LBI MEDIA INC - 10-Q 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, 2004

¨	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 333-100330

LBI MEDIA, INC.

(Exact Name of Registrant as Specified in Its Charter)

California

95-4668901

(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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 15, 2004, there were approximately 100 shares outstanding of Common Stock, $0.01 par value.

LBI MEDIA, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

	Item 1. Unaudited Financial Statements	3

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	37

	Item 4. Controls and Procedures	37

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings	38

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

	Item 3. Defaults upon Senior Securities	38

	Item 4. Submission of Matters to a Vote of Security Holders	38

	Item 5. Other Information	38

	Item 6. Exhibits	38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LBI MEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31, 2003		September 30, 2004
	(Note 1)		(unaudited)
Assets
Current assets
Cash and cash equivalents	$	6,670,129	$	2,592,291
Short-term investments		191,650		36,120
Accounts receivable (less allowance for doubtful accounts of $965,132 in 2003 and $1,362,078 in 2004)		13,724,961		13,210,362
Current portion of program rights, net		1,177,325		1,287,908
Amounts due from related parties		334,693		561,032
Current portion of employee advances		57,856		79,166
Prepaid expenses and other current assets		1,087,880		803,545

Total current assets		23,244,494		18,570,424

Property and equipment, net		56,837,070		68,251,101
Program rights, excluding current portion		1,642,887		1,104,032
Notes receivable from related parties		2,518,581		2,569,126
Employee advances, excluding current portion		687,970		782,433
Deferred financing costs, net		4,190,301		4,979,339
Broadcast licenses, net		239,405,098		286,073,842
Acquisition costs		482,455		—
Escrow funds		1,500,000		—
Other assets		461,351		727,482

Total assets	$	330,970,207	$	383,057,779

Liabilities and stockholder’s equity
Current liabilities:
Accounts payable and accrued expenses	$	4,030,956	$	2,845,965
Accrued interest		7,430,702		4,090,220
Program rights payable		69,324		33,500
Amounts due to related parties		189,485		—
Current portion of long-term debt		163,078		116,429

Total current liabilities		11,883,545		7,086,114

Long-term debt, excluding current portion		240,865,731		284,531,555
Deferred compensation		8,506,000		11,088,000
Deferred state income taxes		236,078		342,354
Other liabilities		218,163		282,667

Commitments and contingencies

Stockholder’s equity:
Common stock, $0.01 par value:
Authorized shares —1,000
Issued and outstanding shares —100		1		1
Additional paid-in capital		61,457,931		61,457,931
Retained earnings		7,739,528		18,267,321
Accumulated other comprehensive income		63,230		1,836

Total stockholder’s equity		69,260,690		79,727,089

Total liabilities and stockholder’s equity	$	330,970,207	$	383,057,779

See accompanying notes.

LBI MEDIA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2004			2003			2004
Revenues	$	26,210,203		$	27,812,226		$	70,801,373		$	78,394,886
Less agency commissions		(3,377,969	)		(3,595,409	)		(8,899,580	)		(10,035,173	)

Net revenues		22,832,234			24,216,817			61,901,793			68,359,713

Operating expenses:
Program and technical, exclusive of noncash employee compensation of $96,000 and $393,000 for the three months ended September 30, 2003 and 2004, respectively, and $330,000 and $590,000 for the nine months ended September 30, 2003 and 2004, respectively, and depreciation shown below		3,147,165			4,488,775			9,413,140			11,994,765
Promotional, exclusive of depreciation shown below		534,901			508,321			1,204,973			1,319,491
Selling, general and administrative, exclusive of noncash employee compensation of $334,000 and $1,303,000 for the three months ended September 30, 2003 and 2004, respectively, and $1,127,000 and $1,992,000 for the nine months ended September 30, 2003 and 2004, respectively, and depreciation shown below		6,535,250			7,272,453			18,698,346			21,007,972
Noncash employee compensation		430,000			1,696,000			1,457,000			2,582,000
Depreciation		906,258			1,390,593			2,565,232			3,829,816

