-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Blf0F8kjBDC/tJt1t6TOY4qoiBpzWJ8nnrAcpDJedSOfkBaennwlIU9T4Ff0B4H3 hNIHkTREC1o3I+a2hKb+kw== 0000912057-97-021944.txt : 19970627 0000912057-97-021944.hdr.sgml : 19970627 ACCESSION NUMBER: 0000912057-97-021944 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970626 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUSICLAND STORES CORP CENTRAL INDEX KEY: 0000832995 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 411623376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11014 FILM NUMBER: 97629984 BUSINESS ADDRESS: STREET 1: 10400 YELLOW CIRCLE DR CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129318000 MAIL ADDRESS: STREET 1: 10400 YELLOW CIRCLE DR CITY: MINNETONKA STATE: MN ZIP: 55343 10-K/A 1 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark one) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the fiscal year ended December 31, 1996 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 1-11014 MUSICLAND STORES CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 41-1623376 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10400 YELLOW CIRCLE DRIVE, MINNETONKA, MINNESOTA 55343 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 931-8000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------- ----------------------------------------- Common stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock held by nonaffiliates of the Registrant on March 26, 1997 was $38,371,268.75, based on the closing price of $1 1/4 per common share on the New York Stock Exchange on such date (only members of the Management Investors Group are considered affiliates for this calculation). The number of shares outstanding of the Registrant's common stock on March 26, 1997 was 34,301,956. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. MUSICLAND STORES CORPORATION (Registrant) By: \s\ Reid Johnson ------------------------ Reid Johnson Executive Vice President and Chief Financial Officer (authorized officer, principal financial and accounting officer) Date: June 24, 1997 EXHIBIT INDEX The following documents are filed as part of this Annual Report on Form 10- K for the year ended December 31, 1996.
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NO. - ---------- ----------------------------------------------------------------------------- ---------- 3.1 - Restated Certificate of Incorporation of MSC, as amended [i] 3.2 - By-laws of MSC, as amended [ii] 4.1 - Senior Subordinated Note Indenture, including form of Note, dated as of June 15, 1993 among MGI, MSC and Bank One Columbus, N.A. as successor Trustee to Harris Trust and Savings Bank [iii] 4.2(a) - Credit Agreement dated as of October 7, 1994 (the "Credit Agreement") among MGI, MSC, the banks listed therein and Morgan Guaranty Trust Company of New York, as agent [iv] 4.2(b) - Amendment No. 1 dated as of February 28, 1995 to the Credit Agreement [viii] 4.2(c) - Amendment No. 2 dated as of April 9, 1996 to the Credit Agreement [xi] 4.2(d) - Amendment No. 3 dated as of October 18, 1996 to the Credit Agreement [xii] 4.2(e) - Waiver and Agreements under Credit Agreement dated as of March 7, 1997 to the Credit Agreement [xiv] 4.3 - Rights Agreement dated as of March 14, 1995, between MSC and Norwest Bank Minnesota, National Association, as Rights Agent [v] 9 - Voting Trust Agreement among DLJ, certain of its affiliates, the Equitable Investors and Meridian Trust Company [i] 10.1(a) - Lease Agreement dated March 31, 1994 between Shawmut Bank Connecticut, N.A. as Owner Trustee and Musicland Retail, Inc., as Lessee [viii] 10.1(b) - Participation Agreement dated March 31, 1994 among Musicland Retail, Inc., as Lessee, Shawmut Bank Connecticut, N.A. as Owner Trustee, Kleinwort Benson Limited, as Owner Participant, Lender and Agent and The Long-Term Credit Bank of Japan, Ltd. Chicago Branch, Credit Lyonnais Cayman Island Branch, The Fuji Bank, Limited, as Lenders [viii] 10.1(c) - Guaranty of MGI dated March 31, 1994 [viii] 10.2(a) - Master Lease dated May 12, 1995 between Media Play Trust, as Landlord, and Media Play, Inc., as Tenant [ix] 10.2(b) - Participation Agreement dated May 12, 1995 among Natwest Leasing Corporation, as Owner Participant, Media Play Trust, As Trust, Yasuda Bank and Trust Company (U.S.A.), as Owner Trustee, National Westminster Bank PLC, as Agent and