Muzak Holdings LLC Announces Third Quarter Results.FORT MILL, S.C. -- Muzak Mu·zak A trademark used for recorded background music transmitted by wire or radio, as to places of business, on a subscription basis. Muzak Noun Trademark Holdings LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control ("Muzak" or the "Company"), the leading provider of business music services in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , today announced financial results for the quarter ended September September: see month. 30, 2004. Music and other business services revenue for the quarter ended September 30, 2004 was $46.4 million, a 5.5% increase, compared to $44.0 million for the quarter ended September 30, 2003. Equipment sales and related services revenue was flat at $15.3 million on a year-on-year basis. As a result, total revenue for the quarter ended September 30, 2004 was $61.7 million, a 4.0% increase, compared to $59.3 million for the quarter ended September 30, 2003. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (Earnings Before Interest, Taxes, Depreciation, and Amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. ) was $15.8 million for the quarter ended September 30, 2004, a decrease of $3.3 million or 17.2%, compared to $19.1 million in the quarter ended September 30, 2003. Excluding the financial impact of charges associated with the Company's reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. of $0.9 million (see below), a $0.8 million increase in reserves for licensing royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. during the quarter, and a $0.6 million impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge for the closed circuit televisions systems ("CCTV CCTV abbr. closed-circuit television CCTV closed-circuit television ") receivable (see below), EBITDA decreased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.0 million or 5.4% in the quarter ended September 30, 2004 as compared to the 2003 period. The Company believes that EBITDA is a meaningful measure of the cash flows available to invest in new client locations and to service its debt obligations. Cash flow provided by operating activities decreased $7.7 million to $4.1 million for the quarter ended September 30, 2004 as compared to the 2003 period. See attached reconciliation of cash flows from operating activities to EBITDA. For the nine months ended September 30, 2004, the Company had music and other business services revenue of $137.6 million, total revenue of $181.9 million, and EBITDA of $49.3 million, representing increases (decreases) of 5.9%, 4.8%, and (3.1%), respectively, over the comparable 2003 period. Excluding $1.7 million and $3.7 million losses on early extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. of debt in 2004 and 2003, respectively, $1.7 million financial impact from the Company's reorganization, a $0.8 million increase in reserves for licensing royalties in 2004, and a $0.6 million impairment for the CCTV receivable, EBITDA decreased 1.0% or $0.6 million during 2004 as compared to 2003. "Our reorganization during the third quarter into functional alignment Alignment is the adjustment of an object in relation with other objects, or a static orientation of some object or set of objects in relation to others.
A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. and enhanced cash flow growth," commented Lon Otremba, Chief Executive Officer. The cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. rate for the nine months ended September 30, 2004 was 10.2% and is consistent with 2003 levels. In addition, the Company signed several new national clients during the third quarter including Citizens Bank, Sports Authority Sports Authority is the USA's largest full line sporting goods retailer. The company is headquartered in Englewood, Colorado. It operates over 400 stores in 45 U.S. states under the Sports Authority name. Total sales for the fiscal year ending January 29 2005 were $2.44 billion. , and GameStop GameStop Corporation (NYSE: GME), headquartered in Grapevine, Texas, a suburb of Dallas, is the world's largest video game and entertainment software retailer. The company operates over 4,900 retail stores throughout Japan, U.S. . Third quarter recontracts include Sears, Publix
Publix Super Markets, Inc. (commonly known as Publix) is a United States supermarket chain based in Lakeland, Florida. Founded in 1930 by George W. , and Sterling Jewelers. "During 2004, equipment and related services margins were negatively impacted by the centralization cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. of the scheduling function and the resulting learning curve for new employees performing this function. We are focused on improving technician See PC technician and software technician. productivity through continued improvement of centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. scheduling, telephonic service resolution, and various other initiatives," commented Stephen Stephen, 1097?–1154, king of England (1135–54). The son of Stephen, count of Blois and Chartres, and Adela, daughter of William I of England, he was brought up by his uncle, Henry I of England, who presented him with estates in England and France and Villa villa. Although used to designate any country residence, especially in Italy and S France, the term villa particularly refers to a type of pleasure residence with extensive grounds favored by the Romans and richly developed in Italy in the Renaissance. , Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. . "Monitoring selling, general, and administrative expenses throughout 2004 has resulted in a reduction from 27.9% as a percentage of revenues in 2003 to 27.2% in the 2004 period, a positive improvement of $1.3 million," remarked Villa. On March 1, 2004, the Company sold its closed circuit television systems inventory and recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. customer contracts to a third party for approximately $2.0 million in notes receivable. Due to the default of scheduled payments to Muzak totaling $1.0 million, the Company recorded a $0.6 million impairment of this receivable in selling, general, and administrative expenses during the third quarter of 2004. On November November: see month. 