<PAGE>
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 June 30, 1998
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 August 14,
1998: Muzak Capital Corporation - 100.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MUZAK LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 1,899 $ 8,524
Accounts receivable, net of allowance for doubtful
accounts of $785 and $501 ..................... 18,404 16,790
Inventories ...................................... 3,882 3,850
Prepaid expenses ................................. 1,267 1,400
Other ............................................ 567 1,116
----------- -----------
Total current assets .......................... 26,019 31,680
Property and equipment, net ......................... 40,871 39,659
Deferred costs and intangible assets, net ........... 38,584 31,694
Other ............................................... 913 1,362
----------- -----------
Total assets .................................. $106,387 $104,395
----------- -----------
----------- -----------
Liabilities and Partners' Deficit
Current Liabilities:
Credit facility ................................. $ 2,250 $ -
Accounts payable ................................ 7,589 8,435
Advance billings ................................ 5,502 5,216
Accrued interest ................................ 2,500 2,500
Accrued expenses ................................ 2,686 2,556
Current portion of long-term obligations ........ 981 469
----------- -----------
Total current liabilities .................... 21,508 19,176
Long-term obligations, net of current portion ...... 102,591 100,575
Unearned installation income ....................... 4,555 4,249
Redeemable preferred partnership interests ......... 6,717 6,490
Partners' Deficit:
Limited partners' deficit ....................... (3,273) (3,597)
General partners' deficit ....................... (25,711) (22,498)
----------- -----------
Total partners' deficit ...................... (28,984) (26,095)
----------- -----------
Total liabilities and partners' deficit ...... $106,387 $104,395
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MUZAK LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Music and other business services ............................... $16,259 $14,627 $31,697 $29,031
Equipment and related services .................................. 7,701 7,444 15,661 14,835
-------- -------- -------- --------
Total revenues ................................................ 23,960 22,071 47,358 43,866
-------- -------- -------- --------
Cost of revenues:
Music and other business services ............................... 4,889 4,368 9,691 8,621
Equipment and related services .................................. 5,878 5,041 10,902 9,966
-------- -------- -------- --------
Total cost of revenues ........................................ 10,767 9,409 20,593 18,587
-------- -------- -------- --------
Gross profit ...................................................... 13,193 12,662 26,765 25,279
Selling, general and administrative expenses ...................... 8,339 7,939 16,101 16,614
Depreciation ...................................................... 2,353 2,942 4,725 5,804
Amortization ...................................................... 2,590 2,485 5,179 4,945
-------- -------- -------- --------
Operating income (loss) ......................................... (89) (704) 760 (2,084)
Other income (expense):
Interest expense ................................................ (2,717) (2,680) (5,400) (5,375)
Interest income ................................................. 34 279 140 610
Equity in income (losses) of joint venture ...................... 156 (336) (45) (494)
Other expense, net .............................................. 118 369 148 355
-------- -------- -------- --------
Net loss ........................................................ (2,498) (3,072) (4,397) (6,988)
Redeemable preferred return ..................................... (114) (99) (227) (199)
-------- -------- -------- --------
Comprehensive loss attributable to general and limited partners ... $(2,612) $(3,171) $(4,624) $(7,187)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MUZAK LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ....................................................................... $( 4,397) $(6,988)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts ............................................. 284 181
Depreciation ................................................................ 4,725 5,804
Amortization, net of deferred financing costs ............................... 5,179 4,946
Deferred financing cost amortization ........................................ 316 338
Equity in losses of joint venture ........................................... 45 494
Gain on sale of affiliate ................................................... - (389)
Noncash incentive compensation .............................................. 867 100
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (1,898) 462
Inventories ................................................................. (32) 105
Accounts payable ............................................................ (846) (3,507)
Accrued expenses ............................................................ 130 1,453
Advance billings ............................................................ 286 210
Unearned installation income ................................................ 306 278
Other, net .................................................................. 69 223
--------- --------
Net cash provided by operating activities ................................... 5,034 3,710
--------- --------
INVESTING ACTIVITIES
Additions to property and equipment ......................................... (5,100) (6,110)
Additions to deferred costs and intangible assets ........................... (3,002) (2,911)
Acquisitions of businesses and ventures ..................................... (6,619) (804)
Disposition of businesses and ventures ...................................... 744 1,260
