Lbi Media 10-Q 2005 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2005

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)	(IRS Employer Identification No.)

1845 West Empire Avenue

Burbank, California 91504

(Address of principal executive offices, excluding zip code) (Zip code)

Registrant’s Telephone Number, Including Area Code: (818) 563-5722

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 16, 2005, there were approximately 100 shares outstanding of Common Stock, $0.01 par value.

LBI MEDIA HOLDINGS, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	34
PART II. OTHER INFORMATION	35
Item 1. Legal Proceedings	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults upon Senior Securities	35
Item 4. Submission of Matters to a Vote of Security Holders	35
Item 5. Other Information	35
Item 6. Exhibits	35

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LBI MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2004			March 31, 2005
	(Note 1)			(unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,742,299		$	3,018,928
Short-term investments		33,860			38,440
Accounts receivable (less allowance for doubtful accounts of $1,312,765 as of December 31, 2004 and $1,249,382 as of March 31, 2005)		13,563,455			12,142,499
Current portion of program rights, net		878,570			870,361
Amounts due from related parties		705,939			847,111
Current portion of employee advances		81,973			64,101
Prepaid expenses and other current assets		1,217,756			1,127,029
Total current assets		22,223,852			18,108,469
Property and equipment, net		66,874,250			67,053,431
Program rights, excluding current portion		1,617,518			1,479,767
Notes receivable from related parties		2,586,098			2,602,700
Employee advances, excluding current portion		762,292			761,229
Deferred financing costs, net		6,779,535			6,599,660
Broadcast licenses, net		288,809,598			288,815,657
Other assets		439,768			472,161
Total assets	$	390,092,911		$	385,893,074
Liabilities and stockholder’s equity
Current liabilities:
Accounts payable and accrued expenses	$	3,751,744		$	2,731,122
Accrued interest		7,864,146			4,180,679
Program rights payable		33,500			58,752
Current portion of long-term debt		118,043			119,677
Total current liabilities		11,767,433			7,090,230
Long-term debt, excluding current portion		327,508,965			327,704,536
Deferred compensation		11,430,000			11,136,000
Deferred state income taxes		766,362			766,362
Other liabilities		333,460			409,328
Commitments and contingencies
Stockholder’s equity:
Common stock, $0.01 par value:
Authorized shares —1,000
Issued and outstanding shares —100		1			1
Additional paid-in capital		22,657,667			22,657,667
Retained earnings		15,629,447			16,124,794
Accumulated other comprehensive (loss) income		(424	)		4,156
Total stockholder’s equity		38,286,691			38,786,618
Total liabilities and stockholder’s equity	$	390,092,911		$	385,893,074

See accompanying notes.

1

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2004			2005
Net revenues	$	19,372,295		$	20,536,877
Operating expenses:
Program and technical, exclusive of noncash employee compensation of $245,000 and $(75,000) for the three months ended March 31, 2004 and 2005, respectively, and depreciation shown below		3,572,477			4,121,863
Promotional, exclusive of depreciation shown below		381,301			276,164
Selling, general and administrative, exclusive of noncash employee compensation of $816,000 and $(219,000) for the three months ended March 31, 2004 and 2005, respectively, and depreciation shown below		6,718,283			7,425,294
Noncash employee compensation		1,061,000			(294,000	)
Depreciation		1,124,563			1,487,463
Total operating expenses		12,857,624			13,016,784
Operating income		6,514,671			7,520,093
Interest expense		(6,272,879	)		(7,014,944	)
Interest and other income		24,123			29,554
Income before income taxes		265,915			534,703
Provision for income taxes		(18,558	)		(39,356	)
Net income	$	247,357		$	495,347

See accompanying notes.

2

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2004			2005
Operating activities
Net income	$	247,357		$	495,347
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,124,563			1,487,463
Amortization of deferred financing costs		199,755			247,729
Accretion on senior discount notes		1,100,007			1,226,109
Noncash employee compensation		1,061,000			(294,000	)
Provision for doubtful accounts		198,513			195,869
Changes in operating assets and liabilities:
Accounts receivable		2,899,345			1,225,087
Program rights		301,874			145,960
Amounts due from related parties		(15,021	)		(141,172	)
Prepaid expenses and other current assets		160,916			90,727
Employee advances		(1,553	)		18,935
Accounts payable and accrued expenses		276,787			(1,020,622	)
Accrued interest		(3,591,461	)		(3,683,467	)
Program rights payable		(27,000	)		25,252
Amounts due to related parties		(53,504	)		—
Deferred state income tax payable		14,336			—
Other assets and liabilities		(189,419	)		26,873
Net cash provided by operating activities		3,706,495			46,090
Investing activities
Purchase of property and equipment		(3,502,195	)		(1,666,644	)
Acquisition of radio and television station property and equipment		(7,000,000	)		—
Acquisition costs		(70,543	)		—
Acquisition of broadcast licenses		(28,631,294	)		(6,059	)
Amounts deposited in escrow for the acquisition of broadcast licenses		(750,000	)		—
Net cash used in investing activities		(39,954,032	)		(1,672,703	)
Financing activities
Proceeds from issuance of long-term debt and bank borrowings, net of financing costs		35,837,398			1,032,146
Payments on long-term debt and bank borrowings		(5,289,720	)		(2,128,904	)
Distributions to Parent		(771,030	)		—
Net cash provided by (used in) financing activities		29,776,648			(1,096,758	)
Net decrease in cash and cash equivalents		(6,470,889	)		(2,723,371	)
Cash and cash equivalents at beginning of period		6,670,129			5,742,299
Cash and cash equivalents at end of period	$	199,240		$	3,018,928
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	8,544,680		$	9,205,108
Income taxes	$	—		$	—

See accompanying notes.

3

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

LBI Media Holdings, Inc. was incorporated in Delaware on June 23, 2003, and is a qualified subchapter S subsidiary of LBI Holdings I, Inc. (the “Parent”). Pursuant to an Assignment and Exchange Agreement dated September 29, 2003 between the Parent and LBI Media Holdings, Inc., the Parent assigned to LBI Media Holdings, Inc. all of its right, title and interest in 100 shares of common stock of LBI Media, Inc. (“LBI Media”) (constituting all of the outstanding shares of LBI Media) in exchange for 100 shares of common stock of LBI Media Holdings, Inc. Thus, upon consummation of the exchange, LBI Media became a wholly owned subsidiary of LBI Media Holdings, Inc. (“LBI Media Holdings”).

LBI Media Holdings is not engaged in any business operations and has not acquired any assets or incurred any liabilities, other than the acquisition of stock of LBI Media, the issuance of senior discount notes (see Note 4) and the operations of its subsidiaries. Accordingly, its only material source of cash is dividends and distributions from its subsidiaries, which are subject to restriction by LBI Media’s senior credit facility and the indenture governing the senior subordinated notes issued by LBI Media (see Note 4). Parent-only condensed financial information of LBI Media Holdings on a stand-alone basis has been presented in Note 10.

LBI Media Holdings and its wholly owned subsidiaries (collectively referred to as the “Company”) own and operate radio and television stations located in California and Texas. In addition, the Company owns a television studio facility that is primarily used to produce programming for Company-owned television stations. Portions of this facility are also occasionally rented to independent third parties. The Company sells commercial airtime on its radio and television stations to local and national advertisers. In addition, the Company has entered into time brokerage agreements with third parties for three of its radio stations.

The Company’s KHJ-AM, KVNR-AM, KWIZ-FM, KBUE-FM, KBUA-FM and KEBN-FM radio stations service the Los Angeles, California market, its KQUE-AM, KJOJ-AM, KSEV-AM, KEYH-AM, KJOJ-FM, KTJM-FM, KQQK-FM, KIOX-FM and KXGJ-FM radio stations service the Houston, Texas market and its KNOR-FM station services the Dallas-Fort Worth, Texas market.

The Company’s television stations, KRCA, KZJL, KMPX and KSDX, service the Los Angeles, California, Houston, Texas, Dallas Fort-Worth, Texas and San Diego, California markets, respectively.

The Company’s television studio facility is owned and operated by its wholly owned subsidiary, Empire Burbank Studios, Inc. (“Empire”), in Burbank, California.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do

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LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. The condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2004 consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K (the “Annual Report”). All terms used but not defined elsewhere herein have the meanings ascribed to them in the Annual Report.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

The condensed consolidated financial statements include the accounts of LBI Media Holdings and its subsidiaries. All significant intercompany amounts and transactions have been eliminated. The accounts of the Parent, including certain indebtedness (see Note 4), are not included in the accompanying unaudited condensed financial statements.

2. Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 became effective immediately for all arrangements entered into after January 31, 2003. For arrangements entered into with variable interest entities created prior to January 31, 2003, the provisions of FIN 46 become effective for the first interim or annual period ending after March 15, 2004. The Company adopted the provisions of FIN 46 in the first quarter of 2004; however, such adoption has not had an impact on the Company’s results of operations or financial position.

3. Broadcast Licenses

The Company accounts for its broadcast licenses in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The Company believes its broadcast licenses have indefinite useful lives given they are expected to indefinitely contribute to the future cash flows of the Company and that they may be continually renewed without substantial cost to the Company. As such, in accordance with SFAS 142, the broadcast licenses are reviewed for impairment at least annually.

The carrying value of broadcast licenses is evaluated periodically in relation to the operating performance and anticipated future cash flows of the underlying radio and television

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LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

stations for indicators of impairment. If indicators of impairment are identified and 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, if necessary. The fair value of the Company’s broadcast licenses is determined using the discounted cash flow approach. This approach requires the projection of future cash flows and the restatement of these cash flows into their present valuation equivalent through the use of a discount rate. No adjustments to the carrying amounts of broadcast licenses for impairment were made during the three months ended March 31, 2004 and 2005.

Accumulated amortization of broadcast licenses totaled approximately $17,696,000 at December 31, 2004 and March 31, 2005.

4. Long-Term Debt

Long-term debt consists of the following (not including the debt of the Parent – see discussion below):

	December 31, 2004			March 31, 2005
2004 Revolver	$	129,449,736		$	128,449,736
Senior Subordinated Notes		150,000,000			150,000,000
Senior Discount Notes		45,607,533			46,833,642
2004 Empire Note		2,569,739			2,540,835
		327,627,008			327,824,213
Less current portion		(118,043	)		(119,677	)
	$	327,508,965		$	327,704,536

In July 1999, Empire, an indirect, wholly owned subsidiary of the Company, issued an installment note payable that was secured by substantially all of the Empire assets. On July 1, 2004, Empire refinanced this note with a new installment note payable for approximately $2.6 million (the “2004 Empire Note”). The 2004 Empire Note bears interest at the rate of 5.52% per annum and is payable in monthly principal and interest payments of $21,411 through maturity in July 2019. The borrowings under the 2004 Empire Note are secured primarily by all of Empire’s real property.

On July 9, 2002, LBI Media issued $150.0 million of senior subordinated notes due 2012 (the “Senior Subordinated Notes”), entered into a new $160.0 million senior revolving credit facility (the “2002 Revolver”), repaid its former senior credit facility and loaned approximately $54.3 million to LBI Intermediate Holdings, Inc. (“LBI Intermediate Holdings”) pursuant to an intercompany note (the “July 2002 Refinancing”). The proceeds from the intercompany note were used to repay LBI Intermediate Holdings’ former senior notes (including a $2.5 million

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LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

early redemption penalty). After such repayment, LBI Media merged with and into LBI Intermediate Holdings, at which time the intercompany note was cancelled.

The Senior Subordinated Notes bear interest at the rate of 10 1/8% per annum, and interest payments are to be made on a semi-annual basis each January 15 and July 15. LBI Media is a holding company that has no independent assets or operations, other than its investment in its subsidiaries. All of LBI Media’s subsidiaries are wholly owned and provide full and unconditional joint and several guarantees of the Senior Subordinated Notes. The indenture governing the Senior Subordinated Notes contains certain restrictive covenants that, among other things, limit LBI Media’s ability to borrow under its senior credit facility. LBI Media could borrow up to $150.0 million under its senior credit facility without having to meet the restrictions contained in the indenture, but any amount over $150.0 million would be subject to LBI Media’s compliance with a specified leverage ratio (as defined in the indenture governing the Senior Subordinated Notes). The indenture also limits LBI Media’s ability to pay dividends.

On June 11, 2004, LBI Media amended and restated the 2002 Revolver (as amended and restated, the “2004 Revolver”). The 2004 Revolver includes an initial $175.0 million revolving loan facility and a $5.0 million swing loan sub-facility. There are no scheduled reductions of commitments under the 2004 Revolver. In addition, LBI Media has the option to request its lenders to increase the amount of the 2004 Revolver by an additional $50.0 million ($5.0 million after the increase in LBI Media’s borrowing capacity described below) in the aggregate; however, the lenders are not obligated to do so. Borrowings under the 2004 Revolver bear interest at the election of LBI Media, based on either the prime rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin stipulated in the senior credit agreement. The applicable margin, which is based on LBI Media’s total leverage ratio, ranges from 0.25% to 1.75% per annum for base rate loans and 1.50% to 3.00% per annum for LIBOR loans. As of March 31, 2005, borrowings under the 2004 Revolver bore interest at rates ranging from 5.19% to 5.50% per annum.

On August 11, 2004, LBI Media’s borrowing capacity under the 2004 Revolver was increased by $20.0 million to $195.0 million. On December 7, 2004, LBI Media’s borrowing capacity was increased by an additional $25.0 million to $220.0 million. The 2004 Revolver matures on September 30, 2010.

Borrowings under the 2004 Revolver are secured by substantially all of the tangible and intangible assets of LBI Media and its wholly owned subsidiaries, including a first priority pledge of all capital stock of each of its respective subsidiaries. The 2004 Revolver also contains customary representations, affirmative and negative covenants and defaults for a senior credit facility.

LBI Media pays quarterly commitment fees on the unused portion of the 2004 Revolver based on its utilization rate of the total borrowing capacity. Under certain circumstances, if LBI Media borrows less than 50% of the revolving credit commitment, it must pay a quarterly commitment fee of 0.500% times the unused portion. If LBI Media borrows 50% or more of the

7

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

total revolving credit commitment, or if its total leverage ratio is below a certain level, it must pay a quarterly commitment fee of 0.375% times the unused portion.

In connection with the July 2002 Refinancing described above, the Company loaned approximately $1.9 million to a stockholder of the Parent. The loan matures in 2009 and bears interest at the applicable federal rate (2.84% per annum). The Company also repaid notes payable to the stockholders of the Parent of approximately $1.9 million.

On October 10, 2003, the Company issued $68.4 million aggregate principal amount at maturity of senior discount notes that mature in 2013 (the “Senior Discount Notes”). The notes were sold at 58.456% of principal amount at maturity, resulting in gross proceeds of approximately $40.0 million and net proceeds of approximately $38.8 million after certain transaction costs. The Company contributed all of the net proceeds from the offering to LBI Media, which it used to repay a portion of the indebtedness outstanding under the 2002 Revolver. Under the terms of the Senior Discount Notes, cash interest will not accrue or be payable on the notes prior to October 15, 2008, and instead, the value of the notes will increase each period until it equals $68.4 million on October 15, 2008; such accretion (approximately $1.1 million and $1.2 million, respectively, for the three months ended March 31, 2004 and 2005) is recorded as additional interest expense by the Company. After October 15, 2008, cash interest on the notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that the Company may make a cash interest election on any interest payment date prior to October 15, 2008. If the Company makes a cash interest election, the principal amount of the notes at maturity will be reduced to the accreted value of the notes as of the date of the cash interest election and cash interest will begin to accrue at a rate of 11% per year from the date the Company makes such election. The indenture governing the Senior Discount Notes contains certain restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness and pay dividends. The Senior Discount Notes are structurally subordinated to the 2004 Revolver and Senior Subordinated Notes.

The 2004 Revolver, Senior Subordinated Notes and Senior Discount Notes contain certain financial and non-financial covenants including restrictions on LBI Media’s and LBI Media Holdings’ ability to pay dividends. At March 31, 2005, the Company was in compliance with all such covenants.

