Lbi Media 10Q 2007 Q3 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 September 30, 2007

¨	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

05-05849018

(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. Yes x No ¨

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

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer x

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

As of November 13, 2007, there were 100 shares of common stock, $0.01 par value per share, of LBI Media Holdings, Inc. issued and outstanding.

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	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION		36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults upon Senior Securities	37

Item 4.	Submission of Matters to a Vote of Security Holders	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

LBI MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2007			December 31, 2006
	(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	667		$	1,501
Accounts receivable (less allowance for doubtful accounts of $2,012 as of September 30, 2007 and $1,954 as of December 31, 2006)		19,776			17,496
Current portion of program rights, net		370			578
Amounts due from related parties		13			25
Current portion of employee advances		93			106
Prepaid expenses and other current assets		1,256			1,395

Total current assets		22,175			21,101
Property and equipment, net		94,333			91,570
Broadcast licenses, net		379,662			357,870
Deferred financing costs, net		9,221			6,665
Notes receivable from related parties		2,771			2,721
Employee advances, excluding current portion		1,164			1,161
Program rights, excluding current portion		289			536
Other assets		1,305			439

Total assets	$	510,920		$	482,063

Liabilities and stockholder’s equity
Current liabilities:
Accounts payable and accrued expenses	$	5,234		$	10,548
Accrued interest		3,791			8,506
Current portion of long-term debt		1,237			1,057
Current portion of deferred compensation		—			8,329

Total current liabilities		10,262			28,440
Long-term debt, excluding current portion		416,297			412,770
Fair value of interest rate swap		2,370			1,784
Deferred and other income taxes		50,998			875
Other liabilities		1,934			940

Total liabilities	$	481,861			444,809
Commitments and contingencies
Stockholder’s equity:
Common stock, $0.01 par value:
Authorized shares — 1,000
Issued and outstanding shares — 100		—			—
Additional paid-in capital		64,811			16,865
Retained earnings (deficit)		(35,752	)		20,389

Total stockholder’s equity		29,059			37,254

Total liabilities and stockholder’s equity	$	510,920		$	482,063

See accompanying notes.

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net revenues	$	30,323		$	28,885		$	87,983		$	80,417
Operating expenses:
Program and technical, exclusive of deferred compensation expense of $0 and $21 for the three months ended September 30, 2007 and 2006, respectively, $0 and $6 for the nine months ended September 30, 2007 and 2006, respectively, depreciation and amortization, and impairment of broadcast licenses shown below		5,852			4,859			17,321			14,298
Promotional, exclusive of depreciation and amortization, and impairment of broadcast licenses shown below		938			826			2,046			1,664
Selling, general and administrative, exclusive of deferred compensation expense (benefit) of $0 and $105 for the three months ended September 30, 2007 and 2006, respectively, $(3,952) and $234 for the nine months ended September 30, 2007 and 2006, respectively, depreciation and amortization, and impairment of broadcast licenses shown below		9,831			8,512			29,700			25,165
Deferred compensation expense (benefit)		—			126			(3,952	)		240
Depreciation and amortization		2,228			1,631			6,755			4,894
Impairment of broadcast licenses		3,046			1,244			3,046			2,844

Total operating expenses		21,895			17,198			54,916			49,105

Operating income		8,428			11,687			33,067			31,312
Loss on note redemption		(8,776	)		—			(8,776	)		—
Interest expense, net of amount capitalized		(10,212	)		(7,885	)		(27,862	)		(23,190	)
Interest rate swap expense		(1,713	)		—			(586	)		—
Interest and other income		659			32			764			91

Income (loss) before provision for income taxes		(11,614	)		3,834			(3,393	)		8,213
Provision for income taxes		(1,138	)		(78	)		(50,456	)		(253	)

Net income (loss)	$	(12,752	)	$	3,756		$	(53,849	)	$	7,960

See accompanying notes.

LBI MEDIA HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2007			2006
Operating activities
Net income (loss)	$	(53,849	)	$	7,960
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		6,755			4,894
Amortization of deferred financing costs		926			794
Write off of unamortized deferred financing costs related to the 2002 Senior Subordinated Notes		1,181			—
Accretion on Senior Discount Notes		4,756			4,232
Deferred compensation expense (benefit)		(3,952	)		240
Impairment of broadcast licenses		3,046			2,844
Interest rate swap expense		586			—
Provision for doubtful accounts		821			755
Changes in operating assets and liabilities:
Accounts receivable		(3,101	)		(4,413	)
Deferred compensation payment		(4,377	)		—
Program rights		455			622
Amounts due to (from) related parties		12			(240	)
Prepaid expenses and other current assets		139			317
Employee advances		10			(212	)
Accounts payable and accrued expenses		(2,053	)		(734	)
Accrued interest		(4,715	)		(3,517	)
Deferred taxes payable		50,123			—
Other assets and liabilities		126			222

Net cash provided by (used in) operating activities		(3,111	)		13,764

Investing activities
Purchase of property and equipment		(11,744	)		(10,253	)
Acquisition of selected radio and television station assets (including amounts deposited in escrow)		(26,008	)		(5,270	)

Net cash used in investing activities		(37,752	)		(15,523	)

Financing activities
Proceeds from issuance of long-term debt and bank borrowings		268,100			133,005
Payments of deferred financing costs		(4,663	)		(1,898	)
Payments on long-term debt and bank borrowings		(269,149	)		(126,751	)
Payment of amounts due to related parties		—			(1,800	)
Capital contributions from Parent		47,946			–
Distributions to Parent		(2,205	)		(1,173	)

Net cash provided by financing activities		40,029			1,383

Net decrease in cash and cash equivalents		(834	)		(376	)
Cash and cash equivalents at beginning of period		1,501			1,797

Cash and cash equivalents at end of period	$	667		$	1,421

Supplemental disclosure of cash flow information:
Noncash amounts included in accounts payable:
Purchase of property and equipment	$	59		$	—

Cash paid during the period for:
Interest	$	27,304		$	21,622

Income taxes	$	—		$	—

See accompanying notes.

1.	Description of Business and Basis of Presentation

LBI Media Holdings, Inc. (“LBI Media Holdings”) was incorporated in Delaware on June 23, 2003 and is a wholly owned subsidiary of Liberman Broadcasting, Inc., a Delaware corporation (successor in interest to LBI Holdings I, Inc.) (the “Parent” or “Liberman Broadcasting”). Pursuant to an Assignment and Exchange Agreement dated September 29, 2003, between the Parent and LBI Media Holdings, the Parent assigned to LBI Media Holdings 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. Thus, upon consummation of the exchange, LBI Media became a wholly owned subsidiary of 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 2006 Senior Credit Facilities and the indenture governing LBI Media’s 2007 Senior Subordinated Notes and previously, LBI Media’s 2002 Senior Subordinated Notes (see Note 4). The condensed financial information of LBI Media Holdings on a stand-alone basis is presented in Note 11.

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 television production facilities that are used to produce programming for Company-owned television stations. 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. As more fully described in Note 5 and Note 12, certain of LBI Media Holdings’ indirect, wholly owned subsidiaries have entered into agreements to purchase selected assets of a television station in Ogden, Utah and a radio station in Palm Springs, California, which acquisitions are subject to customary closing conditions and regulatory approval by the Federal Communications Commission.

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 KRQB-FM radio station services the Riverside/San Bernardino, 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, KZMP-AM, KTCY-FM, KZZA-FM, KZMP-FM and KBOC-FM radio stations service the Dallas-Fort Worth, Texas market.

The Company’s television stations, KRCA, KZJL and KMPX, service the Los Angeles, California, Houston, Texas, Dallas Fort-Worth, Texas, respectively. Until recently, the Company’s television station, KSDX, serviced the San Diego, California market. In October 2007, wildfires burned through parts of southern California and burned down KSDX’s broadcasting facility. The Company is in the process of rebuilding such broadcasting facility and intends to resume service to the San Diego market upon its completion.

The Company’s television studio facilities in Burbank, California, Houston, Texas, and Dallas, Texas are owned and operated by its indirect, wholly owned subsidiaries, Empire Burbank Studios LLC (“Empire”), Liberman Television of Houston LLC and Liberman Television of Dallas LLC, respectively.

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 Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do 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, 2006 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 condensed consolidated balance sheet at December 31, 2006 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 consolidated financial statements.

2.	Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 159 - “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115” (“SFAS 159”). Issued in February 2007, SFAS 159 is effective for fiscal years beginning after November 15, 2007. SFAS 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. The Company is currently evaluating what impact, if any, the adoption of SFAS 159 will have on its financial position, results of operations and cash flows.

3.	Broadcast Licenses

The Company’s broadcast licenses are intangible assets with indefinite lives and are reviewed for impairment during the third quarter of each fiscal year, with additional evaluations performed if potential impairment indicators are noted. The Company believes its broadcast licenses have indefinite useful lives given that 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. In certain prior years, the broadcast licenses were considered to have finite lives and were subject to amortization. Accumulated amortization of broadcast licenses totaled approximately $17.7 million at September 30, 2007 and December 31, 2006.

If indicators of impairment are identified and the fair value 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 would be recorded. The fair value of the Company’s broadcast licenses is determined by assuming that entry into the particular market took place as of the valuation date and considering the signal coverage of the related stations as well as the projected advertising revenues for the particular market(s) in which each station operates. The Company completed its annual impairment review of its broadcast licenses in the third quarters of 2007 and 2006 and conducted a review of the fair value of some of its broadcast licenses in the second quarter of 2006. The Company adjusted the projected total advertising revenues in those markets in 2006 and 2007, which was partially due to greater competition for revenues from non-traditional media, and determined the fair value of each broadcast license primarily from projected total advertising revenues for a given market without taking into consideration the Company’s format or management capabilities. As a result, the downward adjustment in projected revenues resulted in a decrease in the fair value of certain of the Company’s broadcast licenses. In 2006, the Company recorded a total of $2.8 million in noncash impairment write-downs, or $1.6 million and $1.2 million in the second and third quarters, respectively. For the three months ended September 30, 2007, the Company recorded $3.0 million in noncash impairment write-downs. No other adjustments to the carrying amounts of broadcast licenses for impairments were recorded for the nine months ended September 30, 2007.

4.	Long-Term Debt

Long-term debt consists of the following:


	September 30, 2007			December 31, 2006
	(In thousands)
2006 Revolver	$	20,700		$	96,000
2006 Term Loan		108,350			109,000
2007 Senior Subordinated Notes		225,046			—
2002 Senior Subordinated Notes		—			150,000
Senior Discount Notes		61,210			56,500
2004 Empire Note		2,228			2,327

		417,534			413,827
Less current portion		(1,237	)		(1,057	)

	$	416,297		$	412,770

LBI Media’s 2004 Revolver

On June 11, 2004, LBI Media amended and restated its then existing senior revolving credit facility (as amended and restated, the “2004 Revolver”). The 2004 Revolver included an initial $175.0 million revolving loan and a $5.0 million swing line sub-facility and was subsequently increased to a total of $220.0 million. There were no scheduled reductions of commitments under the 2004 Revolver.

Borrowings under the 2004 Revolver bore interest at the election of LBI Media based on either the prime rate or the LIBOR rate plus the stipulated applicable margin based on LBI Media’s total leverage ratio, which ranged from 0.25% to 1.75% per annum for base rate loans and 1.50% to 3.00% per annum for LIBOR loans.

