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Muzak Holdings LLC Announces Second Quarter Results

FORT MILL, S.C.-(Business Wire)-August 15, 2008 - Muzak Holdings LLC ("Muzak" or the "Company"), a leading provider of business music services in the United States, today announced financial results for the quarter ended June 30, 2008.

Total revenue for the quarter ended June 30, 2008 was $63.3 million, a 0.9% increase, compared to $62.8 million for the quarter ended June 30, 2007. Music and other business services revenue for the quarter ended June 30, 2008 was $47.2 million, a 1.5% decrease, compared to $47.9 million for the quarter ended June 30, 2007. Equipment sales and related services revenue was $16.1 million in the quarter ended June 30, 2008 as compared to $14.9 million for the same period in 2007. Increases in equipment and related service revenue are attributed to additional sales to customers adding extensive sound systems and audio visual equipment.

Total revenue for the six months ended June 30, 2008 was $125.8 million, a 0.5% increase, compared to $125.1 million for the six months ended June 30, 2007. Music and other business services revenue for the six months ended June 30, 2008 and 2007 was $95.6 million. Equipment sales and related services revenue increased to $30.3 million for the six months ended June 30, 2008 as compared to $29.5 million for the same period in 2007.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $18.0 million for the quarter ended June 30, 2008 an increase of $0.7 million or 4.2% as compared to the $17.3 million in the quarter ended June 30, 2007 (excluding approximately $0.3 million and $0.8 million in expenses directly associated with the proposed DMX transaction in quarter ended June 30, 2008 and 2007, respectively). For the quarter ended June 30, 2008, our total margins on revenue increased to 59.3% compared to 58.2% for the quarter ended June 30, 2007. The increase in margin is attributed to the increase in sales to customers adding extensive sound systems and audio visual equipment. Selling, general and administrative expenses as a percentage of total revenue was 31.0% and 31.1% for the quarter ended June 30, 2008 and 2007, respectively.

EBITDA was $34.9 million for the six months ended June 30, 2008 a decrease of $0.1 million or 0.3% as compared to the $35.0 million in the six months ended June 30, 2007 (excluding approximately $1.1 million and $1.6 million in expenses directly associated with the proposed DMX transaction in six months ended June 30, 2008 and 2007, respectively). Our total margins on revenues increased to 59.3% for the six months ended June 30, 2008 compared to 58.2% for the six months end June 30, 2007. Selling, general and administrative expenses as a percentage of revenue fell slightly to 31.8% for the six months ended June 30, 2008 from 31.9% for the six months ended June 30, 2007.

EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, net income as a measure of performance, as determined in accordance with generally accepted accounting principles, known as GAAP. Net loss for the quarter ended June 30, 2008 was $5.2 million, a 34.0% decrease, compared to $7.9 million in the prior year and was $12.6 million for the six months ended June 30, 2008, which is a 20.7% decrease, compared to $15.9 million for the six months ended June 30, 2007. Net loss includes $0.3 million and $0.8 million in non-recurring costs associated with the potential DMX transaction for the three months ended June 30, 2008 and 2007, respectively, and includes $1.1 million and $1.6 million for the six months ended June 30, 2008 and 2007, respectively. See attached reconciliation from net loss to EBITDA and to EBITDA as defined by the indentures.

The Company generated a net cash decrease of $3.4 million for the three months ended June 30, 2008 versus an increase of $1.2 million for the three months ended June 30, 2007 (excluding $0.6 million in proposed DMX transaction expenses paid in each of the quarters ended June 30, 2008 and 2007, respectively). For the six months ended June 30, 2008, the Company generated $1.5 million in cash compared to an increase of $3.7 million for the six months ended June 30, 2007 (excluding $1.4 million and $0.7 million in proposed DMX transaction expenses paid in the six months ended June 30, 2008 and 2007, respectively). The net investment made in new subscriber locations was $5.0 million for the quarter ended June 30, 2008 versus $5.6 million in 2007. The Company's cash balance as of June 30, 2008 was approximately $26 million.