8

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2005, the Company’s long-term debt had scheduled repayments for each of the next five fiscal years as follows:

2005	$	89,137
2006		124,724
2007		131,786
2008		139,247
2009		147,131
	$	632,025

The above table does not include interest payments or scheduled repayments relating to debt of the Parent and does not include any deferred compensation amounts the Company may ultimately pay. Pursuant to SEC guidelines, the debt of the Parent is not reflected in the Company’s financial statements because (a) the Company will not assume the Parent’s debt, either presently or in a planned transaction in the future; (b) the proceeds from the offering of the Senior Discount Notes in October 2003 were not used to retire all or a part of the Parent’s debt; and (c) the Company does not guarantee or pledge its assets as collateral for the Parent’s debt. The Parent is a holding company that has no assets, operations or cash flows other than its investment in the Company. Accordingly, funding from the Company will be required for the Parent to repay its debt. The Parent’s debt, which is subordinated in right of payment to the 2004 Revolver, Senior Subordinated Notes and Senior Discount Notes, is described below.

On March 20, 2001, the Parent entered into an agreement whereby in exchange for $30.0 million, it issued junior subordinated notes (the “Parent Subordinated Notes”) and warrants to the holders of the Parent Subordinated Notes to initially acquire 14.02 shares (approximately 6.55%) of the Parent’s common stock at an initial exercise price of $.01 per share. In connection with the July 2002 Refinancing and the issuance of the Senior Discount Notes in October 2003 described above, the Parent amended the terms of the Parent Subordinated Notes and the related warrants. The following information gives effect to such amendments. The Parent Subordinated Notes initially bear interest at 9% per year and will bear interest at 13% per year beginning September 21, 2009. The Parent Subordinated Notes will mature on the earliest of (i) January 31, 2014, (ii) their acceleration following the occurrence and continuance of a material event of default (as defined in the agreement), (iii) a merger, sale or similar transaction involving the Parent or substantially all of the subsidiaries of the Parent, (iv) a sale or other disposition of a majority of the Parent’s issued and outstanding capital stock or other rights giving a third party a right to elect a majority of the Parent’s board of directors, and (v) the date on which the warrants issued in connection with the Parent Subordinated Notes are repurchased pursuant to the call options applicable to such warrants. Interest is not payable until maturity.

The warrants will expire on the earlier of (i) the later of (a) July 31, 2015, and (b) the date which is six months from the payment in full of all outstanding principal and interest on the Parent Subordinated Notes or (ii) the closing of an underwritten public equity offering in which the Parent raises at least $25.0 million (subject to extension in certain circumstances).

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LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A performance-based adjustment may increase or decrease the number of shares issued upon exercise of the warrants based on the Parent’s future consolidated broadcast cash flow (as defined). Upon the maturity date of the Parent Subordinated Notes, the payment in full of the Parent Subordinated Notes and the repurchase of the warrants, a change in control of the Parent or the exercise of the call or put options described below, the number of shares issuable upon the exercise of the warrants at the time of such event will be decreased by multiplying such number of shares by .9367, if the Parent achieves consolidated broadcast cash flow for the trailing 12 months in excess of 125% of its budgeted forecasts and in the case of the sale of the Parent, its total fair market value is greater than 13 times consolidated broadcast cash flow for the trailing 12 months. The number of shares issuable upon the exercise of the warrants will be increased by multiplying such number of shares by 1.0633, if the Parent achieves consolidated broadcast cash flow less than 75% of its budgeted plan for the trailing 12 months and in the case of the sale of the Parent, its total fair market value is less than 15 times consolidated broadcast cash flow for the trailing 12 months.

The warrants contain a put right and a call right as described below. If either of these rights are exercised, it could require a significant amount of cash from the Company to repurchase the warrants, since the Parent is a holding company that has no operations or assets, other than its investment in the Company, and is dependent on the Company for cash flow. However, the Company has no legal obligation to provide that funding.

Put Right: The warrant holders have a “put right,” which entitles them at any time on or after the maturity date of the Parent Subordinated Notes to require the Parent to repurchase the warrants, or if the warrants have been exercised, the stock issued pursuant to the warrants, at the fair market value of the stock/warrants (the fair market value is subject to certain adjustments).

Call Right: If the Parent proposes an acquisition with a valuation of at least $5.0 million in connection with which any proposed financing source reasonably requires in good faith, as a condition of financing and/or permitting the acquisition, an amendment to the maturity date of the notes and a majority of the holders of the Parent Subordinated Notes do not agree to such amendment, the Parent has the right to purchase the warrants (or related stock, if the warrants have been issued) at fair market value, in connection with its payment in full of the aggregate of principal and interest outstanding under the Parent Subordinated Notes.

Based on the relative fair values at the date of issuance, the Parent allocated $13.6 million to the Parent Subordinated Notes and $16.4 million to the warrants. These fair values were determined by using the income and market valuation approaches. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. The Parent Subordinated Notes will be accreted through January 31, 2014, up to their $30.0 million redemption value; such accretion (approximately $228,000 and $237,000 during the three months ended March 31, 2004 and 2005, respectively) is recorded as additional interest expense by the Parent. In the financial statements of the Parent, the warrants are stated at fair value each reporting period (approximately $31,100,000 at March 31, 2005)

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LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

with subsequent changes in fair value being recorded as deferred financing costs and amortized to interest expense over the remaining life of the Parent Subordinated Notes.

On February 12, 2004, Liberman Broadcasting, Inc., a Delaware corporation, filed a registration statement on Form S-1 (File No. 333-112773) with the Securities and Exchange Commission for the proposed initial public offering of its Class A common stock (the “Offering”). Immediately before the anticipated Offering, Liberman Broadcasting, Inc. will merge with the Parent, a California corporation. Liberman Broadcasting, Inc. will survive the merger and effectively reincorporate the Parent into a Delaware corporation. If Liberman Broadcasting completes the anticipated Offering, it plans to repay all of its outstanding Parent Subordinated Notes with the net proceeds from the Offering. If Liberman Broadcasting completes the anticipated Offering, it is also anticipated that a portion of the net proceeds from the Offering will be contributed to LBI Media and used to repay a portion of the outstanding borrowings under the 2004 Revolver. In addition, Liberman Broadcasting may contribute a portion of the net proceeds from the Offering to the Company to redeem a portion of the accreted value of the Company’s Senior Discount Notes. As of May 11, 2005, the Offering has not been consummated and there is no fixed date at this time to consummate the Offering.

5. Acquisitions

On January 12, 2004, the Company completed its acquisition of selected assets of KMPX-TV, licensed to Decatur-Dallas, Texas, pursuant to an asset purchase agreement, dated as of July 14, 2003. The aggregate purchase price was approximately $37,646,000, including acquisition costs of approximately $646,000. The Company changed the format, customer base, and employee base of the acquired station and allocated the purchase price as follows:

Broadcast license	$	33,351,596
Property and equipment		4,294,404
	$	37,646,000

On July 20, 2004, the Company completed its acquisition of selected assets of radio station KNOR-FM, licensed to Krum, Texas, pursuant to an asset purchase agreement, dated as of March 18, 2004. The aggregate purchase price was approximately $16,130,000, including acquisition costs of approximately $630,000. The Company changed the format, customer base and employee base of the acquired station and the initial purchase price allocation is as follows:

Broadcast license	$	16,049,000
Property and equipment		81,000
	$	16,130,000

11

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Deferred Compensation

The Company and the Parent have entered into employment agreements with certain employees. The services required under the employment agreements are rendered to the Company, and payment of amounts due under the employment agreements is made by the Company. Accordingly, the Company has reflected amounts due under the employment agreements in its financial statements. In addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the “net value” (as defined in the employment agreements) of the Parent over certain base amounts (Incentive Compensation). There are two components of Incentive Compensation: (i) a component that vests in varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures. The time vesting component is accounted for over the vesting periods specified in the employment agreements. Performance based amounts are accounted for at the time it is considered probable that the performance measures will be attained.

The employment agreements contain provisions which allow for limited accelerated vesting in the event of a change in control of the Parent (as defined). Unless there is a change in control of the Parent (as defined), the “net value” (as defined) of the Parent is to be determined on December 31, 2005, December 31, 2006 or December 31, 2009 (depending upon the particular employment agreement). Any Incentive Compensation amounts due are required to be paid within thirty days after the date the “net value” of the Parent is determined. If the Parent is publicly traded, the Company may elect to pay all or a portion of the deferred compensation in the form of common stock of the Parent.

