million, $1.0 million and $2.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. If events or circumstances occur such that we are not able to begin generating positive cash flow and operate our business as it is presently conducted, we may be required to seek a waiver or amendment from our existing lenders, refinance our existing debt, divest assets and/or obtain additional equity or debt financing. We can provide no assurance that any such transactions could be consummated on terms satisfactory to us or at all. Any default under our debt agreements, inability to renegotiate our debt agreements if required, obtain additional financing if needed or obtain waivers for any failure to comply with financial covenants and ratios would have a material adverse effect on our overall business and financial condition.

Our television and radio stations have been impacted by the general downturn in the U.S. economy and the local economies of the regions in which we operate and our owned and affiliated stations could be adversely affected by other changes in the advertising market as well.

Revenue generated by our owned and affiliated stations depends primarily upon the sale of advertising and is, therefore, subject to various factors that influence the advertising market for the broadcasting industry as a whole. Because advertising is largely a discretionary business expense, advertising expenditures generally tend to decline during an economic recession or downturn, such as the one that we recently experienced in the U.S. The recession has had an adverse effect on the advertising market, the industry of the advertisers that advertise on our stations and the fundamentals of our business, results of operations and financial position. As a result of the general economic downturn and the expected lower net revenue growth projections for the broadcast industry, we incurred non-cash broadcast license and long-lived asset impairment charges of $0.9 million, $7.2 million and $126.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. We may experience a further material adverse effect on our business as a result of the current economic conditions or the actions of the U.S. Government, Federal Reserve or other governmental and regulatory bodies, for the reported purpose of stabilizing the economy or financial markets may not achieve their intended effect. Additionally, some of these actions, including changes in tax laws applicable to advertisers, may adversely affect financial institutions, capital providers, advertisers as well as other consumers or our financial condition, results of operations or the trading price of our securities. Potential consequences of a weak economy or a global financial crisis include:

 

   

the financial condition of our affiliate television stations, radio stations that syndicate our programming or companies that advertise on our owned and affiliated stations could deteriorate, file for bankruptcy protection or face severe cash flow issues, which would result in a significant decline in our net revenues;

 

   

our affiliate television stations may have lower revenues that result from their own advertising sales efforts as well as lower revenues from the national sales that we sell to broadcast on these stations;

 

   

our ability to borrow capital on terms and conditions that we find acceptable, or at all, may be limited, which could limit our ability to refinance our existing debt;

 

   

our ability to pursue the acquisition or divestiture of television or radio assets may be limited, as a result of these factors;

 

   

the possibility that our business partners could be negatively impacted and our ability to maintain these business relationships;

 

   

the possible further impairment of some or all of the value of our broadcast licenses; and

 

   

the possibility that one or more of the lenders under our bank credit facility could refuse to fund its commitment to us or could fail, and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.

 

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Furthermore, because a substantial portion of our revenue is derived from local advertisers, our ability to generate advertising revenue in specific markets is directly affected by local or regional economic conditions. A concentration of stations in any particular market intensifies our exposure to regional economic declines.

In addition, shifts in populations and demographics could adversely affect advertising expenditures. Consequently, our television and radio station revenues are likely to be adversely affected by shifts in Hispanic populations and demographics, a recession or downturn in the economies of Southern California, New York, Phoenix, Houston, Dallas, Salt Lake City, Denver or Chicago, or other events or circumstances that adversely affect advertising activity.

Difficulties in the global capital and credit markets have affected and may continue to adversely affect our business, as well as the industries of many of our customers, which are cyclical in nature.

Some of the markets in which our advertisers participate, such as the services, telecommunications, automotive, fast food and restaurant, and retail industries, are cyclical in nature, thus posing a risk to us which is beyond our control. Recent declines in consumer and business confidence and spending, together with significant reductions in the availability and increases in the cost of credit and volatility in the capital and credit markets, have adversely affected the business and economic environment in which we operate and the profitability of our business. Our business is exposed to risks associated with the creditworthiness of our key advertisers and other strategic business partners. These conditions have resulted in financial instability or other adverse effects at many of our advertisers and other strategic business partners. The consequences of such adverse effects could include the delay or cancellation of customer advertising orders, cancellation of our programming and termination of facilities that broadcast or re-broadcast our programming. The continuation of any of these conditions may adversely affect our cash flow, profitability and financial condition. For example, in 2009 and 2008, lenders and institutional investors reduced and, in some cases, ceased to provide funding to borrowers, reducing the availability of liquidity and credit to fund or support the continuation and expansion of business operations worldwide. Although the markets have stabilized since early 2009, future disruption of the credit markets and/or sluggish economic growth in future periods could adversely affect our customers’ access to credit which supports the continuation and expansion of their businesses and could result in advertising or broadcast cancellations or suspensions, payment delays or defaults by our customers.

Cancellations or reductions of advertising could adversely affect our results of operations.

Neither we nor our affiliate stations generally obtain long-term commitments from advertisers. As a result, advertisers may cancel, reduce or postpone orders without penalty, which is more likely in a recessionary period like the one we recently experienced. Cancellations, reductions or delays in purchases of advertising could adversely affect our results of operations, especially if we or our affiliate stations are unable to replace these purchases. While a portion of our expenses are variable, the majority of our operating expenses are relatively fixed. Therefore, unforeseen decreases in our advertising sales and advertising revenue derived from our affiliate stations could have a material adverse impact on our results of operations.

We may suffer a decrease in advertising revenues due to competitive forces.

The success of our radio and television stations and our affiliate stations is primarily dependent upon their share of overall advertising revenues within their markets. Our stations and our affiliate stations compete for audiences and advertising revenue directly with other Spanish-language radio and television stations, and some of the owners of those competing stations have greater resources than we do. As the Hispanic population grows in the U.S., more stations may begin competing with us by converting to a format similar to that of our stations.

In addition, our owned and affiliated stations have experienced increased competition for audiences and advertising revenue with other media, including cable television and to a lesser extent, satellite television, newspapers, magazines, the Internet, portable digital music players and outdoor advertising. Our radio stations also compete with satellite-based radio services. Our failure to offer advertisers effective, high quality media outlets could cause them to allocate more of their advertising budgets to our competitors, which could cause a decrease in our net revenues.

The loss of key personnel could disrupt our business and result in a loss of advertising revenues.

Our success depends in large part on the continued efforts, abilities and expertise of our officers and key employees and our ability to hire and retain qualified personnel. The loss of any member of our management team, particularly either of our founders, Jose Liberman and Lenard D. Liberman, could disrupt our operations and hinder or prevent implementation of our business plan, which could have a material and adverse effect on our business, financial condition and results of operations.

 

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Our growth depends on successfully executing our affiliation and acquisition strategy.

As we have done in the past, we intend to continue to supplement our internal growth primarily by affiliating with television stations and secondarily by acquiring media properties that complement or augment our existing markets. We may not be able to identify suitable television stations to affiliate with or complete acquisitions of media properties because of competition among potential affiliates or buyers within that particular market. In addition, we may not be able to complete acquisitions of radio and television assets for many reasons, including:

 

   

the need for regulatory approvals, including FCC and antitrust approvals;

 

   

revisions to the FCC’s restrictions on cross-ownership and on the number of stations or the market share that a particular company may own or control, locally or nationally; and

 

   

the need to raise additional financing, which may be limited by the terms of our debt instruments, including LBI Media’s senior secured revolving credit facility and the indentures governing LBI Media’s senior subordinated notes and our senior discount notes.

If we are unable to successfully execute our affiliation and acquisition strategy, our growth may be impaired.

Furthermore, future acquisitions by us could also result in the following consequences:

 

   

issuances of equity securities;

 

   

incurrence of debt and contingent liabilities;

 

   

impairment of our broadcast licenses; and

 

   

other acquisition-related expenses.

After we have completed an acquisition, our management must be able to assume significantly greater responsibilities, which may cause them to divert their attention from our existing operations. We believe that these challenges are more pronounced when we enter new markets rather than expand further in existing markets.

If our relationships with our affiliate stations change in an adverse manner, it could negatively affect our business, revenue and results of operations.

In September 2009, we launched EstrellaTV, our U.S. Spanish-language television broadcast network. At the same time, we began affiliating with certain television stations to carry programming for EstrellaTV. Our strategy and future success depends on our ability to leverage our internally produced television programming through strong affiliate relationships. Currently, we have affiliate stations serving 29 U.S. designated market areas in 12 states. If our affiliation agreements with one or more of our affiliate stations are terminated or our relationships become adverse, it could have a material adverse effect on our business, revenue and results of operations, including our ability to enter into affiliation agreements with new stations in additional markets.

If we cannot successfully develop and integrate our recent and future acquisitions, our financial results could be adversely affected.

To develop and integrate our recent and future acquisitions, we may need to:

 

   

reformat stations with Spanish-language programming and build advertiser, listener and/or viewer support;

 

   

integrate and improve operations and systems and the management of a station or group of stations;

 

   

retain or recruit key personnel to manage acquired assets;

 

   

realize sales efficiencies and cost reduction benefits from acquired assets; and

 

   

operate successfully in markets in which we may have little or no prior experience.

In addition, there is a risk that the stations we have acquired or may acquire in the future may not enhance our financial performance or yield other anticipated benefits. We generally experience lower operating margins for several quarters following the acquisition of radio and television stations. This is primarily due to the time it takes to fully implement our format changes, build our advertiser base and gain viewer or listener support.

If we are unable to completely integrate into our business the operations of the properties that we have recently acquired or that we may acquire in the future, our costs could increase. Also, in the event that the operations of a new station do not meet our expectations, we may restructure or write off the value of some portion of the assets of the new station.

 

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If we are unable to convert acquired stations successfully to a Spanish-language format, anticipated revenues from these acquisitions may not be realized.

Our acquisition strategy has often involved acquiring non-Spanish language stations and converting them to a Spanish-language format. We intend to continue this strategy with our future acquisitions. This conversion process may require a heavy initial investment of both financial and management resources. We may incur losses for a period of time after a format change due to the time required to build up ratings and station loyalty. These format conversions may be unsuccessful in any given market, and we may incur substantial costs and losses in implementing this strategy.

We have identified a material weakness in our internal control over financing reporting as of December 31, 2011, that if not corrected, could result in material misstatements in our financial statements.

Beginning with the year ending December 31, 2007, we have been required to evaluate internal controls over financial reporting in order to allow management to report on the effectiveness of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as Section 404. Section 404 requires us to, among other things, annually review and disclose the effectiveness of our internal controls over financial reporting, and evaluate and disclose changes in our internal controls over financial reporting quarterly. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes: (i) maintaining reasonably detailed records that accurately and fairly reflect our transactions; and (ii) providing reasonable assurance that we (a) record transactions as necessary to prepare the financial statements, (b) make receipts and expenditures in accordance with management authorizations, and (c) will timely prevent or detect any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we could prevent or detect a misstatement of our financial statements or fraud.

As of December 31, 2011, our management, through documentation, testing and assessment of our internal control over financial reporting concluded that we had a material weakness. Based on the evaluations conducted as of such date, our management concluded that we did not maintain effective internal control over financial reporting as of such date. The material weakness related to deficiencies over the identification of and accounting for impairment of property and equipment. Specifically, we did not have adequate processes to identify and evaluate impairment indicators related to property and equipment that had been taken out of service. See “Item 9A. Controls and Procedures” for more information. Although we are in the process of addressing and remediating the deficiencies that gave rise to this material weakness, this deficiency has not been remediated as of the date of this filing. The material weakness will not be fully remediated until, in the opinion of our management, the revised control procedures have been operating for a sufficient period of time to provide reasonable assurances as to their effectiveness.

As of December 31, 2010, our management, through documentation, testing and assessment of our internal control over financial reporting, concluded that we had a material weakness. Based on the evaluations conducted as of such dates, our management concluded that we did not maintain effective internal control over financial reporting as of such date. The material weakness related to deficiencies identified in 2009 for the improper treatment of certain temporary state tax credits and the classification of certain deferred tax accounts relating to our indefinite-lived intangible assets that were not remediated as of December 31, 2010. Since the above material weakness was identified, we have undertaken an evaluation of our available resources and personnel deployed for accounting for income taxes, and have made the necessary changes to our processes as required in order to remediate the material weakness.

In future periods, if other material weaknesses or significant deficiencies are revealed, the correction of any such material weakness or significant deficiency could require additional remedial measures such as additional personnel, which could be costly and time-consuming. If a material weakness exists as of a future period year-end (including a material weakness identified prior to year-end for which there is an insufficient period of time to evaluate and confirm the effectiveness of the corrections or related new procedures), our management will be unable to report favorably as of such future period year-end to the effectiveness of our control over financial reporting. If we fail to remedy our material weaknesses or should we determine in future fiscal periods that we have additional material weaknesses in our internal control over financial reporting, the reliability of our financial reports may be impacted, and our results of operations or financial condition may be harmed.

We have a significant amount of intangible assets and we may never realize the full value of our intangible assets. We have recently recorded impairments of our television and radio assets.

Broadcast licenses totaled approximately $165.1 million and $166.7 million at December 31, 2011 and 2010, respectively, which was primarily attributable to historical asset acquisitions, partially offset by substantial broadcast license impairment charges in recent years. At the date of these acquisitions, the fair value of the acquired broadcast licenses established their book values. At least annually, we test our broadcast licenses for impairment. Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws and regulations, including changes that restrict the activities of, or affect the products or services sold by, our businesses and a variety of other factors. We recorded total impairment charges of $0.9 million, $6.4 million and $126.5 million for our radio and television broadcast licenses for the years ended December 31, 2011, 2010 and 2009, respectively.

Appraisals of any of our reporting units or changes in estimates of our future cash flows could affect our impairment analysis in future periods and cause us to record either an additional expense for impairment of assets previously determined to be impaired or record an expense for impairment of other assets. Depending on future circumstances, we may never realize the full value of our intangible assets. Any determination of impairment of our broadcast licenses could have an adverse effect on our financial condition and results of operations.

 

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We may be adversely affected by disruptions in our ability to receive or transmit programming.

The transmission of programming is subject to risks of equipment failure, including those failures caused by radio or television tower defects and destruction, natural disasters, power losses, low-flying aircraft, software errors or telecommunications errors. Disruption of our programming transmissions may occur in the future and other comparable transmission equipment may not be available. Any natural disaster, such as an earthquake, or extreme climatic event, such as fire, could result in the loss of our ability to broadcast. In September 2008, for example, Hurricane Ike caused substantial damage to several of our broadcast facilities in Texas, and resulted in many advertising cancellations and lost revenue from our inability to broadcast during that period. Also, in October 2007, wildfires burned down our San Diego television station’s broadcasting facility, causing a disruption to service in that market until we resumed broadcasting in January 2008. In addition, our insurance may be inadequate to cover any damage to our properties from a natural disaster or extreme climatic event.

Further, we affiliate with television stations or own or lease antennae and transmitter space for each of our radio and television stations. If we were to lose any of our antenna tower leases or if any of our or our affiliate’s towers or transmitters were damaged, we or our affiliates may not be able to secure replacement leases on commercially reasonable terms, or at all, which could also prevent the broadcasting of our programming. Disruptions in our ability to receive or transmit our broadcast signals could have a material adverse effect on our audience levels, advertising revenues and future results of operations.

If any of our stations are found to have violated any of the laws concerning the broadcast of indecent programming or any other FCC rules and regulations, we could face substantial fines and penalties and potentially risk having our FCC licenses revoked.

FCC complaints and/or investigations are pending (i) with respect to alleged violation of the laws concerning the broadcast of indecent programming by our television stations in the Los Angeles, San Diego, Houston, Dallas and Salt Lake City markets and one of our radio stations in the Dallas market; and (ii) with respect to alleged violations of the laws by certain of our radio stations in the Los Angeles and Houston markets with respect to the prohibition of receiving consideration for the broadcast of material unless appropriate disclosure is made. We cannot predict the outcome of these complaints or investigations. The FCC has also indicated that there may be additional complaints pending against our radio and television stations for alleged violations of FCC rules, for indecent programming or other reasons, and we cannot predict the outcome of these complaints.

If we violate the Communications Act of 1934, or the rules and regulations of the FCC, the FCC may issue cease-and-desist orders or admonishments, impose fines, renew a license for less than eight years or revoke our licenses. The FCC has been aggressively enforcing its rules on broadcasting indecent or obscene material, and has stated that, in addition to increased fines, the FCC may initiate license revocation procedures against licensees that broadcast material the FCC considers to be indecent. The FCC has the right to revoke a license before the end of its term for acts committed by the licensee or its officers, directors or stockholders. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio or television station covered by the license, which

 

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could have a material adverse effect on our financial condition and results of operations. In addition, Congress, from time to time, considers legislation that addresses the FCC’s enforcement of its rules concerning the broadcast of obscene, indecent, or profane material.

Potential changes to enhance the FCC’s authority in this area include the ability to impose additional monetary penalties, consider violations to be “serious” offenses in the context of license renewal applications, and, under certain circumstances, designate a license for hearing to determine whether such license should be revoked. In the event that such legislation is enacted into law, we could face increased costs in the form of fines and a greater risk that we could lose one or more of our broadcasting licenses.

If we are unable to maintain our FCC license for any station, we would have to cease operations at that station and it could result in an acceleration of our indebtedness.

The success of our television and radio operations depends on acquiring and maintaining broadcast licenses issued by the FCC, which are typically issued for a maximum term of eight years and are subject to renewal. The license renewal applications for our radio stations have been granted by the FCC, and the licenses have been extended through 2013. The license renewal applications for our television stations in Los Angeles, Houston and Dallas are pending before the FCC. Any renewal applications submitted by us may not be approved, and the FCC may impose conditions or qualifications that could restrict our television and radio operations. Third parties may also challenge our renewal applications. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio or television station covered by the license, which could have a material adverse effect on our financial condition and results of operations.

In addition, LBI Media’s senior credit facilities require us to maintain all of our material FCC licenses. If the FCC were to revoke any of our material licenses, our lenders could declare all amounts outstanding under the senior credit facilities to be immediately due and payable, which would cause a cross-default under the indentures governing LBI Media’s senior subordinated notes and our senior discount notes. If our indebtedness is accelerated, we may not have sufficient funds to pay the amounts owed.

Our broadcast licenses could be revoked if more than 25% of our outstanding capital stock is owned of record or voted by non-U.S. citizens, foreign governments or non-U.S. corporations.

Under the Communications Act of 1934, or the Communications Act, a broadcast license may not be granted to or held by any corporation that has more than 20% of its capital stock owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives or by non-U.S. corporations. Furthermore, the Communications Act provides that no FCC broadcast license may be granted to or held by any corporation directly or indirectly controlled by any other corporation of which more than 25% of its capital stock is owned of record or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives or by non-U.S. corporations, if the FCC finds the public interest will be served by the refusal or revocation of such license. Because of these restrictions, the licenses for our television and radio stations could be revoked if more than 25% of our outstanding capital stock is issued to or for the benefit of non-U.S. citizens in excess of these limitations.

The FCC’s National Broadband Plan may reduce the digital broadcast spectrum currently allocated to television broadcasters.

In February 2012, Congress passed and the President signed legislation authorizing the FCC to conduct an incentive auction in which television broadcasters could participate on a voluntary basis and receive a portion of the proceeds in return for relinquishing some or all of their licensed spectrum. This legislation implements a portion of the “National Broadband Plan,” delivered to Congress by the FCC on March 16, 2010, which made recommendations regarding the reallocation of spectrum, including spectrum currently allocated to television broadcasters, for use by other wireless communications services. The legislation also authorized the FCC to make reassignments of television channels as part of a “repacking” process following the auction. Prior to adoption of the legislation, the Commission issued a Notice of Proposed Rulemaking proposing preliminary rule changes to allow a portion of the spectrum currently allocated to broadcasters to be repurposed for wireless broadband use. The FCC also will need to adopt rules to implement the February 2012 legislation.

Our EstrellaTV network operates primarily on the secondary digital spectrum on most of our affiliate stations. While we cannot predict how the National Broadband Plan will be implemented, a reduction in the spectrum currently allocated to television broadcasters could adversely impact our stations and our ability to capitalize on the network, as a reduction could cause our affiliates to reduce the spectrum available to EstrellaTV or to altogether terminate its affiliation with EstrellaTV. This could have an adverse impact on our ratings and our ability to attract Spanish network advertising budgets. Moreover, it

 

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cannot be certain how the FCC’s efforts to secure additional spectrum for mobile wireless communications will affect television broadcasting generally, and the continued operation of low power television stations in particular. These and other changes in the law governing use of the television broadcasting spectrum could materially and adversely affect our business, financial condition and results of operations.

Any change in current laws or regulations that eliminate or limit our ability to require cable systems to carry our full power television stations could result in the loss of coverage in those markets, which could result in a decrease in our market ratings and a potential loss of advertising revenues.

Pursuant to the Cable Television Consumer Protection and Competition Act of 1992, or the 1992 Cable Act, we currently may demand carriage of our full power television stations on a specific channel on cable systems within our local markets. Alternatively, television stations may be carried on cable systems pursuant to retransmission consent agreements negotiated between the television station and the cable operator. Our television stations in Los Angeles, Houston, Dallas-Fort Worth, Denver and Salt Lake City currently rely on “must carry” rights to gain access to the local cable. Our low power television stations in San Diego, New York, and Chicago are carried by certain cable systems pursuant to retransmission consent agreements. We may acquire other full or low power television stations that secure cable carriage through retransmission consent agreements. If the current laws or regulations were changed or new laws were adopted that eliminate or limit our ability to require cable systems to carry our full power television stations and/or if we are unable to successfully negotiate for carriage through retransmission consent agreements, this could result in the loss of market coverage of our television stations, which would decrease our market ratings in those cities and potentially result in a decrease in our net advertising revenues or an increase in our operating expenses to maintain the same coverage.

Direct broadcast satellite companies may not continue to carry our local television stations, which could result in a decrease in our market ratings and a potential loss of advertising revenues.

Similar to the 1992 Cable Act, the 2010 Satellite Television Extension and Localism Act requires direct broadcast satellite companies that elect to transmit local television stations to offer all other qualified local television stations in that market. This is known as the “carry one/carry all” rule. We have qualified our television stations in Los Angeles, Houston, Dallas-Fort Worth, Denver and Salt Lake City under this rule, and these stations are currently being broadcast on the satellite systems electing to carry local television stations in those markets. Because we rely on the carry one/carry all rule in these markets, if the satellite providers in Los Angeles, Houston, Dallas-Fort Worth, Denver or Salt Lake City elect to discontinue transmitting local television stations or if the current laws or regulations were changed or new laws were adopted, this could result in the loss of market coverage of our television stations, which would decrease our market ratings in those cities and potentially result in a decrease in our net advertising revenues or an increase in our operating expenses to maintain the same coverage.

