<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
---------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to
___________
Commission file number: 333-03741
333-03741-01
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
(Exact Name of Registrants as Specified in their Charter)
DELAWARE 13-3647593
DELAWARE 91-1722302
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2901 THIRD AVE., SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrants' Principal Executive Offices)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrants: (1) have 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
registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days.
Yes [x] No [_]
Muzak Capital Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this
form with the reduced disclosure format.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrants have filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, at May 13,
1997: Muzak Capital Corporation - 100.
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MUZAK LIMITED PARTNERSHIP
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . $24,632 $25,686
Accounts receivable, net of allowance
for doubtful accounts of $496 and $496 . . . . . . 14,662 15,600
Inventories . . . . . . . . . . . . . . . . . . . . 3,408 3,722
Prepaid expenses. . . . . . . . . . . . . . . . . . 1,657 1,607
Other . . . . . . . . . . . . . . . . . . . . . . . 366 351
-------- --------
Total current assets. . . . . . . . . . . . . . . 44,725 46,966
Property and equipment, net . . . . . . . . . . . . 37,405 37,182
Deferred costs and intangible assets, net . . . . . 32,557 33,765
Other . . . . . . . . . . . . . . . . . . . . . . . 1,234 1,129
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . $115,921 $119,042
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . 5,382 8,681
Advance billings. . . . . . . . . . . . . . . . . . 4,993 4,688
Accrued interest. . . . . . . . . . . . . . . . . . 4,972 2,500
Accrued expenses . . . . . . . . . . . . . . . . . 3,002 2,423
Current portion of long-term obligations. . . . . . 452 482
-------- --------
Total current liabilities . . . . . . . . . . . . 18,801 18,774
Long-term obligations, net of current portion . . . 100,497 100,620
Unearned installation income. . . . . . . . . . . . 3,742 3,637
Commitments and contingencies . . . . . . . . . . . 0 0
Redeemable preferred partnership interests. . . . . 6,191 6,091
Partners' Capital (Deficit):
Limited partners' interests . . . . . . . . . . . . 1,198 2,170
General partners' deficiencies. . . . . . . . . . . (14,508) (12,250)
-------- --------
Total partners' capital (deficit) . . . . . . . . (13,310) (10,080)
-------- --------
Total liabilities and partners' capital (deficit) $115,921 $119,042
======== ========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MUZAK LIMITED PARTNERSHIP
Consolidated Statement of Operations
(Unaudited)
(In thousands)
Three Months Ended
March 31,
1997 1996
------ ------
<S> <C> <C>
Revenues:
Music and other business services . . . . . . . . . $14,318 $13,306
Equipment and related services. . . . . . . . . . . 7,475 7,634
------- -------
Total revenues. . . . . . . . . . . . . . . . . . 21,793 20,940
------- -------
Cost of revenues:
Music and other business services . . . . . . . . . 4,252 3,709
Equipment and related services. . . . . . . . . . . 4,926 5,254
------- -------
Total cost of revenues. . . . . . . . . . . . . . 9,178 8,963
------- -------
Gross profit. . . . . . . . . . . . . . . . . . . . . 12,615 11,977
Selling, general and administrative expenses. . . . . 7,923 7,526
Depreciation. . . . . . . . . . . . . . . . . . . . . 2,862 2,537
Amortization. . . . . . . . . . . . . . . . . . . . . 2,461 2,137
------- -------
Operating income (loss) . . . . . . . . . . . . . (631) (223)
Interest expense. . . . . . . . . . . . . . . . . . . (2,695) (1,798)
Interest income . . . . . . . . . . . . . . . . . . . 331 28
Equity in losses of joint venture . . . . . . . . . . (158) (43)
Other income (expense), net . . . . . . . . . . . . . (13) (106)
------- -------
Net loss. . . . . . . . . . . . . . . . . . . . . (3,166) (2,142)
Redeemable preferred returns. . . . . . . . . . . (100) (271)
------- -------
Net loss attributable to general and
limited partners. . . . . . . . . . . . . . . . ($3,266) ($2,413)
======= =======
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MUZAK LIMITED PARTNERSHIP
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . ($3,166) ($2,142)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for doubtful accounts . . . . . . . . 50 173
Depreciation. . . . . . . . . . . . . . . . . . 2,862 2,537