At December 31, 2004 and March 31, 2005, the “net value” of the Parent exceeded the base amounts set forth in certain of the respective employment agreements, and the employees had vested in approximately $11,430,000 and $11,136,000, respectively, of Incentive Compensation. As a part of the calculation of this incentive compensation, the Company used the income and market valuation approaches to estimate the “net value’ of the Parent. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. The base amounts were negotiated with each employee at the time the employment agreement was entered into. The vested amounts are shown as deferred compensation in the accompanying consolidated balance sheets; the related expense is shown as noncash employee compensation in the accompanying consolidated statements of operations.

At March 31, 2005, neither the Company nor Parent had funded any portion of the deferred compensation liability.

12

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Related Party Transactions

The Company’s national sales representative, Spanish Media Rep Team, Inc. (“SMRT”), is an entity owned by the stockholders of the Parent. The Company was charged approximately $320,000 and $335,000 during the three months ended March 31, 2004 and 2005, respectively. Such amounts, which the Company believes represent market rates, are included in selling expenses in the accompanying condensed consolidated statements of operations.

On April 27, 2005, SMRT merged with and into Liberman Broadcasting, Inc. (“LBI”), a wholly owned subsidiary of the Company. LBI paid $5,086,000 for the shares of common stock of SMRT. As this transaction is between entities under common control, it will be accounted for at historical cost.

The Company had approximately $3,270,000 and $3,427,000 due from stockholders of the Parent and from affiliated companies at December 31, 2004 and March 31, 2005, respectively. The Company loaned approximately $1,917,000 to a stockholder of Parent in July 2002. These loans bear interest at the applicable federal rate and mature through July 2009. Additionally, at the direction of the stockholders of the Parent, the Company has made advances to certain religious and charitable organizations and individuals totaling approximately $102,000 at December 31, 2004 and March 31, 2005. These loans and advances, plus accrued interest, are included in amounts due from related parties and other assets in the accompanying condensed consolidated balance sheets.

One of the Parent’s stockholders is the sole shareholder of L.D.L. Enterprises, Inc. (LDL), a mail order business. From time to time, the Company allows LDL to use, free of charge, unsold advertising time on its television stations.

8. Comprehensive Income

Comprehensive income, which includes net income plus unrealized gains (losses) on investments in marketable securities, amounted to approximately $244,727 and $499,927 for the three months ended March 31, 2004 and 2005, respectively.

9. Segment Data

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” requires companies to provide certain information about their operating segments. The Company has two reportable segments – radio operations and television operations.

Management uses operating income before depreciation and noncash employee compensation as its measure of profitability for purposes of assessing performance and allocating resources.

13

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended March 31,
	2004			2005
Net revenues:
Radio operations	$	8,951,104		$	9,631,748
Television operations		10,421,191			10,905,129
Consolidated net revenues		19,372,295			20,536,877
Operating expenses, excluding depreciation and noncash employee compensation:
Radio operations		4,809,927			4,958,400
Television operations		5,862,134			6,864,921
Consolidated operating expenses, excluding depreciation and noncash employee compensation		10,672,061			11,823,321
Operating income before depreciation and noncash employee compensation:
Radio operations		4,141,177			4,673,348
Television operations		4,559,057			4,040,208
Consolidated operating income before depreciation and noncash employee compensation		8,700,234			8,713,556
Depreciation expense:
Radio operations		461,609			580,150
Television operations		662,954			907,313
Consolidated depreciation expense		1,124,563			1,487,463
Noncash employee compensation:
Radio operations		1,061,000			(294,000	)
Consolidated noncash employee compensation		1,061,000			(294,000	)
Operating income:
Radio operations		2,618,568			4,387,198
Television operations		3,896,103			3,132,895
Consolidated operating income	$	6,514,671		$	7,520,093
Total assets:
Radio operations	$	172,698,316		$	200,901,166
Television operations		167,702,425			165,943,529
Corporate		21,351,053			19,048,379
Consolidated total assets	$	361,751,794		$	385,893,074
Reconciliation of operating income before depreciation and noncash employee compensation to income before income taxes:
Operating income before depreciation and noncash employee compensation	$	8,700,234		$	8,713,556
Depreciation		(1,124,563	)		(1,487,463	)
Noncash employee compensation		(1,061,000	)		294,000
Interest expense		(6,272,879	)		(7,014,944	)
Interest and other income		24,123			29,554
Income before income taxes	$	265,915		$	534,703

14

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. LBI Media Holdings, Inc. (Parent Company Only)

The terms of LBI Media’s senior credit facility and the indenture governing LBI Media’s senior subordinated notes restrict LBI Media’s ability to transfer assets to LBI Media Holdings in the form of loans, advances, or cash dividends. The following parent-only condensed financial information presents balance sheets and related statements of operations and cash flows of LBI Media Holdings by accounting for the investments in the owned subsidiaries on the equity method of accounting. The accompanying condensed financial information should be read in conjunction with the consolidated statements and notes thereto.

Condensed Balance Sheet Information:

	December 31, 2004			March 31, 2005
Assets
Prepaid and other assets	$	—		$	2,042
Deferred financing costs		1,733,526			1,684,232
Investment in subsidiaries		82,149,892			83,934,053
Other assets		10,806			—
Total assets	$	83,894,224		$	85,620,327
Liabilities and stockholder’s equity
Amounts payable and accrued expenses	$	—		$	67
Long term debt		45,607,533			46,833,642
Stockholder’s equity:
Common stock		1			1
Additional paid-in capital		22,657,667			22,657,667
Retained earnings		15,629,447			16,124,794
Accumulated other comprehensive income		(424	)		4,156
Total stockholder’s equity		38,286,691			38,786,618
Total liabilities and stockholder’s equity	$	83,894,224		$	85,620,327

Condensed Statement of Operations Information:

	Three Months Ended March 31,
	2004			2005
Income:
Equity earnings of subsidiaries	$	1,381,380		$	1,779,581
Expenses:
Interest expense		(1,147,143	)		(1,276,278	)
Income before taxes		234,237			503,303
Income tax expense		—			(7,956	)
Income tax benefit		13,120			—
Net income	$	247,357		$	495,347

15

LBI MEDIA HOLDINGS, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statement of Cash Flows Information:

	Three Months Ended March 31,
	2004			2005
Cash flows provided by operating activities:
Net income	$	247,357		$	495,347
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries		(1,381,380	)		(1,779,581	)
Amortization of deferred financing costs		45,886			49,294
Accretion on senior discount notes		1,100,007			1,226,109
Change in prepaid expenses and other current assets		—			(2,042	)
Change in other assets		(11,870	)		10,806
Change in accounts payable and accrued expenses		—			67
Distributions from subsidiaries		776,028			—
Net cash provided by operating activities		776,028			—
Cash flows used in financing activities:
Payments of deferred financing costs		(4,998	)		—
Distributions to Parent		(771,030	)		—
Net cash used in financing activities		(776,028	)		—
Net change in cash and cash equivalents		—			—
Cash and cash equivalents at beginning of period		—			—
Cash and cash equivalents at end of period	$	—		$	—

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements included elsewhere in this Quarterly Report and the audited financial statements for the year ended December 31, 2004, included in our Annual Report on Form 10-K (File No. 333-110122). This Quarterly Report contains, in addition to historical information, forward-looking statements, which involve risk and uncertainties. The words “believe”, “expect”, “estimate”, “may”, “will”, “could”, “plan”, or “continue”, and similar expressions are intended to identify forward-looking statements. Our actual results could differ significantly from the results discussed in such forward-looking statements.

Overview

We own and operate radio and television stations in Los Angeles, California, Houston, Texas and Dallas, Texas and a television station in San Diego, California. Our radio stations consist of four FM and two AM stations serving Los Angeles, California and its surrounding areas, five FM and four AM stations serving Houston, Texas and its surrounding areas, and one FM station serving Dallas-Fort Worth, Texas and its surrounding areas. Our four television stations consist of three full-power stations serving Los Angeles, California, Houston, Texas and Dallas-Fort Worth, Texas and a low-power station serving San Diego, California. In addition, we operate a television production facility, Empire Burbank Studios, in Burbank, California that we primarily use to produce our core programming for all of our television stations, and we have television production facilities in Houston and Dallas-Fort Worth that will allow us to produce local programming for those markets.

We operate in two reportable segments, radio and television. We generate revenue from sales of local, regional and national advertising time on our radio and television stations, the sale of time on a contractual basis to brokered or infomercial customers on our radio and television stations, and, to the extent available, the leasing of space in our production facilities to outside entertainment companies. 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 creating a diverse advertiser base, producing cost-effective, locally focused programming, providing creative 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 advertising and our revenue reflects deductions from gross revenue for commissions to these agencies.