Additions to non-compete agreements ......................................... (2,995) -
Other, net .................................................................. (21) (269)
--------- --------
Net cash used in investing activities ....................................... (16,993) (8,834)
--------- --------
FINANCING ACTIVITIES
Borrowings under credit facility ............................................ 2,250 -
Borrowings under promissory note ............................................ 2,450 -
Principal payments on term debt ............................................. (13) (11)
Payments under capital leases ............................................... (221) (233)
Contributions by partners ................................................... 895 29
Other, net .................................................................. (27) (34)
--------- --------
Net cash provided by (used in) financing activities ......................... 5,334 (249)
--------- --------
Net decrease in cash and cash equivalents ................................... (6,625) (5,373)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 8,524 25,686
--------- --------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,899 $20,313
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MUZAK LIMITED PARTNERSHIP
FORM 10-Q
Notes to Consolidated Financial Statements
Six months ended June 30, 1998 and 1997
(Unaudited)
NOTE 1. FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements as of June 30, 1998 and December 31,
1997 and for the three and six month periods ended June 30, 1998 and 1997
have been prepared by Muzak Limited Partnership (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). The financial information for the three and six month periods
ended June 30, 1998 and 1997 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. 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 Commission. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
The results of operations for the three and six month periods ended June 30,
1998 are not necessarily indicative of the Company's results of operations for
the entire fiscal year ended December 31, 1998.
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 subsidiaries, Muzak Capital Corporation and EAIC Corporation.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
NEW ACCOUNTING PRONOUNCEMENTS - The Company has adopted Financial Accounting
Standard No. 130, REPORTING COMPREHENSIVE INCOME, which became effective for
fiscal years beginning after December 15, 1997. This statement requires
comprehensive income and its components to be reported in the financial
statements in the period in which they are recognized. Components of
comprehensive income include redeemable preferred returns. Financial Accounting
Standard No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, was issued and is effective for fiscal years beginning after
December 15, 1997. This statement requires the reporting and disclosure of
certain financial and descriptive information about operating segments of the
Company. This statement will not have a material effect on the Company's
financial statements and will be adopted for the fiscal year ending December 31,
1998.
<PAGE>
NOTE 3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Equipment provided to subscribers ........................... $ 61,745 $ 57,393
Machinery and equipment ..................................... 13,737 13,129
Vehicle ..................................................... 3,638 3,337
Furniture and fixtures ...................................... 2,575 2,546
Land and buildings .......................................... 858 858
Leasehold improvements ...................................... 874 865
---------- ------------
Total property and equipment ............................. 83,427 78,128
Less: Accumulated depreciation and amortization ............. (42,556) (38,469)
---------- ------------
$ 40,871 $ 39,659
---------- ------------
---------- ------------
</TABLE>
NOTE 4. DEFERRED COSTS AND INTANGIBLE ASSETS, NET:
Deferred costs and intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Income producing contracts .................................. $ 48,026 $ 42,152
Deferred subscriber acquisition costs ....................... 16,233 14,593
Master recording rights and deferred production costs ....... 13,368 12,125
Deferred financing costs .................................... 4,341 4,341
Organization costs .......................................... 4,526 4,501
Non-compete agreements ...................................... 3,855 860
Other ....................................................... 929 811
---------- ------------
Total deferred costs and intangible assets .............. 91,278 79,383
Less: Accumulated amortization .............................. (52,694) (47,689)
---------- ------------
$ 38,584 $ 31,694
---------- ------------
---------- ------------
</TABLE>
<PAGE>
NOTE 5. LONG-TERM OBLIGATIONS:
Long-term obligations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Senior notes ................................................ $100,000 $100,000
Capital lease obligations ................................... 1,060 969
Promissory note ............................................. 2,450 -
Other ....................................................... 62 75
---------- ------------
Total long-term obligations ............................. 103,572 101,044
Less: Current portion ....................................... (981) (469)
---------- ------------
$102,591 $100,575
---------- ------------
---------- ------------
</TABLE>
Assets acquired under capital leases was $312,000 for the six month period
ended June 30, 1998. Payments made for capital lease obligations for the same
period was $221,000.
In connection with the acquisition of a competitor's business music accounts
(see Note 9) the Company signed a $3.0 million promissory note due. This note
requires annual payments of $510,000 per year starting in April 1998 and
bears an interest rate of 10% per annum.
