EXHIBIT 99
FORM 11-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 33-99146
A. Full title of the Plan:
THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
MUSICLAND STORES CORPORATION
10400 Yellow Circle Drive, Minnetonka, MN 55343
REQUIRED INFORMATION
The Plan is subject to ERISA. Accordingly, in lieu of the Securities and
Exchange Commission requirements, Plan financial statements and schedules
prepared in accordance with the financial reporting requirements of ERISA are
being filed.
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
Financial Statements as of December 31, 1999 and 1998
Together With Report of Independent Public Accountants
<PAGE>
THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
Index to Financial Statements and Supplemental Schedule
Page
------
Report of Independent Public Accountants 3
Financial Statements and Schedule:
Statements of Net Assets Available for Benefits as of December 31,
1999 and 1998 4
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1999 5
Notes to Financial Statements 6
Schedule H - Part IV Item 4(i) - Schedule of Assets Held for
Investment Purposes as of December 31, 1999 11
2
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrator of
The Musicland Group's Capital Accumulation Plan:
We have audited the accompanying statements of net assets available for benefits
of The Musicland Group's Capital Accumulation Plan as of December 31, 1999 and
1998, and the related statement of changes in net assets available for benefits
for the year ended December 31, 1999. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of The Musicland
Group's Capital Accumulation Plan as of December 31, 1999 and 1998, and the
changes in net assets available for benefits for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 23, 2000
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
---------------------------
1999 1998
------------ ------------
Assets:
Investments............................... $ 46,091,205 $ 46,902,726
Interest income receivable................ - 4,329
Contributions receivable:
Participant contributions.............. 103,845 82,842
Employer contributions................. 2,014,632 2,014,600
------------ ------------
Total contributions receivable...... 2,118,477 2,097,442
------------ ------------
Total assets........................ 48,209,682 49,004,497
Liabilities:
Administrative expenses payable........... 16,119 16,136
Interest payable.......................... 464,884 594,851
Note payable.............................. 5,998,490 6,998,239
------------ ------------
Total liabilities................... 6,479,493 7,609,226
------------ ------------
Net assets available for benefits......... $ 41,730,189 $ 41,395,271
============ ============
See accompanying notes to financial statements.
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year Ended
December 31,
1999
-------------
Additions:
Additions to net assets attributed to:
Investment income:
Interest....................................... $ 133,249
Dividends...................................... 1,253,816
-------------
1,387,065
-------------
Contributions:
Participant.................................... 3,169,132
Employer....................................... 2,041,696
-------------
5,210,828
-------------
Total additions................................ 6,597,893
-------------
Deductions:
Deductions from net assets attributed to:
Net decrease in fair value of investments........ (3,703,559)
Benefits paid to participants.................... (1,994,363)
Administrative expenses.......................... (100,169)
Interest expense................................. (464,884)
-------------
Total deductions............................... (6,262,975)
-------------
Net increase................................... 334,918
Net assets available for benefits:
Beginning of year................................... 41,395,271
-------------
End of year......................................... $ 41,730,189
=============
See accompanying notes to financial statements.
5
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan
The following description of The Musicland Group's Capital Accumulation
Plan (the "Plan") is provided for general information purposes only and
is not a comprehensive description of the Plan. Therefore, it does not
include all situations and limitations covered by the Plan.
Participants should refer to the Plan document, as amended, for more
complete information.
GENERAL:
The Plan is a defined contribution plan covering eligible salaried and
hourly employees of The Musicland Group, Inc. ("TMG" or the "Company")
who have attained age 21 and completed one year of service, as defined.
The Plan also provides certain profit sharing benefits for eligible
employees who commenced employment after June 30, 1990 and who have
attained age 21 and completed six months of continuous employment or
one year of service, as defined. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA").
Benefits under the Plan are covered by a trust agreement. In August
1995, the Plan was amended to add an Employee Stock Ownership Plan
("ESOP"), effective January 1, 1995, for the purpose of replacing the
Company's matching contributions.
American Express Trust Company (the "Trustee") serves as the Plan's
trustee and administers the assets of the Plan, directs execution of
transactions, makes benefit payments on behalf of the Plan and
maintains records for the loans to participants.
NOTE PAYABLE:
During 1995, the Company loaned the Plan $9,997,485 through the
issuance of a promissory note to purchase 1,042,900 shares of Musicland
Stores Corporation common stock ("Musicland Common Stock"). The
promissory note is due in ten equal annual principal installments on
December 31 of each year, with interest on the unpaid principal balance
at the prime rate on December 31 of the previous year (8.50% at
December 31, 1999 and 7.75% at December 31, 1998). As the Company makes
contributions to the Plan, the Plan makes principal payments to the
Company and allocates an appropriate percentage of Musicland Common
Stock to eligible employees' accounts. The promissory note is
collateralized by the unallocated shares held by the Plan.