LBI Media’s 2006 Revolver and 2006 Term Loan

On May 8, 2006, LBI Media refinanced the 2004 Revolver with a new $110.0 million senior term loan credit facility (the “2006 Term Loan”) and a $150.0 million senior revolving credit facility (the “2006 Revolver”, and together with the 2006 Term Loan, the “2006 Senior Credit Facilities”). The 2006 Revolver includes a $5.0 million swing line sub-facility and allows for letters of credit up to the lesser of $5.0 million and the available remaining revolving commitment amount. LBI Media, however, has the option to request its lenders to increase the aggregate amount of the 2006 Senior Credit Facilities by an additional $50.0 million to $310.0 million (but the lenders are not obligated to increase the amount of the Senior Credit Facilities). The 2006 Term Loan and 2006 Revolver mature on March 31, 2012.

LBI Media must pay 0.25% of the original principal amount of the 2006 Term Loan each quarter ($275,000 quarterly or $1.1 million annually) plus 0.25% of any additional principal amount incurred in the future under the 2006 Term Loan. There are no scheduled reductions of commitments under the 2006 Revolver.

Borrowings under the 2006 Senior Credit Facilities bear interest based on either, at the option of LBI Media, the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin stipulated in the senior credit agreements. The base rate is the higher of (i) Credit Suisse’s prime rate and (ii) the Federal Funds Effective Rate (as published by the Federal Reserve Bank of New York) plus 0.50%. The applicable margin for loans under the 2006 Revolver, which is based on LBI Media’s total leverage ratio, will range from 0% to 1.00% per annum for base rate loans and from 1.00% to 2.00% per annum for LIBOR loans. The applicable margin for the 2006 Term Loan is 0.50% for base rate loans and 1.50% for LIBOR loans. The applicable margin for any future term loans will be agreed upon at the time those term loans are incurred. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable either monthly, bimonthly or quarterly depending on the interest period elected by LBI Media. All amounts that are not paid when due under either the 2006 Revolver or 2006 Term Loan will accrue interest at the rate otherwise applicable plus 2.00% until such amounts are paid in full. Borrowings under the 2006 Senior Credit Facilities bore interest at rates between 6.38% and 7.06%, including the applicable margin, at September 30, 2007.

Borrowings under the 2006 Senior Credit Facilities 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 LBI Media’s subsidiaries. The 2006 Senior Credit Facilities also contain customary representations, affirmative and negative covenants and defaults for a senior credit facility, including restrictions on LBI Media’s ability to pay dividends. At September 30, 2007, LBI Media was in compliance with all such covenants.

LBI Media will pay quarterly commitment fees on the unused portion of the 2006 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 0.50% times the unused portion. If LBI Media borrows 50% or more of the total revolving credit commitment, it must pay a quarterly commitment fee of 0.25% times the unused portion.

In connection with the 2006 Senior Credit Facilities, LBI Media entered into an interest rate swap agreement with a notional principal amount of $80.0 million for three years and $60.0 million for the subsequent two years. LBI Media will receive interest at a fixed rate of 5.56% and pay interest at the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin specified in the agreements governing the 2006 Senior Credit Facilities. As this swap agreement did not meet the requirements for hedge accounting at its inception, changes in its fair value are recorded into earnings each period, with an offsetting asset or liability reflecting the fair value of the interest rate swap, related to the difference between the fixed rate and the floating rate of interest on the swap, recorded in the consolidated balance sheets. During the three months and nine months ended September 30, 2007, the Company recognized interest rate swap expense of $0.6 million and $1.7 million, respectively, in its consolidated statements of operations and, at September 30, 2007, the Company recorded a $0.6 million increase in long-term liability in its consolidated balance sheet.

LBI Media’s 2002 Senior Subordinated Notes

In July 2002, LBI Media issued $150.0 million of senior subordinated notes due 2012 (the “2002 Senior Subordinated Notes”). The 2002 Senior Subordinated Notes bore interest at the rate of 10.125% per annum, and interest payments were made on a semi-annual basis each January 15 and July 15. All of LBI Media’s subsidiaries are wholly owned and provided full and unconditional joint and several guarantees of the 2002 Senior Subordinated Notes.

LBI Media redeemed all of the outstanding 2002 Senior Subordinated Notes on August 22, 2007 (the “Redemption Date”) at a redemption price of 105.0625% of the outstanding principal amount, plus accrued and unpaid interest to the Redemption Date (the “Redemption”). The Redemption resulted in a loss in the third quarter of 2007 of approximately $8.8 million (including the write off of $1.2 million of unamortized deferred financing costs).

LBI Media’s 2007 Senior Subordinated Notes

On July 23, 2007, LBI Media issued approximately $228.8 million aggregate principal amount of 8¹/2% Senior Subordinated Notes due 2017 (the “2007 Senior Subordinated Notes”). The 2007 Senior Subordinated Notes were sold at 98.350% of the principal amount, resulting in gross proceeds of approximately $225.0 million. All of LBI Media’s subsidiaries are wholly owned and provide full and unconditional joint and several guarantees of the 2007 Senior Subordinated Notes.

The 2007 Senior Subordinated Notes bear interest at a rate of 8.5% per annum. Interest payments are to be made on a semi-annual basis each February 1 and August 1, commencing on February 1, 2008. The 2007 Senior Subordinated Notes will mature on August 1, 2017.

The indenture governing the 2007 Senior Subordinated Notes limits, among other things, LBI Media’s ability to borrow under the 2006 Revolver and pay dividends. LBI Media could borrow up to $150.0 million under the 2006 Revolver (subject to certain reductions under certain circumstances) without having to comply with specified leverage ratios contained in the indenture, but any amount over $150.0 million (subject to certain reductions under certain circumstances) would be subject to LBI Media’s compliance with a specified leverage ratio (as defined in the indenture governing the 2007 Senior Subordinated Notes).

The indenture governing the 2007 Senior Subordinated Notes also prohibits the incurrence of certain indebtedness, the proceeds of which would be used to repay, redeem, repurchase or refinance any of LBI Media Holdings’ Senior Discount Notes (defined below) earlier than one year prior to the stated maturity of the Senior Discount Notes unless such indebtedness is (i) unsecured, and (ii) pari passu or junior in right of payment to any outstanding subordinated indebtedness of LBI Media, and (iii) otherwise permitted to be incurred under the indenture governing the 2007 Senior Subordinated Notes. At September 30, 2007, LBI Media was in compliance with all such covenants.

The indenture governing the 2007 Senior Subordinated Notes provides for customary events of default, which include (subject in certain instances to cure periods and dollar thresholds): nonpayment of principal, interest and premium, if any, on the 2007 Senior Subordinated Notes, breach of covenants specified in the indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. The 2007 Senior Subordinated Notes will become due and payable immediately without further action or notice upon an event of default arising from certain events of bankruptcy or insolvency with respect to LBI Media and certain of its subsidiaries. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding 2007 Senior Subordinated Notes may declare all the 2007 Senior Subordinated Notes to be due and payable immediately.

Senior Discount Notes

On October 10, 2003, LBI Media Holdings 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. 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 be increased each period until it equals $68.4 million on October 15, 2008; such accretion (approximately $1.6 million and $1.4 million, for the three months ended September 30, 2007 and 2006, respectively, and $4.7 million and $4.2 million for the nine months ended September 30, 2007 and 2006, respectively), is recorded as additional interest expense by LBI Media Holdings. 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 LBI Media Holdings may make a cash interest election on any interest payment date prior to October 15, 2008. If LBI Media Holdings 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 LBI Media Holdings makes such election. The Senior Discount Notes may be redeemed by LBI Media Holdings at any time on or after October 15, 2008 at redemption prices specified in the indenture governing the Senior Discount Notes, plus accrued and unpaid interest.

The indenture governing the Senior Discount Notes contains certain restrictive covenants that, among other things, limits LBI Media Holdings’ ability to incur additional indebtedness and pay dividends. As of September 30, 2007, LBI Media Holdings was in compliance with all such covenants. The Senior Discount Notes are structurally subordinated to LBI Media’s 2006 Senior Credit Facilities and LBI Media’s 2007 Senior Subordinated Notes.

2004 Empire Note

On July 1, 2004, Empire, an indirect, wholly owned subsidiary of LBI Media Holdings, issued an installment note for approximately $2.6 million (the “2004 Empire Note”). The 2004 Empire Note bears interest at 5.52% per annum and is payable in monthly principal and interest payments of approximately $21,000 through maturity in July 2019. The borrowings under the 2004 Empire Note are secured primarily by all of Empire’s real property.

Scheduled Debt Repayments

As of September 30, 2007, the Company’s long-term debt had scheduled repayments for each of the next five fiscal years as follows:


Fiscal Year	(in thousands)
2007	$	309
2008		1,239
2009		1,247
2010		1,255
2011		1,264
Thereafter		412,220

	$	417,534

The above table does not include any repayment premium the Company may ultimately pay. Prior to the termination and payoff of the debt of the Parent (including redemption of the warrants) on March 30, 2007, interest payments and scheduled repayments relating to the debt of the Parent (including redemption of the warrants) were not included in the Company’s financial statements pursuant to SEC guidelines.

The debt of the Parent, which was repaid in full on March 30, 2007, is described more fully below.

Liberman Broadcasting, Inc.’s Parent Subordinated Notes

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 $0.01 per share. 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. The Parent Subordinated Notes bore interest at 9% per year and interest was not payable until maturity.

On March 30, 2007, third party investors purchased shares of the Parent’s Class A common stock from the Parent and the stockholders of the Parent. The net proceeds received by the Parent were used to repay in full the Parent Subordinated Notes and to redeem all of the related warrants to purchase shares of LBI Holdings I’s (predecessor in interest to the Parent) common stock.

The Parent Subordinated Notes were to be accreted through January 31, 2014, up to their $30 million redemption value; such accretion (approximately $0.3 million and $0.8 million during the three months and nine months ended September 30, 2006, respectively, and $0.3 million during the nine months ended September 30, 2007) was recorded as additional interest expense by the Parent. In the financial statements of the Parent, the warrants were stated at fair value each reporting period with subsequent changes in fair value being recorded as interest expense.

Interest Paid and Capitalized

The total amount of interest paid (net of amounts capitalized) was approximately $11.7 million and $9.8 million, for the three months ended September 30, 2007 and 2006, respectively, and approximately $27.3 million and $21.6 million for the nine months ended September 30, 2007 and 2006, respectively. Interest is capitalized on individually significant construction projects during the construction period. The amount of interest capitalized was approximately $0.2 million and $0.6 million for the three and nine months ended September 30, 2007, respectively. No interest was capitalized for the three and nine months ended September 30, 2006.

5.	Acquisitions

On November 2, 2006, the Company completed its acquisition of the selected assets of five radio stations: KTCY-FM, licensed to Azle, TX, KZZA-FM, licensed to Muenster, TX, KZMP-FM, licensed to Pilot Point, TX, KZMP-AM, licensed to University Park, TX, and KBOC-FM, licensed to Bridgeport, TX, pursuant to an asset purchase agreement dated as of August 2, 2006, as amended. The aggregate purchase price was approximately $93.3 million, including acquisition costs of approximately $0.8 million. The Company has changed the format and customer base of some of the acquired stations. The Company allocated the purchase price as follows:


	(in thousands)
Broadcast licenses	$	82,188
Property and equipment		10,174
Intangible assets and other, net		945

	$	93,307

On May 15, 2007, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, KRCA Television LLC and KRCA License LLC, entered into an asset purchase agreement with Utah Communications, LLC pursuant to which such subsidiaries agreed to acquire selected assets of Utah Communications, LLC’s owned and operated television station, KPNZ-TV, Ogden, Utah. The selected assets include, among other things, (i) licenses and permits authorized by the Federal Communications Commission for or in connection with the operation of the television station, (ii) transmitter site facilities, and (iii) broadcast and other television studio equipment used to operate the television station. The total purchase price will be approximately $10.0 million, subject to certain adjustments, of which $0.5 million has been deposited in escrow. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the Federal Communications Commission.