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense for the six month periods ended June 30, 1998 and
1997 was approximately $5.4 million and $5.0 million, respectively.
NOTE 7. SUBSEQUENT EVENTS:
Subsequent to June 30, 1998, the Company entered into a letter of intent to
purchase the subscriber accounts from two competing business music
distributors for an approximate cash and equity consideration of $750,000.
On July 1, 1998, the Company repurchased a total of 100,000 class B limited
partnership units, from a former member of management, for a total repurchase
price of $215,000.
On July 10, 1998 EAIC Corp., formerly a wholly owned subsidiary of the
Company, consummated a recapitalization and equity financing pursuant to
which the shares held by the Company became non-voting securities and 73,500
shares of class A preferred stock of EAIC Corp., were issued to a related
party investor for a total consideration of $3.3 million which represents a
43% interest.
NOTE 8. EUROPEAN JOINT VENTURE
On April 16, 1998 the Company entered into an agreement with its joint venture
partner in Muzak Europe that effectively liquidated the Company's interest in
Muzak Europe in exchange for a seven year $800,000 promissory note, which
bears interest at eight percent (8%) per annum, and the right of the Company
to participate up to five percent (5%) of the business service revenues of
the European venture in its new role as franchisor. No gain or loss was
recognized for this transaction in the second quarter ended June 30, 1998.
NOTE 9. ACQUISITIONS:
During second quarter of 1998 the Company acquired three more of its
competitors' business music distributors for a total consideration of $9.6
million, of which $5.6 million was in cash, $3.0 million in the form of a
promissory note, which bears interest at ten percent (10%) per annum, to be
paid over eight years and the remainder, in the form of 275,382 Class A-2
partnership units.
NOTE 10. CREDIT FACILITY:
In March 1998, the Company obtained a credit facility for working capital
purposes with an initial availability of $3.0 million, increasing to $5.0
million upon the attainment of certain cash flow related targets. The credit
facility is secured by the inventories and receivables of the Company and
expires on June 30, 1999. Amounts outstanding under the facility will bear a
variable rate of interest, to be paid quarterly, based on the lender's prime
rate or LIBOR plus 2%. The terms of the credit facility require the Company
to maintain certain performance standards and covenants that, among other
things, limit the Company's capital spending and acquisitions of other
businesses, as well as the Company's ability to incur additional debt and
make distributions to partners. For the period ended June 30, 1998, the
Company's had $2.3 million outstanding at 8.75% interest under this credit
facility.
NOTE 11. EQUITY BASED COMPENSATION:
Equity based compensation was $600,000 and $867,000 for the three and six
month periods ended June 30, 1998, to reflect the grant of options to certain
executive management members during 1997 and management's estimate of the
increasing partnership unit price.
NOTE 12. PURCHASE COMMITMENT
In June 1998, the Company entered into a purchase commitment agreement with a
drive-through equipment vendor which guarantees that the Company's owned or
independent affiliates will purchase at least $2.0 million dollars of drive-
through and related equipment by April 30, 1999.
<PAGE>
MUZAK CAPITAL CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Cash ...................................................... $ 1 $ 1
---------- ------------
---------- ------------
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 1
---------- ------------
Total ................................................. $ 1 $ 1
---------- ------------
---------- ------------
</TABLE>
The accompanying note is an integral part of these financial statements.
<PAGE>
MUZAK CAPITAL CORPORATION
NOTE TO FINANCIAL STATEMENTS
Muzak Capital Corporation (the "Company") (formerly Muzak, Inc.), a
wholly-owned subsidiary of Muzak Limited Partnership ("MLP"), was formed on
May 8, 1996. The Company filed a registration statement along with MLP for
the underwritten offering of senior notes of which the Company and MLP are
co-issuers. The offering closed in October 1996. The Company is dependent
upon results of operations and cash flow of MLP to meet debt service
obligations of the senior notes. No activity has occurred from May 8, 1996
(date of inception) through June 30, 1998; therefore, statements of
operations and cash flows have not been included herein.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with 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, 1998.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q or future filings by the
Company, as defined below, and Capital Corp., as defined below, with the
Securities and Exchange Commission, in the Company's and Capital Corp's press
releases or other public communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "believes,"
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company and Capital Corp. wish to caution
readers not to place undo reliance on any such forward-looking statements, which
speak only as of the date made, and to advise readers that various factors,
including rapid technological change, competitive pricing, concentrations in and
dependence on satellite delivery capabilities, and development of new services
could affect the Company's and Capital Corp.'s financial performance and could
cause the Company's and Capital Corp.'s actual results for future periods to
differ materially from those anticipated or projected.