Our primary expenses are employee compensation, including commissions paid to our sales staff, promotion, selling, programming and engineering expenses, commissions paid to our national representative firm, SMRT, general and administrative expenses and interest expense. Our programming expenses for television consist of costs related to the production of original

17

programming content, production of local newscasts and the acquisition of programming content 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. We may need to pursue one or more alternative strategies in the future to meet our debt obligations, such as selling assets, refinancing or restructuring our indebtedness or selling equity securities. If Liberman Broadcasting completes its initial public offering, we expect some of the proceeds will be contributed to us for repayment of our outstanding debt.

We are organized as a Delaware corporation and are a “qualified S subsidiary” under federal and California state tax laws. As such, we are deemed for tax purposes to be part of our parent, an “S corporation,” and our taxable income is reported by the shareholders of LBI Holdings I, on their respective federal and state income tax returns.

On January 12, 2004, we completed our acquisition of the selected assets of KMPX-TV, licensed to Decatur-Dallas, Texas, for an aggregate purchase price of approximately $37.6 million (including acquisition costs), and have significantly changed the format, customer base, revenue stream and employee base of this station.

On July 20, 2004 we completed our acquisition of the selected assets of KNOR-FM, licensed to Krum, Texas, for an aggregate purchase price of approximately $16.1 million (including acquisition costs), and have changed the format, customer base, revenue stream and employee base of this station.

We generally experience lower operating margins for several months 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.

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

Liberman Broadcasting, Inc., a Delaware corporation, currently has filed a registration statement on Form S-1 (File No. 333-112773) for the initial public offering of its Class A common stock. Immediately before the anticipated offering, Liberman Broadcasting, Inc. will merge with our parent, LBI Holdings, I, Inc., a California corporation. Liberman Broadcasting, Inc. will survive the merger and effectively reincorporate our parent into a Delaware corporation. In this report, “Liberman Broadcasting” refers to LBI Holdings I, Inc. before the merger and Liberman Broadcasting, Inc. after the merger, each on an unconsolidated basis. Notwithstanding the foregoing, we can provide no assurance that the anticipated initial public offering will be consummated in the near future, or at all.

If Liberman Broadcasting completes its anticipated initial public offering, it will no longer qualify as an S Corporation, and none of its subsidiaries, including us, will qualify as subchapter S subsidiaries. Thus, Liberman Broadcasting will be taxed at regular corporate rates after its offering. Although Liberman Broadcasting may have less cash available as a result of losing its S corporation status, it will have access to new financial markets as a result of the offering, which we expect will provide Liberman Broadcasting with additional financing options.

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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:

	Three Months Ended March 31,
	2004		2005
Net revenues:
Radio	$	8,951,104	$	9,631,748
Television		10,421,191		10,905,129
Total	$	19,372,295		20,536,877
Total operating expenses before noncash employee compensation and depreciation:
Radio	$	4,809,927	$	4,958,400
Television		5,862,134		6,864,921
Total	$	10,672,061	$	11,823,321
Noncash employee compensation:
Radio	$	1,061,000	$	(294,000	)
Television		—		—
Total	$	1,061,000	$	(294,000	)
Depreciation:
Radio	$	461,609	$	580,150
Television		662,954		907,313
Total	$	1,124,563	$	1,487,463
Operating income:
Radio	$	2,618,568	$	4,387,194
Television		3,896,103		3,132,895
Total	$	6,514,671	$	7,520,089
Adjusted EBITDA (1):
Radio	$	4,141,177	$	4,673,348
Television		4,559,057		4,040,208
Total	$	8,700,234	$	8,713,556
Total assets:
Radio	$	172,698,316	$	200,901,166
Television		167,702,425		165,943,529
Corporate		21,351,053		19,048,379
Total	$	361,751,794	$	385,893,074

(1) We define Adjusted EBITDA as net income (loss) plus cumulative effect of accounting change, income tax expense, (loss) gain on sale of property and equipment, net interest expense, depreciation and noncash employee compensation. Management considers this measure an important indicator of our liquidity relating to our operations because it eliminates the effects of certain noncash items and our capital structure. 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, such as cash flows from operating activities, operating income and net income. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.”

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The table set forth below reconciles net cash provided by operating activities, calculated and presented in accordance with U.S. generally accepted accounting principles, to Adjusted EBITDA:

	Three Months Ended March 31,
	2004			2005
Net cash provided by operating activities	$	3,706,495		$	46,090
Add:
Income tax expense		18,558			39,356
Interest expense, net		6,248,756			6,985,390
Less:
Amortization of deferred financing costs		(199,755	)		(247,729	)
Accretion on senior discount notes		(1,100,007	)		(1,226,109	)
Provision for doubtful accounts		(198,513	)		(195,869	)
Changes in operating assets and liabilities:
Accounts receivable		(2,899,345	)		(1,225,087	)
Program rights		(301,874	)		(145,960	)
Amounts due from related parties		15,021			141,172
Prepaid expenses and other current assets		(160,916	)		(90,727	)
Employee advances		1,553			(18,935	)
Accounts payable and accrued expenses		(276,787	)		1,020,622
Accrued interest		3,591,461			3,683,467
Program rights payable		27,000			(25,252	)
Amounts due to related parties		53,504			—
Deferred state income tax payable		(14,336	)		—
Other assets and liabilities		189,419			(26,873	)
Adjusted EBITDA	$	8,700,234		$	8,713,556

Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004

Net Revenues. Net revenues increased by $1.1 million, or 6.0%, to $20.5 million for the three months ended March 31, 2005, from $19.4 million for the same period in 2004. This increase was attributable to increased advertising from our radio and television segments, in particular our incremental revenue growth from our radio and television stations in Los Angeles and from KMPX-TV, our Dallas-Fort Worth station acquired in January 2004. Our percentage increase in revenue growth was partially dampened by strong results posted during the first quarter of 2004, when our revenues increased 17.7% from the first quarter of 2003.

Net revenues for our radio segment increased by $0.6 million, or 7.6%, to $9.6 million for the three months ended March 31, 2005, from $9.0 million for the same period in 2004. This increase was primarily attributable to increased local and national advertising revenues.

Net revenues for our television segment increased by $0.5 million, or 4.6%, to $10.9 million for the three months ended March 31, 2005, from $10.4 million for the same period in 2004. This increase was attributable to revenue growth in our Los Angeles and Dallas markets. Our percentage increase in revenue growth for our television segment was partially dampened by strong results posted during the first quarter of 2004, when our revenues for our television segment increased 35.7% from the first quarter of 2003.

The overall increase in net revenues for our television segment was offset in part by a decline in revenues from the leasing of our television production facility, Empire Burbank Studios, Inc. This resulted from an increase in the use of the facility for the production of in-house programming, thereby reducing available leasing space. We expect to continue using

20

space in our production facility primarily to produce our internal programs and therefore expect future leasing revenues to be minimal. As a result, we believe that in order to provide a comparable basis for evaluating our results for the three months ended March 31, 2005 compared to the same period in 2004, it is necessary to exclude net revenues of $0.1 million generated from leasing this facility in the three months ended March 31, 2004. Excluding the results relating to the leasing of our television production facility, net revenues for our television segment increased by $0.6 million, or 5.9%, to $10.9 million for the three months ended March 31, 2005, from $10.3 million for the same period in 2004. Below is a reconciliation of net revenues for our television segment, prepared and presented in accordance with U.S. generally accepted accounting principles, to net revenues excluding leasing revenues from our production facility:

	Three months ended March 31,
	2004			2005
	(in thousands)
Net revenues for television segment	$	10,421		$	10,905
Less: Television production facility leasing revenues		(122	)		—
Net revenues for television segment excluding production facility leasing revenues	$	10,299		$	10,905

We currently anticipate net revenue growth for 2005 from both our radio and television segments due to increased advertising time sold and increased advertising rates. Our programming, focused sales strategy and the expected continued demand for Spanish-language advertising should continue to increase our advertising time sold and advertising rates in 2005 for both segments.