On April 7, 2008, Muzak LLC and DMX, Inc announced that they had been informed by the Antitrust Division of the U.S. Department of Justice (DOJ) that the DOJ's investigation into the proposed merger of the companies, to allow for a sale to a third party, would be closed without an antitrust challenge. The companies are now cleared to proceed with the proposed transaction subject, ultimately, to the review by federal regulators of the identity and ownership interests (among other things) of an as yet to be identified third party buyer. The Company's future consolidation or combination with DMX, Inc. is contingent on the success of this process—a process that is focused on a sale of the entities to an as yet unidentified third party buyer. Moelis & Company, the investment banking firm retained to represent Muzak and DMX, Inc., continues to coordinate the marketing and sale of the two companies. Moelis has been distributing the offering memorandum to interested and qualified purchasers and providing access to virtual data rooms. The Company is pleased with the level of interest generated and the progress made to date. In the interim, the companies remain independent and Muzak continues to compete and to provide, without disruption, the highest quality products and services to its clients.

During the quarter ended March 31, 2008, Muzak reclassified approximately $437 million of long term debt to current to reflect the fact that this debt matures during the first quarter 2009. Muzak remains in compliance with the covenants contained in these long term debt instruments as of June 30, 2008.

Muzak Holdings LLC will have a conference call on Tuesday, August 19, 2008 at 1:00 p.m. (Eastern Standard Time) to discuss second quarter results. The call in number is 1-800-762-4758 and a replay of the call will be available for one week beginning at 3:30 p.m. on August 19, 2008. The replay number is 1-800-475-6701 and the access code is 957843.

Muzak creates experiences that reach more than 100 million people daily. Some of the biggest brands in business work with Muzak to enhance their brand image. More than 80 core music programs and an endless variety of custom programs are distributed through a national network of sales and service locations, from Muzak's library of approximately 2.5 million tracks. For more information, visit www.muzak.com.

Certain statements contained in this release include what are commonly referred to as forward-looking statements. Some of these statements can be identified by terms and phrases such as "anticipate", "believe", "intend", "expect", "could", "may", "will" and similar expressions, may include references to assumptions that we believe 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 our substantial leverage and debt service requirements, restrictions imposed by the terms of our indebtedness, our history of net losses, our lack of readily available funds to borrow, our dependence on satellite delivery of our products, our dependence on third parties to license music rights, possible disruption posed by new business strategies and initiatives, the impact of natural disasters on our client locations and our support facilities, future capital requirements, the impact of competition and technological change, the availability of cost-effective programming, the impact of legislation and regulation, our dependence on the contributions of key personnel, the ability to control or impact client cancellations, potential conflicts posed by the significant ownership stake of our controlling equity holder, risks associated with the effect of general economic conditions and other factors discussed in our filings, reports, and public disclosures.