On September 21, 2007, two of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC and LBI Radio License LLC, consummated the acquisition of the selected assets of radio station KWIE-FM (currently known as KRQB-FM), 96.1 FM, licensed to San Jacinto, California, from KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc. pursuant to an asset purchase agreement dated as of July 16, 2007. The total purchase price of approximately $25.0 million was paid in cash primarily through borrowings under the 2006 Revolver. The assets that were acquired include, among other things, (i) licenses and permits authorized by the Federal Communications Commission for or in connection with the operation of the radio station, (ii) antenna and transmitter site facilities, and (iii) broadcast and other studio equipment used to operate the radio station. The Company allocated the purchase price as follows:


	(in thousands)
Broadcast licenses	$	24,799
Property and equipment		335

	$	25,134

6.	Commitments and Contingencies

Deferred Compensation

One of LBI Media Holdings’ indirect, wholly owned subsidiaries and the Parent have entered into employment agreements with certain employees. Services required under the employment agreements are rendered to 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. Any Incentive Compensation amounts due are required to be paid within thirty days after the date the “net value” of the Parent is determined. The employment agreements contain provisions, however, that allow for limited accelerated vesting in the event of a change in control of the Parent (as defined in the employment agreements).

Until the “net value” of the Parent has been determined by appraisal as of each valuation date according to each employment agreement, the Company evaluates and estimates the deferred compensation liability under these employment agreements. As a part of the calculation of this Incentive Compensation, the Company uses 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. Each employee negotiated the base amount at the time the employment agreement was entered into. The estimated vested and unpaid amounts are shown as deferred compensation in the accompanying consolidated balance sheets; the related expense is shown as deferred compensation expense (benefit) in the accompanying consolidated statements of operations; and related cash payments are shown as deferred compensation payments in the consolidated statements of cash flows.

At September 30, 2007 and December 31, 2006, the Company estimated that certain employees had vested in approximately $0 and $8.3 million, respectively, of unpaid Incentive Compensation. In the fourth quarter of 2006 and the first quarter of 2007, the Company satisfied its obligations under an employment agreement that had a December 31, 2005 “net value” determination date and an employment agreement that had a December 31, 2006 “net value” determination date with aggregate cash payments of approximately $3.0 million. On August 3, 2007 the Company made a payment of approximately $3.0 million under an employment agreement with a December 31, 2006 “net value” determination date. Amounts credited to operating expenses related to those agreements, net of payments, were $0 and $4.0 million for the three and nine months ended September 30, 2007 because the amounts ultimately paid to the employees, whose net values were determined as of December 31, 2006, were less than amounts accrued on that date. The Company also has an employment agreement with a “net value” determination date of December 31, 2009.

Litigation

On July 13, 2007, one of LBI Media Holdings’ indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC (“LBI Sub”) entered into a settlement agreement with class action representatives to settle, subject to court approval, a previously disclosed class action lawsuit related to LBI Sub’s classification of certain employees under California overtime laws and a recently filed class action lawsuit alleging, among other things, violations of California labor laws with respect to providing meal and rest breaks to LBI Sub’s current and former employees.

In June 2005, eight former employees of LBI Sub filed suit in Los Angeles County Superior Court alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI Sub. The complaint alleged, among other things, wage and hour violations relating to overtime pay, and wrongful termination and unfair competition under the California Business and Professions Code. Plaintiffs sought to recover, among other relief, unspecified general, treble and punitive damages, as well as profit disgorgement, restitution and their attorneys’ fees. In June 2007, two former employees of LBI Sub filed another suit in Los Angeles County Superior Court, alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI Sub. The complaint alleged, among other things, violations of California labor laws with respect to providing meal and rest breaks. Plaintiffs sought, among other relief, unspecified liquidated and general damages, declaratory, equitable and injunctive relief, and attorneys fees.

While LBI Sub denies the allegations in both lawsuits, it has agreed to the proposed settlement of both actions to avoid significant legal fees, other expenses and management time that would have to be devoted to the two litigation matters. The settlement, which is subject to final documentation and court approval, provides for a maximum settlement payment of $825,000 (including attorneys’ fees and costs and administrative fees). In the first quarter of 2007, the Company recorded a $350,000 reserve related to the complaint filed in June 2005. The Company recorded an additional $475,000 reserve in the second quarter of 2007 in connection with the settlement agreement.

In consideration of the settlement payment, the plaintiffs in both cases agreed, upon final court approval, to dismiss the two class actions with prejudice and to release all known and unknown claims arising out of or relating to such claims. The parties have agreed to cooperate to obtain the court’s approval of the settlement. The settlement will become effective and binding only if approved by the court.

The Company is subject to pending litigation arising in the normal course of business. While it is not possible to predict the results of such litigation, management does not believe the ultimate outcome of these matters will have a materially adverse effect on the Company’s financial position or results of operations.

7.	Related Party Transactions

The Company had approximately $2.7 million due from stockholders of the Parent and from affiliated companies at September 30, 2007 and December 31, 2006. The Company made loans of $146,590 and $75,000 on December 20, 2001 and July 29, 2002, respectively, to Jose Liberman and loans of $243,095, $32,000 and $1,916,563 on December 20, 2001, June 14, 2002 and July 9, 2002, respectively, to Lenard Liberman. Each of these loans bears interest at the alternative federal short-term rate published by the Internal Revenue Service for the month in which the advance was made, which rate was 2.48%, 2.91% and 2.84% for December 2001, June 2002 and July 2002, respectively. Each loan matures on the seventh anniversary of the date on which the loan was made.

The Company had approximately $690,000 due from one of its directors at September 30, 2007 and December 31, 2006. Except for one loan of $30,000 that does not bear interest or have a maturity date, the remainder of these loans to the director bear interest at 8.0% and mature on dates ranging from December 31, 2009 to December 31, 2010.

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 radio and television stations.

8.	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 deferred compensation expense (benefit), depreciation and amortization, and impairment of broadcast licenses as its measure of profitability for purposes of assessing performance and allocating resources.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in thousands)
Net revenues:
Radio operations	$	16,537		$	13,760		$	45,673		$	37,558
Television operations		13,786			15,125			42,310			42,859

Consolidated net revenues		30,323			28,885			87,983			80,417

Operating expenses, excluding depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):
Radio operations		8,105			6,097			21,811			16,860
Television operations		8,516			8,100			27,256			24,267

Consolidated operating expenses, excluding depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit)		16,621			14,197			49,067			41,127

Operating income before depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):
Radio operations		8,432			7,663			23,862			20,698
Television operations		5,270			7,025			15,054			18,592

Consolidated operating income before depreciation and amortization, impairment of broadcast licenses and deferred compensation expense (benefit):		13,702			14,688			38,916			39,290

Depreciation and amortization expense:
Radio operations		1,080			598			3,311			1,794
Television operations		1,148			1,033			3,444			3,100

Consolidated depreciation and amortization expense:		2,228			1,631			6,755			4,894

Impairment of broadcast licenses:
Radio operations		3,046			1,244			3,046			1,244
Television operations		—			—			—			1,600

Consolidated impairment of broadcast licenses		3,046			1,244			3,046			2,844

Deferred compensation expense (benefit):
Radio operations		—			126			(3,952	)		240

Consolidated deferred compensation expense (benefit)		—			126			(3,952	)		240

Operating income:
Radio operations		4,306			5,695			21,457			17,420
Television operations		4,122			5,992			11,610			13,892

Consolidated operating income	$	8,428		$	11,687		$	33,067		$	31,312

Reconciliation of operating income before deferred compensation expense (benefit), depreciation and amortization, and impairment of broadcast licenses to income before income taxes:
Operating income before deferred compensation expense (benefit), depreciation and amortization, and impairment of broadcast licenses	$	13,702		$	14,688		$	38,916		$	39,290
Depreciation and amortization		(2,228	)		(1,631	)		(6,755	)		(4,894	)
Impairment of broadcast licenses		(3,046	)		(1,244	)		(3,046	)		(2,844	)
Deferred compensation expense (benefit)		—			(126	)		3,952			(240	)
Loss on note redemption		(8,776	)		—			(8,776	)		—
Interest expense, net of amount capitalized		(10,212	)		(7,885	)		(27,862	)		(23,190	)
Interest rate swap expense		(1,713	)		—			(586	)		—
Interest and other income		659			32			764			91

Income (loss) before income taxes	$	(11,614	)	$	3,834		$	(3,393	)	$	8,213

9.	Parent Issuance of Class A Common Stock

On March 30, 2007, affiliates of Oaktree Capital Management LLC and Tinicum Capital Partners II, L.P. purchased approximately 113 shares of Class A common stock of the Parent and the stockholders of the Parent. The sale of Class A common stock by the Parent resulted in net proceeds to the Parent of approximately $117.3 million. A portion of these net proceeds were used to repay the Parent’s Subordinated Notes and to redeem the related warrants (as described in Note 4). Approximately $47.9 million of the net proceeds were contributed by the Parent to LBI Media (through LBI Media Holdings). The contribution of $47.9 million was used by LBI Media to repay outstanding amounts under the 2006 Revolver on April 5, 2007.

In connection with the sale of its Class A common stock, the Parent and the stockholders of the Parent entered into an investor rights agreement that defines certain rights and obligations of the Parent and its stockholders. Pursuant to this investor rights agreement, the minority stockholders of the Parent have the right to consent, in their sole discretion, to certain transactions involving LBI Media Holdings, subsidiaries of LBI Media Holdings, and the Parent, including, among other things, certain acquisitions or dispositions of assets by LBI Media Holdings, subsidiaries of LBI Media Holdings, and the Parent. The investor rights agreement also contains customary representations and affirmative and negative covenants. At September 30, 2007, the Parent was in compliance with all such covenants.

10.

Income Taxes

As described in Note 9, third party investors purchased shares of the Parent’s Class A common stock from the Parent and the stockholders of the Parent on March 30, 2007. As a result, the Parent no longer qualifies as an “S corporation.” Because LBI Media Holdings was deemed for tax purposes to be part of the Parent, LBI Media Holdings is no longer a “qualified subchapter S subsidiary.” Therefore, the Company will be filing income tax returns as a C Corporation. Accordingly, the Company’s taxable income will be subject to a combined federal and state income tax rate of approximately 40% for periods after March 30, 2007.

Commencing March 31, 2007, the Company will be included with its Parent in the filing of a consolidated federal income tax return and various state income tax returns. With regard to the consolidated filings, the members of the consolidated group presently intend to allocate tax expenses among the members, as if they were not included in the consolidated return (i.e., “stand alone” basis), to the entity responsible for generating the corresponding tax liability. Accordingly, the amount of federal and state income taxes currently payable will be calculated and paid on a “stand alone” basis. Therefore, the Company will remit to its Parent only those taxes that would be due if the Parent were the taxing authority (e.g. Internal Revenue Service). Any deferred income taxes will be accounted for on the financial statements of the Company.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reporting amounts in the consolidated financial statements. As a result of the loss of S corporation status, the Company has recorded a one-time non-cash charge of $46.9 million to adjust its deferred tax accounts. The charge is included in its provision for income taxes on the accompanying condensed consolidated statements of operations. The Company’s deferred tax liabilities as of September 30, 2007 and December 31, 2006 were approximately $51.0 million and $0.9 million, respectively, and result primarily from book and tax basis differences of the Company’s indefinite-lived intangible assets that, for tax purposes, are amortized over fifteen years.