We may have difficulty obtaining regulatory approval for acquisitions in our existing markets and, potentially, new markets.

We have acquired in the past, and may continue to acquire in the future, additional television and radio stations. Revisions to the FCC’s restrictions on the number of stations or market share that a particular company may own or control, locally or nationally, and to its restrictions on cross-ownership (that is, ownership of both television and radio stations in the same market) may limit our ability to acquire additional broadcast properties. The agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission, or FTC, and the Department of Justice, may investigate certain acquisitions. These agencies have, in certain cases, examined proposed acquisitions or combinations of broadcasters, and in certain cases, required divestiture of one or more stations to complete a transaction.

Any decision by the Department of Justice or FTC to challenge a proposed acquisition could affect our ability to consummate an acquisition or to consummate it on the proposed terms. The FTC or Department of Justice could seek to bar us from acquiring additional television or radio stations in any market where our existing stations already have a significant market share.

We must respond to the rapid changes in technology, services and standards which characterize our industry in order to remain competitive.

The television and radio broadcasting industry is subject to technological change, evolving industry standards and the emergence of new media technologies, including the following:

 

   

audio programming by cable television systems, direct broadcast satellite systems, Internet content providers and Internet-based audio radio services;

 

   

satellite digital audio radio service with numerous channels and sound quality equivalent to that of compact discs;

 

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In-Band On-Channel ™ digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services;

 

   

low-power FM radio, with additional FM radio broadcast outlets that are designed to serve local interests;

 

   

streaming video programming delivered via the Internet;

 

   

high definition television programming;

 

   

video-on-demand programming offered by cable television and telephone companies; and

 

   

digital video recorders with hard-drive storage capacity that offer time-shifting of programming and the capability of deleting advertisements when playing back the recorded programs.

We may not have the resources to acquire new technologies or to introduce new services that could compete with other new technologies. We may encounter increased competition arising from new technologies. If we are unable to keep pace with and adapt our television and radio stations to these developments, our competitive position could be harmed, which could result in a decrease in our market ratings and a potential decrease in net advertising revenues.

Some of our future actions may require the consent of minority stockholders of our parent.

In connection with the sale of Liberman Broadcasting’s Class A common stock, our parent, Liberman Broadcasting, and stockholders of Liberman Broadcasting entered into an investor rights agreement on March 30, 2007. Pursuant to this investor rights agreement, as amended, some of the minority stockholders of Liberman Broadcasting have the right to consent, in their sole discretion, to certain transactions involving us, Liberman Broadcasting, and our subsidiaries, including, among other things, certain acquisitions or dispositions of assets by us, our parent, or our subsidiaries. As a result, we may not be able to complete certain desired transactions if we are unable to obtain the consent of the required stockholders.

Certain of our parent’s minority stockholders have rights under the investor rights agreement that may require our parent to register the resale of common stock held by those investors and list our parent’s common stock on an exchange. The obligations associated with being a publicly traded company will require significant resources, which may divert from our business operations.

Certain of the minority stockholders of our parent, Liberman Broadcasting, have the right to demand the registration of the resale of their shares of common stock of Liberman Broadcasting and the listing of the common stock on an exchange. Because our parent is a holding company with substantially no assets, operations or cash flows other than its investment in its subsidiaries, we may be required to incur substantial costs and expend significant resources in connection with such registration and listing that do not currently apply to us as a voluntary filer. We cannot predict or estimate the amounts of additional costs that we may incur in order to comply with the requirements of our parent being a publicly traded company. We anticipate that these costs will significantly increase Liberman Broadcasting’s and our general and administrative expenses.

 

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Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words like “may,” “will,” “could,” “continue,” “expect” and variations of these words or comparable words. Actual results could differ substantially from the results that the forward-looking statements suggest for various reasons. The risks and uncertainties include but are not limited to:

 

   

sufficient cash to meet our debt service obligations;

 

   

general economic conditions in the U.S. and in the regions in which operate;

 

   

our dependence on advertising revenues;

 

   

changes in rules and regulations of the FCC;

 

   

our ability to attract, motivate and retain officers and other key personnel;

 

   

our ability to successfully affiliate with radio and television stations or convert acquired radio and television stations to a Spanish-language format;

 

   

our ability to maintain FCC licenses for our radio and television stations;

 

   

successful integration of acquired radio and television stations;

 

   

potential disruption from natural hazards, equipment failure, power loss and other events or occurrences;

 

   

strong competition in the radio and television broadcasting industries;

 

   

our ability to remediate or otherwise mitigate our existing material weakness and any material weaknesses in internal control over financial reporting or significant deficiencies that may be identified in the future;

 

   

compliance with our restrictive covenants on our debt instruments; and

 

   

our ability to obtain regulatory approval for future acquisitions.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. The forward-looking statements in this Annual Report, as well as subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are hereby expressly qualified in their entirety by the cautionary statements in this report, including the risk factors noted elsewhere in this Annual Report, or other documents that we file from time to time with the Securities and Exchange Commission, particularly our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. We are not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

 

ITEM 2. PROPERTIES

The types of properties required to support our radio and television stations include offices, studios and transmitter and antenna sites. Through our indirect, wholly owned subsidiary, we own studio and office space at 1845 West Empire Avenue, Burbank, California 91504. This property is subject to a mortgage in favor of Jefferson Pilot Financial, with whom one of our indirect subsidiaries has entered into a loan agreement. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Empire Burbank Studios’ Mortgage Note.” We also own studio and office space at 1813 Victory Place, Burbank, California 91504 and at 2820 Hollywood Way, Burbank, California 91504. In addition, we own offices, studio and production facilities in Houston and Dallas, Texas for our operations there. We own a number of our transmitter and antenna sites and lease or license the remainder from third parties. We generally select our tower and antenna sites to provide maximum market coverage. In general, we do not anticipate difficulties in renewing these site leases. We believe our facilities are generally in good condition and suitable for our operations.

 

ITEM 3. LEGAL PROCEEDINGS

In 2008, we began negotiations with Broadcast Music, Inc. (“BMI”) relating to disputes over royalties owed to BMI. In October 2009, we settled all royalty disputes relating to our television stations as well as royalties owed for periods prior to December 31, 2006 for our radio stations. In June 2011, we settled royalty disputes relating to our radio stations for periods subsequent to January 1, 2010. The remaining outstanding dispute relates to our radio stations for the period commencing January 1, 2007, through December 31, 2009 (the “post-court period”) for which we have filed an application for a reasonable license under BMI’s antitrust consent decree. As of December 31, 2011, we had reserved approximately $0.8 million relating to the BMI dispute. Such reserve is included in accrued liabilities in the accompanying consolidated balance sheet. We believe this reserve, all of which relates to the post-court period, is adequate as of December 31, 2011.

 

 

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In June 2011, we settled a legal dispute related to a tortious interference claim by us, and recorded a $0.9 million gain related to the settlement. Of this amount, approximately $0.6 million was received in cash and the remaining $0.3 million represents the fair value of radio advertising credits which can be used by us over a 24-month period. Such gain is included in gain on legal settlement in the accompanying 2011 consolidated statement of operations.

We are subject to pending litigation arising in the normal course of business. While it is not possible to predict the results of such litigation, we do not believe the ultimate outcome of these matters will have a materially adverse effect on our financial positions or results of operations.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders

There is currently no established public trading market for the common stock of LBI Media Holdings, Inc. LBI Media Holdings, Inc. is a wholly owned subsidiary of Liberman Broadcasting, Inc., a Delaware corporation.

Dividends

LBI Media Holdings paid distributions to its parent of $0 and approximately $10,000 for the years ended December 31, 2011 and 2010, respectively. LBI Media’s senior secured revolving credit facility, the indentures governing its senior secured notes, its senior subordinated notes and LBI Media Holdings’ senior discount notes impose restrictions on the payment of cash dividends or payments on account of or on redemption, retirement or purchase of its common stock or other distributions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Securities Authorized for Issuance under Equity Compensation Plans

Not applicable.

Performance Graph

Not applicable.

Recent Sales of Unregistered Securities

LBI Media Holdings did not sell any securities during the fourth quarter of the fiscal year ended December 31, 2011.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

LBI Media Holdings has not reacquired any of its equity securities during the fourth quarter of the fiscal year ended December 31, 2011.

 

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data is derived from our audited consolidated financial statements. The financial data set forth below should be read in conjunction with, and is qualified in its entirety by, the corresponding audited consolidated financial statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 in this Annual Report.

 

$(182,170) $(182,170) $(182,170) $(182,170) $(182,170)
     Year Ended December 31,  
     2011     2010     2009     2008     2007  
     (in thousands)  

Consolidated Statement of Operations Data:

          

Net revenues:

          

Radio

   $ 55,004      $ 59,949      $ 59,120      $ 65,301      $ 59,846   

Television

     62,516        55,787        43,801        51,011        54,428   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     117,520        115,736        102,921        116,312        114,274   

Operating expenses (exclusive of deferred benefit, depreciation and amortization, loss on sale and disposal of property and equipment, gain on assignment of asset purchase agreement, gain on legal settlement, and impairment of broadcast licenses and long-lived assets shown below)

     91,199        81,630        68,303        73,092        66,788   

Deferred benefit

     —          —          —          —          (3,952

Depreciation and amortization

     10,584        10,042        9,703        9,943        8,936   

Loss on sale and disposal of property and equipment

     3,521        611        1,807        3,506        —     

Gain on assignment of asset purchase agreement

     —          (1,599     —          —          —     

Gain on legal settlement

     (900     —          —          —          —     

Proceeds from insurance claim

     (455     —          —          —          —     

Impairment of broadcast licenses and long-lived assets

     880        7,222        126,543        91,740        8,143   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     104,829        97,906        206,356        178,281        79,915   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     12,691        17,830        (103,435     (61,969     34,359   

Gain (loss) on note purchases and redemptions

     —          302        520        12,495        (8,776

Interest expense and other income, net

     (46,112     (33,106     (33,669     (36,993     (36,286

Interest rate swap income (expense)

     2,335        2,088        2,393        (3,433     (2,410

Equity in losses of equity method investment

     —          —          (112     (280     —     

Impairment of equity method investment

     —          —          —          (160     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before (provision for) benefit from income taxes

     (31,086     (12,886     (134,303     (90,340     (13,113

(Provision for) benefit from income taxes

     (1,912     (2,058     20,261        7,191        (44,561
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (32,998     (14,944     (114,042     (83,149     (57,674

Discontinued operations, net of income taxes (including gain on sale of assets of $1,245 in 2009)

     —          —          1,398        1,156        1,161   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (32,998   $ (14,944   $ (112,644   $ (81,993   $ (56,513
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Data:

          

Adjusted EBITDA (1)

   $ 27,703      $ 35,731      $ 34,646      $ 43,220      $ 43,844   

Cash interest expense (2)

   $ 40,224      $ 31,416      $ 31,672      $ 28,895      $ 29,653   

Cash flows (used in) provided by operating activities

   $ (21,287   $ (993   $ (2,108   $ 15,775      $ 7,099   

Cash flows used in investing activities

   $ (9,741   $ (21,982   $ (3,181   $ (17,537   $ (50,288

Cash flows provided by financing activities

   $ 31,896      $ 23,091      $ 5,017      $ 515      $ 43,385   

 

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$(182,170) $(182,170) $(182,170) $(182,170) $(182,170)
     Year Ended December 31,  
     2011     2010     2009     2008     2007  
     (in thousands)  

Balance Sheet Data:

          

Cash and cash equivalents

   $ 1,162      $ 294      $ 178      $ 450      $ 1,697   

Working capital

   $ 8,577      $ 3,455      $ 2,801      $ 2,798      $ 4,456   

Broadcast licenses, net

   $ 165,131      $ 166,653      $ 161,660      $ 292,343      $ 382,574   

Total assets

   $ 321,592      $ 310,952      $ 298,844      $ 428,187      $ 516,691   

Total debt

   $ 486,805      $ 445,371      $ 422,224      $ 417,345      $ 422,761   

Total stockholder’s (deficiency) equity

   $ (218,176   $ (182,170   $ (167,242   $ (54,519   $ 27,716   

 

(1) We define Adjusted EBITDA as net income or loss less discontinued operations, net of income taxes, plus provision for or benefit from income taxes, loss on sale and disposal of property and equipment, gain or loss on note purchases and redemptions, net interest expense and other income, interest rate swap expense or income, impairment of broadcast licenses and long-lived assets, depreciation and amortization, stock-based compensation expense, impairment of equity method investment and equity losses of equity method investment. Management considers this measure an important indicator of our financial performance relating to our operations because it eliminates the effects of our discontinued operations, certain non-cash items and our capital structure. In addition, it provides useful information to investors regarding our financial condition, results of operations and our historical ability to service debt. This measure 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 U.S. generally accepted accounting principles (“GAAP”), such as cash flows from operating activities, operating income or loss and net income or loss. In addition, our definition of Adjusted EBITDA may differ from those of many companies reporting similarly named measures.

We discuss Adjusted EBITDA and the limitations of this financial measure in more detail under “Item 7. Management’s Discussion and Analysis of Finance Condition and Results of Operations—Non-GAAP Financial Measure.”

The table set forth below reconciles net (loss) income, calculated and presented in accordance with GAAP, to Adjusted EBITDA:

 

     Year Ended December 31,  
     2011     2010     2009     2008     2007  
     (in thousands)  

Net (loss) income

   $ (32,998   $ (14,944   $ (112,644   $ (81,993   $ (56,513

Add:

          

Provision for (benefit from) income taxes

     1,912        2,058        (20,261     (7,191     44,561   

Interest expense and other income, net

     46,112        33,106        33,669        36,993        36,286   

Impairment of equity method investment

     —          —          —          160        —     

Equity in losses of equity method investment

     —          —          112        280        —     

Interest rate swap (income) expense

     (2,335     (2,088     (2,393     3,433        2,410   

Impairment of broadcast licenses and long-lived assets

     880        7,222        126,543        91,740        8,143   

Depreciation and amortization

     10,584        10,042        9,703        9,943        8,936   

Loss on sale and disposal of property and equipment

     3,521        611        1,807        3,506        —     

Stock-based compensation expense

     27        26        28        —          —     

Less:

          

Discontinued operations, net of income taxes

     —          —          (1,398     (1,156     (1,161

(Gain) loss on note purchases and redemptions

     —          (302     (520     (12,495     1,182   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 27,703      $ 35,731      $ 34,646      $ 43,220      $ 43,844   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Excluding the one-time charge of $7.6 million related to the early redemption premium paid on LBI Media’s 10 1/8% senior subordinated notes in 2007, Adjusted EBITDA for the year ended December 31, 2007 was $51.4 million. The following is a reconciliation of our Adjusted EBITDA, as reported, to our Adjusted EBITDA excluding this one-time redemption charge for the year ended December 31, 2007:

 

     2007  

Adjusted EBITDA, as reported

   $ 43,844   

Early redemption premium on 101/8% senior subordinated notes

     7,594   
  

 

 

 

Adjusted EBITDA, excluding one-time redemption charge

   $ 51,438   
  

 

 

 

 

(2) Represents cash paid for interest. Does not include accrued but unpaid interest expense.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We own and operate radio and television stations in Los Angeles (including Riverside and San Bernardino counties), California, Houston, Texas and Dallas, Texas and television stations in San Diego, California, Salt Lake City, Utah, Phoenix, Arizona, New York, New York, Denver, Colorado and Chicago, Illinois. Our radio stations consist of five FM and two AM stations serving Los Angeles, California and its surrounding areas, five FM and three AM stations serving Houston, Texas and its surrounding areas, and five FM stations and one AM station serving Dallas-Fort Worth, Texas and its surrounding areas. Our nine television stations consist of five full-power stations serving Los Angeles, California, Houston, Texas, Dallas-Fort Worth, Texas, Salt Lake City, Utah and Denver, Colorado. We also own four low-power television stations serving the San Diego, California, Phoenix, Arizona, New York, New York and Chicago, Illinois markets.

In addition, we operate two television production facilities in Burbank, California that we use to produce our core programming for all of our television stations. We also have television production facilities in Houston and Dallas-Fort Worth, Texas, that allow us to produce programming in those markets as well. We have entered into time brokerage agreements with third parties for three of our radio stations.

We are also affiliated with television stations in various states serving 31 DMAs, including seven each in California and Texas, four in Florida, two each in Arizona, Nevada and Oklahoma, and one each in Georgia, Nebraska, New Mexico, New York, North Carolina, Oregon and Washington. We distribute our EstrellaTV programming to these stations and we share in the available advertising time to be sold on these affiliate stations while our EstrellaTV programming is broadcasting. Our EstrellaTV network broadcasts in 39 DMAs that comprise approximately 76% of U.S. Hispanic television households. In addition to the advertising time we retain, through our wholly owned national sales organization, Spanish Media Rep Team, we also sell national air time for the affiliates and earn a commission based on those sales. In addition, we syndicate and air on our owned and operated radio stations our popular radio morning show, El Show de Don Cheto, in 21 markets.

We operate in two reportable segments, radio and television. We generate revenue from sales of local, regional and national (including network) advertising time on our owned and affiliated radio and television stations and the sale of time to brokered or infomercial customers on our radio and television stations. Since September 2009, we have begun generating advertising sales on our affiliated stations that broadcast our “EstrellaTV” network programming.

Advertising rates are, in large part, based on each station’s ability to attract audiences in demographic groups targeted by advertisers. Our stations compete for audiences and advertising revenue directly with other Spanish-language radio and television stations, and we generally do not obtain long-term commitments from our advertisers. As a result, our management team focuses on

 

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creating a diverse advertiser base, providing cost-effective advertising solutions for clients, executing targeted marketing campaigns to develop a local audience and implementing strict cost controls. We recognize revenues when the commercials are broadcast or the brokered time is made available to the customer. We incur commissions from agencies on local, regional and national (including network) advertising, and our net revenue reflects deductions from gross revenue for commissions to these agencies.

Our primary expenses are interest expense, programming and technical expenses, employee compensation, including commissions paid to our local and national sales staffs, promotion and selling expenses and general and administrative expenses. Our programming expenses for television consist of amortization of capitalized costs related to the production of original programming content, production of local and national newscasts and other daily programs and, to a lesser extent, the amortization of television programming content acquired from other sources. Because we are highly leveraged, we will need to dedicate a substantial portion of our cash flow from operations to pay interest on our debt. Our senior discount notes mature in October 2013. We intend to pursue one or more alternative strategies in the future to meet our upcoming debt obligations, such as refinancing or restructuring our indebtedness, selling equity securities or selling assets.

We are organized as a Delaware corporation. Prior to March 30, 2007, we were a qualified subchapter S subsidiary as we were deemed for tax purposes to be part of our parent, an S corporation under federal and state tax laws. Accordingly, our taxable income was reported by the stockholders of our parent on their respective federal and state income tax returns. As a result of the sale of Class A common stock of our parent (as described below under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”), Liberman Broadcasting, Inc., a Delaware corporation and successor in interest to LBI Holdings I, Inc., no longer qualified as an S Corporation, and none of its subsidiaries, including us, are able to qualify as qualified subchapter S subsidiaries. Thus, we have been taxed at regular corporate rates since March 30, 2007.

Recent Acquisitions

WVFW-LD. In July 2011, two of our indirect, wholly owned subsidiaries, KRCA Television LLC and KRCA License LLC, as buyers, entered into an asset purchase agreement with Claro Communications, LTD., as seller, pursuant to which the buyers have agreed to acquire selected assets of low-power television station WVFW, licensed to Miami, Florida, from the seller. The selected assets will include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the station and (ii) broadcast and other equipment used to operate the station. The total purchase price will be approximately $0.8 million in cash, subject to certain adjustments, of which $0.1 million has been deposited into escrow. Such escrow amount is included in other assets in the accompanying consolidated balance sheet as of December 31, 2011. Consummation of the acquisition is currently subject to customary closing conditions, including regulatory approval from the FCC. We expect to close this acquisition in the second quarter of 2012.

We generally experience lower operating margins for several quarters following the acquisition of radio and television stations. This is primarily due to the time it takes to fully implement our format changes, build our advertiser base and gain viewer or listener support.

Dispositions

KNTE-FM. In January 2012, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of Houston License LLC and Liberman Broadcasting of Houston LLC, as sellers, entered into an asset purchase agreement with KSBJ Educational Foundation, Inc., a Texas non-profit organization, as buyer, pursuant to which the buyer has agreed to acquire selected assets of radio station KNTE-FM, (96.9 FM, El Campo, Texas). The selected assets will include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the station and (ii) other equipment used to operate the station. The total sales price is expected to be approximately $2.1 million in cash, subject to certain adjustments, of which $0.2 million has been deposited into escrow. Consummation of the disposition is currently subject to customary closing conditions, including regulatory approval from the FCC. We expect to close this sale in the second quarter of 2012. The carrying value of KNTE-FM’s long lived assets including its FCC license was $0.7 million as of December 31, 2011.

KJOJ-AM. In January 2012, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of Houston License LLC and Liberman Broadcasting of Houston LLC, as sellers, entered into an asset purchase agreement with DAIJ Media, LLC, as buyer, pursuant to which the buyer has agreed to acquire selected assets of radio station KJOJ-AM, (Conroe, Texas, Facility No. 20625). The selected assets will include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the station and (ii) other equipment used to operate the station. The total sales price is expected to be approximately $1.0 million in cash, subject to certain adjustments, of which $0.1 million has been deposited into escrow. Consummation of the disposition is currently subject to customary closing conditions, including regulatory approval from the FCC. We expect to close this sale in the second quarter of 2012. The carrying value of KJOJ-AM’s long lived assets including its FCC license was $0.2 million as of December 31, 2011.

 

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From time to time, we engage in discussions with third parties concerning the possible acquisition and/or divestiture of radio or television stations and their related assets. Any such discussions may or may not lead to our acquisition and/or divestiture of broadcasting assets.

Sale and Issuance of Liberman Broadcasting’s Class A Common Stock

In March 2007, our parent, Liberman Broadcasting, sold shares of its Class A common stock to affiliates of Oaktree Capital Management, LLC, or Oaktree, and Tinicum Capital Partners II, L.P., or Tinicum. In connection with the sale of Liberman Broadcasting’s Class A common stock, Liberman Broadcasting and its stockholders entered into an investor rights agreement that defines certain rights and obligations of Liberman Broadcasting and the stockholders of Liberman Broadcasting. Pursuant to this investor rights agreement, certain investors have the right to consent to certain transactions involving us, Liberman Broadcasting, and our subsidiaries, including:

 

   

certain acquisitions or dispositions of assets by us, Liberman Broadcasting and our subsidiaries;

 

   

certain transactions between us, Liberman Broadcasting and our subsidiaries, on the one hand, and Jose Liberman, our chairman and LBI Media’s chairman, Lenard Liberman, our chief executive officer, president and secretary and LBI Media’s chief executive officer, president and secretary, or certain of their respective family members, on the other hand;

 

   

certain issuances of equity securities to employees or consultants of ours, Liberman Broadcasting, and our subsidiaries;

 

   

certain changes in the compensation arrangements with Jose Liberman, Lenard Liberman or certain of their respective family members;

 

   

material modifications in our business strategy and the business strategy of Liberman Broadcasting and our subsidiaries;

 

   

commencement of a bankruptcy proceeding related to us, Liberman Broadcasting, and our subsidiaries;

 

   

certain changes in Liberman Broadcasting’s corporate form to an entity other than a Delaware corporation;

 

   

any change in Liberman Broadcasting’s auditors to a firm that is not a big four accounting firm; and

 

   

certain change of control transactions.