The Company and Capital Corp. do not undertake and specifically disclaim any
obligation to update any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
RESULTS OF OPERATIONS
REVENUES. Total revenues increased 8.6% and 8.0% for the three and six month
periods ended June 30, 1998, respectively, as compared to the same periods in
1997. These revenue increases were largely due to the acquisition of
competitor's music service accounts and one-time equipment and related
service revenues associated with non-acquisition growth. Exclusive of the
impact from acquisitions, our recurring music and other services monthly
billing has increased by approximately $210,000 year to date through June 30,
1998, where as the growth in our monthly billing for 1997 was roughly half of
this rate. Each month the Company is billing over $210,000 per month more
than it was at the beginning of the year as a result of the sales of
recurring services made during 1998. Music and other business services
revenue increased by $1.6 and $2.7 million over the three and six month
periods ended June 30, 1998, respectively, as compared to the same periods in
1997. Equipment and related revenues increased by 3.5% and 5.6% for the three
and six month periods ended June 30, 1998. The three and six month periods
ended June 30, 1998 do not include approximately $625,000 of lost revenues
related to the G4 satellite outage.
On May 19, 1998, the satellite that carries approximately 60% of our
subscribers, Galaxy 4 had a failure that caused it to spin uncontrollably out
of orbit. A satellite failure of this nature and magnitude has never occurred
and thus was a critical juncture for the Company. A tremendous amount of
resources within the Company was needed to continue to provide service to our
valuable customers, which involved the repointing to our new satellite,
Galaxy 3r of over 100,000 satellite dishes located at customer locations
across the country.
GROSS PROFIT. Gross profit increased 4.2% and 5.9% over the three and six month
periods ended June 30, 1998, respectively, as compared to the same periods in
1997. Gross margins for the three and six month periods ended June 30, 1998 were
55.1% and 56.5%, respectively, a decline from the 57.4% and 57.6% for the same
periods during 1997. The decline in margins is primarily due to lost revenue
and an increase of $775,000 in labor costs related to the G4 satellite outage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased as a percentage of revenues for the three and
six month periods ended June 30, 1998, as compared to the same periods in 1997.
These expenses, as a percentage of revenues, were 34.8% and 34.0% for the three
and six month periods ended June 30, 1998, as compared to 39.4% and 37.9% for
the same periods in 1997. These decreases were a result of approximately
$750,000 in severance charges during the second quarter of 1997 related to
certain management changes.
EQUITY BASED COMPENSATION. Equity based compensation was $600,000 and
$867,000 for the three and six month periods ended June 30, 1998 to reflect
the grant of options to certain executive management members during 1997 and
management's estimate of the increasing partnership unit price.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses decreased
$484,000 and $845,000 for the three and six month periods ended June 30, 1998,
respectively, as compared to the same periods during 1997. This decrease was
primarily the result of assets related to the MLP acquisition of Muzak that were
fully depreciated the third quarter of 1997.
<PAGE>
OTHER INCOME (EXPENSE). Interest expense net of interest income, equity
income (losses) of joint venture and other income and expense increased
$41,000 and $253,000 for the three and six month periods ended June 30, 1998,
respectively, as compared to the same periods during 1997. These increases
were primarily the result of a reduction in interest income as the Company's
cash balance has declined from $20.0 million in June 1997 to $2.0 million for
the same period in 1998.
NET LOSS. Net loss decreased to $2.5 and $4.4 million for the three and six
month periods ended June 30, 1998, respectively, as compared to $3.8 and $7.0
million for the same periods in 1997.
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $8.5 million as of December 31, 1997
to $1.9 million as of June 30, 1998. The Company's operating cash flow during
this period was $5.0 million, including a net change in operating assets and
liabilities of $2.0 million. The operating cash flow was primarily used to
fund capital requirements associated with new subscriber additions and
acquisitions of its competitors' business music accounts.