In addition to the deferred tax liability for its indefinite-lived intangible assets, the Company has net deferred tax assets for which it has provided a full valuation allowance. The valuation allowance on deferred taxes relates to future deductible temporary differences for which the Company has concluded it is more likely than not that the benefit of these deferred tax assets will not be realized in the ordinary course of operations. As of September 30, 2007 and December 31, 2006 the net deferred tax asset and the related valuation allowance were approximately $6.7 million and $0.3 million, respectively.

Adoption of FIN 48

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The pronouncement prescribes a recognition threshold and measurement attribute criteria for the financial statement effect of a tax position taken, not taken, or expected to be taken in a tax return. FIN 48 also provides guidance on recording the reversal of the financial statement effects previously recorded, classification, interest and penalties, interim period and transitional reporting, and disclosure.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to federal or state income tax examinations for years prior to 2003 and 2002, respectively. The Company’s policy is to recognize interest related to unrecognized tax benefits and penalties as additional tax expense. Accrued interest at September 30, 2007 related to unrecognized tax benefits is approximately $258,000, of which $19,000 and $53,000, respectively, is included in tax expense for the three and nine months ended September 30, 2007.

The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on the financial position of the Company. The cumulative effect adjustment, as a result of a change in accounting principle, reduced beginning retained earnings by approximately $787,000 ($654,000 to record unrecognized tax benefits and $133,000 of the related accrued interest). Therefore, as of the adoption date, the Company had gross tax affected unrecognized tax benefits of approximately $996,000. Also, as of the adoption date, the Company had accrued interest related to the unrecognized tax benefits of approximately $205,000. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in the period they are recognized.

As a result of the expiration of the statute of limitations in certain jurisdictions, it is reasonably possible that the accrual for certain related unrecognized tax benefits for tax positions taken regarding previously filed tax returns will be decreased by approximately $400,000 over the next twelve months.

The Company believes that it has appropriate support for the income tax positions taken and presently expected to be taken on its tax returns. Additionally, the Company believes that its accruals for tax liabilities are adequate for all years open to income tax examinations based on an assessment of many factors including past experience, past examinations by taxing authorities and interpretations of tax law applied to the facts of each matter.

The Company’s income tax provision for the nine months ended September 30, 2007 is approximately $50.4 million and is primarily attributable to the one time charge of $46.9 million to adjust its deferred tax accounts (see discussion above), approximately $330,000 of current state tax expenses and approximately $3.2 million of deferred tax expense attributable to the tax amortization of the indefinite lived intangibles. The Company’s income tax provision for the three months ended September 30, 2007 is approximately $1.1 million and is primarily attributable to $109,000 of current state tax expense and approximately $1.0 million of deferred tax expense as previously discussed.

11.

LBI Media Holdings, Inc. (Parent Company Only)

The terms of LBI Media’s 2006 Senior Credit Facilities (and previously, the 2004 Revolver) and the indenture governing LBI Media’s 2007 Senior Subordinated Notes (and previously, LBI Media’s 2002 Senior Subordinated Notes) restrict LBI Media’s ability to transfer net assets to LBI Media Holdings in the form of loans, advances, or cash dividends. The following parent-only unaudited 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 unaudited condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

Condensed Balance Sheet Information:

(in thousands)


	As of
	September 30, 2007			December 31, 2006
Assets
Deferred financing costs	$	1,191		$	1,339
Investment in subsidiaries		89,075			92,405
Other assets		4			10

Total assets	$	90,270		$	93,754

Liabilities and stockholder’s equity
Long term debt	$	61,211		$	56,500
Stockholder’s equity:
Common stock		—			—
Additional paid-in capital		64,811			16,865
Retained earnings		(35,752	)		20,389

Total stockholder’s equity		29,059			37,254

Total liabilities and stockholder’s equity	$	90,270		$	93,754

Condensed Statement of Operations Information:

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Income (loss):
Equity earnings (losses) of subsidiaries	$	(11,102	)	$	5,246		$	(48,992	)	$	12,344
Expenses:
Interest expense		(1,653	)		(1,490	)		(4,861	)		(4,383	)

Income (loss) before taxes		(12,755	)		3,756			(53,853	)		7,961
Income tax (expense) benefit		3			—			4			(1	)

Net income (loss)	$	(12,752	)	$	3,756		$	(53,849	)	$	7,960

Condensed Statement of Cash Flows Information:

(In thousands)


	Nine Months Ended September 30,
	2007			2006
Cash flows provided by operating activities:
Net income (loss)	$	(53,849	)	$	7,960
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of subsidiaries		48,992			(12,344	)
Amortization of deferred financing costs		148			148
Accretion on senior discount notes		4,711			4,232
Change in prepaid expenses and other current assets		—			1
Change in other assets		8			—
Distributions from subsidiaries		2,149			1,176

Net cash provided by operating activities		2,159			1,173
Cash flows provided by (used in) financing activities:
Investment in subsidiary		(47,900	)		—
Capital contributions from Parent		47,946			—
Distributions to Parent		(2,205	)		(1,173	)

Net cash used in financing activities		(2,159	)		(1,173	)
Net change in cash and cash equivalents		—			—
Cash and cash equivalents at beginning of period		—			—

Cash and cash equivalents at end of period	$	—		$	—

12.

Subsequent Events

Entry into Asset Purchase Agreement

On November 9, 2007, two of LBI Media Holdings’ wholly owned subsidiaries, Liberman Broadcasting of California LLC (“LBI Sub”) and LBI Radio License LLC (together, the “Buyers”), entered into an asset purchase agreement with R&R Radio Corporation (the “Seller”) pursuant to which the Buyers have agreed to acquire selected assets of radio station KDES-FM, located in Palm Springs, California, from the Seller. The selected assets include, among other things, (i) licenses and permits authorized by the Federal Communications Commission, or FCC, for or in connection with the operation of the station and (ii) transmitter and other broadcast equipment used to operate the station. The Buyers intend to change the programming format of the station and the location of KDES-FM from Palm Springs, California to Redlands, California.

The aggregate purchase price will be approximately $17.5 million in cash, subject to certain adjustments, of which $0.5 million has been deposited in escrow. The Buyers will pay $10.5 million of the aggregate purchase price to Seller and $7.0 million to Spectrum Scan-Idyllwild, LLC (“Spectrum Scan”). As a condition to the Buyers’ purchase of the assets from Seller, LBI Sub entered into an agreement with Spectrum Scan whereby it will pay $7.0 million to Spectrum Scan in exchange for Spectrum Scan’s agreement to terminate its option to purchase KWXY-FM, located in Cathedral City, California, and Spectrum Scan’s assistance in the relocation of KDES-FM from Palm Springs, California to Redlands, California. Payment to Spectrum Scan is conditioned on the Buyers’ completion of the purchase of the assets from Seller. If the purchase of KDES-FM is not completed, the Buyer must pay a $500,000 fee to Spectrum Scan.

Consummation of the acquisition is subject to regulatory approval from the FCC, including consent to the relocation of KDES-FM from Palm Springs, California to Redlands, California, and to other customary closing conditions.

Fire Damage to San Diego Television Facility

On October 22, 2007, wildfires caused extensive physical damage to several areas in southern California, specifically parts of San Diego County. The Company’s low-power television broadcasting facility, KSDX, is located in the area directly impacted by the fires. The KSDX facility experienced severe damage resulting in the cessation of its television broadcast to the San Diego market. As of September 30, 2007, the net carrying book value of KSDX was approximately $0.6 million.

The Company has property and business interruption insurance coverage. The Company believes it is adequately insured with respect to this incident and is working with its insurance carriers to evaluate losses and coverage and to determine how to proceed with reconstruction.

The Company does not currently anticipate that the overall impact of the fire will be materially adverse to its business, financial condition and results of operations. The reconstruction of the facility and insurance claim process will likely extend into the Company’s next fiscal year.

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 on Form 10-Q and the audited financial statements for the year ended December 31, 2006, 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, a radio station in Riverside, California 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, one FM station serving Riverside/San Bernardino, California and its surrounding area, five FM and four AM stations serving Houston, Texas and its surrounding areas, and five FM and one AM stations 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.

Until recently, we had a low-power station, KSDX, serving San Diego, California. In October 2007, wildfires burned through parts of southern California and burned down KSDX’s broadcasting facility. We are in the process of rebuilding such broadcasting facility and intend to resume service to the San Diego market upon its completion.

In addition, we operate a television production facility, Empire Burbank Studios, in Burbank, California that we 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 allow us to produce local programming in those markets as well.

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, and the sale of time to brokered or infomercial customers on our radio and television stations. 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 net revenue reflects deductions from gross revenue for commissions to these agencies.

Our primary expenses are employee compensation, including commissions paid to our local and national sales staffs, promotion, selling, programming and engineering expenses, general and administrative expenses and interest expense. Our programming expenses for television consist of costs related to the production of original programming content, production of local newscasts and, to a lesser extent, 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 refinancing or restructuring our indebtedness, selling equity securities or selling assets.

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

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

On March 30, 2007, our parent, Liberman Broadcasting, sold shares of its Class A common stock to affiliates of Oaktree Capital Management LLC and Tinicum Capital Partners II, L.P. The sale resulted in net proceeds to Liberman Broadcasting of $117.3 million. A portion of these net proceeds were used to repay Liberman Broadcasting’s 9% subordinated notes due 2014 and to redeem related warrants to purchase shares of common stock of the predecessor of Liberman Broadcasting. Liberman Broadcasting contributed approximately $47.9 million of the net proceeds to us, and we, in turn, contributed $47.9 million to LBI Media. LBI Media used the proceeds contributed to it to repay outstanding amounts borrowed under LBI Media’s senior revolving credit facility.

In connection with the sale of Liberman Broadcasting’s Class A common stock, Liberman Broadcasting and its stockholders entered into an investor rights agreement that defines certain rights and obligations of Liberman Broadcasting and the stockholders of Liberman Broadcasting. Pursuant to this investor rights agreement, the investors have the right to consent to certain transactions involving us, Liberman Broadcasting, and our subsidiaries, including:

•

certain acquisitions or dispositions of assets by us, Liberman Broadcasting and our subsidiaries that are consummated on or after September 30, 2009;

•

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

•

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

•

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

•

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

•

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

•

certain issuances of new equity securities to the public prior to March 30, 2010;

•

certain changes in our corporate form to an entity other than a Delaware corporation;

•

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

•

certain change of control transactions.

Acquisitions

On November 2, 2006, two of our indirect, wholly owned subsidiaries, Liberman Broadcasting of Dallas, Inc. (predecessor in interest to Liberman Broadcasting of Dallas LLC) and Liberman Broadcasting of Dallas License Corp. (predecessor in interest to Liberman Broadcasting of Dallas License LLC), purchased selected assets of five radio stations owned and operated by Entravision Communications Corporation, or Entravision, and certain subsidiaries of Entravision pursuant to an asset purchase agreement dated as of August 2, 2006, as amended on November 2, 2006. Also in the fourth quarter of 2006, Liberman Broadcasting of Dallas purchased a building in Dallas, Texas to accommodate its growth in stations owned in the Dallas-Fort Worth market.