Amortization, net of deferred financing cost. . 2,461 2,137
Deferred financing cost amortization. . . . . . 180 304
Equity in losses of joint venture . . . . . . . 158 43
Non-cash incentive compensation . . . . . . . . 50 0
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 888 916
Inventories . . . . . . . . . . . . . . . . . . 315 393
Accounts payable. . . . . . . . . . . . . . . . (3,299) (209)
Advanced billings . . . . . . . . . . . . . . . 305 175
Accrued interest. . . . . . . . . . . . . . . . 2,472 (422)
Accrued expenses. . . . . . . . . . . . . . . . 579 1,123
Unearned installation income. . . . . . . . . . 105 250
Other, net. . . . . . . . . . . . . . . . . . . (51) 10
------- -------
Net cash provided by operating activities . . . 3,909 5,288
------- -------
INVESTING ACTIVITIES
Additions to property and equipment. . . . . . . . . (3,100) (2,552)
Additions to deferred costs and intangible assets. . (1,424) (1,224)
Other, net . . . . . . . . . . . . . . . . . . . . . (271) 60
------- -------
Net cash used in investing activities. . . . . . (4,795) (3,716)
------- -------
FINANCING ACTIVITIES
Borrowings under revolving notes
payable, net. . . . . . . . . . . . . . . . . . . . 0 1,650
Principal payments on long-term debt . . . . . . . . (6) (2,535)
Principal payments under capital leases. . . . . . . (147) (15)
Contributions by partners. . . . . . . . . . . . . . 4 0
Other, net . . . . . . . . . . . . . . . . . . . . . (19) (17)
------- -------
Net cash used in financing activities. . . . . . (168) (917)
------- -------
Net increase (decrease) in cash and cash equivalents (1,054) 655
CASH AND CASH EQUIVALENTS, beginning of period. . . . 25,686 1,115
------- -------
CASH AND CASH EQUIVALENTS, end of period. . . . . . . $24,632 $1,770
======= =======
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
<PAGE>
MUZAK LIMITED PARTNERSHIP
FORM 10-Q
Notes to Consolidated Financial Statements
Three months ended March 31, 1997 and 1996
(Unaudited)
NOTE 1. FINANCIAL STATEMENT PREPARATION
The consolidated financial statements as of March 31, 1997 and December 31,
1996 and for the three month periods ended March 31, 1997 and 1996 have
been prepared by Muzak Limited Partnership (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. The
financial information for the three month periods ended March 31, 1997 and
1996 is unaudited, but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments and accruals)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods in accordance with
generally accepted accounting principles. Certain information and note
disclosures normally included in the Company's annual financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
The results of operations for the three month period ended March 31, 1997
are not necessarily indicative of the Company's results of operations which
may be attained for the entire fiscal year ended December 31, 1997.
Certain reclassifications of prior year balances have been made for
consistent presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation. The accompanying consolidated financial
statements of the Company include the accounts of the Company and its
wholly-owned subsidiary, Muzak Capital Corporation. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
<PAGE>
<PAGE>
NOTE 3. PROPERTY AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
Property and equipment consist of the following (in thousands):
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Equipment provided to subscribers . . . .$51,764 $49,340
Machinery and equipment . . . . . . . . . 11,100 10,745
Vehicles. . . . . . . . . . . . . . . . . 3,039 3,072
Furniture and fixtures. . . . . . . . . . 2,252 2,260
Land and buildings. . . . . . . . . . . . 858 858
Leasehold improvements. . . . . . . . . . 931 916
------- -------
Total property and equipment . . . . 69,944 67,191
Less: Accumulated depreciation
and amortization. . . . . . . . . .(32,539) (30,009)
------- -------
$37,405 $37,182
======= =======
</TABLE>
NOTE 4. DEFERRED COSTS AND INTANGIBLE ASSETS, NET:
<TABLE>
<CAPTION>
Deferred costs and intangible assets consist of the following (in
thousands):
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Income producing contracts. . . . . . . .$39,830 $39,830
Deferred subscriber acquisition costs . . 11,907 11,056
Master recording rights and deferred
production costs . . . . . . . . . . . 10,391 9,883
Deferred financing costs. . . . . . . . . 4,423 4,423
Organization costs . . . . . . . . . . . 4,432 4,432
Non-compete agreements. . . . . . . . . . 846 846
Other . . . . . . . . . . . . . . . . . . 768 758