CONTRIBUTIONS:
Participants may elect to make pretax salary reduction contributions of
up to 17% of annual base salaries. Highly compensated participants are
limited to pretax salary reduction contributions of 4% of annual base
pay up to the 401(a)(17) and 408(k)(3)(C) compensation limit. Annual
salary reduction contributions are limited to $10,000 for nonhighly
compensated employees, and 4% of the annual base pay up to the 401(a)
(17) and 408 (k)(3)(C) compensation limit for highly compensated
employees. Participants direct the investment of their contributions
into various investment options offered by the Plan. The Plan currently
offers five mutual funds, one stock pool fund and two collective funds.
The Company may, at its discretion, make a supplementary matching
contribution of 0% to 100% of eligible salary reduction contributions
to the extent that such contributions for the plan year do not exceed
4% of participants' earnings. The Company may make an annual profit
sharing contribution for eligible employees under an age-and service-
weighted unit allocation formula. The profit sharing contribution is
made to the various available investment funds based on the
participants' investment allocation elections. Forfeitures greater than
administrative costs are used to reduce the Company's matching
contributions.
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Description of the Plan (Continued)
LOANS TO PARTICIPANTS:
Participants may obtain up to two loans of $500 or more at any one
time, limited to the lesser of 50% of the vested value of their
accounts or $50,000. Loans must be repaid within five years, except for
certain home loans. The interest rate charged on loans is fixed at the
prime rate plus 2% on the date of the loan.
VESTING:
Each participant's individual contributions are fully vested at all
times. Participants vest in company matching contributions over a seven
year graduated vesting schedule. Participants will be 100% vested in
company matching contributions seven years from their date of hire or
at the time of death, disability or retirement, provided the person has
reached normal retirement age. Participants vest in profit sharing
contributions 100% after five years from their date of hire.
PAYMENT OF BENEFITS:
On termination of service due to death, disability, or retirement, a
participant may elect to receive either a lump-sum amount equal to the
value of the participant's vested interest in his or her account, or
annual installments over a ten-year period. For termination of service
for other reasons, a participant may receive the value of the vested
interest in his or her account as a lump-sum distribution.
PLAN TERMINATION:
While the Company has not expressed any intent to discontinue the Plan,
it is free to do so at any time. If such discontinuance results in the
termination of the Plan, all accounts shall become fully vested and
nonforfeitable. The Company shall receive from the Plan the shares of
unallocated Musicland Common Stock in satisfaction of the note payable
to the Company. The Plan shall continue until all assets have been
distributed to the participants.
2. Summary of Significant Accounting Policies
BASIS OF ACCOUNTING:
The financial statements have been prepared under the accrual basis of
accounting.
VALUATION OF ASSETS:
Investments are valued at market value as reported by the Trustee as of
December 31, 1999 and 1998, based on quoted market prices of
investments held by the funds. Net changes in the market value of
investments during the year are reported as unrealized gains and
losses. The realized gain or loss on investments sold is determined
based on the market value of the investment at the end of the prior
year or cost if purchased during the year.
7
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The valuation and performance of the Plan's investment funds (the
"Funds") are subject to various risks such as interest rate, market and
credit. The investments held by the Funds, excluding the Musicland
Common Stock Fund, are made at the discretion of the investment
managers of the Funds and are subject to ERISA regulations. The Plan's
exposure to loss on investments is limited to the carrying value of
such investments. Management believes that no significant concentration
of credit risk exists within each fund at December 31, 1999.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
ADMINISTRATIVE COSTS:
Each participant is charged an annual trustee fee ranging from 0.30% to
1.12% of the funds deposited in each of the accounts except for the
Musicland Common Stock Fund, for which the Plan annual fee is $5,000.
Forfeitures are used or the Company pays for all other administrative
costs of the Plan, except for a $50 loan processing fee which is paid
by participants. For the year ended December 31, 1999, the Company paid
administrative costs of $7,625 for the Plan.
3. Investments
The following presents investments that represent 5 percent or more of
the Plan's net assets.
December 31,
------------------------
1999 1998
----------- -----------
AET Income Fund II, 337,027 and 301,367
shares, respectively..................... $ 6,575,860 $ 5,557,808
AET Equity Index Fund II, 64,948 and 50,848
shares, respectively..................... 2,592,587 1,688,470
AXP New Dimensions Fund [Y], 495,818 and
459,700 shares, respectively............. 17,755,300 13,260,054
Musicland Common Stock, 343,567 and
336,463 shares, respectively............. 2,943,400 5,125,125
Musicland Common Stock, 969,696 and
989,292 shares, respectively (1)......... 8,220,186 15,141,786
Founders Balanced Fund, 0 and 177,935
shares, respectively..................... - 2,169,029
-----------------------
(1) Nonparticipant-directed investment.
During 1999, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) declined
in value by $(3,703,559) as follows:
Mutual funds............................... $ 4,389,335
Collective Funds........................... 757,599
Common stock............................... (8,850,493)
------------
$(3,703,559)
============
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Nonparticipant-Directed Investments
Nonparticipant-directed investments consist of the ESOP related
investment in Musicland Common Stock.