The total purchase price of the selected radio station assets was approximately $92.5 million and was paid for in cash primarily through borrowings under LBI Media’s senior revolving credit facility. The assets that were acquired include, among other things, (i) licenses and permits authorized by the Federal Communications Commission, or FCC, for or in connection with the operation of each of the radio stations, (ii) tower and transmitter facilities, and (iii) broadcast and other studio equipment used to operate the following five stations: KTCY-FM (101.7 FM, licensed to Azle, TX), KZZA-FM (106.7 FM, licensed to Muenster, TX),

KZMP-FM (104.9 FM, licensed to Pilot Point, TX), KZMP-AM (1540 AM, licensed to University Park, TX), and KBOC-FM (98.3 FM, licensed to Bridgeport, TX). The programming of KZMP-FM is now provided by a third-party broker.

On May 15, 2007, two of our indirect, wholly owned subsidiaries, KRCA Television LLC and KRCA License LLC, entered into an asset purchase agreement with Utah Communications, LLC pursuant to which our subsidiaries agreed to acquire selected assets of Utah Communications, LLC’s owned and operated television station, KPNZ-TV, Ogden, Utah. The selected assets include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the television station, (ii) transmitter site facilities, and (iii) broadcast and other television studio equipment used to operate the television station. The purchase of these assets marks our first entry into this market. The total purchase price will be approximately $10.0 million, subject to certain adjustments, of which $0.5 million has been deposited in escrow. Consummation of the acquisition is subject to customary closing conditions and regulatory approval from the FCC.

On September 21, 2007, two of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC and LBI Radio License LLC, consummated the acquisition of the selected assets of radio station KWIE-FM (currently known as KRQB-FM), 96.1 FM, licensed to San Jacinto, California, from KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc. pursuant to an asset purchase agreement dated as of July 16, 2007. The total purchase price of approximately $25.0 million was paid for in cash primarily through borrowings under LBI Media’s senior secured revolving credit facility. The assets that were acquired include, among other things, (i) licenses and permits authorized by the FCC for or in connection with the operation of the radio station, (ii) antenna and transmitter site facilities, and (iii) broadcast and other studio equipment used to operate the radio station.

On November 9, 2007, two of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC and LBI Radio License LLC, entered into an asset purchase agreement with R&R Radio Corporation, as the seller, pursuant to which we have agreed to acquire selected assets of radio station KDES-FM, located in Palm Springs, California, from the seller. The selected assets include, among other things, (i) licenses and permits authorized by the FCC, for or in connection with the operation of the station and (ii) transmitter and other broadcast equipment used to operate the station. We intend to change the programming format and the location of KDES-FM from Palm Springs, California to Redlands, California.

The aggregate purchase price will be approximately $17.5 million in cash, subject to certain adjustments, of which $0.5 million has been deposited in escrow. We will pay $10.5 million of the aggregate purchase price to the seller and $7.0 million to Spectrum Scan-Idyllwild, LLC. As a condition to our purchase of the assets from the seller, Liberman Broadcasting of California LLC has entered into an agreement with Spectrum Scan whereby it will pay $7.0 million to Spectrum Scan in exchange for Spectrum Scan’s agreement to terminate its option to purchase KWXY-FM, located in Cathedral City, California, and Spectrum Scan’s assistance in the relocation of KDES-FM from Palm Springs, California to Redlands, California. Payment to Spectrum Scan is conditioned on the completion of the purchase of the assets from the seller. If the purchase of KDES-FM is not completed, we must pay a $500,000 fee to Spectrum Scan.

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.

Legal Proceedings

On July 13, 2007, one of our indirect, wholly owned subsidiaries, Liberman Broadcasting of California LLC, or LBI, entered into a settlement agreement with class action representatives to settle, subject to court approval, a previously disclosed class action lawsuit related to LBI’s classification of certain employees under California overtime laws and a recently filed class action lawsuit alleging, among other things, violations of California labor laws with respect to providing meal and rest breaks to LBI’s current and former employees.

In June 2005, eight former employees of LBI filed suit in Los Angeles County Superior Court alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, wage and hour violations relating to overtime pay, and wrongful termination and unfair competition under the California Business and Professions Code. Plaintiffs sought to recover, among other relief, unspecified general, treble and punitive damages, as well as profit disgorgement, restitution and their attorneys’ fees. In June 2007, two former employees of LBI filed another suit in Los Angeles County Superior Court, alleging claims on their own behalf and also on behalf of a purported class of former and current employees of LBI. The complaint alleged, among other things, violations of California labor laws with respect to providing meal and rest breaks. Plaintiffs sought, among other relief, unspecified liquidated and general damages, declaratory, equitable and injunctive relief, and attorneys fees.

While LBI denies the allegations in both lawsuits, it has agreed to the proposed settlement of both actions to avoid significant legal fees, other expenses and management time that would have to be devoted to the two litigation matters. The settlement, which is subject to final documentation and court approval, provides for a maximum settlement payment of $825,000 (including attorneys’ fees and costs and administrative fees). In the first quarter of 2007, we recorded a $350,000 reserve related to the complaint filed in June 2005. In the second quarter of 2007, we recorded an additional $475,000 in connection with the settlement agreement.

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 September 30,						Nine Months Ended September 30,
	2007		2006		% Change		2007			2006		% Change
	(in thousands)
Net revenues:
Radio	$	16,537	$	13,760	20.2	%	$	45,673		$	37,558	21.6	%
Television		13,786		15,125	(8.9	)%		42,310			42,859	(1.3	)%

Total	$	30,323	$	28,885	5.0	%	$	87,983		$	80,417	9.4	%

Total operating expenses before deferred compensation expense (benefit), impairment of broadcast licenses and depreciation and amortization:
Radio	$	8,105	$	6,097	32.9	%	$	21,811		$	16,860	29.4	%
Television		8,516		8,100	5.1	%		27,256			24,267	12.3	%

Total	$	16,621	$	14,197	17.1	%	$	49,067		$	41,127	19.3	%

Deferred compensation expense (benefit):
Radio	$	—	$	126	(100.0	)%	$	(3,952	)	$	240	(1746.7	)%

Total	$	—	$	126	(100.0	)%	$	(3,952	)	$	240	(1746.7	)%

Impairment of broadcast licenses:
Radio	$	3,046	$	1,244	144.9	%	$	3,046		$	1,244	144.9	%
Television		—		—	—			—			1,600	(100.0	)%

Total	$	3,046	$	1,244	144.9	%	$	3,046		$	2,844	7.1	%

Depreciation and amortization:
Radio	$	1,080	$	598	80.6	%	$	3,311		$	1,794	84.6	%
Television		1,148		1,033	11.1	%		3,444			3,100	11.1	%

Total	$	2,228	$	1,631	36.6	%	$	6,755		$	4,894	38.0	%

Operating Income:
Radio	$	4,306	$	5,695	(24.4	)%	$	21,457		$	17,420	23.2	%
Television		4,122		5,992	(31.2	)%		11,610			13,892	(16.4	)%

Total	$	8,428	$	11,687	(27.9	)%	$	33,067		$	31,312	5.6	%

Adjusted EBITDA (1):
Radio	$	8,432	$	7,537	11.9	%	$	27,814		$	20,458	36.0	%
Television		5,270		7,025	(25.0	)%		15,054			18,592	(19.0	)%

Total	$	13,702	$	14,562	5.9	%	$	42,868		$	39,050	9.8	%

(1)

We define Adjusted EBITDA as net income (loss) plus income tax expense (benefit), gain (loss) on sale of property and equipment, gain (loss) on sale of investments, net interest expense, interest rate swap expense, impairment of broadcast licenses, and depreciation and amortization. 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.

In determining our Adjusted EBITDA in past years, we treated deferred compensation expense (benefit) as a noncash item, because we had the option and the intention to pay such amounts in the common stock of our parent after our parent’s initial public offering. Our first payment became due in 2006 and we have made additional payments in 2007. We have determined that we can no longer meet the conditions necessary to pay the deferred compensation in stock. Accordingly, we have settled our deferred compensation amounts in cash. We have presented prior periods’ Adjusted EBITDA to conform to this current treatment. As a result, Adjusted EBITDA for prior periods may appear as a different amount from what we have reported in prior periods.

We discuss Adjusted EBITDA and the limitations of this financial measure in more detail under “—Non-GAAP Financial Measures.”

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 September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)
Net cash provided by (used in) operating activities	$	(8,743	)	$	4,970		$	(3,111	)	$	13,764
Add:
Income tax expense		1,138			78			50,456			253
Loss on redemption of the 10¹/8% senior subordinated notes, excluding the write off of $1,181 of unamortized deferred financing costs		7,595			—			7,595			—
Interest expense and other income, net		9,553			7,850			27,098			23,099
Less:
Amortization of deferred financing costs		(325	)		(297	)		(926	)		(794	)
Accretion on senior discount notes		(1,648	)		(1,440	)		(4,756	)		(4,232	)
Provision for doubtful accounts		(300	)		(273	)		(821	)		(755	)
Deferred compensation benefit (expense)		—			(125	)		3,952			(240	)
Changes in operating assets and liabilities:
Accounts receivable		475			1,160			3,101			4,413
Deferred compensation payment		3,003			—			4,377			—
Program rights		(133	)		(198	)		(455	)		(622	)
Amounts due from related parties		3			102			(12	)		240
Prepaid expenses and other current assets		55			(261	)		(139	)		(317	)
Employee advances		(2	)		(115	)		(10	)		212
Accounts payable and accrued expenses		732			(429	)		2,053			734
Accrued interest		3,332			3,699			4,715			3,517
Deferred taxes payable		(1,041	)		—			(50,123	)		—
Other assets and liabilities		8			(159	)		(126	)		(222	)

Adjusted EBITDA	$	13,702		$	14,562		$	42,868		$	39,050

Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006

Net Revenues. Net revenues increased by $1.4 million, or 5.0%, to $30.3 million for the three months ended September 30, 2007, from $28.9 million for the same period in 2006. The increase was primarily attributable to increased advertising revenue from our Los Angeles and Dallas radio markets. In Dallas, this revenue growth is attributable to our existing FM radio station and our five recently acquired radio station assets.

Net revenues for our radio segment increased by $2.7 million, or 20.2%, to $16.5 million for the three months ended September 30, 2007, from $13.8 million for the same period in 2006. Increases in revenue at our new and existing Dallas radio stations were augmented by an increase in revenues at our Los Angeles radio stations. The increase in our advertising revenue in Dallas was due to increases in our audience and the acceptance by advertisers of our newly formatted stations.

Net revenues for our television segment decreased by $1.3 million, or 8.8%, to $13.8 million for the three months ended September 30, 2007, from $15.1 million for the same period in 2006. This decrease was primarily attributable to decreased advertising revenue in our California markets, partially offset by increased advertising revenues in our Texas markets.

We currently anticipate net revenue growth for the remainder of 2007 primarily from our radio segment due to increased advertising time sold, improved ratings and a corresponding increase in advertising rates. Television revenues will be impacted in the fourth quarter by a weak advertising market, as compared to earlier in the fiscal year, and the loss of our KSDX television station in the recent San Diego wildfires.