Under the investor rights agreement, our parent has granted the investors and other holders of Liberman Broadcasting’s common stock the right to require Liberman Broadcasting in certain circumstances to use its best efforts to register the resale of their shares of Liberman Broadcasting’s common stock under the Securities Act of 1933, as amended, or Securities Act. Among other registration rights, Liberman Broadcasting has granted the investors the right to require the registration of the resale of their shares and the listing of our parent’s common stock on an exchange, so long as the holders of a majority of Liberman Broadcasting’s common stock that are held by either Oaktree or Tinicum or their permitted transferees request such registration and listing.

Liberman Broadcasting is responsible for paying all registration expenses in connection with any demand registration pursuant to the investors rights agreement, including the reasonable fees of one counsel chosen by the investors participating in such demand registration, but excluding any underwriters’ discounts and commissions. If after the termination of two best efforts attempts to consummate a demand registration, the investors request another demand registration, the investors that elect to participate in the demand registration will be responsible for paying all above referenced registration expenses in connection with any additional attempt to consummate such demand registration.

Liberman Broadcasting has agreed to indemnify each of the investors party to the investors rights agreement against certain liabilities under the Securities Act in connection with any registration of their registrable shares.

 

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Results of Operations

Separate financial data for each of our operating segments is provided below. We evaluate the performance of our operating segments based on the following:

 

$180,339 $180,339 $180,339
     Year Ended December 31,  
     2011     2010     2009  
     (in thousands)  

Net revenues:

      

Radio

   $ 55,004      $ 59,949      $ 59,120   

Television

     62,516        55,787        43,801   
  

 

 

   

 

 

   

 

 

 

Total

   $ 117,520      $ 115,736      $ 102,921   
  

 

 

   

 

 

   

 

 

 

Total operating expenses before gain on assignment of asset purchase agreement, gain on legal settlement, proceeds from insurance claim, depreciation and amortization, loss on sale and disposal of property and equipment, impairment of broadcast licenses and long-lived assets, and stock-based compensation expense:

      

Radio

   $ 32,576      $ 33,288      $ 34,597   

Television

     58,596        48,316        33,678   
  

 

 

   

 

 

   

 

 

 

Total

   $ 91,172      $ 81,604      $ 68,275   
  

 

 

   

 

 

   

 

 

 

Gain on assignment of asset purchase agreement:

      

Radio

   $ —        $ (1,599   $ —     

Television

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total

   $ —        $ (1,599   $ —     
  

 

 

   

 

 

   

 

 

 

Gain on legal settlement:

      

Radio

   $ (900   $ —        $ —     

Television

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total

   $ (900   $ —        $ —     
  

 

 

   

 

 

   

 

 

 

Proceeds from insurance claim:

      

Radio

   $ (262   $ —        $ —     

Television

     (193     —          —     
  

 

 

   

 

 

   

 

 

 

Total

   $ (455   $ —        $ —     
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

      

Radio

   $ 5,238      $ 5,355      $ 4,841   

Television

     5,346        4,687        4,862   
  

 

 

   

 

 

   

 

 

 

Total

   $ 10,584      $ 10,042      $ 9,703   
  

 

 

   

 

 

   

 

 

 

Loss on sale and disposal of property and equipment:

      

Radio

   $ 223      $ 299      $ 182   

Television

     3,298        312        1,625   
  

 

 

   

 

 

   

 

 

 

Total

   $ 3,521      $ 611      $ 1,807   
  

 

 

   

 

 

   

 

 

 

Impairment of broadcast licenses and long-lived assets:

      

Radio

   $ —        $ 39      $ 79,040   

Television

     880        7,183        47,503   
  

 

 

   

 

 

   

 

 

 

Total

   $ 880      $ 7,222      $ 126,543   
  

 

 

   

 

 

   

 

 

 

Stock-based compensation expense:

      

Corporate

   $ 27      $ 26      $ 28   
  

 

 

   

 

 

   

 

 

 

Total

   $ 27      $ 26      $ 28   
  

 

 

   

 

 

   

 

 

 

Operating income (loss):

      

Radio

   $ 18,129      $ 22,567      $ (59,540

Television

     (5,411     (4,711     (43,867

Corporate

     (27     (26     (28
  

 

 

   

 

 

   

 

 

 

Total

   $ 12,691      $ 17,830      $ (103,435
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1):

      

Radio

   $ 23,590      $ 28,260      $ 24,523   

 

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$180,339 $180,339 $180,339
     Year Ended December 31,  
     2011      2010      2009  
     (in thousands)  

Television

     4,113         7,471         10,123   

Corporate

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 27,703       $ 35,731       $ 34,646   
  

 

 

    

 

 

    

 

 

 

Total assets:

        

Radio

   $ 179,222       $ 180,339       $ 182,242   

Television

     117,351         117,867         101,450   

Corporate

     25,019         12,746         15,152   
  

 

 

    

 

 

    

 

 

 

Total

   $ 321,592       $ 310,952       $ 298,844   
  

 

 

    

 

 

    

 

 

 

 

(1) We define Adjusted EBITDA as net income or loss less discontinued operations, net of income taxes, plus provision for or benefit from income taxes, loss on sale and disposal of property and equipment, gain or loss on note purchases and redemptions, net interest expense and other income, interest rate swap expense or income, impairment of broadcast licenses and long-lived assets, depreciation and amortization, stock-based compensation expense, impairment of equity method investment and equity losses of equity method investment. We discuss Adjusted EBITDA and the limitations of this financial measure in more detail under “—Non-GAAP Financial Measures.”

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net Revenues. Net revenues increased by $1.8 million, or 1.5%, to $117.5 million for the year ended December 31, 2011, from $115.7 million in 2010. This change was primarily attributable to increased advertising revenue from our television segment, partially offset by a decline in our radio segment.

Net revenues for our radio segment declined by $4.9 million, or 8.2%, to $55.0 million for the year ended December 31, 2011, from $59.9 million for the same period in 2010. This change was primarily attributable to declines in advertising revenue in our Dallas, Houston and Los Angeles markets, partially offset by an increase in syndication revenues generated by our programs featuring Don Cheto.

Net revenues for our television segment increased by $6.7 million, or 12.1%, to $62.5 million for the year ended December 31, 2011, from $55.8 million in 2010. This increase was primarily attributable to increased revenue from our EstrellaTV national television network and a full year of revenue from our Denver station, KETD-TV that we acquired in June 2010 and began fully operating in the fourth quarter 2010.

We currently expect net revenue to increase in 2012 as compared to 2011 in both our radio and television segments, primarily due to projected improvements in the U.S. national and local economies, which we expect to result in increased advertising time sold and higher rates. We also expect our net revenues to benefit from the continued expansion of our EstrellaTV national television network.

Total operating expenses. Total operating expenses increased by $6.9 million, or 7.1%, to $104.8 million for the year ended December 31, 2011 from $97.9 million for the same period in 2010. This change was primarily attributable to:

 

  (1) a $5.0 million increase in program and technical expenses, which resulted from (a) an increase in amortization of capitalized costs related to the production of original programming content and (b) incremental costs related to our EstrellaTV network;

 

  (2) a $3.9 million increase in selling, general and administrative expenses primarily related to (a) additional costs related to the expansion of our EstrellaTV network, including additional sales staff and costs related to our advertising “upfront” presentations, (b) incremental costs related to our Denver station, KETD-TV, which began fully operating in the fourth quarter 2010, (c) a $0.7 million charge related to a legal settlement and (d) an increase in legal fees and employee related costs;

 

  (3) a $2.9 million increase in loss on disposal of property and equipment, primarily related to the disposal of certain analog television transmission equipment and obsolete television stage props and other equipment;

 

  (4) the absence in 2011 of the $1.6 million gain on assignment of the asset purchase agreement to acquire radio station KDES-FM; and

 

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  (5) a $1.2 million increase in promotional expenses and depreciation and amortization expense.

These increases in total operating expenses were partially offset by (1) a $6.3 million decrease in broadcast licenses and long-lived asset impairment charges, (2) a $0.9 million gain related to a certain legal settlement and (3) the $0.5 million proceeds received from an insurance claim.

Total operating expenses for our radio segment decreased by $0.5 million, or 1.3%, to $36.9 million for the year ended December 31, 2011, from $37.4 million in 2010. This change was primarily attributable to (1) a $0.9 million gain related to a certain legal settlement, (2) a $0.9 million decrease in promotional expenses, (3) $0.3 million of proceeds received from an insurance claim, (3) a $0.1 million decrease in loss on disposal of property and equipment and depreciation and amortization expense, and (4) a $0.1 million decrease in selling, general and administrative expenses. These decreases were partially offset by (1) a $1.6 million decrease in gain on assignment of the asset purchase agreement to acquire radio station KDES-FM, and (2) a $0.2 million increase in program and technical expenses and promotional expenses.

Total operating expenses for our television segment increased by $7.4 million, or 12.3%, to $67.9 million for the year ended December 31, 2011, from $60.5 million for the same period in 2010. This change was primarily attributable to:

 

  (1) a $4.7 million increase in program and technical expenses, which resulted from (a) an increase in amortization of capitalized costs related to the production of original programming content and (b) incremental costs related to our EstrellaTV network;

 

  (2) a $4.0 million increase in selling, general and administrative expenses primarily related to (a) additional costs related to the expansion of our EstrellaTV network, including additional sales staff and costs related to our advertising “upfront” presentations, (b) incremental costs related to our Denver station, KETD-TV, acquired in June 2010, which began fully operating in the fourth quarter 2010, (c) a $0.7 million charge related to a legal settlement and (d) an increase in legal fees and employee related costs;

 

  (3) a $3.0 million increase in loss on disposal of property and equipment, primarily related to the disposal of certain analog television transmission equipment and obsolete television stage props and other equipment;

 

  (4) a $1.6 million increase in promotional expenses; and

 

  (5) a $0.6 million increase in depreciation and amortization expense.

These increases were partially offset by (1) a $6.3 million decrease in broadcast license and long-lived asset impairment charges, and (2) a $0.2 million proceeds received from an insurance claim.

We currently anticipate that our total operating expenses, before consideration of any impairment charges, will increase in 2012 as compared to 2011. We anticipate higher programming costs for our television segment and increased personnel and promotional expenses relating to the expansion of our EstrellaTV network. This expectation could be impacted by the number and size of additional radio and television assets that we acquire, if any, during 2012.

Gain on note purchases. During the year ended December 31, 2010, we purchased approximately $3.6 million, aggregate principal amount of our outstanding 11% senior discount notes in open market transactions. We purchased these notes at discounts to face value, and accordingly recorded a pre-tax gain of approximately $0.3 million during the year ended December 31, 2010. We did not purchase any 11% senior discount notes in 2011. See “Liquidity and Capital Resources—Senior Discount Notes”.

Interest expense and interest and other income, net. Interest expense and other income, net, increased by $13.0 million, or 39.3%, to $46.1 million for the year ended December 31, 2011, from $33.1 million for the corresponding period in 2010, as a result of the March 2011 refinancing of LBI Media’s former senior secured credit facilities that were scheduled to mature in March 2012, with $220.0 million of 9 1/4% senior secured notes and LBI Media’s new $50.0 million senior secured revolving credit facility. This transaction resulted in (1) the write-off of $1.0 million of deferred financing costs associated with LBI Media’s former senior credit facilities and (2) higher weighted average interest rates and outstanding balances on our long-term debt.

Our interest expense may increase in 2012 if we borrow additional amounts under LBI Media’s senior secured revolving credit facility to fund operations or acquire additional radio or television station assets, or if we incur additional long-term debt.

Interest rate swap income (expense). Interest rate swap income was $2.3 million for the year ended December 31, 2011, as compared to income of $2.1 million for 2010, a change of $0.2 million. Interest rate swap income reflects changes in the estimated fair market value of our interest rate swap during the respective period.

 

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Provision for (benefit from) income taxes. During the year ended December 31, 2011, we recorded income tax expense of $1.9 million as compared to $2.1 million for the same period in 2010.

Net loss. We recognized a net loss of $33.0 million for the year ended December 31, 2011, as compared to a net loss of $14.9 million for the same period of 2010, a change of $18.1 million. The change was primarily attributable to a $13.1 million increase in interest expense and a $5.0 million increase in program and technical expenses primarily related to the amortization of capitalized costs of original programming and other factors noted above.

Adjusted EBITDA. Adjusted EBITDA decreased by $8.0 million, or 22.5%, to $27.7 million for the year ended December 31, 2011, as compared to $35.7 million for the same period in 2010. This change was primarily attributable to the increase in program and technical expenses and the increase in selling, general and administrative expenses as noted above.

Adjusted EBITDA for our radio segment decreased by $4.6 million, or 16.5%, to $23.6 million for the year ended December 31, 2011, as compared to $28.2 million in 2010. The decrease was primarily the result of the decrease in net revenues.

Adjusted EBITDA for our television segment decreased by $3.4 million, or 45.0%, to $4.1 million for the year ended December 31, 2011, from $7.5 million for the same period in 2010. This decrease was primarily the result of higher program and technical costs and selling, general and administrative expenses, partially offset by an increase in advertising revenues.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Net Revenues. Net revenues increased by $12.8 million, or 12.5%, to $115.7 million for the year ended December 31, 2010, from $102.9 million in 2009. The change was primarily attributable to increased advertising revenue from our EstrellaTV national network, as well as modest overall revenue growth from both our owned and operated stations in our television and radio segments.

Net revenues for our radio segment increased by $0.8 million, or 1.4%, to $59.9 million for the year ended December 31, 2010, from $59.1 million for the same period in 2009. This change was primarily attributable to a modest increase in advertising revenue in our Dallas market, partially offset by slight declines in our Southern California and Houston markets.

Net revenues for our television segment increased by $12.0 million, or 27.4%, to $55.8 million for the year ended December 31, 2010, from $43.8 million in 2009. This increase was primarily attributable to increased advertising revenue in our television segment, reflecting incremental revenue from our EstrellaTV national television network, as well as growth in our California and Texas markets. This net revenue growth was consistent throughout the year as our owned and operated television station group increased by $0.2 million, $0.6 million, $0.5 million and $0.7 million in the fourth, third, second and first quarters of 2010, respectively, as compared to the same quarterly periods in 2009.

Total operating expenses. Total operating expenses decreased by $108.4 million, or 52.6%, to $97.9 million for the year ended December 31, 2010 from $206.3 million for the same period in 2009. The decrease was primarily attributable to a $119.3 million decrease in broadcast license and long-lived asset impairment charges. Excluding the impact of the impairment charges, total operating expenses increased by $10.9 million, or 13.6%, to $90.7 million for the year ended December 31, 2010. This increase was primarily attributable to a $13.4 million increase in program and technical expenses, resulting from (a) an increase in amortization of capitalized costs related to the production of original programming content and (b) incremental costs related to our EstrellaTV network including satellite costs, ratings service costs, and related costs.

These increases were partially offset by a $1.6 million gain on our assignment of an asset purchase agreement to acquire the selected assets of a radio station to a third party and a $1.2 million reduction in loss on sale and disposal of property and equipment, resulting from the absence in 2010 of the disposal of certain analog television transmission equipment.

Total operating expenses for our radio segment decreased by $81.3 million, or 68.5%, to $37.4 million for the year ended December 31, 2010, from $118.7 million in 2009. This change was primarily attributable to (a) a $79.0 million decrease in broadcast license and long-lived asset impairment charges, (b) a $1.6 million gain on our assignment of an asset purchase agreement to a third party, (c) a $0.9 million decrease in selling, general, and administrative, primarily reflecting lower bad debt reserves and professional fees and (d) a $0.5 million decrease in program and technical expenses, primarily reflecting a reduction in music license fees. These decreases were partially offset by a $0.6 million increase in depreciation and amortization expenses and loss on sale and disposal of property and equipment.

 

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Total operating expenses for our television segment decreased by $27.2 million, or 31.0%, to $60.5 million for the year ended December 31, 2010, from $87.7 million for the same period in 2009. This change was primarily attributable to a $40.3 million decrease in broadcast license and long-lived asset impairment charges. Excluding the impact of the impairment charges, total operating expenses increased by $13.1 million, or 32.7%, to $53.3 million for the year ended December 31, 2010. This increase was primarily due to an $13.9 million increase in programming and technical expenses, resulting from increased amortization of capitalized television production costs and incremental costs related to our EstrellaTV network, and a $0.7 million increase in selling, general and administrative expenses primarily due to additional sales personnel for the network, partially offset by a $1.3 million reduction in loss on sale and disposal of property and equipment, resulting from the absence in 2010 of the disposal of certain analog transmission equipment.

Gain on note purchases. During the years ended December 31, 2010 and 2009, we purchased approximately $3.6 million and $1.0 million, respectively, aggregate principal amount of our outstanding 11% senior discount notes in open market transactions. We purchased these notes at discounts to face value, and accordingly recorded a pre-tax gain of approximately $0.3 million and $0.5 million during the years ended December 31, 2010 and 2009, respectively. See “Liquidity and Capital Resources—Senior Discount Notes”.

Interest expense and interest and other income, net. Interest expense and other income, net, decreased by $0.6 million, or 1.7%, to $33.1 million for the year ended December 31, 2010, from $33.7 million for the corresponding period in 2009. Although the average debt balance increased, our weighted average interest rate was lower during the year ended December 31, 2010, as compared to the same period in 2009.

Interest rate swap income (expense). Interest rate swap income (expense) was income of $2.1 million for the year ended December 31, 2010, as compared to income of $2.4 million for 2009, a change of $0.3 million. Interest rate swap income (or expense) reflects changes in the estimated fair market value of our interest rate swap during the respective period.

Equity in losses of equity method investment. In April 2008, one of our indirect, wholly owned subsidiaries purchased a 30% interest in PortalUno, Inc., or PortalUno, a development stage, online search engine for the Hispanic community. As of January 2010, our share of PortalUno’s cumulative losses had exceeded the cost basis of our investment in PortalUno, and accordingly, no losses related to this equity method investment were recorded during 2010. Equity in losses of equity method investment of $0.1 million for the year ended December 31, 2009 represented our share of PortalUno’s loss for that year.

Provision for (benefit from) income taxes. During the year ended December 31, 2010, we recorded income tax expense of $2.1 million as compared to a benefit of $20.3 million for the same period in 2009. The $22.4 million change in income tax expense is primarily attributable to changes in our deferred tax (and related valuation allowance) account balances associated with our indefinite-lived assets, resulting from higher broadcast license impairment charges recorded in 2009 as compared to 2010.

Discontinued operations, net of income taxes. In December 2009, we completed the sale of radio station KSEV-AM in our Texas market for approximately $6.5 million in cash. In accordance with Accounting Standards Codification (“ASC”) 360-10 “Discontinued Operations”, or ASC 360-10, we reported the operating results KSEV-AM in discontinued operations within the accompanying consolidated statements of operations for all periods presented. Discontinued operations, net of income taxes, was $1.4 million for the year ended December 31, 2009.

Net loss. We recognized a net loss of $14.9 million for the year ended December 31, 2010, as compared to a net loss of $112.6 million for the same period of 2009, a change of $97.7 million. The change was primarily attributable to a $119.3 million decrease in broadcast license and long-lived asset impairment charges, partially offset by a $22.3 million increase in income tax expense and other factors noted above.

Adjusted EBITDA. Adjusted EBITDA increased by $1.1 million, or 3.2%, to $35.7 million for the year ended December 31, 2010, as compared to $34.6 million for the same period in 2009. This change was primarily attributable to the increase in revenues in our television segment and the $1.6 million gain on assignment of an asset purchase agreement to a third party, partially offset by the increase in program and technical expenses.

Adjusted EBITDA for our radio segment increased by $3.7 million, or 15.1%, to $28.2 million for the year ended December 31, 2010, as compared to $24.5 million in 2009. The increase was primarily the result of the $1.6 million gain on assignment of an asset purchase agreement to a third party, higher net revenues and decreases in program and technical and selling, general and administrative expenses.

 

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Adjusted EBITDA for our television segment decreased by $2.6 million, or 25.7%, to $7.5 million for the year ended December 31, 2010, from $10.1 million for the same period in 2009. This decrease was primarily the result of higher program and technical costs and selling, general and administrative expenses, partially offset by an increase in advertising revenues.

For a reconciliation of Adjusted EBITDA to net (loss) income, see footnote (2) under “Item 6. Selected Financial Data.”

Liquidity and Capital Resources

Our primary sources of liquidity are cash from operations and available borrowings under LBI Media’s $50.0 million senior secured revolving credit facility. Because we are highly leveraged, we dedicate a substantial portion of available cash to pay principal and interest on outstanding debt. Given the challenges in the current economic environment related to advertising revenue growth and our continued investment in television programming content, we have recently experienced high levels of cash used in operating activities. As a result of these conditions, and in light of the recurring debt service obligations we may need to pursue one or more alternative strategies to pay our debts, such as, reduction of operating expenses, refinancing or restructuring our indebtedness, selling additional debt or equity securities or selling assets. Because LBI Media has also pledged substantially all of its assets to its existing lender and holders of LBI Media’s senior secured notes, we may not be able to refinance our existing debt or issue additional debt or equity securities on favorable terms, if at all, and if we must sell our assets, it may negatively affect our ability to generate net revenues. We have available borrowing capacity under LBI Media’s senior secured revolving credit facility which we believe will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months.

LBI Media’s Senior Secured Revolving Credit Facility. In March 2011, LBI Media refinanced its prior $150.0 million senior secured revolving credit facility and $110.0 million senior secured term loan facility with $220.0 million in senior secured notes (discussed below) and a $50.0 million senior secured revolving credit facility pursuant to a new credit agreement. The senior secured revolving credit facility includes a $7.5 million swing line sub-facility and allows for letters of credit up to the lesser of $5.0 million or the available remaining revolving commitment amount. There are no scheduled reductions of commitments under the senior secured revolving credit facility. The senior secured revolving credit facility matures in March 2016.