9, 2004, the Company entered into an amendment of its Senior Credit Facility, which among other things, amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. certain financial covenants. This amendment will be filed with our Form 10-Q Form 10-Q See 10-Q. . Muzak Holdings LLC will have a conference call on November 12, 2004 at 11:00 a.m. (Eastern Time) to discuss third quarter 2004 results. The call in number is 1-800-756-4697 and the access code is 0801. A replay of the call will be available for one week beginning at 3:00 p.m on November 12, 2004. The replay number is 1-800-756-3819 and the access code is 080100. Muzak, the leading audio imaging company, enhances brands and creates experiences with AUDIO ARCHITECTURE(TM) and MUZAK VOICE(TM). More than 100 million people hear Muzak programs each day. We deliver music, messaging, and sound system design through more than 200 sales and service locations. The above statements include forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Some of these statements can be identified by terms and phrases such as "anticipate", "believe", "intend", "expect", "anticipate", "could", "may", "will" and similar expressions and include references to assumptions that the Company believes are reasonable and relate to our future prospects, developments and business strategies. Forward-looking statements involve risks and uncertainties, including, but not limited to those related to the Company's substantial leverage and debt service requirements, restrictions imposed by the terms of the Company's indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , the Company's history of net losses, the Company's dependence on satellite delivery of its products, the Company's ability to integrate acquisitions, future capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. , the impact of competition and technological change, the availability of cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. programming, the impact of legislation and regulation, risks associated with the effect of general economic conditions and the other factors discussed in the Company's filings with the Securities and Exchange Commission. Actual results could differ materially from these forward-looking statements. The Company undertakes no obligation to update these forward-looking statements.
Muzak Holdings LLC
Financial Highlights
-----------------------
(unaudited, dollars in
thousands)
Quarter
Quarter Ended Ended
9/30/2004 9/30/2003 % Change 6/30/2004
---------- ---------- --------- ----------
Selected Operations Data
Revenues
Music and Other
Business Services $46,365 $43,965 5.5% $45,971
Equipment Sales and
Related Services 15,341 15,384 -0.3% 14,199
---------- ---------- --------- ----------
Total Revenues 61,706 59,349 4.0% 60,170
---------- ---------- --------- ----------
Cost of Revenues
Music and Other
Business Services(1) 9,387 8,173 14.9% 8,711
Equipment Sales and
Related Services (2) 14,457 12,100 19.5% 12,752
---------- ---------- --------- ----------
Total Cost of
Revenues 23,844 20,273 17.6% 21,463
---------- ---------- --------- ----------
Selling, General and
Administrative
Amortization of
Commissions 4,226 4,075 3.7% 4,132
Other Selling, General
and Administrative
(2)(3)(4) 17,892 15,963 12.1% 17,326
---------- ---------- --------- ----------
Total Selling,
General and
Administrative 22,118 20,038 10.4% 21,458
---------- ---------- --------- ----------
Other (income) expense (35) (27) 29.6% 4
Loss on early
extinguishment on
debt (5) - - - 1,663
---------- ---------- --------- ----------
EBITDA(6) $15,779 $19,065 -17.2% $15,582
========== ========== ==========
EBITDA Margin (6) 25.6% 32.1% 25.9%
Cash Flows from
operating activities $4,134 $11,820 $3,814
Balance sheet data (end
of period)
Total Assets $462,978 $476,045 $465,141
Revolving Loan 30,000 12,700 24,000
Muzak LLC Total Debt(7) 404,277 350,865 398,114
Muzak Holdings LLC
Total Debt (7) 428,522 404,680 422,359
Other financial data
Muzak LLC Interest
Expense $10,158 $8,558 $10,036
Muzak Holdings LLC
Interest Expense 10,974 10,302 11,341
Muzak LLC Net Debt
to EBITDA (8) 6.17x 4.58x 5.77x
Muzak Holdings LLC
Net Debt to EBITDA (8) 6.54x 5.28x 6.48x
Muzak Holdings LLC
Financial Highlights
(unaudited, dollars in thousands)
Nine Months ended
9/30/2004 9/30/2003 % Change
---------- ---------- ---------
Selected Operations Data
Revenues
Music and Other Business Services $137,604 $129,995 5.9%
Equipment Sales and Related
Services 44,345 43,627 1.6%
---------- ---------- ---------
Total Revenues 181,949 173,622 4.8%
---------- ---------- ---------
Cost of Revenues
Music and Other Business Services(1) 26,547 23,893 11.1%
Equipment Sales and Related
Services(2) 39,814 35,355 12.6%
---------- ---------- ---------
Total Cost of Revenues 66,361 59,248 12.0%
---------- ---------- ---------
Selling, General and Administrative
Amortization of Commissions 12,904 11,562 11.6%
Other Selling, General and
Administrative (3) 51,772 48,396 7.0%
---------- ---------- ---------
Total Selling, General and
Administrative 64,676 59,958 7.9%
---------- ---------- ---------
Other income (27) (109)
Loss on early extinguishment of
debt(5) 1,663 3,694
EBITDA (6) $49,276 $50,831 -3.1%
========== ==========
EBITDA Margin (6) 27.1% 29.3%
Cash Flows from operating activities $19,712 $23,840
(1) During the third quarter of 2004, the Company increased its
reserves for licensing royalties by $0.8 million.