Total operating expenses. Total operating expenses increased by $0.2 million, or 1.2%, to $13.0 million for the three months ended March 31, 2005 from $12.8 million for the same period in 2004. This increase was due to:

(1) a $0.6 million increase in program and technical expenses primarily related to (a) additional production of in-house television programs, (b) incremental expenses related to our new television station in the Dallas-Fort Worth market, which began operations in January 2004 and (c) higher music license fees,

(2) a $0.7 million increase in selling, general and administrative expenses due to (a) higher salaries, commissions and other selling expenses, reflecting net revenue growth in our radio and television segments, (b) additional operating expenses related to the operation of our recently acquired television station, KMPX-TV, in January 2004 and (c) moderate increases in other general and administrative expenses associated with our revenue growth,

(3) a $0.4 million increase in depreciation expense, primarily due to increased capital expenditures for our existing properties,

(4) a $1.4 million decrease in noncash employee compensation. Our deferred compensation liability can increase in future periods based on changes in the applicable employee’s vesting percentage, which is based on time and performance measures, and can increase or decrease in future periods based on changes in the net value of our parent, Liberman Broadcasting, and

21

(5) a $0.1 million decrease in outside promotional expenses.

We believe that our total operating expenses will continue to increase through the end of 2005 due to increased programming costs for our radio and television segments and increased sales commissions and administrative expenses associated with our anticipated net revenue growth. Our television programming expenses will likely continue to increase for the duration of 2005 due to additional in-house programming. Continued growth in expenses may also occur as a result of the acquisition of radio and television assets that we may complete. We anticipate that the growth rate of our 2005 total operating expenses, excluding noncash employee compensation, will be lower than the growth rate of our 2005 net revenue. This expectation could be negatively impacted by the number and size of additional radio and television assets that we may acquire, if any, and expenses related to our parent being a publicly traded company if the proposed initial public offering of its Class A common stock is completed in 2005.

Total operating expenses for our radio segment decreased by $1.1 million, or 17.2%, to $5.2 million for the three months ended March 31, 2005, from $6.3 million for the same period in 2004. This change was the result of:

(1) a $0.1 million increase in program and technical expenses,

(2) a $0.1 million increase in selling, general and administrative expenses,

(3) a $1.4 million decrease in noncash employee compensation, and

(4) a $0.1 million increase in depreciation.

Total operating expenses for our television segment increased by $1.3 million, or 19.1%, to $7.8 million for the three months ended March 31, 2005, from $6.5 million, for the same period in 2004. This increase was primarily the result of:

(1) a $0.5 million increase in program and technical expenses related to (a) the additional production of in-house programming, (b) the incremental costs associated with our newly acquired television station in the Dallas-Fort Worth market, and (c) higher music license fees,

(2) a $0.6 million increase in selling, general and administrative expenses related to (a) higher sales salaries and commissions associated with our growth in net revenue, (b) incremental costs associated with our Dallas-Fort Worth television station acquired in January 2004 and (c) general expense increases associated with revenue growth,

(3) a $0.3 million increase in depreciation expense, primarily resulting from increased capital expenditures for our existing properties, and

(4) a $0.1 million decrease in outside promotional expenses.

The overall increase in operating expenses for our television segment was offset in part by a decline in expenses relating to the leasing of our television production facility, Empire Burbank Studios. This resulted from an increase in the use of the facility for the production of

22

in-house programming, thereby reducing available leasing space. We expect to continue using space in our production facility primarily to produce our internal programs and therefore expect future leasing expenses to be minimal. As a result, we believe that in order to provide a comparable basis for evaluating our results for the three months ended March 31, 2005, compared to the same period in 2004, it is necessary to exclude $0.1 million in expenses related to the leasing of this facility in the three months ended March 31, 2004. Below is a reconciliation of total operating expenses for our television segment, prepared and presented in accordance with U.S. generally accepted accounting principles, to total operating expenses excluding our production facility leasing expenses:

	Year ended March 31,
	2004			2005
	(in thousands)
Television segment operating expenses	$	6,525		$	7,772
Less: Television production facility leasing expenses		(43	)		—
Television segment operating expenses excluding production facility leasing expenses	$	6,482		$	7,772

Interest expense, net.Interest expense, net increased by $0.7 million, or 11.8%, to $7.0 million for the three months ended March 31, 2005, from $6.3 million for the corresponding period in 2004. This change is primarily attributable to (i) additional accretion on our senior discount notes issued in October 2003 and (ii) higher interest rates on borrowings under our senior credit facility.

If Liberman Broadcasting’s anticipated initial public offering were to be completed, we plan to use the proceeds contributed to us from our parent to redeem a portion of our outstanding indebtedness. Consequently, excluding one-time charges, we expect our interest expense to decrease in 2005 if the anticipated initial public offering is completed in 2005. However, if we acquire additional radio or television station assets, we may need to incur additional debt, which would result in an increase in our interest expense.

Net income. We recognized net income of $0.5 million for the three months ended March 31, 2005, as compared to $0.2 million for the same period of 2004, an increase of $0.3 million. This change was attributable to the factors noted above.

Adjusted EBITDA. Adjusted EBITDA remained unchanged at $8.7 million for the three months ended March 31, 2004 and 2005. Adjusted EBITDA remained unchanged because expenses increased at a faster rate than revenues in the first quarter of 2005. See “—Non-GAAP Financial Measures.”

Adjusted EBITDA for our radio segment increased by $0.6 million, or 12.9%, to $4.7 million for the three months ended March 31, 2005 from $4.1 million for the same period in 2004. The increase was primarily the result of higher local and national advertising revenue during the first quarter of 2005, resulting from (i) an increase in advertising time sold to local and national advertisers and (ii) improved ratings for our stations.

Adjusted EBITDA for our television segment decreased by $0.6 million, or 11.4%, to $4.0 million for the three months ended March 31, 2005, from $4.6 million for the same period

23

in 2004. The decrease was primarily the result of expense growth from the production of additional programming in the first quarter of 2005 versus smaller growth in revenues during the same period.

Liquidity and Capital Resources

LBI Media’s Senior Credit Facility.Our primary sources of liquidity are cash provided by operations and available borrowings under our subsidiary’s, LBI Media’s, $220.0 million revolving senior credit facility. The facility matures on September 30, 2010, and there are no scheduled reductions of commitments. Borrowings under LBI Media’s senior credit facility bear interest at a rate based on LIBOR, or a base rate, plus an applicable margin that is dependent upon LBI Media’s leverage ratio (as defined in the senior credit agreement). As of March 31, 2005, LBI Media had approximately $128.4 million aggregate principal amount outstanding under the senior credit facility. Since March 31, 2005, LBI Media has repaid $1.0 million under its senior credit facility. Under the indentures governing LBI Media’s senior subordinated notes and our senior discount notes, LBI Media is limited in its ability to borrow under the senior credit facility. LBI Media may borrow up to $150.0 million under its senior credit facility without having to meet any restrictions under the indentures governing its senior subordinated notes and our senior discount notes, but any amount over $150.0 million that LBI Media may borrow under the senior credit facility will be subject to our and LBI Media’s compliance with specified leverage ratios (as defined in the indentures governing LBI Media’s senior subordinated notes and our senior discount notes). LBI Media may increase the borrowing capacity under its senior credit facility by up to an additional $5.0 million, subject to participation by its existing lenders or new lenders acceptable to the administrative agent under the senior credit facility and subject to restrictions in the indentures governing its senior subordinated notes and our senior discount notes.

LBI Media’s senior credit facility contains customary restrictive covenants that, among other things, limit its ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above certain limits. Under the senior credit facility, LBI Media must also maintain specified financial ratios, such as a maximum total leverage ratio, a maximum senior leverage ratio, a minimum ratio of EBITDA (as defined in the senior credit agreement) to interest expense and a minimum ratio of EBITDA (as defined in the senior credit agreement) to fixed charges. As of March 31, 2005, LBI Media was in compliance with the covenants in its senior credit facility. If Liberman Broadcasting completes its anticipated initial public offering, LBI Media may repay a portion of the outstanding principal amount under its senior credit facility with the net proceeds contributed to it from its indirect parent, Liberman Broadcasting.

LBI Media’s Senior Subordinated Notes. In July 2002, LBI Media issued $150.0 million of senior subordinated notes that mature in 2012. Under the terms of its senior subordinated notes, LBI Media pays semi-annual interest payments of approximately $7.6 million each January 15 and July 15. The indenture governing LBI Media’s senior subordinated notes contains certain restrictive covenants that, among other things, limit its ability to incur additional indebtedness and pay dividends. As of March 31, 2005, LBI Media was in compliance with these covenants.