Lender, Media Play, Inc., as Tenant and the Long-Term Credit Bank of Japan, Ltd. Chicago Branch and The Yasuda Trust & Banking Company, Ltd., Chicago Branch, as Other Lenders [ix] 10.2(c) - Amendment No. 1 dated as of April 9, 1996 to the Participation Agreement [xi] 10.2(d) - Lease Guaranty dated May 12, 1995 between MGI, as Guarantor, and Media Play Trust, as Landlord [ix] 10.2(e) - Amendment No. 1 dated as of April 9, 1996 to the Lease Guaranty [xi] *10.3(a) - Subscription Agreement among MSC and the Management Investors [vi] *10.3(b) - Form of amendment to Management Subscription Agreement [i] *10.4 - Form of Registration Rights Agreement among MSC, DLJ and the Management Investors [vii] *10.5(a) - Employment Agreement with Mr. Eugster [vi]
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NO. - -------- -------------------------------------------------------------------------------- ---------- *10.5(b) - Form of amendment to Employment Agreement with Mr. Eugster [i] *10.5(c) - Amendment No. 2 to Employment Agreement with Mr. Eugster [x] *10.6(a) - Form of Employment Agreement with Messrs. Benson and Ross [vi] *10.6(b) - Amendment to Employment Agreement with Mr. Benson [xiv] *10.6(c) - Amendment to Employment Agreement with Mr. Ross [xiv] *10.7(a) - Form of Employment Agreement with Messrs. Bausman and Henderson [vi] *10.7(b) - Form of amendment to Employment Agreements with Messrs. Bausman and Henderson [i] *10.7(c) - Amendment No. 2 to Employment Agreement with Mr. Bausman [x] *10.7(d) - Amendment No. 2 to Employment Agreement with Mr. Henderson [x] *10.8(a) - Change of Control Agreement with Mr. Eugster [vi] *10.8(b) - Form of amendment to Change of Control Agreement with Mr. Eugster [i] *10.8(c) - Amendment No. 2 to Change of Control Agreement with Mr. Eugster [x] *10.8(d) - Amendment No. 3 to Change of Control Agreement with Mr. Eugster [xiv] *10.9 - Management Incentive Plan dated as of January 1, 1996 [xiv] *10.10 - 1988 Stock Option Plan, as amended [i] *10.11 - Stock Option Plan for Unaffiliated Directors of MSC, as amended [i] *10.12 - 1992 Stock Option Plan [i] *10.13 - Musicland Stores Corporation 1994 Employee Stock Option Plan [viii] *10.14 - Employment Letter Agreement with Mr. Johnson [viii] *10.15(a) - Change of Control Agreement with Mr. Johnson [x] *10.15(b) - Amendment No. 1 to Change of Control Agreement with Mr. Johnson [xiv] *10.16(a) - Change of Control Agreement with Messrs. Benson and Ross [vi] *10.16(b) - Amendment No. 1 to Change of Control Agreement with Mr. Benson [xiv] *10.16(c) - Amendment No. 1 to Change of Control Agreement with Mr. Ross [xiv] *10.17 - Form of Executive Severance Agreement with Mr. Wachsman [xiv] *10.18 - Long Term Incentive Plan dated as of January 1, 1996 [xiv] *10.19 - Executive Officer Short Term Incentive Plan dated as of November 15, 1996 [xiv] 11 - Statement re computation of per share earnings [xiii] 21 - Subsidiaries of MSC [ii] 23 - Consent of Arthur Andersen LLP - 27 - Financial Data Schedules [xiv] 99 - Form 11-K for The Musicland Group's Capital Accumulation Plan -
- ------------------------------ [i] Incorporated by reference to MSC's Form S-1 Registration Statement covering common stock initially filed with the Commission on July 6, 1990 (Commission File No. 33-35774). [ii] Incorporated by reference to MSC's Annual Report on Form 10-K for the year ended December 31, 1992 filed with the Commission on March 2, 1993 (Commission File No. 1-11014). [iii] Incorporated by reference to MGI's Registration Statement covering 9% Senior Subordinated Notes initially filed with the Commission on May 19, 1993 (Commission File No. 33-62928). [iv] Incorporated by reference to MSC's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994 filed with the Commission on November 11, 1994 (Commission File No. 1-11014). [v] Incorporated by reference to MSC's Form 8-A Exchange Act Registration Statement covering Preferred Share Purchase Rights filed with the Commission on March 16, 1995. [vi] Incorporated by reference to MSC's Form S-1 Registration Statement covering Senior Subordinated Notes initially filed with the Commission on May 20, 1988 (Commission File No. 33-22058). [vii] Incorporated by reference to MSC's Annual Report on Form 10-K for the year ended December 31, 1993 filed with the Commission on March 25, 1994 (Commission File No. 