Total operating expenses. Total operating expenses increased by $4.7 million, or 27.3%, to $21.9 million for the three months ended September 30, 2007 from $17.2 million for the same period in 2006. This increase was primarily due to:

(1)

a $1.8 million increase in impairment charge related to our Dallas radio broadcast licenses;

(2)

a $1.3 million increase in selling, general and administrative expenses due to (a) higher salaries, commissions and other selling expenses, attributable to increased staffing associated with our growth in net revenues, (b) start-up costs and other expenses related to our newly acquired radio station in the Riverside/San Bernardino, California market, including $0.4 million in local marketing agreement fees for time purchased on the station prior to its acquisition by us in September, and (c) additional expenses related to our Dallas radio stations that we acquired in November 2006;

(3)

a $1.0 million increase in programming expenses primarily related to additional production of in-house television programs, and additional expenses related to our Dallas radio stations that we acquired in November 2006; and

(4)

a $0.6 million increase in depreciation and amortization due primarily to increased capital expenditures for new and existing properties.

Of the above increases in operating expenses, approximately $4.1 million of the increase included expenses primarily attributable to our new Dallas stations, which we acquired in November 2006. Operating expenses attributable to our new Dallas radio stations includes an impairment charge to our broadcast licenses of $3.0 million that we recorded in the third quarter of 2007.

The increases in our operating expenses relating to our new Dallas stations and certain of our other radio stations were partially offset by an overall decreases in operating expenses at our other Dallas and Houston radio stations.

Our deferred compensation liability can increase in future periods based on changes in the 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. See “—Critical Accounting Policies—Deferred Compensation.”

We believe that our total operating expenses, before consideration of any impairment charges, will increase through the end of 2007 due to increased programming costs related to our television segment and increased sales commissions and administrative expenses associated with any net revenue growth. In addition, we will incur additional expenses related to the operation of our newly acquired radio stations in Dallas and Riverside, and, subject to regulatory approvals and other closing conditions, a television station in Salt Lake City, Utah (KPNZ-TV) and a radio station in Palm Springs, California (KDES-FM) that we are in the process of acquiring. Continued growth in expenses may also occur as a result of future acquisitions of radio and television assets.

Total operating expenses for our radio segment increased by $4.1 million, or 51.7%, to $12.2 million for the three months ended September 30, 2007, from $8.1 million for the same period in 2006. The increase was primarily due to:

(1)

a $1.8 million increase in impairment charges related to our Dallas broadcast licenses;

(2)

a $1.2 million increase in selling, general and administrative expenses, due primarily to increased salaries, including new personnel and start-up costs in connection with our new Dallas stations and our newly acquired radio station in the Riverside/San Bernardino, California market, including $0.4 million in local marketing agreement fees for time purchased on the station prior to its acquisition by us in September.

(3)

a $0.5 million increase in depreciation and amortization due primarily to increased capital expenditures for new and existing properties; and

(4)

a $0.5 million increase in programming expenses primarily attributable to the reformatting and programming of our new Dallas stations.

Of the above increases in operating expenses, approximately $4.1 million of the increase included expenses primarily attributable to our new Dallas stations, the assets of which were acquired in November 2006. Operating expenses attributable to our Dallas radio stations includes an impairment charge to our broadcast licenses of $3.0 million that we recorded in the third quarter of 2007.

Total operating expenses for our television segment increased by $0.6 million, or 5.8%, to $9.7 million for the three months ended September 30, 2007, from $9.1 million for the same period in 2006. The increase was primarily due to a $0.4 million increase in programming expenses related to the additional production of in-house programming.

Loss on note redemption.In July 2007, LBI Media deposited amounts in trust to redeem all of its outstanding 10¹/8% senior subordinated notes at a redemption price of 105.0625% of the outstanding principal amount, plus accrued and unpaid interest to August 22, 2007, the redemption date. In connection with the redemption of these notes, we recorded a one-time loss of $8.8 million, which represents the early redemption premium on the notes of $7.6 million, and the write off of the unamortized deferred financing costs related to these notes of $1.2 million (see “—Liquidity and Capital Resources—LBI Media’s 10¹/8% Senior Subordinated Notes”).

Interest expense, net.Interest expense, net, increased by $3.5 million, or 44.9%, to $11.3 million for the three months ended September 30, 2007, from $7.8 million for the corresponding period in 2006. Interest expense increased in the third quarter of 2007 primarily due to:

(1)

the issuance of $228.8 million senior subordinated notes by LBI Media in July 2007;

(2)

interest rate swap expense of $1.7 million from a five-year interest rate swap agreement that we entered into in the second quarter of 2006; and

(3)

additional accretion on our senior discount notes issued in October 2003.

These increases were partially offset by the decrease in interest expense related to LBI Media’s $150.0 million senior subordinated notes that were due in 2012, which were repaid in July 2007.

Provision for income taxes. Our provision for income taxes increased by $1.0 million, to $1.1 million for the three months ended September 30, 2007, from $0.1 million for the corresponding period in 2006. As described above under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”, certain investors purchased shares of our parent’s Class A common stock. As a result, our parent no longer qualifies as an “S corporation” and we and our subsidiaries are no longer qualified as “qualified subchapter S corporations.”

Net loss. We recognized net loss of $12.8 million for the three months ended September 30, 2007, as compared to net income of $3.8 million for the same period of 2006, a decrease of $16.6 million This decrease was primarily attributable to the following:

(1)

a $1.8 million increase in impairment charges to our broadcast licenses;

(2)

a $8.8 million loss on the redemption of LBI Media’s 10¹/8% senior subordinated notes;

(3)

an increase in our interest expense, net; and

(4)

increases in operating expenses resulting from the Dallas stations we acquired in November 2006.

Adjusted EBITDA. Adjusted EBITDA decreased by $0.9 million, or 5.9%, to $13.7 million for the three months ended September 30, 2007 as compared to $14.6 million for the same period in 2006 primarily as a result of increased operating expenses resulting from the Dallas stations we acquired in November 2006, local marketing agreement fees and other start-up costs of KWIE-FM (currently known as KRQB-FM), and an increase in the in-house production expenses of our television programming. See “—Non-GAAP Financial Measures.”

Adjusted EBITDA for our radio segment increased by $0.9 million, or 11.9%, to $8.4 million for the three months ended September 30, 2007, from $7.5 million for the same period in 2006. The increase was primarily the result of increased revenues in the Dallas market as discussed above.

Adjusted EBITDA for our television segment decreased by $1.7 million, or 25.0% to $5.3 million for the three months ended September 30, 2007, from $7.0 million for the same period in 2006. The decrease was primarily the result of increased programming expense, and a decrease in net revenues in our California television markets.

Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006

Net Revenues. Net revenues increased by $7.6 million, or 9.4%, to $88.0 million for the nine months ended September 30, 2007, from $80.4 million for the same period in 2006. The increase was primarily attributable to increased advertising revenue from our Los Angeles and Dallas radio markets and our Texas television markets.

Net revenues for our radio segment increased by $8.1 million, or 21.6%, to $45.7 million for the nine months ended September 30, 2007, from $37.6 million for the same period in 2006. Increases in revenue at our new and existing Dallas radio stations were augmented by an increase in revenues at our Los Angeles radio stations. The increase in our advertising revenue in Dallas was partially due to increases in our audience and the acceptance by advertisers of our newly formatted stations in Dallas.

Net revenues for our television segment decreased by $0.5 million, or 1.3%, to $42.3 million for the nine months ended September 30, 2007, from $42.8 million for the same period in 2006. This decrease was attributable to lower advertising revenue in our California markets, which were partially offset by increased advertising revenue in our Texas markets.

Total operating expenses. Total operating expenses increased by $5.8 million, or 11.8%, to $54.9 million for the nine months ended September 30, 2007 from $49.1 million for the same period in 2006. This increase was primarily attributable to:

(1)

a $4.5 million increase in selling, general and administrative expenses due to (a) higher salaries, commissions and other selling expenses, attributable to increased staffing associated with our growth in net revenues, expenses related to our newly acquired Dallas radio stations, (b) start-up costs in connection with our new Dallas stations and our newly acquired radio station in the Riverside/San Bernardino, California market, including $0.4 million in local marketing agreement fees for time purchased on the station prior to its acquisition by us in September, and (c) a $0.8 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”);

(2)

a $3.0 million increase in programming expenses primarily related to additional production of in-house television programs and our new Dallas radio stations that we acquired in November 2006; and

(3)

a $1.9 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties.

The increases in operating expenses were partially offset by a $4.2 million decrease in deferred compensation expense because the amounts that were ultimately paid to two employees in the first and third quarters of 2007 were less than the amounts that had been accrued at December 31, 2006.

Of the above increases in operating expenses, approximately $6.3 million is primarily attributable to our newly acquired Dallas stations, which we began operating in November 2006. Operating expenses attributable to our new Dallas radio stations includes an impairment charge to our broadcast licenses of $3.0 million that we recorded in the third quarter of 2007. The increases in our operating expenses relating to our new Dallas radio stations and certain of our other radio and television stations were partially offset by overall decreases in operating expenses at our Los Angeles radio station and our Houston television station.

Total operating expenses for our radio segment increased by $4.1 million, or 20.2%, to $24.2 million for the nine months ended September 30, 2007, from $20.1 million for the same period in 2006. This increase was primarily attributable to:

(1)

a $3.0 million increase in selling, general and administrative expenses, due primarily to increased salaries, including new personnel and start-up costs in connection with our new Dallas stations and our newly acquired radio station in the Riverside/San Bernardino, California market, including $0.4 million in local marketing agreement fees for time purchased on the station prior to its acquisition by us in September;

(2)

a $1.8 million increase in impairment charges relating our Dallas radio broadcast licenses as compared to impairment charges relating to our Dallas and Houston broadcast stations during the same period in 2006;

(3)

a $1.5 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties; and

(4)

a $1.4 million increase in programming expenses primarily attributable to the reformatting and programming of our new Dallas stations.

This increase was partially offset by a $4.2 million decrease in deferred compensation expense because the amounts that were ultimately paid to two employees in 2007 were less than the amounts that had been accrued at December 31, 2006.

Of the above increases in operating expenses, approximately $6.3 million of the increase included expenses primarily attributable to our new Dallas radio stations, the assets of which were acquired in November 2006. Operating expenses attributable to our new Dallas radio stations includes an impairment charge to our broadcast licenses of $3.0 million that we recorded in the third quarter of 2007. The increases in our operating expenses relating to our new Dallas radio stations and certain of our other radio stations were partially offset by an overall decrease in operating expenses at our Los Angeles radio stations.

Total operating expenses for our television segment increased by $1.7 million, or 6.0%, to $30.7 million for the nine months ended September 30, 2007, from $29.0 million for the same period in 2006. This increase was primarily due to:

(1)

a $1.6 million increase in programming expenses related to the additional production of in-house programming;

(2)

a $1.5 million increase in selling, general and administrative expenses related to higher sales salaries and commissions associated with our revenue growth and a $0.8 million reserve recorded in connection with a settlement agreement for certain legal matters (see “—Legal Proceedings”); and

(3)

a $0.3 million increase in depreciation and amortization due primarily to increased capital expenditures for existing properties.

The increases were offset by a $1.6 million decrease in impairment charges for our television broadcasts licenses. We did not record an impairment charge to our television broadcast licenses during the nine months ended September 30, 2007, as compared to a $1.6 million charge recorded for the same period in 2006.

Interest expense, net.Interest expense, net, increased by $4.6 million, or 19.8%, to $27.7 million for the nine months ended September 30, 2007, from $23.1 million for the corresponding period in 2006. Interest expense increased primarily due to:

(1)

increased borrowings under LBI Media’s senior revolving credit facilities relating to the acquisition of selected assets of our Dallas radio stations;

(2)

the issuance of $228.8 million senior subordinated notes by LBI Media in July 2007;

(3)

interest rate swap expense of $0.6 million from a five-year interest rate swap agreement that we entered into in the second quarter of 2006; and

(4)

additional accretion on our senior discount notes issued in October 2003.