------- -------
Total deferred costs and
intangible assets . . . . . . . . . 72,597 71,228
Less: Accumulated amortization . . . . .(40,040) (37,463)
------- -------
$32,557 $33,765
======= =======
</TABLE>
<PAGE>
<PAGE>
NOTE 5. LONG-TERM OBLIGATIONS:
<TABLE>
<CAPTION>
Long-term obligations are summarized as follows (in thousands):
March 31, 1997December 31, 1996
---------- ----------
<S> <C> <C>
Senior notes. . . . . . . . . . . . . . $100,000 $100,000
Capital lease obligations . . . . . . . 788 935
Other . . . . . . . . . . . . . . . . . . 161 167
-------- --------
Total long-term obligations. . . . .100,949 101,102
Less: Current portion. . . . . . . . . . (452) (482)
-------- --------
$100,497 $100,620
======== ========
</TABLE>
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense for the three month periods ended March 31,
1997 and 1996 was approximately $31,000 and $1,973,000, respectively.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MUZAK CAPITAL CORPORATION
BALANCE SHEET
March 31, 1997
ASSETS
<S> <C>
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1
====
Stockholder's Equity
Preferred Stock--authorized 10,000,000 shares of $0.01 par value each;
no shares issued and outstanding $ --
Common Stock--authorized 30,000,000 shares of $0.01 par value each;
100 shares issued and outstanding. . . . . . . . . . . 1
----
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1
====
</TABLE>
<PAGE>
<PAGE>
NOTE TO FINANCIAL STATEMENT
Muzak Capital Corporation ("Capital Corp."), a wholly-owned subsidiary
of Muzak Limited Partnership (the "Company"), was formed on May 8, 1996.
Capital Corp. has no independent operations and is dependent on the cash
flow of the Company to meet its sole obligation as co-issuer with the
Company of the 10% Senior Notes due 2003, the payment of principal and
interest thereon when due.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the registrant's Form 10-K filed with the Securities and
Exchange Commission on March 31, 1997.
RESULTS OF OPERATIONS
Revenues. Total first quarter revenues increased 4.1% from $20.9 million
in 1996 to $21.8 million in 1997 resulting principally from a 7.6% increase
in business services revenues offset by a 2.1% decrease in equipment and
related services revenues. Business services revenues increased due to an
increase in the number of broadcast music subscribers and an increase in
other business service revenues. Other business services revenues, with
the exception of on-premise tape sales, increased more rapidly than
broadcast music revenues due to the increased marketing of, and increasing
customer demand for, video, audio messaging, in-store advertising, and
AdParting services, among others. On-premise tape revenues continued to
decline as the Company converted such customers to broadcast services,
primarily DBS transmission. The equipment and related services revenue
decrease resulted from a reduction in equipment sold directly by the
Company to franchisees. Equipment required for the EchoStar network
installations is acquired directly by franchisees from EchoStar or other
equipment vendors.
Gross Profit. Total first quarter gross profit increased 5.3% from $12.0
million in 1996 to $12.6 million in 1997. As a percentage of total
revenues, gross profit increased from 57.2% in 1996 to 57.9% in 1997. The
improvement in the gross profit percentage in the quarter was due to growth
in higher margin business services, such as broadcast music, audio
marketing and on-premise music video services, and due to improved
equipment margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the first quarter increased 5.3% from $7.5
million in 1996 to $7.9 million in 1997. As a percentage of total
revenues, selling, general and administrative expenses increased from 35.9%
in 1996 to 36.4% in 1997. Selling and marketing expenses increased 20.9%
from $2.6 million in 1996 to $3.2 million in 1997. This increase was
primarily attributable to additional salaries and expenses related to an
increase in sales during the quarter. General and administrative costs
decreased 3.1% from $4.9 million in 1996 to $4.8 million in 1997, primarily
due to decreased bad debt expense due to an overall reduction since
December 31, 1996 in accounts receivable levels from increased collection
efforts.
Depreciation and Amortization. Depreciation and amortization expense
increased 13.9% from $4.7 million in the first quarter of 1996 to $5.3
million in the first quarter of 1997, principally as a result of increased
investments associated with the expansion of the Company's subscriber base
as discussed above.