1-11014). [viii] Incorporated by reference to MSC's Annual Report on Form 10-K for the year ended December 31, 1994 filed with the Commission on March 27, 1995 (Commission File No. 1-11014). [ix] Incorporated by reference to MSC's Quarterly Report on Form 10-Q for the quarter period ended June 30, 1995 filed with the Commission on August 11, 1995 (Commission File No. 1-11014). [x] Incorporated by reference to MSC's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the Commission on April 12, 1996 (Commission File No. 1-11014). [xi] Incorporated by reference to MSC's Quarterly Report on Form 10-Q for the quarter period ended March 31, 1996 filed with the Commission on May 10, 1996 (Commission File No. 1-11014). [xii] Incorporated by reference to MSC's Quarterly Report on Form 10-Q for the quarter period ended September 30, 1996 filed with the Commission on November 13, 1996 (Commission File No. 1-11014). [xiii] Earnings (loss) per common share amounts are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding. For purposes of earnings (loss) per share computations, shares of common stock under the Company's employee stock ownership plan, established in the third quarter of 1995, are not considered outstanding until they are committed to be released. Common stock equivalents related to stock options are anti-dilutive in 1996 and 1995 due to the net losses. Common stock equivalents related to stock options, which would have a dilutive effect based upon current market prices, had no material effect on net earnings per common share in years prior to 1995. Accordingly, this exhibit is not applicable to the Company. [xiv] Previously filed. * Indicates Management Contract or Compensatory Plan or Agreement required to be filed as an Exhibit to this form. EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated May 29, 1997 included in this Form 10-K/A, into the Company's previously filed Registration Statements, File Nos. 33-50520, 33-50522, 33-50524, 33-82130, and 33-99146. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, June 24, 1997 EX-99 3 FORM 11-K EXHIBIT 99 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 33-99146 A. Full title of the Plan and the address of the Plan, if different than that of the issuer named below: THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN B. Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office: MUSICLAND STORES CORPORATION 10400 Yellow Circle Drive, Minnetonka, MN 55343 REQUIRED INFORMATION The Plan is subject to ERISA. Accordingly, in lieu of the Securities and Exchange Commission requirements, Plan financial statements and schedules prepared in accordance with the financial reporting requirements of ERISA are being furnished. THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN Financial Statements as of December 31, 1996 and 1995 Together With Report of Independent Public Accountants THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN Index to Financial Statements and Supplemental Schedules Page ---- Report of Independent Public Accountants 3 Financial Statements and Schedules: Statement of Net Assets Available for Benefits as of December 31, 1996 4 Statement of Net Assets Available for Benefits as of December 31, 1995 5 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1996 6 Notes to Financial Statements 7 Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes 12 Schedule II - Item 27d - Schedule of Reportable Transactions 13 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Administrator of The Musicland Group's Capital Accumulation Plan: We have audited the accompanying statements of net assets available for benefits of The Musicland Group's Capital Accumulation Plan as of December 31, 1996 and 1995, and the related statement of changes in net assets available for benefits for the year ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The Musicland Group's Capital Accumulation Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for the year ended December 31, 1996, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for purposes of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, May 29, 1997 3 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1996