These increases were partially offset by the decrease in interest expense related to LBI Media’s $150.0 million senior subordinated notes that were due in 2012, which were repaid in July 2007.

Provision for income taxes. Our provision for income taxes increased by $50.3 million, or 251.5% to $50.5 million for the nine months ended September 30, 2007, from $0.2 million for the corresponding period in 2006. As described above under “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”, certain investors purchased shares of our parent’s Class A common stock. As a result, our parent no longer qualifies as an “S corporation” and we and our subsidiaries are no longer qualified as “qualified subchapter S corporations.” Accordingly, we recorded a one-time non-cash charge of $46.9 million to adjust our deferred tax accounts in the first quarter of 2007.

Net loss. We recognized net loss of $53.8 million for the nine months ended September 30, 2007, as compared to net income of $8.0 million for the same period of 2006, a decrease of $61.8 million. This change was primarily attributable to the one-time non-cash charge of $46.9 million to our deferred tax accounts and a $8.8 million loss on the redemption of LBI Media’s 10¹/8% senior subordinated notes.

Adjusted EBITDA. Adjusted EBITDA increased by $3.8 million, or 9.8%, to $42.9 million for the nine months ended September 30, 2007 as compared to $39.1 million for the same period in 2006 primarily as a result of increased revenues from our radio stations and charges to deferred compensation expense because the amount ultimately paid to employees in 2007 was less than the amount that was accrued at December 31, 2006. See “—Non-GAAP Financial Measures.”

Adjusted EBITDA for our radio segment increased by $7.3 million, or 35.9%, to $27.8 million for the nine months ended September 30, 2007 as compared to $20.5 million for the same period in 2006. The increase was primarily the result of increased advertising revenue in our Los Angeles and Dallas markets and charges to deferred compensation expense as discussed above.

Adjusted EBITDA for our television segment decreased by $3.5 million, or 19.0% to $15.1 million for the nine months ended September 30, 2007, from $18.6 million for the same period in 2006. This decrease was primarily the result of increased programming expenses and selling, general and administrative expenses as discussed above.

Liquidity and Capital Resources

LBI Media’s Senior Credit Facilities.Our primary sources of liquidity are cash provided by operations and available borrowings under our subsidiary’s, LBI Media’s, $150.0 million senior revolving credit facility. On May 8, 2006, LBI Media refinanced its prior $220.0 million senior revolving credit facility with a $150.0 million senior revolving credit facility and a $110.0 million senior term loan facility. LBI Media has, however, the option to request its lenders to increase the aggregate amount of its senior credit facilities by $50.0 million to $310.0 million, but LBI Media’s lenders are not obligated to increase the amount of its senior credit facilities. Under the senior revolving credit facility, LBI Media has a swing line sub-facility equal to an amount of not more than $5.0 million.

Letters of credit are also available to LBI Media under the senior revolving credit facility and may not exceed the lesser of $5.0 million or the available revolving commitment amount. There are no scheduled reductions of commitments under the senior revolving credit facility. Under the senior term loan facility, LBI Media must pay 0.25% of the original principal amount of the term loans each quarter, or $275,000, plus 0.25% of any additional principal amount incurred in the future under the senior term loan facility. The senior credit facilities mature on March 31, 2012.

As of September 30, 2007, LBI Media had $20.7 million aggregate principal amount outstanding under the senior revolving credit facility and $108.3 million aggregate principal amount of outstanding senior term loans. Since September 30, 2007, LBI Media has repaid, net of borrowings, approximately $4.6 million under its senior revolving credit facility.

Borrowings under the senior credit facilities bear interest based on either, at LBI Media’s option, the base rate for base rate loans or the LIBOR rate for LIBOR loans, in each case plus the applicable margin stipulated in the senior credit agreements. The base rate is the higher of (i) Credit Suisse’s prime rate and (ii) the Federal Funds Effective Rate (as published by the Federal Reserve Bank of New York) plus 0.50%. The applicable margin for revolving loans, which is based on LBI Media’s total leverage ratio, will range from 0% to 1.00% per annum for base rate loans and from 1.00% to 2.00% per annum for LIBOR loans. The applicable margin for term loans is 0.50% for base rate loans and 1.50% for LIBOR loans. The applicable margin for any future term loans will be agreed upon at the time those term loans are incurred. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable either monthly, bimonthly or quarterly depending on the interest period elected by LBI Media. All amounts that are not paid when due under either the senior revolving credit facility or the senior term loan facility will accrue interest at the rate otherwise applicable plus 2.00% until such amounts are paid in full. In addition, LBI Media pays a quarterly unused commitment fee ranging from 0.25% to 0.50% depending on the level of facility usage. At September 30, 2007, borrowings under the senior credit facilities bore interest at rates between 6.38% and 7.06%, including the applicable margin.

Under the indentures governing LBI Media’s 8¹/2% senior subordinated notes and our senior discount notes (described below), LBI Media is limited in its ability to borrow under the senior revolving credit facility and to borrow additional amounts under the senior term loan facility. In addition to the $110.0 million that has already been borrowed under the senior term loan facility, LBI Media may borrow up to $150.0 million under the senior credit facilities (subject to certain reductions under certain circumstances) without having to comply with specified leverage ratios under the indentures governing its 8¹/2% senior subordinated notes and our senior discount notes, but any amount over such $150.0 million that LBI Media may borrow under the senior credit facilities (subject to certain reductions under certain circumstances) will be subject to LBI Media’s and our compliance with specified leverage ratios (as defined in the indentures governing LBI Media’s 8¹/2% senior subordinated notes and our senior discount notes). Also, the indenture governing LBI Media’s 8¹/2% senior subordinated notes prohibits borrowings under LBI Media’s senior credit facilities, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes earlier than one year prior to their stated maturity.

LBI Media’s senior credit facilities contain customary restrictive covenants that, among other things, limit its ability to incur additional indebtedness and liens in connection therewith and pay dividends. Under the senior revolving credit facility, LBI Media must also maintain a maximum senior secured leverage ratio (as defined in the senior credit agreement).

LBI Media’s 10¹/8% Senior Subordinated Notes. In July 2002, LBI Media issued $150.0 million of 10¹/8% senior subordinated notes that mature in 2012. Under the terms of LBI Media’s 10¹/8% senior subordinated notes, it paid semi-annual interest payments of approximately $7.6 million each January 15 and July 15. The indenture governing LBI Media’s 10¹/8% senior subordinated notes contained certain restrictive covenants that, among other things, limited its ability to incur additional indebtedness and pay dividends. On August 22, 2007, LBI Media redeemed all of its outstanding 10¹/8% senior subordinated notes at a redemption price of 105.0625% of the outstanding principal amount, plus accrued and unpaid interest, for approximately $159.2 million.

LBI Media’s 8¹/2% Senior Subordinated Notes. On July 23, 2007, LBI Media issued approximately $228.8 million aggregate principal amount of 8¹/2% Senior Subordinated Notes that mature in 2017, resulting in gross proceeds of approximately $225.0 million and net proceeds of approximately $221.6 million after certain transaction costs. Under the terms of LBI Media’s 8¹/2% senior subordinated notes, it must pay semi-annual interest payments of approximately $9.7 million each February 1 and August 1, commencing February 1, 2008. LBI Media may redeem the 8¹/2% senior subordinated notes at any time on or after August 1, 2012

at redemption prices specified in the indenture governing its 8¹/2% senior subordinated notes, plus accrued and unpaid interest. At any time prior to August 1, 2012, LBI Media may redeem some or all of its 8¹/2% senior subordinated notes at a redemption price equal to a “make whole” amount as set forth in the indenture governing the senior subordinated notes. Also, LBI Media may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of certain equity offerings completed on or prior to August 1, 2010 at a redemption price of 108.5% of the principal amount of the notes, plus accrued and unpaid interest, if any, thereon to the applicable redemption date.

The indenture governing these notes contains restrictive covenants that limit, among other things, LBI Media’s and its subsidiaries’ ability to incur additional indebtedness, issue certain kinds of equity, and make particular kinds of investments. The indenture governing LBI Media’s 8¹/2% senior subordinated notes also prohibits the incurrence of certain indebtedness, the proceeds of which would be used to repay, redeem, repurchase or refinance any of our senior discount notes earlier than one year prior to the stated maturity of the senior discount notes unless such indebtedness is (i) unsecured, and (ii) pari passu or junior in right of payment to any outstanding subordinated indebtedness of LBI Media, and (iii) otherwise permitted to be incurred under the indenture governing LBI Media’s 8¹/2% senior subordinated notes.

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

Senior Discount Notes.In October 2003, we issued $68.4 million aggregate principal amount at maturity of senior discount notes that mature in 2013. Under the terms of the senior discount notes, cash interest 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 makes such election. We may redeem the senior discount notes at any time on or after October 15, 2008 at redemption prices specified in the indenture governing our senior discount notes, plus accrued and unpaid interest.

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 our parent, Liberman Broadcasting. Our senior discount notes are structurally subordinated to LBI Media’s senior credit facilities and senior subordinated notes.

Empire Burbank Studios’ Mortgage Note.On July 1, 2004, one of our indirect, wholly owned subsidiaries, Empire Burbank Studios LLC (successor in interest to Empire Burbank Studios, Inc.), issued an installment note for approximately $2.6 million. The loan is secured by Empire’s real property and bears interest at 5.52% per annum. The loan is payable in monthly principal and interest payments of approximately $21,000 through maturity in July 2019.

Summary of Indebtedness.The following table summarizes our various levels of indebtedness at September 30, 2007.


Issuer	Form of Debt	Principal Amount Outstanding	Scheduled Maturity Date	Interest rate

LBI Media, Inc.	$150.0 million senior secured revolving credit facility	$20.7 million⁽¹⁾	March 31, 2012	LIBOR or base rate, plus an applicable margin dependent on LBI Media’s leverage ratio

LBI Media, Inc.	$110.0 million senior secured term loan credit facility	$108.3 million	March 31, 2012	LIBOR plus 1.50% per annum, or base rate plus 0.50% per annum

LBI Media, Inc.	Senior subordinated notes	$225.0 million	August 1, 2017	8.5%

LBI Media Holdings Inc.	Senior discount notes	$61.2 million	October 15, 2013	11%

Empire Burbank Studios LLC	Mortgage note	$2.2 million	July 1, 2019	5.52%

(1)	LBI Media has repaid, net of borrowings, approximately $4.6 million under its senior secured revolving credit facility since September 30, 2007.

Cash Flows.Cash and cash equivalents were $0.7 million and $1.5 million at September 30, 2007 and December 31, 2006 respectively. Our cash balance at September 30, 2007 was lower as a result primarily of LBI Media’s repayments on its long term debt and amounts paid for the acquisition of selected radio and television assets, including amounts we have deposited in escrow.

Net cash flow used in our operating activities was $3.1 million for the nine months ended September 30, 2007 and net cash flow provided by operating activities was $13.8 million for the nine months ended September 30, 2006. The decrease in our net cash flow provided by operating activities was primarily the result of:

(1)

a loss from operations primarily attributable to increased interest costs, including the $7.6 million early redemption premium paid to redeem LBI Media’s 10¹/8% senior subordinated notes in July 2007, operating expenses resulting from the Dallas stations we acquired in November 2006 and local marketing agreement fees and other start-up costs of KWIE-FM (currently known as KRQB-FM); and

(2)

decreases in our accounts payable and increases in our accounts receivable as a result of the timing of payments and cash receipts.