You must remember that our expectations may not turn out to be correct, even though we believe they are reasonable. In light of the foregoing risks and uncertainties as well as those that have yet to be identified, we cannot and do not guarantee that any future transactions or events will happen as described or that they will happen at all. Any forward-looking statements speak only as of the date on which they were made, and we expressly disclaim any duty whatsoever to update such forward-looking statements. -0- *T Muzak Holdings LLC Financial Highlights (unaudited, dollars in thousands) Quarter Ended 6/30/2008 6/30/2007 % Change 3/31/2008 —————- —————- ————- —————- Selected Operations Data Revenues Music and Other Business Services $ 47,193 $ 47,927 -1.5% $ 48,358 Equipment Sales and Related Services 16,147 14,866 8.6% 14,107 —————- —————- ————- —————- Total Revenues 63,340 62,793 0.9% 62,465 —————- —————- ————- —————- Cost of Revenues Music and Other Business Services 11,397 11,588 -1.6% 11,602 Equipment Sales and Related Services 14,362 14,631 -1.8% 13,828 —————- —————- ————- —————- Total Cost of Revenues 25,759 26,219 -1.8% 25,430 —————- —————- ————- —————- Selling, General and Administrative Expenses (1) 19,643 19,518 0.6% 20,381 Other (income) expense (97) (244) -60.2% (169) Merger related expenses (2) 300 775 -61.3% 750 —————- —————- ————- —————- EBITDA (3) $ 17,735 $ 16,525 7.3% $ 16,073 =========== =========== ========= =========== EBITDA Margin 28.0% 26.3% 25.7% Other financial data EBITDA per the indentures (3) $ 18,040 $ 16,915 $ 16,443 Muzak LLC Interest Expense 10,846 11,642 11,146 Muzak Holdings LLC Interest Expense 11,661 12,457 11,960 Muzak LLC Net Debt to 5.72x 6.18x 6.22x EBITDA (4) Muzak Holdings LLC Net 6.05x 6.54x 6.59x Debt to EBITDA (4) Balance sheet data (end of period) Cash Balance (5) $ 26,041 $ 23,888 $ 30,084 Muzak LLC Total Debt (6) 438,552 440,352 439,393 Muzak Holdings LLC Total Debt (6) 462,797 464,597 463,638 *T -0- *T Muzak Holdings LLC Financial Highlights (unaudited, dollars in thousands) Six Months Ended 6/30/2008 6/30/2007 % Change —————- —————- ————- Selected Operations Data Revenues Music and Other Business Services $ 95,551 $ 95,632 -0.1% Equipment Sales and Related Services 30,254 29,502 2.5% —————- —————- ————- Total Revenues 125,805 125,134 0.5% —————- —————- ————- Cost of Revenues Music and Other Business Services 22,999 22,615 1.7% Equipment Sales and Related Services 28,190 28,085 0.4% —————- —————- ————- Total Cost of Revenues 51,189 50,700 1.0% —————- —————- ————- Selling, General and Administrative Expenses (1) 40,024 39,883 0.4% Other (income) expense (266) (407) -34.6% Merger related expenses (2) 1,050 1,550 -32.3% —————- —————- ————- EBITDA (3) $ 33,808 $ 33,408 1.2% =========== =========== ========= EBITDA Margin 26.9% 26.7% EBITDA per the indentures (3) $ 34,483 $ 34,150 *T -0- *T (1) Selling, general, and administrative expenses include non-cash amortization and impairment of capitalized commissions of $3.5 million and $3.8 million for the quarter ended June 30, 2008 and 2007, respectively and $7.1 million and $7.7 million for the six months ended June 30, 2008 and 2007, respectively. Selling, general, and administrative expenses include $0.3 million and $0.4 million of capitalized labor impairment charges for the quarter ended June 30, 2008 and 2007, respectively and $0.7 million for the six months ended June 30, 2008 and 2007, respectively. (2) Transaction related expenses include $0.3 million and $0.8 million of expenses for the quarter ended June 30, 2008 and 2007 respectively, and $1.1 million and $1.6 million of expenses for the six months ended June 30, 2008 and 2007, respectively, directly associated with the proposed DMX transaction. (3) Represents net income before interest, income tax benefit (expense), depreciation and amortization. The Company evaluates performance using several measures, one of them being EBITDA as defined by our Senior Discount Notes, Senior Subordinated Notes, and Senior Notes indentures (the "Notes"). The primary difference between EBITDA and EBITDA per indentures is the exclusion of non-cash items. Non-cash items excluded are comprised of the write-off of capitalized labor upon client terminations. EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, net income as a measure of performance, as determined in accordance with generally accepted accounting principles, known as GAAP. However, management believes that EBITDA provides useful information because EBITDA as defined by our Notes indentures is used to determine our ability to incur additional indebtedness. The following tables provides a reconciliation from net income to EBITDA and to EBITDA as defined in the Notes. *T -0- *T Three months ended Q2 2008 Q2 2007 Q1 2008 ————- ————- ———— Net Loss $ (5,231) $ (7,924) $(7,347) Interest expense 11,661 12,457 11,960 Taxes (83) (105) (89) Depreciation and amortization 11,388 12,097 11,549 ————- ————- ———— EBITDA 17,735 16,525 16,073 ————- ————- ———— Non-cash items 305 390 370 ————- ————- ———— EBITDA pursuant to the Notes $ 18,040 $ 16,915 $16,443 ========= ========= ======== Six months ended Q2 2008 Q2 2007 ————- ————- Net Loss $(12,578) $(15,869) Interest expense 23,621 25,117 Taxes (172) (207) Depreciation and amortization 22,937 24,367 ————- ————- EBITDA 33,808 33,408 ————- ————- Non-cash items 675 742 ————- ————- EBITDA pursuant to the Notes $ 34,483 $ 34,150 ========= ========= *T -0- *T (4) Reflects Total Debt described in (6) below less unrestricted cash divided by EBITDA per the Notes on a Last Quarter Annualized Basis. (5) Cash balance includes restricted cash of $1.9 million, which was used to cash collateralize letters of credit (6) Total Debt excludes $1.6 million of debt of a subsidiary that is non-recourse to the Company. *T

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