Borrowings under the senior secured revolving credit facility bear interest based on either, at the option of LBI Media, the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin. The base rate will be the higher of (i) Credit Suisse’s prime rate and (ii) the Federal Funds Effective Rate (as published by the Federal Reserve Bank of New York) plus 0.50%. The applicable margin for loans under the senior secured revolving credit facility is 3.75% per annum for base rate loans and 4.75% per annum for LIBOR loans. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable either monthly, bimonthly or quarterly depending on the interest period elected by LBI Media. All amounts that are not paid when due under the senior secured revolving credit facility will accrue interest at the rate otherwise applicable plus 2.00% until such amounts are paid in full. In addition, LBI Media will pay quarterly in arrears an unused commitment fee of 0.75% per annum.

The senior secured revolving credit facility is guaranteed on a senior secured basis by all of LBI Media’s existing and future wholly owned domestic subsidiaries. Borrowings under the senior secured revolving credit facility are secured by substantially all of the assets of LBI Media and the guarantors (other than the assets of our indirect, wholly owned subsidiary, Empire Burbank Studios, LLC, or Empire), including a first priority pledge of all capital stock of each of LBI Media’s domestic subsidiaries. The senior secured revolving credit facility also contains customary covenants that, among other things, restrict the ability of LBI Media and its restricted subsidiaries to: (i) incur or guaranty additional debt; (ii) engage in mergers, acquisitions and asset sales; (iii) make loans and investments; (iv) declare and pay dividends or redeem or repurchase capital stock; (v) transact with affiliates; and (vi) engage in different lines of business. All of these covenants are subject to a number of important limitations and exceptions under the agreements governing the senior secured revolving credit facility. Under the senior secured revolving credit facility, LBI Media must also maintain its material FCC licenses and maintain an amount of revolver facility indebtedness (which, as defined in the credit agreement, includes only amounts outstanding under LBI Media’s senior secured revolving credit facility and does not include LBI Media’s senior secured notes and the mortgage notes of Empire) that would not result in a ratio of revolver facility debt to EBITDA (as defined in the credit agreement) of more than 3.5 to 1.0. As of December 31, 2011, LBI Media was in compliance with all such covenants.

In connection with LBI Media’s entry into the credit agreement relating to the senior secured revolving credit facility and the indenture relating to its 9¼% senior secured notes, LBI Media and the guarantors of the senior secured revolving credit facility and its 9¼% senior secured notes also entered into a collateral trust and intercreditor agreement, or the Intercreditor Agreement. The Intercreditor Agreement defines the relative rights of the lenders under the senior secured revolving credit facility and the holders of the 9¼% senior secured notes with respect to the collateral securing LBI Media’s and the guarantors’ respective obligations under the senior secured revolving credit facility and the 9¼% senior secured notes. Pursuant to the Intercreditor Agreement, amounts received upon the sale of collateral securing the senior secured revolving credit facility and the 9¼% senior secured notes following an event of default will be applied first to repay indebtedness under the senior secured revolving credit facility and then to repay indebtedness under the 9¼% senior secured notes and any future indebtedness sharing priority with the 9¼% senior secured notes with respect to such repayments.

The indenture governing LBI Media’s 8 1/2% senior subordinated notes prohibits borrowing under the senior secured revolving credit facility, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes (discussed below) earlier than one year prior to their stated maturity.

As of December 31, 2011, no amounts were outstanding under the senior secured revolving credit facility. Since December 31, 2011, LBI Media has borrowed, net of repayments, approximately $5.4 million under its senior secured revolving credit facility.

LBI Media’s 9 1/4% Senior Secured Notes due 2019. In March 2011, LBI Media issued approximately $220.0 million aggregate principal amount of 9 1/4% senior secured notes due 2019. The 9 1/4% senior secured notes were sold at 98.594% of the principal amount, resulting in gross proceeds of approximately $216.9 million. LBI Media used the net proceeds to repay all outstanding borrowings under its prior $150.0 million senior secured revolving credit facility and $110.0 million senior secured term loan.

The 9 1/4% senior secured notes are guaranteed on a senior secured basis by all of LBI Media’s existing and future wholly owned domestic subsidiaries. Subject to certain exceptions and permitted liens, the 9 1/4% senior secured notes and the guarantees are secured on a first priority basis, along with indebtedness under LBI Media’s senior secured revolving credit facility, by liens on substantially all of LBI Media’s and the guarantors’ assets (other than the assets of Empire), including a first priority pledge of all capital stock of each of LBI Media’s domestic subsidiaries. As discussed above, pursuant to the Intercreditor Agreement, amounts received upon sale of the collateral securing the 9 1/4% senior secured notes following an event of default will be applied first to repay indebtedness under LBI Media’s senior secured revolving credit facility and then to repay indebtedness under the 9 1/4% senior secured notes and any future indebtedness sharing priority with the 9 1/4% senior secured notes with respect to such repayments.

The 9 1/4% senior secured notes bear interest at a rate of 9 1/4% per annum. Interest payments are made on a semi-annual basis each April 15 and October 15, and payments commenced on October 15, 2011. The 9 1/4% senior secured notes will mature in April 2019. LBI Media may redeem the 9 1/4% senior secured notes at any time on or after April 15, 2015 at redemption prices on redemption dates specified in the indenture governing the notes, plus accrued and unpaid interest. At any time prior to April 15, 2015, LBI Media may redeem some or all of its 9 1/4% senior secured notes at a redemption price equal to a 100% of the principal amount of the 9 1/4% senior secured notes plus a “make-whole” amount specified in the indenture. Also, LBI Media may redeem up to 35% of the aggregate principal amount of the 9 1/4% senior secured notes with the net proceeds from certain equity offerings completed prior to April 15, 2015 at a redemption price of 109.25% of the principal amount of the 9 1/4% senior secured notes, plus accrued and unpaid interest, if any; provided that at least 65% of the aggregate principal amount of all 9 1/4% senior secured notes remain outstanding immediately after such redemption, subject to certain exceptions, and that such redemption occurs within 90 days of the date of closing of any such equity offering.

In addition, upon a change of control, as defined in the indenture governing the 9 1/4% senior secured notes, LBI Media must make an offer to repurchase all of the outstanding 9 1/4% senior secured notes, at a purchase price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest.

The indenture governing the 9 1/4% senior secured notes contains customary covenants that limit the ability of LBI Media and its subsidiaries to, among other things: (i) incur or guaranty additional indebtedness or issue certain preferred stock; (ii) pay dividends or distributions on, or redeem or repurchase, capital stock; (iii) make investments and other restricted payments; (iv) incur liens; (v) apply the proceeds from certain asset sales; (vi) consummate any merger, consolidation or sale of substantially all assets; (vii) enter into or engage in certain transactions with affiliates; and (viii) engage in certain business or activities. All of these covenants are subject to a number of important limitations and exceptions. For example, LBI Media and its restricted subsidiaries are allowed to incur additional indebtedness, in addition to certain specified debt that is permitted, and issue certain kinds of equity, in each case so long as its leverage ratio (as defined in the indenture) does not exceed 7.0 to 1.0. LBI Media may also incur certain additional senior secured debt so long as after giving effect to the granting of such additional senior secured debt, LBI Media’s consolidated secured leverage ratio (as defined in the indenture) does not exceed (i) 4.0 to 1.0 (excluding certain subordinated and junior secured indebtedness) in the case of certain senior secured debt or other indebtedness of LBI Media or any of its subsidiaries (except Empire) that are pari passu with LBI Media’s 9¼% senior secured notes and other senior secured debt or (ii) 5.0 to 1.0 in the case of secured indebtedness that is subordinated or junior to LBI Media’s 9¼% senior secured notes and other senior secured debt. As of December 31, 2011, LBI Media was in compliance with all such covenants.

 

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The indenture governing the 9 1/4% senior secured notes and the related security agreement provide for customary events of default (subject in certain instances to cure periods and dollar thresholds), including but not limited to the failure to make payments of interest or premium, if any, on or principal of, the 9 1/4% senior secured notes, the failure to comply with certain covenants for a period of time after notice has been provided, the acceleration of other indebtedness resulting from the failure to pay principal on such other indebtedness prior to its maturity, and certain events of insolvency. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the outstanding 9 1/4% senior secured notes may become due and payable immediately.

LBI Media’s 8  1/2% Senior Subordinated Notes. In July 2007, LBI Media issued approximately $228.8 million aggregate principal amount of 8  1/2% senior subordinated notes that mature in 2017, resulting in gross proceeds of approximately $225.0 million and net proceeds of approximately $221.6 million after deducting certain transaction costs. Under the terms of LBI Media’s 8  1/2% senior subordinated notes, it must pay semi-annual interest payments of approximately $9.7 million each February 1 and August 1. LBI Media may redeem the 8  1/2% senior subordinated notes at any time on or after August 1, 2012 at redemption prices specified in the indenture governing its 8  1/2% senior subordinated notes, plus accrued and unpaid interest. At any time prior to August 1, 2012, LBI Media may redeem some or all of its 8  1/2% senior subordinated notes at a redemption price equal to a “make whole” amount as set forth in the indenture governing such senior subordinated notes.

The indenture governing the 8½% senior subordinated notes contains restrictive covenants that limit the ability of LBI Media and its subsidiaries to, among other things: (i) incur or guaranty additional indebtedness or issue certain preferred stock; (ii) pay dividends or distributions on, or redeem or repurchase, capital stock, (iii) make investments and other restricted payments, (iv) incur certain liens; (v) apply the proceeds from certain asset sales; (vi) consummate any merger, consolidation or sale of substantially all assets, (vii) enter into or engage in certain transactions with affiliates; and (viii) engage in certain business or activities. The indenture governing LBI Media’s 8 1/2% senior subordinated notes also prohibits the incurrence of indebtedness, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes earlier than one year prior to the stated maturity of the senior discount notes unless such indebtedness is (i) unsecured, (ii) pari passu or junior in right of payment to the 8  1/2% senior subordinated notes of LBI Media, and (iii) otherwise permitted to be incurred under the indenture governing LBI Media’s 8  1/2% senior subordinated notes. All of these covenants are subject to a number of important limitations and exceptions. For example, LBI Media and its restricted subsidiaries are permitted to incur additional indebtedness, in addition to certain specified debt that is permitted, and issue certain kinds of equity, in each case so long as its leverage ratio (as defined in the indenture) does not exceed 7.0 to 1.0. As of December 31, 2011, LBI Media was in compliance with all such covenants.

The indenture governing these notes also provides for customary events of default, which include (subject in certain instances to cure periods and dollar thresholds): nonpayment of principal, interest and premium, if any, on the notes, breach of covenants specified in the indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. The notes will become due and payable immediately without further action or notice upon an event of default arising from certain events of bankruptcy or insolvency with respect to us and certain of its subsidiaries. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately.

Senior Discount Notes. In October 2003, we issued $68.4 million aggregate principal amount at maturity of senior discount notes that mature in 2013. Under the terms of the senior discount notes, cash interest did not accrue and was not payable on the senior discount notes prior to October 15, 2008, and instead the accreted value of the senior discount notes increased until such date. Since October 15, 2008, cash interest began to accrue on the senior discount notes at a rate of 11% per year and is payable semi-annually on each April 15 and October 15. We may redeem the senior discount notes at any time at redemption prices specified in the indenture governing our senior discount notes, plus accrued and unpaid interest.

In 2010 and 2009 we purchased approximately $3.6 million and $1.0 million, respectively, in aggregate principal amount of our senior discount notes. These purchases were conducted in various open market transactions at purchase prices of 91.5% and 48.0% of the principal amount in 2010 and 2009, respectively. As a result of these and prior purchases, the total principal amount due to noteholders other than LBI Media Holdings was $41.8 million as of December 31, 2011. We did not purchase any 11% senior discount notes in 2011.

The indenture governing the senior discount notes contains certain restrictive covenants that, among other things, limit our ability to incur additional indebtedness and pay dividends to Liberman Broadcasting. All of these covenants are subject to a number of important limitations and exceptions. For example, we and our restricted subsidiaries are permitted to incur additional indebtedness, in addition to certain specified debt that is permitted, and issue certain kinds of equity, in each case so long as our leverage ratio (as defined in the indenture) does not exceed 7.0 to 1.0. As of December 31, 2011, LBI Media Holdings was in compliance with all such covenants. Our senior discount notes are structurally subordinated to LBI Media’s senior secured revolving credit facility and LBI Media’s 9 1/4% senior secured notes and 8  1/2% senior subordinated notes.

Empire Burbank Studios’ Mortgage Note. In July 2004, one of our indirect, wholly owned subsidiaries, Empire Burbank Studios, issued an installment note for approximately $2.6 million. The loan is secured by Empire Burbank Studios’ real property and bears interest at 5.52% per annum. The loan is payable in monthly principal and interest payments of approximately $21,000 through maturity in July 2019.

 

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The following table summarizes our various levels of indebtedness at December 31, 2011:

 

Issuer

 

Form of Debt

 

Principal Amount
Outstanding

  Scheduled Maturity Date   Interest Rate  

LBI Media, Inc.

  $50 million senior secured revolving credit facility   $—  (1)   March 18, 2016    
 
LIBOR or base rate, plus
an applicable margin
  
  

LBI Media, Inc.

  Senior secured notes   $220.0 million aggregate principal amount at maturity   April 1, 2019     9.25

LBI Media, Inc.

  Senior subordinated notes   $228.8 million aggregate principal amount at maturity   August 1, 2017     8.5

LBI Media Holdings, Inc.

  Senior discount notes   $68.4 million(2)   October 15, 2013     11

Empire Burbank Studios LLC

  Mortgage note   $1.6 million   July 1, 2019     5.52

 

(1)

LBI Media has borrowed, net of repayments, approximately $5.4 million under its senior secured revolving credit facility since December 31, 2011.

(2) 

In 2010, 2009 and 2008, we purchased approximately $3.6 million, $1.0 million and $22.0 million, respectively, aggregate principal amount of our senior discount notes in various open market transactions. As such, the total principal amount due to noteholders, other than LBI Media Holdings, was $41.8 million as of December 31, 2011. We did not purchase any 11% senior discount notes in 2011.

Cash Flows. Cash and cash equivalents were $1.2 million, $0.3 million, and $0.2 million at December 31, 2011, 2010, and 2009, respectively.

Net cash flow used by operating activities was $21.3 million, $1.0 million, and $2.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. The increase in our net cash flow used by operating activities during the year ended December 31, 2011 as compared to 2010 was primarily attributable to an increase in higher television programming payments and incremental costs related to our EstrellaTV television network. The decrease in our net cash flow used by operating activities during the year ended December 31, 2010 as compared to 2009 was primarily attributable to an increase in advertising revenues offset by higher television programming payments.

Net cash flow used in investing activities was $9.7 million, $22.0 million, and $3.2 million for the years ended December 31, 2011, 2010, and 2009, respectively.

Net cash flow used in investing activities in 2011 reflects $10.0 million in capital expenditures, consisting primarily of fixed asset purchases related to the build-out of our new television production facility in Burbank, California. These increases were partially offset by the receipt of $0.3 million of payments received on certain notes receivable.

Net cash flow used in investing activities in 2010 reflects approximately $13.7 million in cash used to consummate the asset acquisitions of television stations WASA-LP in New York, KETD-TV (formerly KWHD-TV) in Denver, Colorado, and WESV-LP (formerly W40BY) in Chicago, Illinois. Net cash used in investing activities also reflects approximately $11.5 million in capital expenditures, of which approximately $5.0 million relates to the acquisition of our new television production facility in Burbank, California, in December 2010. These increases were partially offset by $1.7 million in net cash proceeds relating to the assignment of the asset purchase agreement of KDES. See “—Acquisitions”.

Net cash flow used in investing activities in 2009 primarily included $9.5 million in capital expenditures for property and equipment, primarily related to completion of construction on our new Dallas office building and studio facility and purchases of new digital transmission equipment for our television stations. Net cash flow used in investing activities in 2009 was partially offset by $6.4 million of net proceeds related to the sale of radio station KSEV-AM in our Houston, Texas market in December 2009.

Net cash flow provided by financing activities was $31.9 million, $23.1 million, and $5.0 million for the years ended December 31, 2011, 2010, and 2009, respectively.

Net cash flows provided by financing activities in 2011 primarily resulted from the net proceeds from the issuance of LBI Media’s 9 1/4% senior secured notes, after the repayment of LBI Media’s former senior credit facilities and transaction costs.

 

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Net cash flows provided by financing activities in 2010 resulted primarily from net bank borrowings of $26.4 million partially offset by $3.3 million in cash used to purchase a portion of our outstanding senior discount notes in open market transactions.

Net cash flow provided by financing activities in 2009 resulted primarily from net bank borrowings of $5.6 million.

Contractual Obligations. We have certain cash obligations and other commercial commitments, which will impact our short-and long-term liquidity. At December 31, 2011, such obligations and commitments were LBI Media’s senior secured revolving credit facility, 9 1/4% senior secured notes and 8  1/2% senior subordinated notes, our senior discount notes, certain non-recourse debt of one of our indirect, wholly owned subsidiaries, our operating leases and our Nielsen network ratings contract (for a description of this contract, see Note 6 “Commitments and Contingencies—Ratings Services” in our accompanying consolidated financial statements) as follows (in millions):

 

     Payments Due by Period from December 31, 2011  

Contractual Obligations

   Total      Less than 1
Year
     1-3 Years      3-5 Years      More than 5
Years
 

Long-term debt

   $ 771.1       $ 44.7       $ 126.5       $ 80.1       $ 519.8   

Operating leases

     15.5         1.8         3.2         2.8         7.7   

Nielsen network ratings contract

     8.4         4.2         4.2         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 795.0       $ 50.7       $ 133.9       $ 82.9       $ 527.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above table includes principal and interest payments under our debt agreements based on our interest rates and principal balances as of December 31, 2011 and assumes no additional borrowings or unscheduled principal payments on LBI Media’s senior secured revolving credit facility until the facility matures in March 2016 and no unscheduled principal payments on LBI Media’s senior secured notes or senior subordinated notes or our senior discount notes.

Expected Use of Cash Flows. We believe that our cash on hand and borrowings under LBI Media’s senior secured revolving credit facility will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months. For both our radio and television segments, we have historically funded, and will continue to fund, expenditures for operations, administrative expenses, capital expenditures and debt service from our operating cash flow and available borrowings (namely the senior secured revolving credit facility as of December 31, 2011). We expect to use cash to fund the purchase price for the selected assets of television station WVFW-LD within the next twelve months.

We have used, and expect to continue to use, a portion of our capital resources to fund acquisitions. Future acquisitions will be funded from amounts available under LBI Media’s senior secured revolving credit facility, the proceeds of future equity or debt offerings and our internally generated cash flows. However, our ability to pursue future acquisitions may be impaired if we or our parent are unable to obtain funding from other capital sources. As a result, we may not be able to increase our revenues at the same rate as we have in recent years.

Inflation

We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended December 31, 2011. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.

Seasonality

Seasonal net revenue fluctuations are common in the television and radio broadcasting industry and result primarily from fluctuations in advertising expenditures by local and national advertisers. Our first fiscal quarter generally produces the lowest net broadcast revenue for the year.

Non-GAAP Financial Measures

We use the term “Adjusted EBITDA.” Adjusted EBITDA consists of net income or loss less discontinued operations, net of income taxes, plus provision for or benefit from income taxes, loss on sale and disposal of property and equipment, gain or loss on note purchases and redemptions, net interest expense and other income, interest rate swap expense or income, impairment of broadcast licenses and long-lived assets, depreciation and amortization, stock-based compensation expense, impairment of equity method investment and equity losses of equity method investment. The term, as we define it, may not be comparable to a similarly titled measure employed by other companies and is not a measure of performance calculated in accordance with GAAP.

 

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Management considers the measure an important indicator of our financial performance, as it eliminates the effects of the company’s discontinued operations, certain non-cash items and the company’s capital structure. In addition, it provides useful information to investors regarding our financial condition and results of operations and our historical ability to service debt. The measure 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 GAAP, such as cash flows from operating activities, operating income or loss and net income or loss.

We believe Adjusted EBITDA is useful to an investor in evaluating our financial performance because:

 

   

it is widely used in the broadcasting industry to measure a company’s financial performance without regard to items such as net interest expense, depreciation and amortization, and impairment of broadcast licenses and long-lived assets, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired.

 

   

it gives investors another measure to evaluate and compare the results of our operations from period to period by removing the impact of our discontinued operations, capital structure (such as net interest expense and net interest rate swap expense), asset base (such as depreciation and amortization and impairment of broadcast licenses and long-lived assets) and actions that do not affect liquidity (such as stock-based compensation expense) from our operating results; and

 

   

it helps investors identify items that are within our operational control. For example, depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase in accordance with the depreciable lives of the related asset and as such are not a directly controllable operating charge in the period.

Our management uses Adjusted EBITDA:

 

   

as a measure of operating performance because it assists us in comparing our financial performance on a consistent basis as it removes the impact of our discontinued operations, capital structure, asset base and actions that do not affect liquidity from our operating results;

 

   

as a measure to assist us in evaluating and planning our acquisition strategy;

 

   

in presentations to our board of directors to enable them to have the same consistent measurement basis of financial performance used by management;

 

   

as a measure for determining our operating budget and our ability to fund working capital; and

 

   

as a measure for planning and forecasting capital expenditures.

The Securities and Exchange Commission, or SEC, has adopted rules regulating the use of non-GAAP financial measures, such as Adjusted EBITDA, in filings with the SEC and in disclosures and press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP. We have included a presentation of net (loss) income and a reconciliation to Adjusted EBITDA on a consolidated basis under “Item 6. Selected Financial Data.”

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to acquisitions of radio station and television station assets, allowance for doubtful accounts, television program costs, intangible assets, property and equipment and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.

 

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Acquisitions of radio station and television assets

Our radio and television station acquisitions have consisted primarily of FCC licenses to broadcast in a particular market (broadcast licenses). We generally acquire the existing format and change it upon acquisition. As a result, a substantial portion of the purchase price for the assets of a radio or television station is allocated to its broadcast license. The allocations assigned to acquired broadcast licenses and other assets are subjective by their nature and require our careful consideration and judgment. We believe the allocations represent appropriate estimates of the fair value of the assets acquired.

Allowance for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables including our history of write offs, relationships with our customers and the current creditworthiness of each advertiser. Our historical estimates have been a reliable method to estimate future allowances, with historical reserves averaging approximately 8.9% of our outstanding receivables. However, our allowances for doubtful accounts have increased over the past several years from this historical average due to expansion into new markets and the recent downturn in the U.S. national and local economies. If the financial condition of our advertisers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The effect of an increase in our allowance of 3.0% of our outstanding receivables as of December 31, 2011, from 12.4% to 15.4%, or $3.6 million to $4.5 million, would result in a decrease in pre-tax income of $0.9 million for the year ended December 31, 2011.