(2) Cost of equipment sales and related services and other
selling, general, and administrative expenses include a credit
for an insurance receivable of $0.9 million and $0.3 million,
respectively for the third quarter of 2003 to offset costs
incurred to repoint satellite dishes as a result of the
Telstar IV satellite failure on September 19, 2003.
(3) During the second quarter of 2004, the Company changed its
field organization from a geographical reporting structure to
a functional structure. The Company has five functional areas
as follows: Sales, Operations, Administrations, Client
Services, and Products and Marketing. In conjunction with this
reorganization, the Company consolidated the administrative
and certain operational functions at the home office,
effective August 2, 2004. Accordingly, the Company estimates
total charges of $1.9 million associated with severance and
other termination benefits, relocation costs, duplicate
salaries, and facility requirements. Expenses of $0.9 million
and $1.7 million are included in selling, general, and
administrative expenses the third quarter and nine months
ended September 30, 2004, respectively.
(4) The third quarter of 2004 includes $0.6 million impairment of
a receivable from the purchaser of the Company's CCTV
inventory and recurring contracts.
(5) Loss on early extinguishment of debt in the nine months ended
September 30, 2004 represents premium and write-off of
financing fees associated with the repurchase of a portion of
the Senior discount notes.
Loss on early extinguishment of debt in the nine months ended
September 30, 2003 represents the write-off of financing
fees associated with the Company's refinanced Senior
Credit Facility.
(6) Represents net income before interest, income tax benefit
(expense), depreciation and amortization. EBITDA margin
reflects EBITDA divided by total revenues.
The Company evaluates liquidity using several measures, one of
them being EBITDA. EBITDA is not intended to be a
liquidity measure that should be regarded as an
alternative to, or more meaningful than, cash flow from
operations as a measure of liquidity, as determined in
accordance with GAAP. However, management believes that
EBITDA is a meaningful measure of liquidity that is
commonly used in similar industries to analyze and compare
companies on the basis of leverage and liquidity, however
it is not necessarily comparable to similar titled amounts
of other companies. The following table provides a
reconciliation of cash flows from operations to EBITDA.
Three months ended
Q3 2004 Q3 2003 Q2 2004
------- ------- -------
Cash flows from continuing
operating activities $ 4,134 $11,820 $ 3,814
Loss on early extinguishment
of debt - - (1,663)
Interest expense net of
amortization 10,254 7,967 10,643
Change in working capital (a) 857 (1,772) 2,555
Current taxes expense 10 55 2
Unearned installation revenue 86 24 33
Amortization of deferred
subscriber acquisition costs (4,226) (4,075) (4,132)
Deferred subscriber
acquisition costs 4,643 5,017 4,290
Gain on disposal of fixed
assets 21 29 40
------- ------- -------
EBITDA $15,779 $19,065 $15,582
------- ------- -------
(a) Change in working capital includes changes in accrued interest
balances of $2.0 million, $2.7 million, and ($1.8) million in
the quarters ended September 30, 2004 and 2003 and June 30,
2004, respectively.
Nine months ended
Q3 2004 Q3 2003
Cash flows from continuing ------- -------
operating activities $19,712 $23,840
Loss on early extinguishment
of debt (1,663) (3,694)
Interest expense net of
amortization 29,369 21,205
Change in working capital (b) 1,049 5,956
Current taxes expense 53 408
Unearned installation revenue 161 26
Amortization of deferred
subscriber acquisition costs (12,904) (11,561)
Deferred subscriber
acquisition costs 13,411 14,614
Gain on disposal of fixed
assets 88 37
------- -------
EBITDA $49,276 $50,831
------- -------
(b) Change in working capital includes changes in accrued interest
balances of $3.0 million and $5.1 million for the nine months
ended September 30, 2004 and 2003, respectively.
EBITDA margin reflects EBITDA divided by total revenues.
(7) Total debt excludes $1.9 million of debt of a subsidiary that
is non-recourse to the Company.
(8) Reflects total debt described in (7) above less cash divided
by EBITDA adjusted for non-cash items on a Last Quarter
Annualized Basis. Pursuant to the Company's indentures under
which it has notes outstanding, non-cash items reducing or
increasing consolidated net income are excluded from EBITDA
for purposes of calculating the consolidated leverage ratio.
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