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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 will not accrue or be payable on the senior discount notes prior to October 15, 2008 and instead the accreted value of the senior discount notes will increase until such date. Thereafter, cash interest on the senior discount notes will accrue at a rate of 11% per year payable semi-annually on each April 15 and October 15; provided, however, that we may make a cash interest election on any interest payment date prior to October 15, 2008. If we make a cash interest election, the principal amount of the senior discount notes at maturity will be reduced to the accreted value of the senior discount notes as of the date of the cash interest election and cash interest will begin to accrue at a rate of 11% per year from the date we make such election. 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. Our senior discount notes are structurally subordinated to LBI Media’s senior credit facility and senior subordinated notes. If Liberman Broadcasting completes its anticipated initial public offering, Liberman Broadcasting may contribute some of the net proceeds from the offering to us to redeem a portion of the accreted value of our senior discount notes at a redemption price of 111.0% of the accreted value to the redemption date.

Liberman Broadcasting’s 9% Subordinated Notes. In March 2001, our parent, Liberman Broadcasting, issued $30.0 million principal amount of 9% subordinated notes. The 9% subordinated notes are subordinate in right of payment to LBI Media’s senior credit facility and senior subordinated notes and are structurally subordinated to our senior discount notes. The 9% subordinated notes will mature on the earliest of (i) January 31, 2014, (ii) their acceleration following the occurrence and continuance of a material event of default, (iii) a merger, sale or similar transaction involving Liberman Broadcasting or substantially all of the subsidiaries of Liberman Broadcasting, (iv) a sale or other disposition of a majority of Liberman Broadcasting’s issued and outstanding capital stock or other rights giving a third party a right to elect a majority of Liberman Broadcasting’s board of directors, and (v) the date on which the warrants issued in connection with Liberman Broadcasting’s 9% subordinated notes are repurchased pursuant to the call options applicable to the warrants. Interest is not payable until maturity. If Liberman Broadcasting completes its anticipated initial public offering, Liberman Broadcasting plans to redeem all of its outstanding 9% subordinated notes at a redemption price of 100.0% with a portion of the net proceeds from the anticipated offering.

In connection with these 9% subordinated notes, Liberman Broadcasting also issued warrants to purchase shares of its common stock. The warrants have a put feature, which would allow the warrant holders at any time on or after the maturity date of the 9% subordinated notes, to require Liberman Broadcasting to repurchase the warrants or common stock issued upon exercise of the warrants at fair market value under certain events, and a call feature, which would allow Liberman Broadcasting to repurchase the warrants at its option under certain events. Certain mergers, combinations or sales of assets of Liberman Broadcasting, however, will not trigger the put right, even though such events would have accelerated the obligations under the 9% subordinated notes. If Liberman Broadcasting completes its anticipated initial public offering, we expect that these warrants will be exercised for shares of Liberman Broadcasting’s Class A common stock at the closing of the anticipated initial public offering of its Class A common stock. If Liberman Broadcasting completes its anticipated initial public offering, it also

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intends to enter into an agreement with the holders of the warrants to terminate certain of their rights under the warrant agreement, including the put and call rights.

Empire Burbank Studios’ Mortgage Note.One of our indirect, wholly owned subsidiaries, Empire Burbank Studios, Inc., borrowed $3.25 million from City National Bank in July 1999 and executed a mortgage on its property in Burbank, California as security for the loan. The loan bore interest at 8.13% per annum and was payable in monthly principal and interest payments of approximately $32,000 through its scheduled maturity in August 2014.

On July 1, 2004, Empire Burbank Studios refinanced its former mortgage note and issued a new installment note for approximately $2.6 million. The new loan is secured by Empire Burbank Studio’s real property and bears interest at 5.52% per annum. The loan is payable in monthly principal and interest payments of $21,000 through maturity in July 2019.

Summary of Indebtedness.The following table summarizes our various levels of indebtedness at March 31, 2005.

Issuer	Form of Debt	Principal Amount Outstanding	Scheduled Maturity Date	Interest rate
LBI Media, Inc.	$220.0 million Senior secured revolving credit facility	$128.4 million	September 30, 2010	LIBOR or base rate, plus an applicable margin dependent on LBI Media’s leverage ratio
LBI Media, Inc.	Senior subordinated notes	$150.0 million	July 15, 2012	10.125%
LBI Media Holdings, Inc.	Senior discount notes	$68.4 million aggregate amount at maturity	October 15, 2013	11%
Empire Burbank Studios, Inc.	Mortgage note	$2.5 million	July 1, 2019	5.52%

The above table does not include the 9% subordinated notes of our parent, Liberman Broadcasting.

Cash Flows.Cash and cash equivalents were $5.7 million and $3.0 million at December 31, 2004 and March 31, 2005, respectively.

Net cash flow provided by operating activities was $3.7 million and $46,000 for the three months ended March 31, 2004 and 2005, respectively. The decrease in our net cash flow

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provided by operating activities was primarily the result of a decline in accounts receivable collections and accounts payable and accrued expenses during the first three months of 2005, as compared to the same period in 2004.

Net cash flow used in investing activities was $40.0 million and $1.7 million for the three months ended March 31, 2004 and 2005, respectively. The decrease in net cash flows used in investing activities is primarily attributable to the acquisitions of selected radio and television station assets in the first quarter of 2004. No acquisitions occurred in the first quarter of 2005. The decrease is also attributable to the decrease in capital expenditures from $3.5 million during the first three months of 2004 to $1.7 million for the first three months of 2005.

Net cash flow provided by financing activities was $29.8 million for the three months ended March 31, 2004. Net cash flow used in financing activities was $1.1 million for the three months ended March 31, 2005. The net cash flow provided by financing activities for the first three months of 2004 was primarily attributable to the additional funds borrowed under our senior credit facility to acquire the selected assets of KMPX-TV and KNOR-FM in the Dallas-Fort Worth, Texas market. The net cash flow used in financing activities for the three months ended March 31, 2005 reflects the principal payment on outstanding borrowings under our senior credit facility.

Contractual Obligations.We have certain cash obligations and other commercial commitments, which will impact our short- and long-term liquidity. At March 31, 2005, such obligations and commitments were LBI Media’s senior credit facility and senior subordinated notes, our senior discount notes, certain non-recourse debt of one of our indirect, wholly owned subsidiaries and our operating leases as follows:

			Payments due by Period from March 31, 2005
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 Years		After 5 Years
Long term debt	$	548,140,033	$	22,434,287	$	44,868,574	$	52,395,654	$	428,441,518
Operating leases		16,152,000		1,431,157		2,727,736		2,612,775		9,380,332
Total contractual cash obligations	$	564,292,033	$	23,865,444	$	47,596,310	$	55,008,429	$	437,821,850

The above table includes principal and interest payments under our debt agreements, based on our interest rates as of March 31, 2005, and assumes no additional borrowings or principal payments on LBI Media’s senior credit facility until its maturity in 2010. It does not include Liberman Broadcasting’s 9% subordinated notes or any deferred compensation amounts we may ultimately pay.

Expected Use of Cash Flows.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 borrowings under LBI Media’s senior credit facility. For our television segment, our planned uses of liquidity during the next twelve months will include completing the relocation of our Dallas television antenna to a new tower site at an estimated cost of $1.8 million and the addition of

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studio and transmission equipment for our Los Angeles and Houston television stations at an estimated cost of $1.0 million. For our radio segment, our planned uses of liquidity during the next twelve months will include the construction of a new tower site for our recently acquired Dallas-Fort Worth radio station, KNOR-FM, at an estimated cost of $3.1 million. We also plan to upgrade several of our radio stations and towers located in the Houston market for approximately $5.3 million.

We have used, and expect to continue to use, a significant portion of our capital resources to fund acquisitions. Future acquisitions will be funded from amounts available under LBI Media’s senior credit facility, contributions from our parent, 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 Liberman Broadcasting is unable to consummate its anticipated initial public offering. As a result, we may not be able to increase our revenues at the same rate as we have in recent years. We believe that our cash on hand, cash provided by operating activities and borrowings under LBI Media’s senior credit facility will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months.

Inflation

We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2004 and 2005. 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” throughout this report. Adjusted EBITDA consists of net income (loss) plus cumulative effect of accounting change, income tax expense, (loss) gain on sale of property and equipment, net interest expense, depreciation and noncash employee compensation.

