Muzak LLC Announces Fourth Quarter Results

Business Wire, April 1, 2002

Business Editors

FORT MILL, S.C.--(BUSINESS WIRE)--April 1, 2002

Muzak LLC ("Muzak" or the "Company"), the leading provider of business music services in the United States, today announced financial results for the quarter and year ended December 31, 2001.

Music and other business services revenue for the quarter ended December 31, 2001 was $38.7 million, a 6.8% increase, compared to $36.2 million during the quarter ended December 31, 2000. Equipment sales and related services decreased 6.4% for the comparable period. As a result, total revenue for the quarter ended December 31, 2001 was $52.1 million, a 3.1% increase, compared to $50.6 million during the quarter ended December 31, 2000. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) adjusted for certain non-cash and one time charges was $16.8 million for the quarter ended December 31, 2001, an increase of $0.4 million or 2.3%, compared to the quarter ended December 31, 2000.

For the year ended December 31, 2001, the Company had music and other business services revenue of $150.5 million, total revenue of $203.4 million, and EBITDA adjusted for non-cash and one time charges of $65.7 million, representing increases of 8.9%, 5.8%, and 10.2%, respectively over the year ended December 31, 2000.

"We are pleased with our net growth in music and other business services revenue, despite challenging economic conditions during 2001. Our local sales remain strong and we continue to add new national clients including Leslie Pools, Chevy's Restaurants, Lane Bryant, Verizon, and Eddie Bauer, amongst others, and we currently have several attractive prospects in our pipeline. Equipment and related services revenue decreased from the comparable prior year quarter primarily due to less capital spending resulting from a reduction in new location store build outs for certain of our larger national and retail chains. We have committed resources to develop our equipment sales consistent with our growth in monthly recurring billings," commented Bill Boyd, Chief Executive Officer.

"We have made numerous operational accomplishments during 2001" commented Stephen Villa, Chief Operating Officer. Specifically, these accomplishments include:

-- $13.8 million reduction in accounts receivable balances

-- $1.6 million reduction in inventory balances

-- Completion and launch of our audio marketing fulfillment

website

-- Other selling, general, and administrative expenses as a percentage of revenues have decreased from 30.9% in the fourth quarter of 2000 to 26.6% in the comparable 2001 period

-- Other selling, general and administrative expenses have decreased each sequential quarter throughout 2001

-- Generated cash from operations of $38.0 million versus a use of cash from operations in 2000 of $3.5 million

"We continue to see the benefits of our 2000 and 2001 initiatives and we have several 2002 initiatives currently underway. For example, our focus on reducing client churn has contributed to a reduction in our annualized churn rate during the first quarter of 2002 to approximately 10.0% from 11.8% in the fourth quarter and full year of 2001," remarked Villa. "Additionally, our automated technician labor scheduling system, which is designed to more efficiently utilize our internal and external resources, is presently operational in two of our major markets and will be fully implemented by June 30, 2002."

Financing and Liquidity update

We have obtained a waiver of our violation of the maximum consolidated capital expenditures covenant under the Senior Credit Facility from the requisite lenders for the period ending December 31, 2001. In addition, we have increased our aggregate revolving commitments under the Senior Credit Facility by $20.0 million, for a total commitment of $55.0 million, and amended certain financial covenants for 2002 and 2003. Additionally, in March 2002 the existing equity holders, including ABRY Partners LLC, contributed $10.0 million in the form of junior subordinated unsecured notes to Muzak, the proceeds of which were used to repay outstanding revolving loan balances. As a result of this increased revolver commitment and the amended financial covenants, we currently have approximately $40.0 million available under our Senior Credit Facility. "We believe that the amended covenant levels as well as the increased revolving commitment enhances our financial flexibility and provides sufficient liquidity to fund our organic business plan for the foreseeable future," commented Villa.

We will have a conference call on April 1, 2002 at 3:00 p.m. (Eastern Standard Time) to discuss fourth quarter and full year 2001 results. The call in number is 1-877-531-2988. A replay of the call will be available for 72 hours beginning at 8:00 p.m. on April 1, 2002. The replay number is 1-800-475-6701 and the access code is 633626.

Muzak creates experiences with Audio Architecture, the art of capturing the emotional power of music and putting it to work for clients seeking to enhance their brand image. The Company serves approximately 335,000 client locations in the United States and 14 foreign countries. More than 100 million people hear Muzak programs each day. The Company delivers music, messaging, and sound system design through more than 200 sales and service locations.