Television program costs

Costs incurred for the production of our original television programs are expensed based on the ratio of the current period’s gross revenues to estimated remaining total gross revenues from all sources (“Ultimate Revenues”) on an individual program basis. Costs of television productions are subject to regular recovery assessments which compare the estimated fair values with the unamortized costs. The amount by which the unamortized costs of television productions exceed their estimated fair values is written off. GAAP sets forth the requirements that must be met before capitalization of program costs is appropriate, including the ability to reasonably estimate Ultimate Revenues generated from television programming and the period in which those revenues would be realized. We have determined, based on an evaluation of historical programming data, that certain of our television programs have demonstrated the ability to generate gross revenues beyond the initial airing, and accordingly, began capitalizing television production costs for certain of our programming, and amortizing those costs to operating expense based on the ratio of the current period’s gross revenues to Ultimate Revenues as described above. Costs related to the production of all other television programs for which we do not believe have a useful life beyond the initial airing, or do not have revenue directly attributed to production, are expensed as incurred. For episodic television series, costs are expensed for each episode as we recognize the related revenue for the episode. Approximately $13.7 million and $9.3 million of original television programming costs were capitalized as of December 31, 2011 and 2010, respectively.

With respect to television programs intended for broadcast, the most sensitive factors affecting estimates of Ultimate Revenues is the program’s rating (which directly impacts the number of times the show is expected to air) and the strength of the advertising market. Program ratings, which are an indication of market acceptance, directly affect our ability to generate advertising revenues during the airing of the program. Poor ratings may result in the cancellation of a television program, which could require the immediate write-off of any unamortized production costs. A significant decline in the advertising market could also negatively impact our estimates.

Television program rights acquired from third-party vendors are stated at the lower of unamortized cost or estimated net realizable value. These program rights, together with the related liabilities, are recorded when the license period begins and the program becomes available for broadcast. Program rights are amortized using the straight-line method over the license term. Program rights expected to be amortized in the next year and program rights payable due within one year are classified as current assets and current liabilities, respectively. Approximately $2.0 million and $1.6 million of acquired program costs were capitalized as of December 31, 2011 and 2010, respectively.

Intangible assets

Our indefinite-lived assets consist of our FCC broadcast licenses. We believe that our broadcast licenses have indefinite useful lives given that they are expected to indefinitely contribute to our future cash flows and that they may be continually renewed without substantial cost to us. In certain prior years, the licenses were considered to have finite lives and were subject to amortization.

 

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In accordance with ASC 350-30 “General Intangibles Other Than Goodwill” (“ASC 350-30”) we no longer amortize our broadcast licenses. We test our broadcast licenses and certain other related long-lived assets for impairment at least annually or when indicators of impairment are identified. Our valuations principally use the discounted cash flow methodology, an income approach based on market revenue projections and not company-specific projections, which assumes broadcast licenses are acquired and operated by a third party. This approach incorporates several variables including, but not limited to, types of signals, media competition, audience share, market advertising revenue projections, anticipated operating margins, capital expenditures and discount rates that are based on the weighted average costs of capital for the broadcasting markets in which we operate, without taking into consideration the station’s format or management capabilities. This method calculates the estimated present value that would be paid by a prudent buyer for our FCC licenses as new radio or television stations as of the annual valuation date (September 30 of each year). If the discounted cash flows estimated to be generated from these assets are less than the carrying value, an adjustment to reduce the carrying value to the fair market value of the assets is recorded.

We generally test our broadcast licenses for impairment at the individual license level. However, we aggregate broadcast licenses for impairment testing if their signals are simulcast and are operating as one revenue-producing asset.

In assessing the recoverability of our indefinite-lived intangible assets, we must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets. Assumptions about future revenue and cash flows require significant judgment because of the current state of the economy and the fluctuation of actual revenue and the timing of expenses. We develop future revenue estimates based on projected ratings increases, planned timing of signal strength upgrades, planned timing of promotional events, customer commitments and available advertising time. Estimates of future cash flows assume that expenses will grow at rates consistent with historical rates. Alternatively, some stations under evaluation have had limited relevant cash flow history due to planned conversion of format or upgrade of station signal. The assumptions about cash flows after conversion reflect estimates of how these stations are expected to perform based on similar stations and markets and possible proceeds from the sale of the assets. If the expected cash flows are not realized, impairment losses may be recorded in the future.

Property and equipment

Property and equipment is recorded at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over estimated useful lives.

In connection with ASC 360 “Property, Plant, and Equipment”, the carrying value of property and equipment is evaluated periodically in relation to the operating performance and anticipated future cash flows of the underlying radio and television asset

 

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groups for indicators of impairment. When indicators of impairment are present and the undiscounted cash flows estimated to be generated from these assets are less than the carrying value of these assets, an adjustment to reduce the carrying value to the fair market value of the assets is recorded, if necessary. The fair market value of the assets is determined by using current broadcasting industry equipment prices, solicited current market data from dealers of used broadcast equipment and used equipment price lists, catalogs and listings in trade magazines and publications.

Commitments and contingencies

We periodically record the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called “contingencies,” and our accounting for these events is prescribed by ASC 450 “Contingencies”.

The accrual of a contingency involves considerable judgment on the part of our management. We use our internal expertise, and outside experts (such as lawyers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. We currently do not have any material contingencies that we believe require loss accruals; however, we refer you to Note 6 of our accompanying consolidated financial statements for a discussion of other known contingencies.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-4, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-4”). The guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards. ASU 2011-4 is effective during interim and annual periods beginning after December 15, 2011. We are currently evaluating the impact of this standard on the consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 (subsequently amended by ASU 2011-12) to provide guidance on increasing the prominence of items reported in other comprehensive income. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011. We are currently evaluating the impact of this accounting standard update on our financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is currently confined to our cash and cash equivalents, changes in interest rates related to future borrowings under LBI Media’s senior secured revolving credit facility and changes in the fair value of LBI Media’s 9 1/4% senior secured notes and its 8   1/2% senior subordinated notes and our senior discount notes. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments.

In July 2006, we entered into a fixed-for-floating interest rate swap to hedge the underlying interest rate risk on the expected outstanding balance of our old term loan facility over time. Pursuant to the terms of this interest rate swap, we were paying a fixed rate of 5.56% on the $80.0 million notional amount and receive payments based on LIBOR. In November 2009, the notional amount of the swap was reduced to $60.0 million and remained at that level for the remainder of the swap contract. This swap fixed the interest rate at 7.56% (including the applicable margin) and terminated in November 2011.

We accounted for our interest rate swap in accordance with ASC 815, “Derivatives and Hedging” (“ASC 815”). As noted above, the effect of the interest rate swap was to fix the interest rate at 7.56% on our variable rate borrowings (including the applicable margin). However, changes in the fair value of the interest rate swap for each reporting period have been recorded in interest rate swap income (expense) in the accompanying consolidated statements of operations because the interest rate swap did not qualify for hedge accounting.

We measured the fair value of our interest rate swap on a recurring basis pursuant to ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers are: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. We categorized this swap contract as Level 2.

The fair value of our interest rate swap was a liability $3.1 million at December 31, 2010. The fair value of the interest rate swap represented the present value of the expected future cash flows estimated to be received from or paid to a

 

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marketplace participant of the instrument. It is 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. We are not exposed to the impact of foreign currency or commodity price fluctuations.

The fair value of our fixed rate long-term debt is sensitive to changes in interest rates. Based upon a hypothetical 10% increase in the interest rate, assuming all other conditions affecting market risk remain constant, we estimated that the market value of our fixed rate debt would have decreased by approximately $20.1 million at December 31, 2011. Conversely, a hypothetical 10% decrease in the interest rate, assuming all other conditions affecting market risk remain constant, we estimated it would have resulted in an increase in market value of approximately $21.2 million at December 31, 2011. Management does not foresee nor expect any significant change in our exposure to interest rate fluctuations or in how such exposure is managed in the future.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related financial information, as listed under Item 15, appear in a separate section of this Annual Report beginning on page F-1.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We maintain disclosure controls and procedures that are designed to ensure that: (i) information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management, including our Chief Executive Officer and President and our Chief Financial Officer, recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Based on the foregoing, our Chief Executive Officer and President and our Chief Financial Officer have concluded that, our disclosure controls and procedures were not effective as of December 31, 2011 due to a material weakness in internal controls over financial reporting as identified and discussed below.

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with GAAP. Internal control over financial reporting includes (i) maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and (iv) providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2011 due to a material weakness in internal controls as identified and discussed below.

A material weakness is “a deficiency, or a combination of deficiencies (within the meaning of PCAOB Auditing Standard No. 5), in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.”

As of December 31, 2011, we identified a material weakness in our internal control over financial reporting because we did not maintain effective controls over the identification of and accounting for impairment of property and equipment. Specifically, we did not have adequate processes to identify and evaluate impairment indicators related to property and equipment that had been taken out of service. In addition, until remediated, this material weakness could result in a misstatement in the property and equipment and impairment of long-lived assets accounts that would result in a material misstatement to our interim or annual consolidated financial statements and disclosures that would not be prevented or detected.

As a result of the material weakness described above, and because such deficiencies were not remediated in 2011, our management has concluded that, as of December 31, 2011, our internal control over financial reporting was not effective.

The annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission.

Notwithstanding the existence of this material weakness in internal controls, we believe that the consolidated financial statements in this Annual Report on Form 10-K present fairly, in all material respects, our consolidated balance sheets as of December 31, 2011 and 2010 and the related consolidated statements of operations, stockholder’s (deficiency) equity, and cash flows for the years ended December 31, 2011, 2010 and 2009 in conformity with GAAP.

 

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Changes in Internal Control over Financial Reporting

The following were changes in our internal control over financial reporting that occurred during the fourth quarter ending December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Income taxes

During 2011, we completed the remediation efforts that gave rise to the material weakness we initially identified in 2009 relating to our accounting for income taxes.

As of December 31, 2010 and 2009, we identified a material weakness in our internal control over financial reporting because we did not maintain effective controls over the accounting for income taxes, including the determination and reporting of deferred income taxes and the related income tax provision. Specifically, we did not have adequate personnel and other resources to enable us to (i) properly consider and apply GAAP guidance over accounting for income taxes, (ii) review and monitor the accuracy and completeness of the components of the income tax provision calculations and the related deferred taxes and (iii) ensure that effective oversight of the work performed by our outside tax advisors was exercised.

The material weakness resulted in accounting errors in the treatment of certain temporary state tax credits and the classification of certain deferred tax accounts relating to our indefinite-lived intangible assets during the fiscal year ended December 31, 2009 that were not prevented or detected on a timely basis. As a result (a) our board of directors concluded that our previously issued consolidated financial statements for (i) the fiscal years ended December 31, 2008, 2007 and 2006 included in our annual reports on Form 10-K that include those fiscal years, and (ii) the interim periods within the fiscal years ended December 31, 2009, 2008, 2007 and 2006 included in our quarterly reports on Form 10-Q that include those fiscal periods, should not be relied upon and (b) we restated our previously issued consolidated financial statements for the fiscal year ended December 31, 2008 and the previously issued consolidated statements of operations, consolidated statements of cash flows and consolidated statements of stockholder’s equity for the fiscal year ended December 31, 2007 in our Annual Report on Form 10-K for the year ended December 31, 2009 and the restatement of our previously issued condensed consolidated statements of operations and condensed consolidated statements of cash flows for the interim periods within the fiscal year ended December 31, 2009, and prospectively, in our quarterly reports on Form 10-Q for the interim periods within the fiscal year ending December 31, 2010.

Since the above material weakness was identified, we undertook an evaluation of our available resources and personnel deployed for accounting for income taxes, and made the necessary changes to our processes as required. Specifically, during 2011, we made key changes to the responsibilities of certain of the finance department’s personnel responsible for the preparation and review of the tax provision, and also implemented a more formal supervision and review processes both internally and with our outside tax advisors.

Impairments of property and equipment

We are in the process of addressing and remediating the deficiencies that gave rise to the material weakness in connection with the reporting of impairments of property and equipment. Since the above material weakness was identified, we have undertaken an evaluation of our processes over the identification of and accounting for impairment of property and equipment. However, all of the deficiencies have not been remediated as of the date of this filing. The material weaknesses will not be fully remediated until, in the opinion of our management, the revised control procedures have been operating for a sufficient period of time to provide reasonable assurances as to their effectiveness.

Other Changes in Internal Controls in Internal Control over Financial Reporting

Other than as described above, there have been no other changes in our internal control over financial reporting during the fourth quarter ending December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Subsequent to December 31, 2011, we had a change in our management due to the resignation of our Chief Financial Officer, Wisdom Lu, on January 20, 2012. Frederic T. Boyer, formerly our Senior Vice President and Co-Chief Financial Officer was named Senior Vice President and Chief Financial Officer, and is signing this report on Form 10-K as the Principal Financial Officer and Principal Accounting Officer.

 

ITEM 9B. OTHER INFORMATION

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following sets forth information about our current directors, executive officers and key non-executive employees:

 

Name

  

Position

   Age*  

Directors and Executive Officers

     

Jose Liberman

  

Co-Founder, Chairman, and Director

     86   

Lenard D. Liberman

  

Co-Founder, Chief Executive Officer, President, Secretary and Director

     50   

Frederic T. Boyer

  

Chief Financial Officer

     67   

Winter Horton

  

Chief Operating Officer and Director

     46   

William G. Adams

  

Director

     72   

Bruce A. Karsh

  

Director

     56   

Terence M. O’Toole

  

Director

     53   

Key Non-Executive Employee

     

Eduardo Leon

  

Executive Vice-President, Radio Programming

     47   

 

* All ages are as of December 31, 2011

Jose Liberman co-founded our subsidiary, Liberman Broadcasting of California LLC (formerly known as Liberman Broadcasting, Inc., a California corporation), in 1987 together with his son, Lenard, and has served as a member on our board of directors since our formation. He also serves on the board of directors of our parent, Liberman Broadcasting, Inc. (successor in interest to LBI Holdings I, Inc.) and has served in such capacity since 1997. Mr. Liberman has been the Chairman of our board of directors since March 2007 and served as our President from our formation in 2003 to October 2009. Mr. Liberman has also served as President of Liberman Broadcasting (successor in interest to LBI Holdings I, Inc.) from 1997 to October 2009 and LBI Media from its formation in November 1997 to October 2009. Mr. Liberman has also served as an executive officer and member of the boards of directors or managers, as applicable, of our subsidiaries. Mr. Liberman started his career in radio broadcasting in 1957 with the purchase of XERZ in Mexico and the establishment of a radio advertising representative firm in Mexico. In 1976, he acquired KLVE-FM, the first Los Angeles FM station to utilize a Hispanic format. In 1979, he purchased KTNQ-AM and combined it with KLVE to create the first Hispanic AM/FM combination in Los Angeles. Under Mr. Liberman’s leadership, our company has become one of the largest Spanish-language radio and television broadcasters in the U.S., based on revenues and number of stations. We believe that his leadership and strategic vision has been and will continue to be critical to our success. In addition, Mr. Liberman brings to the board his extensive knowledge of the broadcasting industry and the demographics of our company’s listeners and viewers. Mr. Liberman is the father of our Chief Executive Officer, President, Secretary and Director, Lenard D. Liberman.

Lenard D. Liberman has been a member of our board of directors since our formation in 2003. He also serves on the board of directors of Liberman Broadcasting and on the boards of directors or managers, as applicable, of our subsidiaries since each of their respective formation dates. Mr. Liberman has served as our Chief Executive Officer and President since October 2009 and as our Secretary since 2003. Previously, he was our Executive Vice President from 2003 to October 2009 and our Chief Financial Officer from April 2005 to May 2006 and January 2007 to March 2008. Mr. Liberman currently serves and has served as an executive officer of Liberman Broadcasting and our subsidiaries. Mr. Liberman manages all day-to-day operations, including acquisitions and financings. He received his juris doctorate degree and masters of business administration degree from Stanford University in 1987. Mr. Liberman’s executive leadership of our company, as well as his executive, financial, managerial and operational skills, have been and are instrumental in our company’s success. These skills position him well to serve as a member of our board of directors. Mr. Liberman is the son of our Chairman and Director, Jose Liberman.

Frederic T. Boyer became our Senior Vice President and Chief Financial Officer in January 2012. Mr. Boyer joined us in December 2011 as our Senior Vice President and Co-Chief Financial Officer. Previously, Mr. Boyer was the Chief Financial Officer of DataDirect Networks, a data storage infrastructure provider, from 2009 to 2011. At DataDirect Networks, Mr. Boyer was responsible for accounting, finance, information technology, human resources and legal matters. Previously, he served as Senior Vice President, Chief Financial Officer and Corporate Secretary of Optical Communication

 

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Products, Inc., a designer and manufacturer of fiber optic components, from 2006 to 2008, where he was responsible for various financial and non-financial functions, including Sarbanes-Oxley compliance, SEC reporting, contract administration, insurance matters and investor relations. Prior to joining Optical Communication Products, Mr. Boyer was Vice President and Chief Financial Officer of Qualstar Corporation, a data storage solutions company, from 2002 to 2006. Mr. Boyer is currently the Treasurer, Chairman of the Finance Committee and a member of Audit Committee of the Board of Directors of WISE & Healthy Aging, a nonprofit organization. Mr. Boyer holds an M.B.A. from Loyola Marymount University, a B.S. in Accounting from California State University, Los Angeles, and a B.S. in Economics from California State Polytechnic University, Pomona.

Winter Horton has served as our Chief Operating Officer since October 2009 and was designated as a member of our board of directors in March 2007. He has also served on the boards of directors of Liberman Broadcasting, Inc. and LBI Media since March 2007. In addition, Mr. Horton has served as Chief Operating Officer of Liberman Broadcasting and our subsidiaries since October 2009. Mr. Horton joined one of our subsidiaries in 1997 as Vice President of Programming for KRCA and became the Corporate Vice President of Liberman Broadcasting of California LLC from 2001 to 2009. In 2001, as Corporate Vice President, Mr. Horton launched our four radio stations and one television station in Houston. He was also responsible for the launch of our Dallas stations, including KMPX-TV, KNOR-FM, KTCY-FM, KZMP-AM, KZZA-FM and KBOC-FM. He manages all of our Texas radio and television operations and oversees our production facilities in Burbank, Houston and Dallas. We believe that Mr. Horton’s executive, managerial, and operational experience at our company, in particular his programming experience, provide him with a unique perspective that positions him well to serve as a member of board of directors.

William G. Adams was designated as a member of our board of directors in March 2007. He has also served on the boards of directors of Liberman Broadcasting, Inc. and LBI Media since March 2007. In addition, Mr. Adams has served on the board of directors of Valentine Enterprises, Inc., a manufacturer of powder products, since 1979. He was Of Counsel to O’Melveny & Myers LLP, a global law firm, from February 2000 to February 2004, where he had been a partner from October 1979 to February 2000. We believe that Mr. Adams’ experience as a corporate attorney at O’Melveny & Myers LLP for more than 20 years makes him a valuable resource on our board of directors.

Bruce A. Karsh was designated as a member of our board of directors in March 2007. He has also served on the boards of directors of Liberman Broadcasting, Inc. and LBI Media, Inc. since March 2007. Mr. Karsh has served on the board of directors of Oaktree Capital Group, LLC, a global alternative and non-traditional investment manager, since 2007. In addition, he has served on the board of directors of Charter Communications, Inc., a telephone, cable television and internet service provider, since 2009. Previously, he served on the board of directors of Littelfuse, Inc., a developer of circuit protection products, from 1991 to 2007. He has served as a trustee on Duke University’s board of trustees since 2003 and on the board of directors of Duke University’s investment management company, DUMAC, LLC since 2002 and as chairman of its board since 2005. Since 1995, Mr. Karsh has served as President and co-founder of Oaktree Capital Management, L.P. (“Oaktree”), formerly Oaktree Capital Management, LLC. Prior to co-founding Oaktree, Mr. Karsh was a Managing Director of Trust Company of the West (“TCW”) and its affiliate, TCW Asset Management Company, and the portfolio manager of the Special Credits Funds for seven years. Prior to joining TCW, Mr. Karsh worked as Assistant to the Chairman of Sun Life Insurance Company of America and of SunAmerica, Inc., its parent. Prior to that, he was an attorney with the law firm of O’Melveny & Myers. We believe that Mr. Karsh’s diverse work experience, as well as service on the boards of various entities, makes him an important contributor to our board of directors.

In addition, Oaktree-managed investment funds, or their respective affiliates, are the largest holders of senior loan claims (along with JPMorgan Chase Bank, N.A. and certain of its affiliates and Angelo, Gordon & Co., L.P. or certain of its affiliates) of Tribune Company. Given the large percentage of equity allocated to the senior loan claims under each of the plans of reorganization before the bankruptcy court in the Tribune Company bankruptcy proceeding, Oaktree has calculated that, upon Tribune Company’s emergence from bankruptcy, Oaktree-affiliated entities will qualify to hold, in the aggregate, more than 5% of the Tribune Company new common stock upon emergence, which will be issued to an entity called Oaktree Tribune, L.P. As a result, Oaktree Capital Group Holdings GP, LLC, through its affiliated funds and accounts, will have an attributable interest in Tribune Company. Given that a breach of the FCC’s multiple and cross-ownership rules would arise if Oaktree has an attributable interest in both Tribune Company and Liberman Broadcasting, Oaktree has agreed in its FCC filings filed in connection with the Tribune Company reorganization that it will become non-attributable in Liberman Broadcasting by having Mr. Karsh cease to serve as our director and as a director of our parent and LBI Media upon Tribune Company’s emergence from bankruptcy.

Terence M. O’Toole was designated as a member of our board of directors in March 2007. He has also served on the boards of directors of Liberman Broadcasting and LBI Media since March 2007. He has been a member of the board of managers of Skyway Towers Holdings, LLC, a wireless communications tower developer, since 2005. In addition, since 2007, Mr. O’Toole has been a member of the board of managers of EGI Holdings, LLC, an investment holding company whose subsidiary, Enesco LLC is a manufacturer and distributor of home and garden products. Mr. O’Toole has been a

 

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member of the board of directors of R360 Environmental Solutions, Inc., an oilfield environmental solutions company, since 2010. Since 2011, Mr. O’Toole has been the Chairman of Villanova University’s Board of Trustees, and has been a member of its Board of Trustees since 2000. He was also a member of the Board of Trustees of the Pingry School from 2005 to 2011. Mr. O’Toole currently serves and has served as the Executive Vice President of Tinicum Incorporated, a private investment management company, since 2006, and is a co-managing member of Tinicum Lantern II L.L.C. and Tinicum Lantern III L.L.C. which serve as the general partners of several affiliated private investment funds. Mr. O’Toole was a partner and managing director of Goldman, Sachs & Co. from 1992 until 2005. We believe that Mr. O’Toole’s experience, in particular at Goldman, Sachs & Co., provides a unique perspective and useful insight to our board with respect to our growth strategy and strategic initiatives.