Net cash flow used in investing activities was $37.8 million and $15.5 million for the nine months ended September 30, 2007 and 2006, respectively. Capital expenditures were $11.7 million for the nine months ended September 30, 2007 compared to $10.3 million in the same period in 2006. During the third quarter of 2007, capital expenditures for property and equipment were primarily related to the construction of new towers and transmitter sites for our Dallas-Fort Worth and Houston, Texas radio stations and the addition of studio equipment for our Los Angeles television station.

Net cash flow provided by financing activities was $40.0 million and $1.4 million for the nine months ended September 30, 2007 and 2006, respectively. The net cash flow provided by financing activities for the nine months ended September 30, 2007 reflects a capital contribution (net of distributions) from our parent of $45.7 million, and, in turn, from us to LBI Media, and proceeds from LBI Media’s issuance of 8¹/2% senior subordinated notes, partially offset by LBI Media’s repayment of its senior revolving credit facility and LBI Media’s redemption of its 10¹/8% senior subordinated notes. See “—Sale and Issuance of Liberman Broadcasting’s Class A Common Stock”.

Contractual Obligations. We have certain cash obligations and other commercial commitments, which will impact our short- and long-term liquidity. At September 30, 2007, such obligations and commitments were LBI Media’s senior revolving credit facility, LBI Media’s senior term loan facility and LBI Media’s 8¹/2% 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 September 30, 2007 (in thousands)
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt	$	699,384	$	29,278	$	73,392	$	192,567	$	404,147
Operating leases		15,524		1,708		3,027		2,503		8,286

Total contractual cash obligations	$	714,908	$	30,986	$	76,419	$	195,070	$	412,433

The above table includes principal and interest payments under our debt agreements based on our interest rates as of September 30, 2007 and assuming no additional borrowings or principal payments on LBI Media’s senior revolving credit facility until the facility matures in 2012. It does not include 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, selling, general and administrative expenses, capital expenditures and debt service from our operating cash flow and borrowings under LBI Media’s senior revolving credit facility. We expect to use cash to fund the purchase price for the acquisition of KPNZ-TV and KDES-FM (see “—Acquisitions”).

For our television segment, our planned uses of liquidity during the next twelve months will include the addition of production equipment for our Texas and Los Angeles television stations at an estimated cost of $2.0 million. We are also in the process of obtaining cost estimates for the reconstruction of our low-power television facility in San Diego, KSDX, that was burned down by the wildfires in October 2007.

In connection with the purchase of the new radio stations from Entravision Communications Corporation, Liberman Broadcasting of Dallas, Inc. (predecessor in interest to Liberman Broadcasting of Dallas LLC), our wholly owned subsidiary also purchased a building in Dallas, Texas to accommodate our growth in stations owned and operated in the Dallas-Fort Worth market. We estimate we will spend approximately $3.0 million on improvements and equipment for our new Dallas building.

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 revolving 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 we or our parent are unable to obtain funding from other capital sources. As a result, we may not be able to increase our revenues at the same rate as we have in recent years. We believe that our cash on hand, cash provided by operating activities and borrowings under LBI Media’s senior revolving credit facility will be sufficient to permit us to fund our contractual obligations and operations for at least the next twelve months.

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 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 income tax expense (benefit), gain (loss) on sale of property and equipment, gain (loss) on sale of investment, net interest expense, interest rate swap expense, depreciation and amortization, and impairment of broadcast licenses.

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.

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 amortization and impairment of broadcast licenses. 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 effect 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 depreciation and amortization and impairment of broadcast licenses. By removing the noncash items, it allows our 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 and interest rate swap expenses.

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.

The Securities and Exchange Commission, or SEC, has adopted rules regulating the use of non-GAAP financial measures, such as Adjusted EBITDA, in filings with the SEC and in disclosures and press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP. We have included a presentation of net cash provided by operating activities and a reconciliation to Adjusted EBITDA on a consolidated basis under “—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 FCC licenses to broadcast in a particular market (broadcast licenses). We generally acquire the existing format and change it upon acquisition. As a result, a substantial portion of the purchase price for the assets of a radio or television station is allocated to its broadcast license. The allocations assigned to acquired broadcast licenses and other assets are subjective by their nature and require our careful consideration and judgment. We believe the allocations represent appropriate estimates of the fair value of the assets acquired.

Allowance for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. A considerable amount of judgment is required in assessing the likelihood of ultimate realization of these receivables including our history of write-offs, relationships with our customers and the current creditworthiness of each advertiser. Our historical estimates have been a reliable method to estimate future allowances, with historical reserves averaging approximately 9.2% 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 September 30, 2007, from 9.2% to 12.2% or $2.0 million to $2.7 million, would result in a decrease in pre-tax income of $0.7 million for the three months and nine months ended September 30, 2007.

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 annually during the third quarter of each fiscal year, with additional evaluations performed if potential impairment indicators are noted.

We completed our annual impairment review of our broadcast licenses in the third quarters of 2007 and 2006 and conducted an additional review of the fair value of some of our broadcast licenses in the second quarter of 2006. For purposes of our impairment testing, the unit of accounting is each individual FCC license or, in situations where there are multiple stations in a particular market that broadcast the same programming (that is, simulcast), it is the cluster of stations broadcasting the programming. We determined the fair value of each of our broadcast licenses by assuming that entry into the particular market took place as of the valuation date and considered the signal coverage of the related station as well as the projected advertising revenues for the particular market(s) in which each station operates. In 2007 and 2006, we adjusted the projected total advertising revenues to be generated in certain of these markets downward due to a general slowdown in broadcast revenues in those markets, which was partially explained by greater competition for revenues from non-traditional media. We determined the fair value of each broadcast license primarily from projected total advertising revenues for a given market and did not take into consideration our format or management capabilities. As a result, the downward adjustment in projected revenues resulted in a decrease in the fair value of certain of our broadcast licenses. Our revenues are generated predominantly from local and regional advertisers and we believe the decrease in advertising in those markets will come primarily from national advertisers to general market (non-Hispanic) radio and television stations. We had impairment write-downs for the nine months ended September 30, 2007 and 2006 of $3.0 million and $2.8 million, respectively.

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. If we experienced a 10% decrease in the fair value of each of our broadcast licenses from that determined at September 30, 2007 (the most recent date a fair value determination was performed for each broadcast license), we would require an additional impairment write-down of approximately $12.9 million.

Deferred compensation

One of our indirect, wholly owned subsidiaries 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.

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.

As part of the calculation of the deferred compensation liability, 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 specified in the employment agreements), we record deferred compensation expense or benefit (and a corresponding credit or charge to deferred compensation liability). As such, estimation of the “net value” of Liberman Broadcasting requires considerable management judgment and the amounts recorded as periodic deferred compensation expense or benefit are dependent on that judgment.

The deferred compensation amounts earned under our employment agreement with a December 31, 2005 “net value” determination date and one of our employment agreements with a December 31, 2006 “net value” determination date were paid in cash during 2006 and the first quarter of 2007, respectively. In the third quarter of 2007, we made a cash payment of approximately $3.0 million under an employment agreement with December 31, 2006 “net value” determination date. We recorded the deferred compensation expense with respect to such employment agreement in the second quarter of 2007. Because the amounts paid for the two deferred compensation payments in 2007 were less than the amount accrued at December 31, 2006, deferred compensation expense decreased for the nine months ended September 30, 2007. We have one other employment agreement with a “net value” determination date of December 31, 2009.

If we assumed no change in the “net value” of Liberman Broadcasting from that at September 30, 2007, we would not expect to record any deferred compensation expense during 2007 relating solely to the time vesting portion of the deferred compensation. The agreements require us to pay the deferred compensation amounts in cash until Liberman Broadcasting’s common stock becomes publicly traded, at which time we may pay these amounts in cash or Liberman Broadcasting’s common stock, at our option.

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 loss accruals; however, we refer you to Note 6 of our condensed consolidated financial statements for discussion of other known contingencies.

Recent Accounting Pronouncement

Statement of Financial Accounting Standards No. 159—“The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115”. Issued in February 2007, Statement of Financial Accounting Standards No. 159, or SFAS 159, is effective for fiscal years beginning after November 15, 2007. SFAS 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. We are currently evaluating what impact, if any, the adoption of SFAS 159 will have on our financial position, results of operations and cash flows.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains 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;

•

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;

•

strong competition in the radio and television broadcasting industries;

•

sufficient cash to meet our debt service obligations; and

•

our ability to obtain regulatory approval for future acquisitions.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. The forward-looking statements in this Quarterly 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 Quarterly Report, the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2006 and other documents that we file from time to time with the Securities and Exchange Commission, particularly any Current Reports on Form 8-K. We are not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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 facilities and changes in the fair value of LBI Media’s 8¹/2% senior subordinated notes and our senior discount notes. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments.

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 $15.7 million at September 30, 2007. 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 $16.9 million at September 30, 2007. Management does not foresee nor expect any significant change in our exposure to interest rate fluctuations or in how such exposure is managed in the future.

Item 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 Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2007. Based on the foregoing, our President and Chief Financial Officer 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.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

In addition to the other information in this report, you should carefully consider the factor below, which could materially affect our business, financial condition or future results. The risks described in this report and our Annual Report on Form 10-K for the year ended December 31, 2006 are not the only risks facing our company.

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

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

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

The transmission of programming is subject to risks of equipment failure, including those failures caused by radio or television tower defects and destruction, natural disasters, power losses, low-flying aircraft, software errors or telecommunications errors. Disruption of our programming transmissions may occur in the future and other comparable transmission equipment may not be available. Any natural disaster or extreme climatic event, such as fire, could result in the loss of our ability to broadcast.

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

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		Restated Certificate of Incorporation of LBI Media Holdings, Inc.(1)

3.2		Amended and Restated Bylaws of LBI Media Holdings, Inc. (1)

4.1		Indenture, dated as of October 10, 2002, by and between LBI Media Holdings, Inc. and U.S. Bank National Association, as Trustee (2)

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

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

10.2		Asset Purchase Agreement, dated as of July 16, 2007, by and between Liberman Broadcasting of California LLC and LBI Radio License LLC, as buyers, and KWIE, LLC, KWIE Licensing LLC and Magic Broadcasting, Inc., as sellers*

10.3		Indenture, dated as of July 23, 2007, by and among LBI Media, Inc., the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee (3)

10.4		Second Amendment to Amended and Restated Credit Agreement, dated as of July 23, 2007, by and among LBI Media, Inc., the guarantors party thereto, the lenders party thereto, Credit Suisse, Cayman Islands Branch, as Administrative Agent, and Credit Suisse, Cayman Islands Branch, as Collateral Agent (3)

10.5		Asset Purchase Agreement, dated as of November 9, 2007, by and between Liberman Broadcasting of California LLC and LBI Radio License LLC, as buyers, and R&R Radio Corporation, as seller*

10.6		Agreement Relating to Relocation and Purchase of KDES-FM, dated as of November 9, 2007, by and between Liberman Broadcasting of California LLC and Spectrum Scan-Idyllwild, LLC*

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*

*	Filed herewith.

(1)	Incorporated by reference to LBI Media Holdings, Inc.’s Quarterly Report on Form 10-Q filed on May 17, 2007.

(2)	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.

(3)	Incorporated by reference to LBI Media Holdings, Inc.’s Current Report on Form 8-K filed on July 23, 2007.

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 D. Liberman
		Lenard D. Liberman
		Executive Vice President, Chief Financial Officer and Secretary

Date: November 14, 2007

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Lbi Media Inactive 10-Q2007 Q3 Quarterly report

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