Interest Expense and Other Income. Total interest expense for the first
quarter increased from $1.8 million in 1996 to $2.7 million in 1997,
partially offset by $300 thousand in interest income for the 1997 period.
The increase in interest expense in the first quarter of 1997 as compared
to 1996 was the result of interest expense on $100 million in Senior Notes
that were issued in October, 1996. Total interest bearing debt at the end
of the first quarter of 1997 was $100.9 million compared to $61.5 million
at the end of the first quarter of 1996.
Net Loss. Net loss for the first quarter increased from $2.1 million in
1996 to $3.2 million in 1997. The increase in net loss was the result of
additional amortization and depreciation associated with the increased
customer base, as well as the additional interest expense associated with
the higher level of debt in the first quarter of 1997 compared to the first
quarter of 1996, offset partially by increased gross profit.
Muzak Capital Corporation. Muzak Capital Corporation ("Capital Corp."), a
wholly-owned subsidiary of the Company, was organized on May 8, 1996, has
nominal assets and conducts no business operations. Capital Corp. has no
independent operations and is dependent on the cash flow of the Company to
meet its sole obligation, the payment of interest and principal on the
Senior Notes when due. A discussion of Capital Corp. has been omitted in
the period-to-period comparison due to its lack of significant assets and
lack of operations.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997. Cash and cash equivalents decreased
from $25.7 million as of December 31, 1996 to $24.6 million as of March 31,
1997. The Company's operating cash flow during this period was $3.9
million, including a net change in operating assets and liabilities of $1.3
million. The operating cash flow and the decline in cash and cash
equivalents was primarily used to fund capital requirements associated with
new subscriber additions and to reduce current liabilities.
Outlook. The Company believes that its cash flows from operations,
borrowing availability and cash on hand will be adequate to support
currently planned business operations, capital expenditures and debt
service requirements at least through December 1998. If the Company
engages in one or more material acquisitions, joint ventures or alliances
or other major business initiatives requiring significant cash commitments,
or incurs unanticipated expenses, additional financing could be required.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to various proceedings arising in the
normal course of business, none of which, individually or in the aggregate,
is expected to have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES.
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 AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule of Muzak Limited Partnership
27.2 Financial Data Schedule of Muzak Capital Corporation
(b) Reports on Form 8-K
None.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
MUZAK LIMITED PARTNERSHIP
By: MLP ACQUISITION L.P.,
---------------------
Managing General Partner
By: MUSIC HOLDINGS CORP.
--------------------
General Partner
By: /s/ John R. Jester
-------------------
Date: May 13, 1997 John R. Jester
Vice President & Asst. Secretary
of Music Holdings Corp.
President and CEO of Muzak
Limited Partnership
(Principal Financial Officer and
Chief Accounting Officer of Muzak
Limited Partnership)
MUZAK CAPITAL CORPORATION
By: /s/ John R. Jester
-------------------
Date: May 13, 1997 John R. Jester
President and CEO
(Principal Financial Officer and
Chief Accounting Officer of Muzak
Capital Corporation)
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule of Muzak Limited Partnership
27.2 Financial Data Schedule of Muzak Capital Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the financial statements contained in
the body of the accompanying Form 10-Q of MUZAK
LIMITED PARTNERSHIP and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<CIK> 0000891983
<NAME> MUZAK LIMITED PARTNERSHIP
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 24,632
<SECURITIES> 0
<RECEIVABLES> 15,158
<ALLOWANCES> 496
<INVENTORY> 3,408
<CURRENT-ASSETS> 44,725
<PP&E> 69,944
<DEPRECIATION> 32,539
<TOTAL-ASSETS> 115,921
<CURRENT-LIABILITIES> 18,801
<BONDS> 100,497
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 115,921
<SALES> 5,150
<TOTAL-REVENUES> 21,793
<CGS> 2,503
<TOTAL-COSTS> 9,178
<OTHER-EXPENSES> 13,196
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 2,695
<INCOME-PRETAX> (3,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,166)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the financial statements contained in
the body of the accompanying Form 10-Q of MUZAK
CAPITAL CORPORATION and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<CIK> 0001013763
<NAME> MUZAK CAPITAL CORPORATION
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