VARIABLE MUTUAL FUNDS -------------------------------------------------------------------------- Collective Income Aim 20th Century Vanguard Stable Asset Fund of Charter Growth Index 500 Fund America Fund Investors Fund ------------ ------- ------- ------------ ---------- CASH AND CASH EQUIVALENTS $ 23,184 $ 2,491 $ 5,976 $ 13,157 $ 13 INVESTMENT FUNDS, at market value 5,888,417 1,462,156 3,789,994 5,342,393 87,622 ---------- ---------- ----------- ---------- ----------- RECEIVABLES: Employee contributions 4,044 1,888 3,687 4,162 - Employer contributions 153,606 116,790 52,069 71,073 90,001 ---------- ---------- ----------- ---------- ----------- Total receivables 157,650 118,678 55,756 75,235 90,001 ---------- ---------- ----------- ---------- ----------- INTEREST PAYABLE - - - - - NOTE PAYABLE - - - - - ---------- ---------- ----------- ---------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $6,069,251 $1,583,325 $ 3,851,726 $5,430,785 $ 177,636 ---------- ---------- ----------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- Variable Mutual Funds ------------ Templeton Musicland Common Stock Foreign ---------------------- Loans to Fund Allocated Unallocated Participants TOTAL --------- --------- ----------- ------------ --------- CASH AND CASH EQUIVALENTS $ 2,251 $ 3,085 $ 5 $ - $ 50,162 INVESTMENT FUNDS, at market value 1,242,244 459,039 1,407,915 673,928 20,353,708 ---------- ---------- ------------ ---------- ----------- RECEIVABLES: Employee contributions 1,366 1,646 - - 16,793 Employer contributions 20,895 17,535 1,764,556 - 2,286,525 ---------- ---------- ----------- ---------- ----------- Total receivables 22,261 19,181 1,764,556 - 2,303,318 ---------- ---------- ----------- ---------- ----------- INTEREST PAYABLE - - 764,808 - 764,808 NOTE PAYABLE - - 8,997,737 - 8,997,737 ---------- ---------- ----------- ---------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $1,266,756 $ 481,305 $ (6,590,069) $ 673,928 $12,944,643 ---------- ---------- ------------ ---------- ----------- ---------- ---------- ------------ ---------- -----------
The accompanying notes are in an integral part of this statement. 4 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1995
VARIABLE MUTUAL FUNDS ----------------------------------------- Guaranteed Collective Income Aim 20th Century Vanguard Interest Stable Asset Fund of Charter Growth Index 500 Account Fund America Fund Investors Fund ---------- ------------ ------------ ---------- ------------ ---------------- CASH AND CASH EQUIVALENTS $ 7,705 $ 13,265 $ 1,573 $ 3,001 $ 12,188 $ 65 INVESTMENT FUNDS, at market value 605,027 5,492,162 1,040,094 2,930,658 4,401,475 56,154 ---------- ---------- ---------- ---------- ---------- ---------- RECEIVABLES: Employee contributions - 17,810 6,143 12,522 19,995 - Employer contributions - 47,305 39,594 5,844 7,942 36,667 ---------- ---------- ---------- ---------- ---------- ---------- Total receivables - 65,115 45,737 18,366 27,937 36,667 ---------- ---------- ---------- ---------- ---------- ---------- INTEREST PAYABLE - - - - - - NOTE PAYABLE - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $ 612,732 $5,570,542 $1,087,404 $2,952,025 $4,441,600 $ 92,886 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Variable Mutual Funds ------------ Templeton Musicland Common Stock Foreign --------------------------- Loans to Fund Allocated Unallocated Participants TOTAL ------------ ------------ ------------- -------------- ----------- CASH AND CASH EQUIVALENTS $ 263 $ 6,212 $ 9,367 $ - $ 53,639 INVESTMENT FUNDS, at market value 848,132 627,466 4,432,325 696,627 21,130,120 ---------- ---------- ---------- ---------- ----------- RECEIVABLES: Employee contributions 6,316 4,835 - - 67,621 Employer contributions 2,746 1,579 1,344,867 - 1,486,544 ---------- ---------- ---------- ---------- ----------- Total receivables 9,062 6,414 1,344,867 - 1,554,165 ---------- ---------- ---------- ---------- ----------- INTEREST PAYABLE - - 345,119 - 345,119 NOTE PAYABLE - - 9,997,485 - 9,997,485 ---------- ---------- ---------- ---------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $ 857,457 $ 640,092 $(4,556,045) $ 696,627 $12,395,320 ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- -----------
The accompanying notes are in an integral part of this statement 5 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS For the Year Ended December 31, 1996