This term, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles, or GAAP.

Management considers this measure an important indicator of our liquidity relating to our operations, as it eliminates the effects of noncash items. Management believes liquidity is an important measure for our company because it reflects our ability to meet our interest payments under our substantial indebtedness and is a measure of the amount of cash available to grow our company through our acquisition strategy. 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 GAAP, such as cash flows from operating activities, operating income and net income.

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We believe Adjusted EBITDA is useful to an investor in evaluating our liquidity and cash flow because:

• it is widely used in the broadcasting industry to measure a company’s liquidity and cash flow without regard to items such as depreciation and noncash employee compensation. The broadcast industry uses liquidity to determine whether a company will be able to cover its capital expenditures and whether a company will be able to acquire additional assets and broadcast licenses if the company has an acquisition strategy. We believe that, by eliminating the effects of noncash items, Adjusted EBITDA provides a meaningful measure of liquidity.

• it gives investors another measure to evaluate and compare the results of our operations from period to period by removing the impact of noncash expense items, such as noncash employee compensation and depreciation. By removing the noncash items, it allows investors to better determine whether we will be able to meet our debt obligations as they become due; and

• it provides a liquidity measure before the impact of a company’s capital structure by removing net interest expense items.

Our management uses Adjusted EBITDA:

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

• in presentations to our board of directors to enable them to have the same consistent measurement basis of liquidity and cash flow 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.

We also use non-GAAP numbers in the evaluation of our television segment. We exclude the results of the leasing of our production facility from our net revenue and operating expenses, because we began using our production facility for more in-house programming in 2003, thereby reducing available leasing space. As a result, we believe that in order to provide a comparable basis for evaluation our results for the three months ended March 31, 2004 and 2005, it is necessary to exclude the financial results related to the leasing of our television production facility.

The 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

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included a presentation of net cash provided by operating activities and a reconciliation to Adjusted EBITDA on a consolidated basis under “Item 2. Results of Operations”.

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 U.S. generally accepted accounting principles. 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 allowance for doubtful accounts, acquisitions of radio and television station assets, intangible assets, deferred compensation 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.

Acquisitions of radio and television station assets

Our radio and television station acquisitions have consisted primarily of the 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 less than 9.0% of our outstanding receivables. 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% of our outstanding receivables as of March 31, 2005, from 10.3% to 13.3% or $1.2 million to $1.6 million, would result in a decrease in net income of $0.4 million, net of taxes, for the three months ended March 31, 2005.

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Intangible assets

We account for our broadcast licenses in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). We believe our broadcast licenses have indefinite useful lives given they are expected to indefinitely contribute to our future cash flows and that they may be continually renewed without substantial cost to us. As such, in accordance with SFAS 142, we review our broadcast licenses for impairment at least annually.

In assessing the recoverability of goodwill and indefinite life 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.

Deferred compensation

We and our parent, Liberman Broadcasting, have entered into employment agreements with certain employees. In addition to annual compensation and other benefits, these agreements provide the employees with the ability to participate in the increase of the “net value” of Liberman Broadcasting over certain base amounts. As part of the calculation of this incentive compensation, we use the income and market valuation approaches to determine the “net value” of Liberman Broadcasting. The income approach analyzes future cash flows and discounts them to arrive at a current estimated fair value. The market approach uses recent sales and offering prices of similar properties to determine estimated fair value. Based on the “net value” of Liberman Broadcasting as determined in these analyses, and based on the percentage of incentive compensation that has vested (as set forth in the employment agreements), we record noncash employee compensation expense (and a corresponding deferred compensation liability).

Our deferred compensation liability can increase based on changes in the applicable employee’s vesting percentage and can increase or decrease based on changes in the “net value” of Liberman Broadcasting. We have two deferred compensation components that comprise the employee’s vesting percentage: (i) a component that vests in varying amounts over time; and (ii) a component that vests upon the attainment of certain performance measures (each unique to the individual agreements). We account for the time vesting component over the vesting periods specified in the employment agreements and account for the performance based component when we consider it probable that the performance measures will be attained.

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If we assumed no change in the “net value” of Liberman Broadcasting from that at March 31, 2005, we would expect to record $1.3 million in non-cash deferred compensation expense during 2005 relating solely to the time vesting portion of the deferred compensation.

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 such events is prescribed by SFAS No. 5, “Accounting for 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 accrual or disclosure in our consolidated financial statements.

Recent Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 became effective immediately for all arrangements entered into after January 31, 2003. For arrangements entered into with variable interest entities created prior to January 31, 2003, the provisions of FIN 46 become effective for the first interim or annual period ending after March 15, 2004. We adopted the provisions of FIN 46 in the first quarter of 2004; however, such adoption has not had an impact on our results of operations or financial position.

Cautionary Statement Regarding Forward-Looking Statements

Some of the statements in this report are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995 (the “Act”). 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:

• our dependence on advertising revenues;

• general economic conditions in the United States;

• our ability to reduce costs without adversely impacting revenues;

• changes in the rules and regulations of the FCC;

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

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• our ability to successfully 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;

• our ability to protect our intellectual property rights; and

• strong competition in the radio and television broadcasting industries.

The forward-looking statements in this 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.

Item 3. 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 borrowings under LBI Media’s senior credit facility, and changes in the fair value of LBI Media’s senior subordinated notes, our senior discount notes and Liberman Broadcasting’s subordinated 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. We currently do not hedge interest rate exposure and are not exposed to the impact of foreign currency fluctuations.

We are exposed to changes in interest rates on LBI Media’s variable rate senior credit facility. A hypothetical 10% increase in the interest rates applicable to the three months ended March 31, 2005 would have increased interest expense by approximately $0.7 million. Conversely, a hypothetical 10% decrease in the interest rates applicable to the three months ended March 31, 2005 would have decreased interest expense by approximately $0.7 million. At March 31, 2005, we believe that the carrying value of amounts payable under LBI Media’s senior credit facility approximates its fair value based upon current yields for debt issues of similar quality and terms.

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, the market value of our fixed rate debt would have decreased by approximately $7.6 million at March 31, 2005. Conversely, a hypothetical 10% decrease in the interest rate, assuming all other conditions affecting market risk remain constant, would have resulted in an increase in market value of approximately $8.1 million at March 31, 2005. 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.

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Item 4. 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 President and Executive Vice President, of the effectiveness of our disclosure controls and procedures as of March 31, 2005. Based on the foregoing, our President and Executive Vice President concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

LBI MEDIA HOLDINGS, INC.

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Exhibit Number	Exhibit Description
3.1	Certificate of Incorporation of LBI Media Holdings, Inc. (1)
3.2	Bylaws of LBI Media Holdings, Inc. (1)
4.1	Indenture dated as of October 10, 2003, among LBI Media Holdings, Inc., and U.S. Bank, N.A., as Trustee (1)
4.2	Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)
10.1	Second Amendment to Amended and Restated Credit Agreement, dated January 28, 2005, by and among LBI Media, Inc., the guarantors party thereto, the lenders party thereto, and Credit Suisse First Boston, as administrative agent
31.1	Certification of President 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
32.1	Certifications of President and Executive Vice President pursuant to 18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to LBI Media Holdings, Inc.’s Registration Statement on Form S-4 (Registration No. 333-110122) filed on October 30, 2003, as amended.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LBI MEDIA HOLDINGS, INC.
By:	/s/ Lenard Liberman
	Lenard D. Liberman Executive Vice President and Chief Financial Officer

Date: May 16, 2005

S-1

EXHIBIT INDEX

Exhibit Number	Exhibit Description
3.1	Certificate of Incorporation of LBI Media Holdings, Inc. (1)
3.2	Bylaws of LBI Media Holdings, Inc. (1)
4.1	Indenture dated as of October 10, 2003, among LBI Media Holdings, Inc., and U.S. Bank, N.A., as Trustee (1)
4.2	Form of Exchange Note (included as Exhibit A-1 to Exhibit 4.1)
10.1	Second Amendment to Amended and Restated Credit Agreement, dated January 28, 2005, by and among LBI Media, Inc., the guarantors party thereto, the lenders party thereto, and Credit Suisse First Boston, as administrative agent
31.1	Certification of President pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as created by Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as created by Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of President and Executive Vice President pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to LBI Media Holdings, Inc.’s Registration Statement on Form S-4 (Registration No. 333-110122) filed on October 30, 2003, as amended.