Eduardo Leon has served as our Executive Vice President, Radio Programming since January 2010. He previously served as our Vice President-Programming from 1998 until 2010. He is responsible for all programming aspects of our radio stations. Prior to joining our company, Mr. Leon was the program director from 1996 to 1998 at radio station WLEY-FM in Chicago, which is owned by Spanish Broadcasting Systems, Inc. In 1992, he founded Radio Ideas, a Spanish-language radio consulting company.

Board Composition

Our board of directors is currently composed of six directors, each of whom have an annual term. We have one vacant board member seat that may be filled solely by the holders of Class B common stock of Liberman Broadcasting as described below.

In connection with the sale of Liberman Broadcasting’s Class A common stock on March 30, 2007, Liberman Broadcasting and the stockholders of Liberman Broadcasting entered into an investor rights agreement. Pursuant to that investor rights agreement, Liberman Broadcasting, our sole shareholder, must elect the directors that have been designated as board members of Liberman Broadcasting to our board of directors. Affiliates of Oaktree Capital Management LLC that hold Class A common stock of Liberman Broadcasting have the right to designate one director to Liberman Broadcasting’s board of directors. Tinicum Capital Partners II, L.P. and its affiliates that hold Class A common stock of Liberman Broadcasting have the right to designate one director to Liberman Broadcasting’s board of directors. The holders of Class B common stock of Liberman Broadcasting have the right to designate up to five directors to Liberman Broadcasting’s board of directors. As a result, Liberman Broadcasting must elect these seven designees as members of our board of directors. Since March 30, 2007, Bruce A. Karsh and Terence M. O’Toole have been designated by affiliates of Oaktree Capital Management and Tinicum Capital Partners II, respectively. The holders of our parent’s Class B common stock have designated Jose Liberman, Lenard Liberman, Winter Horton and William G. Adams.

Director Nominees

Because members of our board of directors are designated by our parent pursuant to the investor rights agreement discussed above, we do not have a formal policy with regard to the consideration of diversity in identifying candidates for election to the board. See “Board Composition”.

Director Independence

Our board of directors has analyzed the independence of each director under NASDAQ listing standards and determined that each of our non-employee directors, Mr. Adams, Mr. Karsh and Mr. O’Toole, are independent directors. Because our common stock is not listed on a national securities exchange, we are not required to maintain a board consisting of a majority of independent directors or to maintain an audit committee, nominating committee or compensation committee consisting solely of independent directors.

Director Leadership Structure

Our company is led by Mr. Jose Liberman, as Chairman, and Mr. Lenard D. Liberman, as Chief Executive Officer and President. Each has been with us in executive leadership positions since we were founded (through our indirect, wholly owned subsidiary) in 1987. While we have historically combined the roles of chairman and president, Mr. Lenard Liberman began serving as our Chief Executive Officer and President when Mr. Jose Liberman retired from such role in October 2009.

Because we have had the same leaders of our company for over 20 years and each is seen by our customers, business partners, investors and other stakeholders as providing strong leadership for our company and in our industry, we believe that our leadership structure has been effective for our company, whether the chairman and principal executive officer position is combined or separate.

 

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Oversight of Risk

Our board of directors oversees our risk framework and controls. The board of directors reviews the risks associated with our compensation incentives, as well as our policies and procedures related to management succession and transition. The board of directors also reviews the risks associated with:

 

   

our financial statements, financial and liquidity risk exposures, including any material and pending legal proceedings and significant transactions;

 

   

fraud;

 

   

security of and risks related to information technology systems and procedures; and

 

   

related party transactions and actual and potential conflicts of interests.

In carrying out its responsibilities in overseeing our policies with respect to risk, the board of directors discusses the issues with internal personnel and third parties that it deems appropriate. After such review and discussions, the board of directors evaluates the findings and adopts necessary measures accordingly.

Board Committees

Nominating Committee and Compensation Committee. We are not a “listed issuer” as defined under Section 10A-3 of the Exchange Act. We are therefore not required to have a nominating or compensation committee comprised of independent directors. We currently do not have a standing nominating or compensation committee and accordingly, there are no charters for such committees. We believe that standing committees are not necessary and the directors collectively have the requisite background, experience, and knowledge to fulfill any limited duties and obligations that a nominating committee and a compensation committee may have.

Audit Committee and Audit Committee Financial Expert. We are not a “listed issuer” as defined under Section 10A-3 of the Exchange Act. We are therefore not required to have an audit committee comprised of independent directors. We currently do not have an audit committee and accordingly, there is no charter for such committee. The board of directors performs the functions of an audit committee. We believe that the directors collectively have the requisite financial background, experience, and knowledge to fulfill the duties and obligations that an audit committee would have, including overseeing our accounting and financial reporting practices. Therefore we do not believe that it is necessary at this time to search for a person who would qualify as an audit committee financial expert.

Section 16(a) Beneficial Ownership Reporting Compliance

We do not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

Code of Ethics

We are not required to have a code of ethics because we do not have a class of equity securities listed on a national securities exchange.

PART III

 

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview of Compensation Philosophy and Program

Our board of directors, with the assistance of management, determines our compensation objectives, philosophy and forms of compensation and benefits for our executive officers.

Our compensation philosophy centers on the principle of aligning pay and performance. We attempt to design a total compensation package for our named executive officers that help to recruit, retain and motivate qualified executives that are critical to our current and future success.

We use various elements of compensation to reward performance. Our named executive officers identified below are provided with a basic level of compensation for assuming and performing their responsibilities. We consider long-term and equity incentives on a case by case basis. As discussed below, we have employment agreements, but not with all of our

 

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named executive officers. We have not offered employment agreements to Jose Liberman or Lenard Liberman because each of them has a substantial equity stake in our parent company; thus their short- and long-term interests are aligned with those of our company.

Because we do not have equity securities listed on a national securities exchange, we are not required to have a compensation committee and our board of directors has the responsibility for establishing, implementing and monitoring adherence with our compensation philosophy.

Role of Named Executive Officers in Compensation Decisions

As of December 31, 2011, our five named executive officers were Jose Liberman, our Chairman, Lenard Liberman, our Chief Executive Officer and President, Winter Horton, our Chief Operating Officer, Frederic T. Boyer, our Senior Vice President and Chief Financial Officer, and Wisdom Lu, our former Chief Financial Officer. Except for Ms. Lu and Mr. Boyer, all of our named executive officers also serve as members of our board of directors. Effective as of January 20, 2012, Ms. Lu resigned from her position as our Chief Financial Officer.

Our board of directors is responsible for determining the compensation of our executive officers. Because Messrs. J. Liberman, L. Liberman and Horton are also members of our board of directors, each of them participated in the decisions concerning their own compensation for the year ended December 31, 2011. In his role as our Chief Executive Officer and President, Mr. L. Liberman provides recommendations with respect to the compensation of our executive officers other than himself. Our board of directors considers the recommendations of Mr. L. Liberman in determining the compensation of our executive officers and gives significant credence to such recommendations.

Goals of the Compensation Program and Setting Executive Compensation

We attempt to align compensation paid to our named executive officers with the value that they achieve for our direct and indirect stockholders. While we offer all five elements of our compensation program described below under “Elements of our Compensation Program,” we focus primarily on the base salary and long-term incentives because we believe these elements are the most critical and influential to attract, retain, and motivate executives with the skill sets necessary to maximize stockholder value.

When making compensation decisions, our board of directors informally considers competitive market practices with respect to the salaries and total compensation of our named executive officers. In doing so, the board reviews the overall compensation of executive officers of companies that are in the radio and television industry and are located within our general geographic market areas. Specifically, the board considers the following companies our peers for executive compensation purposes: Beasley Broadcast Group Inc., Citadel Broadcasting Corp., Cox Radio Inc., Crown Media Holdings Inc., Cumulus Media Inc., Emmis Communications Corp., Entercom Communications Corp., Entravision Communications Corp., and Saga Communications Inc. However, while the board reviews the compensation practices of our peers, it is only one factor the directors consider in establishing compensation, and they have not made use of any formula incorporating such data or targeted compensation at any particular level relative to the peer group.

In setting compensation for 2011, the board used a strategy that employed a subjective approach. In determining whether to increase or decrease compensation for our named executive officers, the board of directors generally considers the performance of the named executive officer, any increases or decreases in the named executive officer’s responsibilities, roles of the named executive officer, our business needs for the named executive officer, and the recommendations of our Chief Executive Officer and President, Lenard Liberman.

Neither we, nor the board of directors, have hired a compensation consultant, and neither we, nor the board of directors, have made a decision to do so.

Risk Considerations

Our board of directors believes the elements of our executive compensation program effectively link performance-based compensation to financial goals and shareholder interests without encouraging executives to take unnecessary or excessive risks in the pursuit of those objectives. Our board of directors believes that the overall mix of compensation elements is appropriately balanced and does not encourage the taking of short-term risks at the expense of long-term results.

 

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Elements of our Compensation Program

For the year ended December 31, 2011, our total compensation package for our named executive officers consisted primarily of the following components:

 

   

base salary;

 

   

bonus;

 

   

long-term incentive compensation;

 

   

perquisites and other personal benefits; and

 

   

severance arrangements.

Each element of compensation is considered separately and we do not generally take into account amounts realized from prior periods. Our goal is to provide a total compensation package that we believe our named executive officers and our direct and indirect stockholders will view as fair and equitable. The form and amount for each element of compensation is determined on a case-by-case basis. Accordingly, our determination of compensation for each named executive officer is not a mechanical or formulaic process, and our board of directors has used its judgment and experience to determine the appropriate mix of compensation for each individual named executive officer.

In connection with the sale of our parent’s Class A common stock to third party investors, our parent, Liberman Broadcasting, Inc., and its stockholders entered into an investor rights agreement on March 30, 2007. Pursuant to this investor rights agreement, as amended, the consent of certain minority stockholders of Liberman Broadcasting, Inc. is required to make certain changes in the compensation arrangements with Jose Liberman or Lenard Liberman. No changes that would require consent have been made or proposed.

Base Salary—We provide each named executive officer and other employees with a base salary that we believe is both competitive for their role and fairly compensates them for services rendered during the fiscal year. Subject to the terms of any employment agreement, the board of directors reviews the base salary for each of the named executive officers on an annual basis and at the time of a change in responsibilities. Increases in salary, if any, are based on a subjective evaluation of such factors as the level of responsibility, individual performance during the prior year, relevant peer data, the salaries of our other named executive officers, and the named executive officer’s experience and expertise.

Jose Liberman and Lenard Liberman. We do not have employment agreements with Jose Liberman or Lenard Liberman. Prior to March 30, 2007, both individuals were beneficial owners of all of the common stock of our parent, Liberman Broadcasting, Inc. In connection with the sale of our parent’s Class A common stock to third party investors in 2007, the annual base salary for each of Jose Liberman and Lenard Liberman was increased to $750,000 to better reflect compensation levels paid to similarly positioned executives of our peers. Their base salaries for 2011 remained at the same levels as 2010.

Wisdom Lu. In March 2008, Ms. Lu joined us as our Chief Financial Officer. Pursuant to her employment agreement, Ms. Lu received an annual base salary of $463,050 for 2011, which reflects a 5% increase to her base salary effective on April 1, 2011 pursuant to the terms of her employment agreement. As noted above, Ms. Lu resigned from her position as our Chief Financial Officer effective as of January 20, 2012.

Winter Horton. In December 2009, our parent, Liberman Broadcasting, Inc., entered into an employment agreement with Mr. Horton, our Chief Operating Officer. Pursuant to his employment agreement, Mr. Horton received a base salary of $472,500 for 2011, which reflects a 5% increase to his base salary effective January 1, 2011 pursuant to the terms of his employment agreement. Pursuant to the terms of his employment agreement, and assuming his continued employment, Mr. Horton’s salary will increase by 5% on January 1, 2012 and on each January 1 thereafter until December 31, 2014, the date his employment agreement expires.

Frederic T. Boyer. In December 2011, Mr. Boyer was appointed Senior Vice President and co-Chief Financial Officer of our parent, Liberman Broadcasting, Inc., and its subsidiaries, including LBI Media Holdings, Inc., and was appointed Senior Vice President and Chief Financial Officer in January 2012. In connection with his initial appointment, Mr. Boyer entered into an employment agreement with LBI Media Holdings, Inc. Pursuant to the terms of his employment

 

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agreement, Mr. Boyer receives an annual base salary of $330,000 per year until January 18, 2013, the date the initial term of his employment agreement expires. This salary level was negotiated with Mr. Boyer in connection with his appointment as our Chief Financial Officer.

Bonus—Generally, bonus compensation to our named executive officers has been entirely discretionary. By providing discretionary bonuses, we believe that we align our executive compensation with individual performance on a short-term basis.

Jose Liberman and Lenard Liberman. Historically, Jose and Lenard Liberman have received minimal or no bonuses because each has a substantial equity stake in our parent, Liberman Broadcasting, Inc. Jose Liberman and Lenard Liberman did not receive a bonus in 2011.

Wisdom Lu. Pursuant to the terms of Ms. Lu’s employment agreement, for each twelve-month period starting April 1, 2009 and ending March 31, 2013, Ms. Lu would have been eligible to receive a bonus of up to 25% of her then-current annual salary if she remained Chief Financial Officer during the applicable twelve-month period and fully performed all material obligations under the employment agreement. The amount of any bonus for periods commencing on or after April 1, 2009 was determined by our parent’s board of directors in its sole discretion according to Ms. Lu’s achievement of annual objectives set by the board for that year. After its own deliberations and its consideration of the recommendations of our Chief Executive Officer and President, Lenard Liberman, the board of directors determined that, based on performance, Ms. Lu would not receive a bonus for 2011. As noted above, Ms. Lu resigned from her position as our Chief Financial Officer in January 2012.

Winter Horton. Pursuant to the terms of Mr. Horton’s employment agreement, our parent may, in its discretion, pay to Mr. Horton a bonus of up to $75,000 if Mr. Horton remains in the position of Chief Operating Officer as of December 31 of such calendar year and has performed fully all material obligations under the employment agreement. The amount of each such bonus, if any, will be determined by our parent’s board of directors in its sole discretion according to Mr. Horton’s achievement of annual objectives set by the board of directors for that year. After its own deliberations and its consideration of the recommendations of our Chief Executive Officer and President, Lenard Liberman, the board of directors determined that Mr. Horton would not receive a bonus payment for 2011.

Frederic T. Boyer. Pursuant to the terms of Mr. Boyer’s employment agreement, if Mr. Boyer has remained actively serving in the position of Senior Vice President and Chief Financial Officer until January 18, 2013, and we determine in our sole and absolute discretion that Mr. Boyer’s performance during the year has been exemplary, then we may, in our sole and absolute discretion and without any obligation to do so, pay to Mr. Boyer a discretionary bonus of $20,000. Mr. Boyer did not receive a bonus for 2011, as he joined us in December 2011.

Long-Term Incentive Compensation—We may offer long-term incentive compensation to align executive compensation with our stockholder interests by placing a significant amount of total direct compensation “at risk.” “At risk” means the named executive officer will not realize value unless performance goals directly tied to our performance and that of our consolidated parent are achieved. During our fiscal year ending December 31, 2011, we offered long-term incentive compensation arrangements pursuant to the Liberman Broadcasting, Inc. Stock Incentive Plan, or Stock Incentive Plan, through which equity compensation may be granted by our parent’s board of directors.

In December 2008, the stockholders of our parent approved Stock Incentive Plan, which reserves an aggregate of 14.568461 shares of our parent’s Class A common stock for issuance under this plan. The Stock Incentive Plan provides that our parent may grant any of the following: (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock awards, and (iv) stock awards. All employees, members of our board of directors, members of the board of directors of our parent and subsidiaries, and certain consultants and advisors are eligible to participate.

Options and any other rights under the Stock Incentive Plan are generally nontransferable and exercisable only by the recipient of the award. Any shares of common stock issued on exercise of an option are subject to substantial restrictions on transfer and are subject to certain rights in favor of our parent, Liberman Broadcasting, Inc. Also, the number and amount of our parent’s shares underlying awards granted under the Stock Incentive Plan will be proportionally adjusted for any recapitalization, reclassification, stock split, merger, consolidation or unusual or extraordinary corporate transactions in respect of our parent’s common stock. The board of directors of our parent will approve those individuals who will participate in the Stock Incentive Plan. No incentive awards were granted under the Stock Incentive Plan in 2011.

Jose Liberman and Lenard Liberman. Because Jose Liberman and Lenard Liberman, together, beneficially own 61.1% of the aggregate common stock of our parent, their compensation package does not contain additional long-term incentive compensation as we believe their motivation and financial interests are well aligned with that of our own.

 

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Wisdom Lu—Stock Option in Our Parent. In accordance with Ms. Lu’s employment agreement, in December 2008, we granted her an option to purchase 2.18527 shares of Liberman Broadcasting’s Class A common stock at an exercise price of $1,368,083 per share under the Stock Incentive Plan. The option represented, on a fully diluted basis as of the date of grant, 0.75% of the outstanding shares of our parent and vests and becomes exercisable in five equal annual installments on March 31 of each year, commencing on March 31, 2009. The option expires ten years from the date of grant. As noted above, Ms. Lu resigned from her position as our Chief Financial Officer in January 2012, and the unvested portion of her option terminated in connection with her resignation. However, under the Stock Incentive Plan, Ms. Lu is permitted to exercise her vested options within three months of her resignation date. As a result, her vested options will terminate on the close of business on April 20, 2012.

Winter Horton—Stock Option in Our Parent. Pursuant to the terms of Mr. Horton’s employment agreement, our parent agreed to grant Mr. Horton an option to purchase 6.55581 shares of its Class A common stock pursuant to the Stock Incentive Plan, which will represent, on a fully diluted basis as of the date of grant, 2.25% of the outstanding shares of our parent’s common stock. The option, when granted, will be vested with respect to 40% of the shares subject to the option on the date of grant, with the remaining portion of the option becoming vested and become exercisable in three equal annual installments of 20% on December 31 of each year thereafter, provided that Mr. Horton remains employed by our parent on each such date. We expect that the option will be granted by our board of directors before December 31, 2012.

Frederic T. Boyer. Pursuant to the terms of Mr. Boyer’s employment agreement, in the event Mr. Boyer’s employment agreement is renewed or a new agreement is entered into, any such new or revised agreement will include a provision granting Mr. Boyer an option to purchase shares of our parent’s Class A common stock upon such terms as may be mutually agreed upon by us and Mr. Boyer and upon such further terms, including vesting and exercise rights, as we may at such time establish in our sole and absolute discretion. No equity-based awards were granted to Mr. Boyer during 2011.

Perquisites and Other Benefits—We provide our named executive officers with perquisites and other personal benefits that we believe are reasonable. We do not view perquisites as a significant element of our comprehensive compensation structure, but we do believe they can be useful in attracting, motivating and retaining executive talent.

The named executive officers may be provided with cellular phone service plans, personal travel, personal use of company automobiles, legal assistance, as well as estate and financial planning and tax assistance. See “Summary Executive Compensation Table for 2011” for information on the perquisites provided to the named executive officers in 2011. We also pay the medical and dental insurance plan premiums on behalf of our named executive officers and their legal dependents. In addition, we have provided whole life insurance and term life insurance policies for Lenard Liberman to provide for a death benefit of an aggregate of $2.5 million to beneficiaries designated by Mr. Liberman. Mr. Liberman owns the whole life insurance and term life insurance policies.

In addition, we provide the same or comparable health and welfare benefits to our named executive officers as are available for all other full-time employees. We believe that the perquisites and other personal benefits that we offer are typical employee benefits for high-level executives working in our industry and in our geographic area. We believe that these benefits enhance employee morale and performance, and are not excessively costly to the company. We provide these benefits in our discretion. Our perquisite and personal benefit programs may change over time as the board of directors determines is appropriate.

Our named executive officers are permitted to contribute to a 401(k) plan up to the maximum amount allowed under the Internal Revenue Code. We do not provide any matching contributions. The 401(k) plan is available to all eligible employees. Our named executive officers do not participate in any deferred benefit retirement plans such as a pension plan. We also do not have any deferred compensation programs for any named executive officer.

Attributed costs of the perquisites and personal benefits described above for the named executive officers for the fiscal year ended December 31, 2011 are included in the column “All Other Compensation” of the “Summary Executive Compensation Table for 2011” below.

Employment, Change in Control and Termination Arrangements

Employment Agreements—As stated above, we do not have employment agreements with Jose Liberman, our Chairman, or Lenard Liberman, our Chief Executive Officer and President. Our only named executive officers with employment agreements during 2011 were Messrs. Horton and Boyer and Ms. Lu.

 

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Change in Control—Of our named executive officers, during 2011 only Ms. Lu was entitled to an accelerated benefit in connection with a change in control of our company. The occurrence, or potential occurrence, of a change in control of our company may create uncertainty regarding the continued employment of Ms. Lu because many change in control transactions result in significant organizational changes, particularly at the executive officer level. In order to encourage Ms. Lu to remain employed with us during a critical time, we provided Ms. Lu with certain benefits in the event, or potential occurrence, of a change in control.

Wisdom Lu. As noted above, Ms. Lu resigned from her position as our Chief Financial Officer in January 2012 and entered into a separation and general release agreement with our parent in February 2012, which is described in more detail below under “—Termination Arrangements—Wisdom Lu.” Although Ms. Lu is no longer entitled to the benefits pursuant to her employment agreement, a description of the benefits under her agreement that she was eligible to receive prior to her resignation is included below.

Ms. Lu’s employment agreement provided that if, after a change in control event has occurred, (a) she was demoted or (b) we (or our successor) changed her primary employment location more than 50 miles from Burbank, California, Ms. Lu would have had 90 days to notify us (or our successor) that she intended to resign for “good reason.” If Ms. Lu had resigned for “good reason” following a change in control event during the term of her employment agreement, Ms. Lu would have been entitled to salary and bonuses earned at the time of such termination plus her base salary for a period of 12 months following termination. She would have also been entitled to exercise the then vested portion of her options, as provided under the Stock Incentive Plan. Under the terms of the Stock Incentive Plan and Ms. Lu’s option award agreement, in the event of a change of control, the administrator may have provided for a cash payment in settlement of, or for the assumption, substitution or exchange of, any or all of the outstanding options. Further, and unless the administrator had provided otherwise prior to the change of control event, any outstanding and unvested portion of the option award would have accelerated upon the change in control event such that 100% of each unvested and outstanding vesting installment of the option award would have become immediately exercisable.