Total operating expenses		11,553,574			15,356,142			33,338,691			40,734,044

Operating income		11,278,660			8,860,675			28,563,102			27,625,669
Interest expense		(5,338,104	)		(5,448,169	)		(15,410,323	)		(15,644,264	)
Interest and other income		18,604			20,226			72,966			110,815
(Loss) gain on sale of property and equipment		—			—			(4,000	)		2,354

Income before income taxes		5,959,160			3,432,732			13,221,745			12,094,574
Provision for income taxes		(20,000	)		(80,665	)		(60,000	)		(203,589	)

Net income	$	5,939,160		$	3,352,067		$	13,161,745		$	11,890,985

See accompanying notes.

LBI MEDIA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2003			2004
Operating activities
Net income	$	13,161,745		$	11,890,985
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,565,232			3,829,816
Amortization of deferred financing costs		407,380			499,818
Noncash employee compensation		1,457,000			2,582,000
Gain on sale of investments		—			(47,614	)
Loss (gain) on sale of property and equipment		4,000			(2,354	)
Provision for doubtful accounts		900,240			716,579
Changes in operating assets and liabilities:
Accounts receivable		(4,340,056	)		(201,980	)
Program rights		(17,884	)		428,272
Amounts due from related parties		8,209			(226,339	)
Prepaid expenses and other current assets		475,887			284,335
Employee advances		(100,501	)		(115,773	)
Accounts payable and accrued expenses		757,176			(1,184,991	)
Accrued interest		(4,225,860	)		(3,340,482	)
Program rights payable		(16,000	)		(35,824	)
Amounts due to related parties		72,780			(189,485	)
Deferred state income tax payable		49,600			106,276
Other assets and liabilities		(555,804	)		(252,172	)

Net cash provided by operating activities		10,603,144			14,741,067

Investing activities
Purchase of property and equipment		(6,854,703	)		(8,300,393	)
Acquisition of radio and television station property and equipment		(1,075,417	)		(7,081,100	)
Acquisition costs		(379,870	)		—
Acquisition of broadcast licenses		(38,094,771	)		(44,686,289	)
Amounts deposited in escrow for the acquisition of broadcast licenses		(1,500,000	)		—
Repayment of note receivable from related party		4,432			—
Proceeds from sale of property and equipment		12,500			140,000
Proceeds from sale of investment		—			141,750

Net cash used in investing activities		(47,887,829	)		(59,786,032	)

Financing activities
Proceeds from issuance of long-term debt and bank borrowings, net of financing costs		45,150,344			59,980,677
Payments on long-term debt and bank borrowings		(8,661,602	)		(17,650,358	)
Distributions to Parent		(331,573	)		(1,363,192	)

Net cash provided by financing activities		36,157,169			40,967,127

Net decrease in cash and cash equivalents		(1,127,516	)		(4,077,838	)
Cash and cash equivalents at beginning of period		1,396,636			6,670,129

Cash and cash equivalents at end of period	$	269,120		$	2,592,291

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	8,911,193		$	18,427,129

Income taxes	$	—		$	12,800

See accompanying notes.

LBI MEDIA, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

1. Description of Business and Basis of Presentation

LBI Media, Inc. was incorporated in California as LBI Holdings II, Inc. and is a wholly owned subsidiary of LBI Media Holdings, Inc. (LBI Media Holdings). LBI Media Holdings is a wholly owned subsidiary of LBI Holdings I, Inc. (the “Parent”). Pursuant to an Assignment and Exchange Agreement dated September 29, 2003 between the Parent and LBI Media Holdings, 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 is a holding company with substantially no assets, operations or cash flows other than its investment in its subsidiaries.

LBI Media 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, through its wholly owned subsidiary, Empire Burbank Studios, Inc. (Empire), owns a television studio facility that is primarily used to produce programming for Company-owned television stations. Portions of this facility are also leased to independent third parties. The Company sells commercial airtime on its radio and television stations to local and national advertisers. In addition, the Company has entered into time brokerage agreements with third parties for three of its radio stations.

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not inc

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