The net assets available for benefits are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
Allocated Unallocated Total Allocated Unallocated Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investment in Musicland
Common Stock............. $ 2,940,506 $ 5,279,680 $ 8,220,186 $ 3,917,573 $11,224,212 $15,141,785
Contributions receivable:
Employer contributions... 50,000 1,464,632 1,514,632 20,000 1,594,599 1,614,599
----------- ----------- ----------- ----------- ----------- -----------
Total assets.......... 2,990,506 6,744,312 9,734,818 3,937,573 12,818,811 16,756,384
Liabilities:
Interest payable............ - 464,884 464,884 - 594,851 594,851
Note payable................ - 5,998,490 5,998,490 - 6,998,239 6,998,239
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities..... - 6,463,374 6,463,374 - 7,593,090 7,593,090
----------- ----------- ----------- ----------- ----------- -----------
Net assets available for
plan benefits............ $ 2,990,506 $ 280,938 $ 3,271,444 $ 3,937,573 $ 5,225,721 $ 9,163,294
=========== =========== =========== =========== =========== ===========
</TABLE>
The significant components of the changes in net assets available for
benefits are as follows:
Year Ended December 31, 1999
Musicland Common Stock
-----------------------------------------
Allocated Unallocated Total
------------- ------------- -------------
Additions:
Additions to net assets
attributed to:
Interest income............ $ 41 $ - $ 41
Contributions-employer..... 72,088 1,464,632 1,536,720
Allocation of 104,290
shares of Musicland Common
Stock, at market.......... 872,965 - 872,965
------------- ------------ ------------
Total additions.......... 945,094 1,464,632 2,409,726
------------- ------------ ------------
Deductions:
Deductions from net assets
attributed to:
Net decrease in fair value
of investments............ (1,631,406) (5,071,566) (6,702,972)
Benefits paid to
participants.............. (163,939) - (163,939)
Administrative expenses.... (696) - (696)
Interest expense........... - (464,884) (464,884)
Transfers to participant-
directed funds............ (32,858) - (32,858)
Forfeitures................ (63,262) - (63,262)
Allocation of 104,290
shares of Musicland Common
Stock, at market.......... - (872,965) (872,965)
------------- ------------- -------------
Total deductions.......... (1,892,161) (6,409,415) (8,301,576)
------------- ------------- -------------
Net decrease............. $ (947,067) $ (4,944,783) $ (5,891,850)
============= ============= =============
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Reconciliation of Financial Statements to Form 5500
As of December 31, 1999, the Plan had $5,782,751 of pending
distributions to participants who elected distributions from their
accounts. These amounts are recorded as a liability in the Plan's Form
5500; however, these amounts are not recorded as a liability in the
accompanying statement of net assets available for benefits in
accordance with generally accepted accounting principles.
The following table reconciles net assets available for benefits per
the financial statements to the Form 5500 as filed by the Plan for the
year ended December 31, 1999:
December 31,
----------------------------
1999 1998
------------- -------------
Net assets available for benefits
per the financial statements...... $ 41,730,189 $ 41,395,271
Accrued benefit payments............ (5,782,751) (4,929,686)
------------- -------------
Net assets available for benefits
per the Form 5500................. $ 35,947,438 $ 36,465,585
============= =============
The following is a reconciliation of benefits paid to participants per
the financial statements to the Form 5500:
Year Ended
December 31,
1999
-------------
Benefits paid to participants per the
financial statements............................. $ 1,994,363
Add: Amounts currently payable at
December 31, 1999................... 5,782,751
Less: Amounts currently payable at
December 31, 1998................... (4,929,686)
-------------
Benefits paid to participants per the Form 5500.... $ 2,847,428
=============
6. Tax Status
The Plan is a qualified plan under Section 401(a) of the Internal
Revenue Code (the "Code"). Pursuant to the favorable Internal Revenue
Service (the "IRS") determination letter dated April 10, 1997, the Plan
is exempt from federal income taxes under Section 501(a) of the Code.
The Plan sponsor and legal counsel are of the opinion that the Plan
meets the IRS requirements and therefore continues to be tax-exempt.
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THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN
(Employer Identification Number: 41-1307776) (Plan Number: 002)
Schedule H - Part IV Item 4(i)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As of December 31, 1999
Number
of Market
Description of Investment Units Cost Value
--------------------------------- ------- ----------- ------------
Invesco Balanced Fund 116,081 $ 2,021,969 $ 2,066,203
AET Income Fund II* 337,027 6,233,321 6,575,860
AET Equity Index Fund II* 64,948 2,023,531 2,592,587
Templeton Foreign Fund 179,494 1,743,327 2,013,922
Neuberger & Berman Partners Trust 46,403 854,071 835,316
AXP New Dimensions Fund [Y]* 495,818 13,203,686 17,755,300
Franklin Small Cap Growth Fund 38,292 945,017 1,689,910
Musicland Common Stock* 1,313,263 15,364,944 11,163,586
Loans to Participants, at
interest rates ranging from
8% to 12% 1,398,521
------------
TOTAL INVESTMENTS $ 46,091,205
============
*Party in interest to the Plan.
11