A “change in control” under Ms. Lu’s employment agreement and the Stock Incentive Plan would have occurred if:

 

  (1) our parent’s stockholders or board of directors approved of a dissolution or liquidation of our parent, other the events described in paragraph (3) below;

 

  (2) except in certain circumstances, any individual or group acquired 50% or more of either (i) our parent’s outstanding common stock or (ii) the combined voting power of our parent’s outstanding common stock entitled to vote for the board of directors; or

 

  (3) our parent consummated a merger, a sale of all or substantially all of its assets, or our parent acquired the assets or stock of another individual or group, in each case unless, following such transaction, (i) all or substantially all of the owners of our parent’s outstanding common stock would have owned more than 50% of the same securities after the transaction and (ii) no person (other than certain persons specified in the employment agreement) would have owned, directly or indirectly, more than 50% of the outstanding common stock or the combined voting power after the transaction.

Winter Horton and Frederic T. Boyer. Mr. Horton’s and Mr. Boyer’s employment agreements do not provide for benefits or payments upon a change in control event.

Termination Arrangements—We believe that severance and other post-termination benefits can play a valuable role in attracting and retaining key executive officers. Accordingly, we provide certain of these protections to Messrs. Horton and Boyer pursuant to their respective employment agreements and, as noted above, we provided certain of these protections to Ms. Lu prior to her resignation in January 2012. Other than pursuant to those employment agreements, we are not obligated to make any severance or other payments upon termination to our named executive officers.

Wisdom Lu. As noted above, Ms. Lu resigned from her position as our Chief Financial Officer in January 2012 and entered into a separation and general release agreement with our parent in February 2012. The separation and general release agreement provides for, among other things, a cash severance payment to Ms. Lu equal to $200,000 and immediate forfeiture of the then outstanding and unvested portion of her option under the Stock Incentive Plan, and that such payment is in lieu of any other payments, compensation, bonuses, rights options to purchase shares of our parent’s common stock (other than shares with respect to the then outstanding and vested portion of her option) and similar benefits that are or may be due from Liberman Broadcasting to Ms. Lu. This agreement was negotiated with Ms. Lu and our parent determined that this payment was appropriate in light of Ms. Lu’s service to us and to secure a release of claims in its favor. Although Ms. Lu is no longer entitled to the benefits pursuant to her employment agreement, a description of the benefits under her agreement that she was eligible to receive prior to her resignation is included below.

 

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Pursuant to the terms of her employment agreement, if Ms. Lu had resigned (for “good reason” or otherwise), died, or became disabled, or was terminated (for cause or without cause) during the term of her employment agreement, we would have been required to pay her earned and accrued salary and bonus. In addition, Ms. Lu would have been entitled to payments equal to 12 months of base salary and to exercise the then-vested portion of her options to purchase shares in Liberman Broadcasting’s Class A common stock if we had terminated Ms. Lu’s employment for a reason other than for cause or disability. See “Change in Control—Wisdom Lu” for termination benefits if Ms. Lu had resigned for “good reason” following a change in control event.

Further, if Ms. Lu was terminated for cause, any outstanding portion of her option under the Stock Incentive Plan would have been immediately forfeited, regardless of whether it was then exercisable. “Cause,” which would have been determined by our parent’s board of directors, generally means any of the following:

 

  (1) Ms. Lu’s willful refusal to comply with reasonable requests made by our Chief Executive Officer, President or Executive Vice President;

 

  (2) personal dishonesty involving our business, or breach of fiduciary duty to us or our parent involving personal profit;

 

  (3) use of any illegal drug, narcotic, or excessive amounts of alcohol (as determined by the company in its discretion) on our property or at a function where she is working on our behalf;

 

  (4) commission of a felony, which has, or in the reasonable judgment of our parent’s board of directors, may have a material adverse effect on our business or reputation;

 

  (5) a breach by Ms. Lu of any material provision of the employment agreement; or

 

  (6) any breach by Ms. Lu of the public morals provision of the employment agreement.

Winter Horton. In the event Mr. Horton’s employment is terminated for “cause” (as defined below) or as a result of Mr. Horton’s disability, death or resignation during the term of his employment agreement, Mr. Horton will only be entitled to salary and bonuses earned at the time of such termination. In addition, if Mr. Horton is terminated by our parent for cause, any then-outstanding portion of his option to purchase share of our parent’s Class A common stock or any other equity award will be immediately forfeited, regardless of whether it was then exercisable. If Mr. Horton is terminated for a reason other than for cause or disability during the term of his employment agreement, Mr. Horton will be entitled to (i) salary and bonuses earned at the time of such termination, (ii) continued payment of his base salary for one year following such termination, and (iii) exercise the then-vested and outstanding portion of his options in accordance with the terms of the Stock Incentive Plan. “Cause,” which will be determined by our parent’s board of directors, means any of the following:

 

  (1) personal dishonesty involving our business, or breach of fiduciary duty to us or our parent involving personal profit;

 

  (2) commission of a felony, which has, or in the reasonable judgment of our parent, may have an adverse effect on our business or reputation;

 

  (3) Mr. Horton’s use of any illegal drug, narcotic or excessive amounts of alcohol, as determined by our parent’s board of directors, on company property or at a function where Mr. Horton is working on behalf of the company;

 

  (4) Mr. Horton’s willful refusal to comply with reasonable requests by the board, the Chief Executive officer, President or Chairman; or

 

  (5) Mr. Horton’s breach of any material provision of the employment agreement or breach or certain acts involving public morals.

Frederic T. Boyer. In the event Mr. Boyer’s employment is terminated for “cause” (as defined below) or as a result of Mr. Boyer’s disability, death or resignation during the term of his employment agreement without “good reason” (as

 

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defined below), Mr. Boyer will only be entitled to salary and bonuses earned and vested and any unreimbursed business expenses at the time of such termination. In addition, if Mr. Boyer’s employment is terminated for cause as a result of Mr. Boyer’s willful refusal to comply with reasonable requests by the Chief Operating Officer or President, we may, in our discretion, pay to Mr. Boyer a severance payment equal to $55,000, which represents 60 days of Mr. Boyer’s current level of annual base salary. “Cause,” which will be determined by our board of directors, means any of the following:

 

  (1) dishonesty involving our business, or breach of fiduciary duty to us involving personal profit;

 

  (2) commission of a felony, which has, or in our reasonable judgment, may have an adverse effect on our business or reputation;

 

  (3) Mr. Boyer’s use of any illegal drug, narcotic or excessive amounts of alcohol, as determined by us in our discretion, on company property or at a function where Mr. Boyer is working on behalf of the company;

 

  (4) Mr. Boyer’s willful refusal to comply with reasonable requests by the Chief Operating Officer or President; or

 

  (5) Mr. Boyer’s breach of any material provision of the employment agreement or breach or certain acts involving public morals.

If Mr. Boyer resigns for “good reason” (as defined below) during the term of his employment agreement, Mr. Boyer will be entitled to the lesser of (i) all compensation remaining under the term of the employment agreement and (ii) $82,500, which represents 90 days of Mr. Boyer’s current level of annual base salary. “Good reason” means any of the following:

 

  (1) a material breach of the employment agreement by us that is not cured during the 20 business day period following receipt of written notice of any such breach;

 

  (2) we demand that Mr. Boyer take action which violates the law, provided that we are afforded a period of 20 business days to cure or rescind any such demand; or

 

  (3) we change Mr. Boyer’s primary employment location more than 25 miles from Burbank, California.

See “Potential Payments Upon Termination or Change of Control” for amounts we would have been required to pay to the named executive officers had a change of control event and/or certain terminations of the executives’ employment with us occurred on December 31, 2011.

Internal Revenue Code Section 162(m)

We do not have any common equity securities required to be registered under the Securities Exchange Act of 1934. Therefore, the limitation on tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code does not apply to us.

Compensation Committee Report

As we do not have a compensation committee, our board of directors reviews and determines the compensation of our named executive officers. The board of directors has reviewed and discussed with management the information under the Compensation Discussion and Analysis above. Based on such review and discussion, the board of directors has approved the inclusion of the Compensation Discussion and Analysis in this report.

The Board of Directors:

Jose Liberman

William G. Adams

Winter Horton

Bruce A. Karsh

Lenard D. Liberman

Terence M. O’Toole

 

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Summary Executive Compensation Table for 2011

The following table describes the compensation earned by or awarded to our named executive officers during the fiscal years ended December 31, 2011, 2010 and 2009.

 

Name and Principal Position(s)

   Year      Salary      Bonus      Option
Awards(6)
     All Other
Compensation
     Total  

Jose Liberman(1)
Chairman

     2011       $ 750,000       $ —         $  —         $ 163,553       $ 913,553   
     2010       $ 750,000       $ —         $ —         $ 128,659       $ 878,659   
     2009       $ 750,000       $ —         $ —         $ 84,431       $ 834,431   

Lenard Liberman(2)
Chief Executive Officer,
President and Secretary

     2011       $ 750,000       $ —         $ —         $ 132,440       $ 882,440   
     2010       $ 750,000       $ —         $ —         $ 125,613       $ 875,613   
     2009       $ 750,000       $ —         $ —         $ 112,700       $ 862,700   

Frederic T. Boyer(3)
Chief Financial Officer

     2011       $ 14,000       $ —         $ —         $ —         $ 14,000   
                 

Winter Horton(4)
Chief Operating Officer

     2011       $ 472,500       $ —         $ —         $ 17,000       $ 489,500   
     2010       $ 450,000       $ 75,000       $ —         $ 9,858       $ 534,858   
     2009       $ 400,000       $ 100,000       $ —         $ —         $ 500,000   

Wisdom Lu(5)
Former Chief
Financial Officer

     2011       $ 458,000       $ —         $ —         $ —         $ 458,000   
     2010       $ 435,750       $ —         $ —         $ —         $ 435,750   
     2009       $ 415,000       $ 100,000       $ —         $ —         $ 515,000   

 

(1) 

All other compensation includes aggregate payments by us for Mr. J. Liberman’s use of certain of our legal and professional service providers of $68,122, leasing of personal vehicles of $54,802, and personal travel of $37,711. The remaining amounts set forth in this column represent cellular phone service plans and office equipment and supplies.

(2) 

All other compensation includes payments by us for Mr. L. Liberman’s personal travel of $55,975, leasing of personal vehicles of $35,757, and usage of certain of our legal and professional service providers of $21,899. The remaining amounts set forth in this column represent cellular phone service plans and other miscellaneous items.

(3) 

Mr. Boyer was appointed Senior Vice President and co-Chief Financial Officer of our parent, Liberman Broadcasting, Inc., and its subsidiaries, including LBI Media Holdings, Inc., effective December 16, 2011, and was appointed Senior Vice President and Chief Financial Officer effective January 20, 2012. Mr. Boyer was not employed by of our parent, Liberman Broadcasting, Inc., or any of its subsidiaries prior to December 16, 2011.

(4) 

All other compensation includes payments by us for Mr. Horton’s automobile allowance.

(5) 

As noted above, Ms. Lu resigned from her position as our Chief Financial Officer effective January 20, 2012.

(6) 

The amounts reported in the Option Awards column of the table above for each fiscal year reflect the fair value on the grant date of the option awards granted to our named executive officers during the fiscal year. These values have been determined under the principles used to calculate the value of equity awards for purposes of our financial statements. For a discussion of the assumptions and methodologies used to value the awards reported in the Option Awards column, please see the discussion of stock-based compensation contained in Notes 1 and 9 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

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Narrative Disclosure to Summary Compensation Table and Outstanding Equity Awards Table

In February 2008, our parent, Liberman Broadcasting, Inc., entered into an employment agreement with Ms. Lu, our former Chief Financial Officer. A description of the material terms of the employment agreement with Ms. Lu can be found above under “Compensation Discussion and Analysis—Elements of our Compensation Program” and “—Employment, Change in Control and Termination Arrangements.” As noted above, Ms. Lu resigned from her position as our Chief Financial Officer effective January 20, 2012.

In December 2009, our parent, Liberman Broadcasting, Inc., entered into a new employment agreement with Mr. Horton in connection with the expiration of his prior employment agreement. A description of the material terms of the employment agreement with Mr. Horton can be found above under “Compensation Discussion and Analysis—Elements of our Compensation Program” and “—Employment, Change in Control and Termination Arrangements.”

In November 2011, we entered into an employment agreement with Mr. Boyer, our Senior Vice President and Chief Financial Officer. A description of the material terms of the employment agreement with Mr. Boyer can be found above under “Compensation Discussion and Analysis—Elements of our Compensation Program” and “—Employment, Change in Control and Termination Arrangements.”

No plan based equity awards were granted in 2011.

Outstanding Equity Awards at December 31, 2011

 

Name

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
     Option
Exercise Price
($)
     Option
Expiration
Date
 

Jose Liberman

     —           —           —           —     

Lenard Liberman

     —           —           —           —     

Frederic T. Boyer

     —           —           —           —     

Winter Horton

     —           —           —           —     

Wisdom Lu(1)

     1.311162         0.874108         1,368,083         12/2018   

 

(1) 

Ms. Lu was granted options to purchase the Class A common stock of our parent, Liberman Broadcasting, Inc., on December 12, 2008 pursuant to the Stock Incentive Plan. The option grant to Ms. Lu vests and becomes exercisable in five equal annual installments on March 31 of each year, commencing on March 31, 2009. Ms. Lu resigned from her position as our Chief Financial Officer effective January 20, 2012, and the unvested portion of the option terminated in connection with her resignation. Ms. Lu must exercise her vested options within three months of her resignation date or they will terminate on the close of business on April 20, 2012.

Potential Payments Upon Termination or Change of Control

As described above under “Compensation Discussion and Analysis—Employment, Change in Control and Termination Arrangements,” the employment agreements for Ms. Lu and Messrs. Horton and Boyer would require us to make termination and/or severance payments and/or change in control benefits.

Wisdom Lu. Under her employment agreement as in effect on December 31, 2011, if Ms. Lu had resigned (for “good reason” or otherwise), died, became disabled, or had been terminated (for cause or without cause) during the term of her employment agreement, we would have been required to pay her accrued salary and bonus. In addition, Ms. Lu would have been entitled to payments equal to 12 months of base salary and to exercise the then-vested portion of her options to purchase shares in Liberman Broadcasting’s Class A common stock if either of the following events had occurred: (1) we had terminated Ms. Lu’s employment for a reason other than for cause or disability or (2) Ms. Lu had resigned for “good reason”

 

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following a change in control event. Under the terms of the Stock Incentive Plan and Ms. Lu’s option award agreement, in the event of a change of control, the administrator may have provided for a cash payment in settlement of, or for the assumption, substitution or exchange of, any or all of the outstanding options. Further, and unless the administrator provides otherwise prior to the change of control event, any outstanding and unvested portion of Ms. Lu’s option award would have accelerated upon the change in control event such that 100% of each unvested and outstanding vesting installment of the option award would have become immediately exercisable.

Had we terminated Ms. Lu on December 31, 2011 for a reason other than for cause or disability, we would have been required to pay Ms. Lu’s accrued salary and severance of $463,500, an amount representing 12 months of her base salary. As of December 31, 2011, 1.311162 shares of Ms. Lu’s options to purchase our parent’s Class A common shares had vested.

If Ms. Lu had resigned for good reason after a change of control event on December 31, 2011, we would have been required to pay her accrued salary and severance of $463,500. As noted above, and unless otherwise provided by the administrator of the Stock Incentive Plan, had Ms. Lu’s employment terminated under the circumstances described above in connection with a change of control event on December 31, 2011, Ms. Lu would have also been entitled to the accelerated vesting of 100% of any outstanding and unvested portion of the option award. We estimate that her outstanding and unvested option that would have accelerated as of December 31, 2011 had no value. This was determined based on an analysis we performed as of December 31, 2011, whereby we estimated that the fair market value of an underlying share of our parent’s common stock on December 31, 2011 was less than the exercise price of the option by the number of shares subject to the accelerated portion of the option.

As noted above, Ms. Lu resigned from her position as our Chief Financial Officer in January 2012 and entered into a separation and general release agreement with our parent in February 2012. The separation and general release agreement provides for, among other things, a cash severance payment to Ms. Lu equal to $200,000 and immediate forfeiture of the then outstanding and unvested portion of her option under the Stock Incentive Plan, and that such payment is in lieu of any other payments, compensation, bonuses, rights options to purchase shares of our parent’s common stock (other than shares with respect to the then outstanding and vested portion of her option) and similar benefits that are or may be due from our parent to Ms. Lu. This agreement was negotiated with Ms. Lu and our parent determined that this payment was appropriate in light of Ms. Lu’s service to us and to secure a release of claims in its favor.

Winter Horton. In the event Mr. Horton’s employment is terminated for “cause” or as a result of Mr. Horton’s disability, death or resignation during the term of his employment agreement, Mr. Horton will only be entitled to salary and bonuses earned at the time of such termination. If Mr. Horton’s employment is terminated by us for a reason other than for cause or disability during the term of his employment agreement, Mr. Horton will be entitled to (i) salary and bonuses earned at the time of such termination, (ii) continued payment of his base salary for one year following such termination, and (iii) exercise the then-vested and outstanding portion of any options in accordance with the terms of the Stock Incentive Plan. Had we terminated Mr. Horton’s employment on December 31, 2011 for a reason other than cause or disability, we would have been required to pay Mr. Horton’s accrued salary and bonus and severance of $472,500.

Frederic T. Boyer. In the event Mr. Boyer’s employment is terminated for “cause” or as a result of Mr. Boyer’s disability, death or resignation during the term of his employment agreement without “good reason” (as defined below), Mr. Boyer will only be entitled to salary and bonuses earned and vested and any unreimbursed business expenses at the time of such termination. In addition, if Mr. Boyer’s employment is terminated for cause as a result of Mr. Boyer’s willful refusal to comply with reasonable requests by the Chief Operating Officer or President, we may, in our discretion, pay to Mr. Boyer a severance payment equal to $55,000, which represents 60 days of Mr. Boyer’s current level of annual base salary. If Mr. Boyer resigns for “good reason” during the term of his employment agreement, Mr. Boyer will be entitled to the lesser of (i) all compensation remaining under the term of the employment agreement and (ii) 90 days of Mr. Boyer’s current level of annual base salary. Had Mr. Boyer resigned for “good reason” on December 31, 2011, we would have been required to pay Mr. Boyer’s accrued salary and bonus and severance of $82,500, which is the lesser of (i) all compensation remaining under the term of the employment agreement and (ii) 90 days of Mr. Boyer’s current level of annual base salary.

Director Compensation

We do not pay a retainer or director fees to our directors for their services, except for William G. Adams as noted below. We also did not provide any equity awards or any perquisites or other benefits to any non-employee director in 2011 which aggregated $10,000 or more. We do, however, reimburse each of our directors for expenses incurred in the performance of his duties as a director.

 

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DIRECTOR COMPENSATION FOR 2011

 

Name

   Fees Paid or Earned
in Cash

($)
    Total
($)
 

Jose Liberman(1)

     —          —     

Lenard D. Liberman(1)

     —          —     

Winter Horton(1)

     —          —     

William G. Adams

     34,500 (2)      34,500   

Bruce A. Karsh

     —          —     

Terence M. O’Toole

     —          —     

 

(1) 

In 2011, Messrs. J. Liberman, L. Liberman and Horton served as our executive officers while also serving as our directors. See “Summary Executive Compensation Table for 2011” for their compensation for 2011. Messrs. J. Liberman, L. Liberman and Horton were not paid any additional compensation for their services as directors in 2011.

(2) 

The stockholders of our parent, Liberman Broadcasting, determined that Mr. Adams should be compensated for his service as a director because he is the only director not to hold, directly or indirectly, any equity in our parent or receive any other type of compensation for his service to us. In addition to serving on our board of directors, Mr. Adams also serves on the boards of directors of our parent and our wholly owned subsidiary, LBI Media, Inc. Mr. Adams’ aggregate fees for his services to us, our parent, and LBI Media have been included in this table. Mr. Adams receives an aggregate quarterly fee of $7,500 plus a meeting fee of $1,500 for each board meeting (other than telephonic meetings) he attends. However, Mr. Adams is only entitled to receive one meeting fee if the meetings of our board of directors and the board of directors of our parent and LBI Media are held jointly or consecutively. Mr. Adams attended four board meetings in 2011.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

We are a wholly owned subsidiary of our parent, Liberman Broadcasting, Inc. The following table sets forth information as of March 30, 2012 with respect to the beneficial ownership of Class A common stock and Class B common stock of our parent by (i) our directors, (ii) our named executed officers (as described above under “Item. 11 Executive Compensation—Compensation Discussion and Analysis”) and (iii) our directors and named executive officers as a group.

The amounts and percentages of our parent’s Class A and Class B common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission, or SEC, governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days after March 30, 2012. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as otherwise noted by footnote, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned, subject to applicable community property laws.

The Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of the stockholders of our parent. Each share of Class A common stock is entitled to one vote per share, and each share of Class B common stock is entitled to ten votes per share. Holders of such shares of our parent’s Class B common stock may elect at any time to convert their shares into an equal number of shares of Class A common stock, provided that any necessary consent by the FCC has been obtained. Our parent had 113.29783 shares and 178.07139 shares of Class A and Class B common stock, respectively, outstanding on March 30, 2012.