In March 1998, the Company obtained a credit facility for working capital
purposes with an initial availability of $3.0 million, increasing to $5.0
million upon the attainment of certain cash flow related targets. The credit
facility is secured by the inventories and receivables of the Company and
expires on June 30, 1999. Amounts outstanding under the facility will bear a
variable rate of interest, to be paid quarterly, based on the lender's prime
rate or LIBOR plus 2%. The terms of the credit facility require the Company
to maintain certain performance standards and covenants that, among other
things, limit the Company's capital spending and acquisitions of other
businesses, as well as the Company's ability to incur additional debt and
make distributions to partners. As of June 30, 1998 the Company's had $2.2
million outstanding at 8.75% interest under this credit facility.
In connection with the acquisition of a competitor's business music accounts
the Company signed a $3.0 million promissory note. This note requires annual
payments of $510,000 per year starting in April of 1998 and bears an interest
rate of ten percent (10%) per annum.
In June 1998 the Company entered into a purchase commitment agreement with a
drive through equipment vendor which guarantees that the Company owned or
independent affiliates will purchase at least $2.0 million dollars of
drive-through and related equipment by April 30, 1999.
Subsequent to June 30, 1998, the Company entered into a letter of intent to
purchase the subscriber accounts from two competing business music
distributors for an approximate cash and equity consideration of $750,000. On
July 1, 1998, the Company repurchased a total of 100,000 class B limited
partnership units, from a former member of management, for a total repurchase
price of $215,000. On July 10, 1998 EAIC Corp., a formerly wholly owned
subsidiary of the Company, consummated a recapitalization and equity
financing pursuant to which the shares held by the Company became non-voting
securities and 73,500 shares of class A preferred stock of EAIC Corp., were
issued to a new investor for a total consideration of $3.3 million.
On April 16, 1998 the Company entered into a agreement with its joint venture
partner in Muzak Europe that effectively liquidated the Company's interest in
Muzak Europe in exchange for a seven year $800,000 promissory note, which bears
interest at eight percent (8%) per annum, and the right of the Company to
participate up to five percent (5%) of the business service revenues of the
European venture in its new role as franchisor.
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 1999. 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.
YEAR 2000 CONVERSION
The Company is currently in the process of upgrading all of its computer
systems to be year 2000 compliant. Management's original estimate was to have
all of the Company's systems year 2000 compliant by the end of third quarter
1998. Currently management believes that this original estimate will not be
obtained, but is fully confident that the Company's systems will be year 2000
compliant by the end of the year 1999. While currently the Company is not
dependent on one vendor for any one service or supply, failure of one of the
broadcast satellites used by the Company would have a material impact on the
Company. Once the main operating system is converted the Company will be
dependent of the services of the system developer for support of this system.
The Company has received confirmation from all of its satellite space
providers that they are year 2000 compliant. Management is currently
developing a contingency plan to address year 2000 system failures for both
internal and external service providers.
<PAGE>
The Company has adopted Financial Accounting Standard No. 130, REPORTING
COMPREHENSIVE INCOME, which became effective for fiscal years beginning after
December 15, 1997. This statement requires comprehensive income and its
components to be reported in the financial statements in the period in which
they are recognized. Components of comprehensive income include redeemable
preferred returns. Financial Accounting Standard No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, was issued and is effective
for fiscal years beginning after December 15, 1997. This statement requires the
reporting and disclosure of certain financial and descriptive information about
operating segments of the Company. This statement will not have a material
effect on the Company's financial statements and will be adopted for the fiscal
year ended December 31, 1998.
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.
On April 10, 1998, the Company issued a total of 230,000 Class A-2
limited partnership units to two third party sellers in exchange for certain
assets, of a competing business music provider, with an estimated value of
$747,500. The sale of the 230,000 Class A-2 limited partnership units was
made in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
On April 13, 1998, the Company issued a total of 45,382 Class A-2
limited partnership units to a third party seller in exchange for certain
assets, of a competing business music provider, with an estimated value of
$147,491. The sales of the 45,382 Class A-2 limited partnership units was
made in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
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>
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: /s/ Brad D. Bodenman
---------------------------
Date: August 14, 1998 Brad D. Bodenman
Vice President, Finance
and Administration
(Principal Financial
Officer and Chief
Accounting Officer of Muzak
Limited Partnership)
MUZAK CAPITAL CORPORATION
By: /s/ Brad D. Bodenman
---------------------------
Date: August 14, 1998 Brad D. Bodenman
Vice President, Finance
and Administration
(Principal Financial
Officer and Chief
Accounting Officer of Muzak
Limited Partnership)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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