 

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     Class A
Common Stock
    Class B
Common Stock
    % of
Total
Economic
Interest
    % of
Total
Voting
Power
 

Name and Address of Stockholder (1)

   Number     %     Number      %      

Jose Liberman (2)

     (2     (2     58.51258         32.9     20.1     30.9

Lenard Liberman (3)

     (3     (3     119.55881         67.1        41.0        63.1   

Frederic T. Boyer (4)

     —          —          —           —          —          —     

Wisdom Lu (5)

     1.3111620        1.1     —           —          *        *   

Winter Horton (6)

     —          —          —           —          —          —     

William G. Adams

     —          —          —           —          —          —     

Bruce A. Karsh (7)

     75.288240        66.5     —           —          25.8        4.0   

Terence M. O’Toole (8)

     37.278640        32.9     —           —          12.8        2.0   

All directors and named executive officers as a group (8 persons) (9)

     113.878042        99.4     178.07139         100.0        99.8        100.0   

 

* Represents less than 1% of the issued and outstanding shares of common stock as of the date of this table.
(1) The address of the persons and entities listed on the table is c/o LBI Media Holdings, Inc., 1845 West Empire Avenue, Burbank CA 91504.
(2) Represents shares of Class B common stock held by Mr. Jose Liberman in his capacity as trustee of various trusts. Mr. Liberman has sole voting and investment power. Holders of such shares of Class B common stock may elect at any time to convert their shares into an equal number of shares of Class A common stock, provided that any necessary consent by the FCC has been obtained. Further, Class B shares will automatically be converted, whether by sale, assignment gift or otherwise, whether voluntarily or involuntarily, to Class A common shares under certain circumstances set forth in Liberman Broadcasting’s Restated Certificate of Incorporation.
(3) Holders of such shares of Class B common stock may elect at any time to convert their shares into an equal number of shares of Class A common stock, provided that any necessary consent by the FCC has been obtained. Further, Class B shares will automatically be converted, whether by sale, assignment gift or otherwise, whether voluntarily or involuntarily, to Class A common shares under certain circumstances set forth in Liberman Broadcasting’s Restated Certificate of Incorporation.
(4) In December 2011, Mr. Boyer was appointed Senior Vice President and co-Chief Financial Officer and was appointed Senior Vice President and Chief Financial Officer in January 2012.
(5) Represents vested and exercisable options of 1.311162 shares of Class A common stock. Ms. Lu resigned on January 20, 2012. As a result, all of Ms. Lu’s unvested options terminated on January 20, 2012. Ms. Lu must exercise her vested options within three months of her resignation date or they will terminate on the close of business on April 20, 2012.
(6) Pursuant to the terms of Mr. Horton’s employment agreement, our parent has agreed to grant Mr. Horton an option to purchase 6.55581 shares of its Class A common stock pursuant to the Stock Incentive Plan, which will represent, on a fully diluted basis as of the date of grant, 2.25% of the outstanding shares of our parent’s common stock. The option, when granted, will be vested with respect to 40% of the shares subject to the option on the date of grant, with the remaining portion of the option becoming vested and become exercisable in three equal annual installments of 20% on December 31 of each year thereafter, provided that Mr. Horton remains employed by our parent on each such date. We expect that the option will be granted by our board of directors before December 31, 2012.
(7)

Represents an aggregate of 75.28824 shares of Class A common stock held by OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., OCM Principal Opportunities Fund IV AIF (Delaware), L.P. and OCM OPPS Broadcasting, LLC. The members of OCM OPPS Broadcasting, LLC are OCM Opportunities Fund VI, L.P. and OCM Opportunities Fund VII AIF (Delaware), L.P. The general partner of OCM Principal Opportunities Fund III, L.P. and OCM Principal Opportunities Fund IIIA, L.P. is OCM Principal Opportunities Fund III GP, L.P. (“POF III GP”). The general partner of OCM Opportunities Fund VI, L.P. is OCM Opportunities Fund VI GP, L.P. (“Opps VI GP”). The general partner of POF III GP and Opps VI GP is Oaktree Fund GP I, L.P. (“GP I”). The general partner of GP I is Oaktree Capital I, L.P. (“Capital I”). The general partner of Capital I is OCM Holdings I, LLC (“Holdings I”). The managing member of Holdings I is Oaktree Holdings, LLC (“Holdings”). The managing member of Holdings is Oaktree Capital Group, LLC (“OCG”). The holder of a majority of the voting units of OCG is Oaktree Capital Group Holdings, L.P. (“OCGH”). The general partner of OCGH is Oaktree Capital Group Holdings GP, LLC (“OCGH GP”). The general partner of OCM Principal Opportunities Fund IV AIF (Delaware), L.P. is Oaktree Fund AIF Series, L.P.—Series B (“POF IV GP”). The general partner of OCM Opportunities Fund VII AIF (Delaware), L.P. is Oaktree Fund AIF Series, L.P.—Series C (“Opps VII GP”). The general partner of POF IV GP and Opps VII GP is

 

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  Oaktree Fund GP AIF, LLC (“AIF LLC”). The managing member of AIF LLC is Oaktree Fund GP III, L.P. (“GP III”). The general partner of GP III is Oaktree AIF Investments, L.P. (“AIF Investments”). The general partner and limited partner of AIF Investments is Oaktree AIF Holdings, Inc. (“AIF Holdings”). The sole voting shareholder of AIF Holdings is OCGH. The general partner of OCGH is OCGH GP. Mr. Karsh is a member of OCGH GP and, therefore, may be deemed to have or share beneficial ownership of the shares beneficially owned by OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., OCM Principal Opportunities Fund IV AIF (Delaware), L.P. and OCM OPPS Broadcasting, LLC. Mr. Karsh and all of the other entities named above except for OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., OCM Principal Opportunities Fund IV AIF (Delaware), L.P. and OCM OPPS Broadcasting, LLC disclaim beneficial ownership of such shares, except to the extent of his and their direct pecuniary interest therein.
(8) Represents an aggregate of 37.27864 shares of Class A common stock held by Tinicum Capital Partners II, L.P., Tinicum Capital Partners II Parallel Fund, L.P. and Tinicum Capital Partners II Executive Fund L.L.C. (collectively, the “Tinicum Group”). Mr. O’Toole is co-managing member of Tinicum Lantern II L.L.C., the general partner of Tinicum Capital Partners II, L.P. and Tinicum Capital Partners II Parallel Fund, L.P. and manager of Tinicum Capital Partners II Executive Fund, L.L.C., and has sole voting and dispositive power of shares held by the Tinicum Group. Mr. O’Toole disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
(9) Includes 1.311162 shares of Class A common stock that may be acquired upon the exercise of options within 60 days of March 30, 2012.

For equity compensation plan information, refer to the information in “Item 10. Executive Compensation”

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We are not required to have, and do not have, an audit committee. Accordingly, our board of directors reviews and approves all related person transactions. Our board of directors has not adopted written procedures for review of, or standards for approval of, these transactions, but instead reviews such transactions on a case-by-case basis.

Executive Officer and Director Loans

As of December 31, 2011, we had outstanding loans, including accrued interest, aggregating $270,091 and $2,680,107 to Jose and Lenard Liberman, respectively, each of whom is an executive officer and a director and beneficially owns shares of our stock, and $690,000 to Winter Horton, our Chief Operating Officer and director. The loans were for the personal use of Jose and Lenard Liberman and Winter Horton.

Jose Liberman. We made loans of $146,590 and $75,000 to Jose Liberman on December 20, 2001 and July 29, 2002, respectively. During the year ended December 31, 2011, the largest aggregate amount of principal outstanding of these loans was $221,590. Jose Liberman did not pay us any principal or interest for the year ended December 31, 2011.

The loans bore interest at the alternative federal short-term rate published by the Internal Revenue Service for the month in which the advance was made, which rate was 2.48% and 2.84% for the December 2001 and July 2002 notes, respectively. However, when these notes were renewed in 2010, the interest rates were adjusted to 0.69% and 0.82% for the December 2001 and July 2002 notes, respectively, based on the applicable alternative federal short-term rate. Each loan was scheduled to mature on the seventh anniversary of the date on which the loan was made. However, all loans were extended and mature July 2012 and December 2012 for the July 2002 and December 2001 notes, respectively.

Lenard Liberman. We made loans of $243,095, $32,000 and $1,916,563 on December 20, 2001, June 14, 2002 and July 9, 2002, respectively. During the year ended December 31, 2010, the largest aggregate amount of principal outstanding of these loans was $2,191,658. Lenard Liberman did not pay us any principal or interest for the year ended December 31, 2011.

The loans bore interest at the alternative federal short-term rate published by the Internal Revenue Service for the month in which the advance was made, which rate was 2.48%, 2.91% and 2.84% for the December 2001, June 2002 and July 2002 notes, respectively. However, when these notes were renewed in 2010, the interest rates were adjusted to 0.69%, 0.75% and 0.82% for the December 2001, June 2002 and July 2002 notes, respectively, based on the applicable alternative federal short-term rate. Each loan was scheduled to mature on the seventh anniversary of the date on which the loan was made. However, all loans were extended and mature June 2012, July 2012 and December 2012 for the June 2002, July 2002 and December 2001 notes, respectively.

 

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Winter Horton. We made loans of $30,000, $36,000, $349,000 and $275,000 on November 20, 1998, November 22, 2002, November 29, 2002 and April 8, 2006, respectively. Each of these loans were made prior to Mr. Horton’s election as our director in March 2007. During the year ended December 31, 2011, the largest aggregate principal amount outstanding of these loans was $690,000. Mr. Horton did not repay any principal or interest for the year ended December 31, 2011. The $30,000 loan does not bear interest and does not have a maturity date. Each of the other loans bear interest at 8.0% and mature in December 2012.

L.D.L. Enterprises, Inc.

Lenard Liberman is the sole shareholder of L.D.L. Enterprises, Inc. (“LDL”), a mail order business. From time to time, we allow LDL to use, free of charge, unsold advertising time on our radio and television stations.

Stockholders’ and Executive Officers’ Note Purchases

Certain of our parent’s stockholders, the chairman of our board, and our chief executive officer, president and secretary collectively own an aggregate principal amount of approximately $53.7 million of LBI Media’s senior subordinated notes and $1.9 million of our senior discount notes, as of December 31, 2011, which were all purchased in open market transactions. We paid an aggregate of $4.8 million in interest during the fiscal year ended December 31, 2011 to such related persons.

Tinicum Incorporated

In November 2009, we entered into an agreement to lease certain office space from Tinicum Incorporated (“Tinicum”). Tinicum is a stockholder of our parent, Liberman Broadcasting, Inc. The rental payments are $12,000 per month and the lease expired in October 2011. During the year ended December 31, 2011, we recorded $72,000 in rent expense related to our lease from Tinicum, which is included in selling, general and administrative expenses in the accompanying consolidated financial statements.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees related to services performed by Deloitte & Touche LLP for the years ended December 31, 2011 and 2010 are as follows:

 

     Year Ended December 31,  
     2011      2010  

Audit fees

   $ 454,000       $ 626,000   

Audit-related fees

     —           —     

Tax fees

     —           —     

All other fees

     —           —     
  

 

 

    

 

 

 

Total

   $ 454,000       $ 626,000   
  

 

 

    

 

 

 

We do not have an audit committee. Our board of directors approved all services performed by Deloitte & Touche. Fees for audit services include fees associated with the annual audit and our annual reports on Form 10-K, the reviews of our quarterly reports on Form 10-Q, the issuance of comfort letters, the issuance of consents, and assistance with and review of documents filed with the Securities and Exchange Commission. Tax fees include tax compliance, tax advice and tax planning services.

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

  (a) The following documents are filed as part of this report:

 

  1. Financial Statements

The following financial statements of LBI Media Holdings, Inc. and report of independent auditors are included in Item 8 of this annual report and submitted in a separate section beginning on page F-1:

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-1   

Consolidated Balance Sheets

     F-2   

Consolidated Statements of Operations

     F-3   

Consolidated Statements of Stockholder’s (Deficiency) Equity

     F-4   

Consolidated Statements of Cash Flows

     F-5   

Notes to Consolidated Financial Statements

     F-7   

 

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  2. Financial Statements Schedules

All required schedules are omitted because they are not applicable or the required information is shown in the financial statements or the accompanying notes.

 

  3. Exhibits

The exhibits filed as part of this annual report are listed in Item 15(b).

 

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  (b) Exhibits.

The following exhibits are filed as a part of this report:

 

Exhibit

Number

  

Exhibit Description

    3.1

   Restated Certificate of Incorporation of LBI Media Holdings, Inc. (4)

    3.2

   Certificate of Ownership of Liberman Broadcasting, Inc. (successor in interest to LBI Holdings I, Inc.), dated July 9, 2002 (1)

    3.3

   Amended and Restated Bylaws of LBI Media Holdings, Inc. (4)

    4.1

   Indenture governing LBI Media Holdings’ 11% Senior Discount Notes due 2013, dated October 10, 2003, by and among LBI Media Holdings, Inc. and U.S. Bank National Association, as Trustee (2)

    4.2

   Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)

    4.3

   Indenture, dated as of July 23, 2007, by and among LBI Media, Inc., the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee (5)

    4.4

   Form of 8.5% Senior Subordinated Note due 2017 (included as Exhibit A-1 to Exhibit 4.3)

    4.5

   Indenture, dated as of March 18, 2011, by and among LBI Media, Inc., the guarantors named therein and U.S. Bank National Association, as trustee (10)

    4.6

   Form of 9.25% Senior Secured Note due 2019 (included in Exhibit 4.5)

    4.7

   The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of LBI Media Holdings, Inc. and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of LBI Media Holdings, Inc. and its subsidiaries.

  10.1

   Promissory Note dated December 20, 2001 by Lenard D. Liberman in favor of LBI Media, Inc. (1)

  10.2

   Promissory Note dated December 20, 2001 by Jose Liberman in favor of LBI Media, Inc. (1)

  10.3

   Promissory Note dated June 14, 2002 issued by Lenard D. Liberman in favor of LBI Media, Inc. (1)

  10.4

   Promissory Note dated July 9, 2002 issued by Lenard Liberman in favor of LBI Media, Inc. (1)

  10.5

   Promissory Note dated July 29, 2002 issued by Jose Liberman in favor of LBI Media, Inc. (1)

  10.6

   Authorization of Loan dated November 20, 1998 by Winter Horton in favor of Liberman Broadcasting of California LLC (successor in interest to Liberman Broadcasting, Inc.) (7)

  10.7

   Unsecured Promissory Note dated November 22, 2002 by Winter Horton in favor of Liberman Broadcasting of California LLC (successor in interest to Liberman Broadcasting, Inc.) (7)

  10.8

   Secured Promissory Note dated November 29, 2002 by Winter Horton in favor of Liberman Broadcasting of California LLC (successor in interest to Liberman Broadcasting, Inc.) (7)

  10.9

   Secured Promissory Note dated April 8, 2006 by Winter Horton in favor of Liberman Broadcasting of California LLC (successor in interest to Liberman Broadcasting, Inc.) (7)

  10.10

   Amended and Restated Credit Agreement, dated as of March 18, 2011, among LBI Media, Inc., the guarantors party thereto, the lenders party thereto, Credit Suisse Securities (USA) LLC, as Lead Arranger, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent (portions of this agreement have been omitted pursuant to a request for confidential treatment) (11)

  10.11

   Amended and Restated Security Agreement, dated as of March 18, 2011, among LBI Media, Inc., the other debtors, and Credit Suisse AG, Cayman Islands Branch, as Collateral Trustee (11)

  10.12

   Employment Agreement, dated as of December 28, 2009, by and between Liberman Broadcasting, Inc. and Winter Horton (9)

  10.13

   Employment Agreement, dated as of February 27, 2008, by and between Liberman Broadcasting, Inc. and Wisdom Lu (7)

  10.14

   Separation and General Release Agreement, dated as of February 15, 2012, by and between Wisdom Lu and Liberman Broadcasting, Inc.*

  10.15

   Employment Agreement, dated as of November 23, 2011, by and between LBI Media Holdings, Inc. and Frederic T. Boyer (12)

  10.16

   Investor Rights Agreement, dated as of March 30, 2007, by and among Liberman Broadcasting, Inc. and each of the stockholders of Liberman Broadcasting, Inc. listed on the signature pages thereto (4)

  10.17

   Amendment No. 1 to Investor Rights Agreement and Waiver, dated as of July 10, 2007, by and among Liberman Broadcasting, Inc., OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., OCM Opps Broadcasting, LLC, OCM Principal Opportunities Fund IV AIF (Delaware), L.P., Tinicum Capital Partners II, L.P., Tinicum Capital Partners II Parallel Fund, L.P., and the existing stockholders listed on the signature pages thereto (6)

  10.18

   Liberman Broadcasting, Inc. Stock Incentive Plan, dated December 12, 2008 (8)

  10.19

   Liberman Broadcasting, Inc. Stock Incentive Plan Stock Option Agreement dated December 12, 2008, by and between Liberman Broadcasting, Inc. and Wisdom Lu (8)

  10.20

   Summary of Verbal Agreement for Director Compensation with William G. Adams (8)

 

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Exhibit

Number

  

Exhibit Description

  21.1

   Subsidiaries of LBI Media Holdings, Inc. (7)

  31.1

   Certification of Chief Executive Officer, President and Secretary pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934*

  31.2

   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934*

101

   The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010, (ii) the Condensed Consolidated Statements of Operations for the year ended December 31, 2011 and 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the year ended December 31, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements.*

 

* Filed herewith.
 

Indicates compensatory plan, contract or arrangement in which directors or executive officers may participate.

(1) Incorporated by reference to LBI Media’s Registration Statement on Form S-4, filed with the Securities and Exchange Commission on October 4, 2002, as amended (File No. 333-100330).
(2) Incorporated by reference to LBI Media Holdings’ Registration Statement on Form S-4, filed with the Securities and Exchange Commission October 30, 2003, as amended (File No. 333-110122).
(3) Incorporated by reference to LBI Media Holdings’ Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2006 (File No. 333-110122).
(4) Incorporated by reference to LBI Media Holdings’ Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2007 (File No. 333-110122).
(5) Incorporated by reference to LBI Media Holdings, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2007 (File No. 333-110122).
(6) Incorporated by reference to LBI Media Holdings’ Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2007 (File No. 333-110122).
(7) Incorporated by reference to LBI Media Holdings’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008 (File No. 333-110122).
(8) Incorporated by reference to LBI Media Holdings’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009 (File No. 333-110122).
(9) Incorporated by reference to LBI Media Holdings’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 12, 2010 (File No. 333-110122).
(10) Incorporated by reference to LBI Media Holdings’ Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2011 (File No. 333-110122).
(11) Incorporated by reference to LBI Media Holdings’ Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 16, 2011 (File No. 333-110122).
(12) Incorporated by reference to LBI Media Holdings’ Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2012 (File No. 333-110122).

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Burbank, State of California, on March 30, 2012.

 

LBI MEDIA HOLDINGS, INC.

/S/    FREDERIC T. BOYER        

Frederic T. Boyer
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/S/    JOSE LIBERMAN        

   Chairman and Director   March 30, 2012
Jose Liberman     

/S/    LENARD D. LIBERMAN        

   Chief Executive Officer, President, Secretary and Director (principal executive officer)   March 30, 2012
Lenard D. Liberman     

/S/    FREDERIC T. BOYER        

Frederic T. Boyer

   Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)   March 30, 2012
    

/S/    WINTER HORTON        

   Chief Operating Officer and Director   March 30, 2012
Winter Horton     

/S/    WILLIAM G. ADAMS        

   Director   March 30, 2012
William G. Adams     

/S/    BRUCE A. KARSH        

   Director   March 30, 2012
Bruce A. Karsh     

/S/    TERENCE M. O’TOOLE        

   Director   March 30, 2012
Terence M. O’Toole     

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of LBI Media Holdings, Inc.

Burbank, California

We have audited the accompanying consolidated balance sheets of LBI Media Holdings, Inc. (the Company, a wholly owned subsidiary of Liberman Broadcasting, Inc.,) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholder’s (deficiency) equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of LBI Media Holdings, Inc. as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Deloitte & Touche LLP

Los Angeles, California

March 30, 2012

 

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Table of Contents

LBI MEDIA HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

     December 31,  
     2011     2010  
     (in thousands)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 1,162      $ 294   

Accounts receivable (less allowances for doubtful accounts of $3,576 and $3,436, respectively)

     25,272        23,344   

Current portion of television program costs, net

     1,091        640   

Amounts due from related parties

     563        409   

Current portion of employee advances

     171        105   

Prepaid expenses and other current assets

     2,067        1,581   

Assets held for sale

     1,614        —     
  

 

 

   

 

 

 

Total current assets

     31,940        26,373   

Property and equipment, net

     89,209        94,163   

Broadcast licenses, net

     165,131        166,653   

Deferred financing costs, net

     11,528        4,998   

Notes receivable from related parties, excluding current portion

     —          3,034   

Employee advances, excluding current portion

     1,746        1,790   

Television program costs, excluding current portion

     14,572        10,181   

Other assets

     7,466        3,760   
  

 

 

   

 

 

 

Total assets

   $ 321,592      $ 310,952   
  

 

 

   

 

 

 

Liabilities and stockholder’s deficiency

    

Current liabilities:

    

Cash overdraft

   $ —        $ 1,050   

Accounts payable

     3,359        2,858   

Accrued liabilities

     6,449        8,049   

Accrued interest

     13,381        9,597   

Current portion of long-term debt

     174        1,364   
  

 

 

   

 

 

 

Total current liabilities

     23,363        22,918   

Long-term debt, excluding current portion

     486,631        444,007   

Fair value of interest rate swap

     —          3,146   

Deferred income taxes

     26,181        20,160   

Other liabilities

     3,593        2,891   
  

 

 

   

 

 

 

Total liabilities

     539,768        493,122   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholder’s deficiency:

    

Common stock, $0.01 par value:

    

Authorized shares—1,000

    

Issued and outstanding shares—100

     —          —     

Additional paid-in capital

     63,020        62,993   

Notes receivable from related parties

     (3,035     —     

Accumulated deficit

     (278,161     (245,163
  

 

 

   

 

 

 

Total stockholder’s deficiency

     (218,176     (182,170
  

 

 

   

 

 

 

Total liabilities and stockholder’s deficiency

   $ 321,592      $ 310,952   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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LBI MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
     2011     2010     2009  
     (in thousands)  

Net revenues

   $ 117,520      $ 115,736      $ 102,921   

Operating expenses:

      

Program and technical, exclusive of depreciation and amortization of property and equipment shown below

     43,200        38,240        24,848   

Promotional, exclusive of depreciation and amortization shown below

     4,156        3,465        3,323   

Selling, general and administrative, exclusive of depreciation and amortization shown below

     43,843        39,925        40,132   

Depreciation and amortization of property and equipment

     10,584        10,042        9,703   

Loss on sale and disposal of property and equipment

     3,521        611        1,807   

Impairment of broadcast licenses and long-lived assets

     880        7,222        126,543   

Gain on legal settlement

     (900     —          —     

Proceeds from insurance claim

     (455     —          —     

Gain on assignment of asset purchase agreement

     —          (1,599     —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     104,829        97,906        206,356   
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     12,691        17,830        (103,435

Gain on note purchases

     —          302        520   

Interest expense, net of amounts capitalized

     (46,260     (33,193     (33,777

Interest rate swap income

     2,335        2,088        2,393   

Equity in losses of equity method investment

     —          —          (112

Interest income and other income

     148        87        108   
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations before (provision for) benefit from income taxes

     (31,086     (12,886     (134,303

(Provision for) benefit from income taxes

     (1,912     (2,058     20,261   
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (32,998     (14,944     (114,042

Discontinued operations, net of income taxes (including gain on sale of assets of $0, $0, and $1,245, respectively)

     —          —          1,398   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (32,998   $ (14,944   $ (112,644
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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LBI MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S (DEFICIENCY) EQUITY

 

     Common Stock                           
     Number
of
Shares
     Amount      Additional
Paid-in
Capital
    Notes
Receivable
from
Related
Parties
    Accumulated
Deficit
    Total
Stockholder’s
Equity (Deficiency)
 
                   (dollars in thousands)