VARIABLE MUTUAL FUNDS ----------------------------------------------------- Guaranteed Collective Income Aim 20th Century Vanguard Interest Stable Asset Fund of Charter Growth Index 500 Account Fund America Fund Investors Fund ------------- -------------- ---------- --------- ------------ ----------- INVESTMENT INCOME: Interest and dividends $ 5,229 931 $ 71,822 $ 50,501 $ 44,970 $ 1,511 Net gain (loss) on investments - 360,368 112,787 549,226 626,103 12,722 CONTRIBUTIONS: Employee - 566,237 286,534 479,561 683,839 - Employer - 154,340 116,419 52,069 71,073 89,638 INTERFUND TRANSFERS (608,844) 255,252 144,989 115,543 99,952 (18,265) BENEFITS PAID TO PARTICIPANTS (8,044) (723,845) (236,019) (318,805) (489,397) (731) ADMINISTRATIVE EXPENSES (291) (96,661) (2,426) (6,371) (9,254) (125) INTEREST EXPENSE - - - - - - LOANS TO PARTICIPANTS, NET OF REPAYMENTS (782) (17,913) 1,815 (22,023) (38,101) - PRINCIPAL PMT ON LOAN FROM TMG/RELEASED SHARES - - - - - - ------------ ------------- ------------ ------------ ------------ ---------- CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS (612,732) 498,709 495,921 899,701 989,185 84,750 NET ASSETS AVAILABLE FOR BENEFITS AT BEGINNING OF YEAR 612,732 5,570,542 1,087,404 2,952,025 4,441,600 92,886 ------------ ------------- ------------ ------------ ------------ ---------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ - $ 6,069,251 $ 1,583,325 $ 3,851,726 $ 5,430,785 $ 177,636 ------------ ------------- ------------ ------------ ------------ ---------- ------------ ------------- ------------ ------------ ------------ ---------- Variable Mutual Funds ------------ Templeton Musicland Common Stock Foreign --------------------------- Loans to Fund Allocated Unallocated Participants TOTAL ----------- ------------- ------------- ------------ ---------- INVESTMENT INCOME: Interest and dividends $ 33,199 $ 518 $ 289 $ 60,780 269,750 Net gain (loss) on investments 149,274 (1,302,278) (2,024,662) - (1,516,460) CONTRIBUTIONS: Employee 225,243 162,316 - - 2,403,730 Employer 20,895 17,535 1,764,556 - 2,286,525 INTERFUND TRANSFERS 35,138 37,015 - (60,780) - BENEFITS PAID TO PARTICIPANTS (70,060) (79,994) - (73,913) (2,000,808) Variable Mutual Funds ------------ Templeton Musicland Common Stock Foreign --------------------------- Loans to Fund Allocated Unallocated Participants TOTAL ----------- ------------- ------------- ------------ ---------- ADMINISTRATIVE EXPENSES (2,093) (1,735) (9,650) - (128,606) INTEREST EXPENSE - - (764,808) - (764,808) LOANS TO PARTICIPANTS, NET OF REPAYMENTS 17,703 8,087 - 51,214 - PRINCIPAL PMT ON LOAN FROM TMG/RELEASED SHARES - 999,749 (999,749) - - ------------ ------------ ------------ ----------- ----------- CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS 409,299 (158,787) (2,034,024) (22,699) 549,323 NET ASSETS AVAILABLE FOR BENEFITS AT BEGINNING OF YEAR 857,457 640,092 (4,556,045) 696,627 12,395,320 ------------ ------------ ------------ ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 1,266,756 $ 481,305 $ (6,590,069) $ 673,928 12,944,643 ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------ ----------- -----------
The accompanying notes are an integral part of this statement. 6 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF PLAN The following description of The Musicland Group's Capital Accumulation Plan (the "Plan") is provided for general information purposes only and is not a comprehensive description of the Plan. Therefore it does not include all situations and limitations covered by the Plan. Participants should refer to the Plan document, as amended, for more complete information. GENERAL: The Plan is a defined contribution plan covering eligible salaried and hourly employees of The Musicland Group, Inc. ("TMG" or the "Company") who have attained age 21 and completed one year of service, as defined. The Plan also provides certain profit sharing benefits for eligible employees who commenced employment after June 30, 1990 and who have attained age 21 and completed six months of continuous employment or one year of service, as defined. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Benefits under the Plan are covered by a trust agreement. In August 1995 the Plan was amended to add an Employee Stock Ownership Plan ("ESOP"), effective January 1, 1995, for the purpose of replacing the Company's matching contributions. A. Foster Higgins & Co., Inc., service provider to the Plan, administers the assets of the Plan, directs execution of transactions, directs the trustee to make benefit payments on behalf of the Plan and maintains records for the loans to participants. Piper Trust Company (the "Trustee") serves as the Plan's trustee. NOTE PAYABLE: During 1995 the Company loaned the Plan $9,997,485 through the issuance of a promissory note to purchase 1,042,900 shares of Musicland Stores Corporation common stock ("Musicland Common Stock"). The promissory note bears interest at prime (8.25% at August 10, 1996) adjusted annually on August 10, and is due in ten equal annual principal installments with interest on the unpaid principal. As the Company makes contributions to the Plan, the Plan makes principal payments to the Company and allocates an appropriate percentage of Musicland Common Stock to eligible employees' accounts. The promissory note is collateralized by the unallocated shares held by the Plan. CONTRIBUTIONS: Participants may elect to make pretax salary reduction contributions of up to 17% of annual base salaries. Highly compensated participants are limited to pretax salary reduction contributions of 4% of annual base pay up to the 401(a)(17) and 408(k)(3)(C) compensation limit. Annual salary reduction contributions are limited to $9,500 for non-highly compensated employees, and 4% of 7 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. DESCRIPTION OF PLAN (CONTINUED) the 401(a)(17) and 408(k)(3)(C) compensation limit for highly compensated employees. The Company may, at its discretion, make a supplementary matching contribution of zero to 100% of eligible salary reduction contributions to the extent that such contributions for the plan year do not exceed 4% of participants' earnings. The Company may make an annual profit sharing contribution for eligible employees under an age-and- service-weighted unit allocation formula. Forfeitures greater than administrative costs are used to reduce the Company's matching contributions. INVESTMENT OF FUNDS: Participants may allocate their contributions to any of six investment funds, which are administered by A. Foster Higgins & Co., Inc. As of December 31, 1996, the investment funds were as follows: 1. Collective Stable Asset Fund, a stable asset fund investing primarily in a diversified portfolio of insurance contracts from insurance companies. 2. Income Fund of America, a current income and capital growth fund with balanced investments in stocks and bonds. 3. Aim Charter Fund, a growth and income fund investing primarily in dividend-paying common stocks. 4. 20th Century Growth Investors, an aggressive growth-oriented fund primarily investing in stock of smaller companies which do not pay regular dividends. 5. Templeton Foreign Fund, a fund investing in foreign stocks and securities. 6. Musicland Common Stock, a fund investing in the common stock of Musicland Stores Corporation which is traded on the New York Stock Exchange under the symbol "MLG". The Guaranteed Interest Account (8.2%) was a fixed interest fund guaranteed by UNUM Life Insurance Company. Effective December 31, 1991, the Guaranteed Interest Account was no longer an investment option. The Company makes a portion of its profit sharing contribution to the Collective Stable Asset Fund, the Income Fund of America and the Vanguard Index 500 Fund. 8 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. DESCRIPTION OF PLAN (CONTINUED) Participants may change their investment election at any time, but not more than once every 30 days. Periodically, investment earnings are credited to the participants' accounts and investment losses are debited from their accounts. The earnings and losses are allocated in accordance with participant fund elections. LOANS TO PARTICIPANTS: Participants may obtain a loan of $500 or more, limited to the lesser of 50% of the vested value of their account or $50,000. Loans must be repaid within five years, except for certain home loans. The interest rate charged on loans is fixed at the Prime rate plus two percent on the date of the loan. VESTING: Each participant's individual contributions are fully vested at all times. Participants vest in Company matching contributions over a seven year graduated vesting schedule. Participants will be 100% vested in Company matching contributions seven years from their date of hire, or at the time of death, disability or retirement, provided the person has reached normal retirement age. Participants vest in profit sharing contributions 100% after five years from their date of hire. PLAN TERMINATION: While the Company has not expressed any intent to discontinue the Plan, it is free to do so at any time. If such discontinuance results in the termination of the Plan, all accounts shall become fully vested and nonforfeitable. The Company shall receive from the Plan the shares of unallocated Musicland Common Stock in satisfaction of the note payable to the Company. The Plan shall continue until all assets have been distributed to the participants. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING: The financial statements have been prepared under the accrual basis of accounting. 9 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUATION OF ASSETS: Investments in the Collective Stable Asset Fund, Income Fund of America, Aim Charter Fund, 20th Century Growth Investors, Vanguard Index 500 Fund, Templeton Foreign Fund and Musicland Common Stock are valued at market value as reported by the Trustee, based on quoted market prices of investments held by the funds. Net changes in the market value of investments during the year are reported as unrealized gains and losses. The realized gain or loss on investments sold is determined based on the market value of the investment at the end of the prior year or cost if purchased during the year. The net reduction in the market value of investments was as follows for the year ended December 31, 1996: Net realized gain on sale of investments $ 240,858 Unrealized loss (1,757,318) ------------- Net loss on investments $ (1,516,460) ------------- ADMINISTRATIVE COSTS: Each participant is charged an annual trustee fee ranging from 0.10% to 0.25% of the funds deposited in each of the accounts except for the Musicland Common Stock Fund, which charges a trustee fee of 0.60%. Forfeitures are used or the Company pays for all other administrative costs of the Plan, except for a $10 fee to transfer funds, a $25 withdrawal fee and a $50 loan processing fee, which are paid by participants. For the year ended December 31, 1996, the Company paid administrative costs of $131,477 for the Plan. 3. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 As of December 31, 1996, the Plan had $2,746,883 of pending distributions to participants who elected distributions from their accounts. These amounts are recorded as a liability in the Plan's Form 5500; however, these amounts are not recorded as a liability in the accompanying statement of net assets available for benefits in accordance with generally accepted accounting principles. 10 THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (CONTINUED) The following table reconciles net assets available for benefits per the financial statements to the Form 5500 as filed by the Plan for the year ended December 31, 1996:
INCREASE (DECREASE) IN BENEFITS BENEFITS NET ASSETS NET ASSETS PAYABLE TO PAID TO AVAILABLE FOR AVAILABLE FOR PARTICIPANTS PARTICIPANTS BENEFITS BENEFITS ------------- ------------- -------------- -------------- Per financial statements $ - $ 2,000,808 $ 549,323 $ 12,944,643 Accrued benefit payments at December 31, 1996 2,746,883 1,139,476 (1,139,476) (2,746,883) ------------ ------------ ------------ ------------ Per Form 5500 $ 2,746,883 $ 3,140,284 $ (590,153) $ 10,197,760 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
4. TAX STATUS The Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. Pursuant to the favorable IRS determination letter dated April 10, 1997, the Plan is exempt from Federal income taxes under Section 501(a) of the Internal Revenue Code. The Plan sponsor and legal counsel are of the opinion that the Plan meets the IRS requirements and therefore continues to be tax exempt. 11 Schedule I THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN (EMPLOYER IDENTIFICATION NUMBER: 41-1307776) (PLAN NUMBER: 002) ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AS OF DECEMBER 31, 1996 NUMBER MARKET DESCRIPTION OF INVESTMENT OF UNITS COST VALUE - ----------------------------- --------- ------------- ----------- Collective Stable Asset Fund 400,480 $ 5,066,744 $ 5,888,417 Variable Mutual Funds: Income Fund of America 88,508 1,356,434 1,462,156 Aim Charter Fund 342,366 3,214,848 3,789,994 20th Century Growth Investors 244,168 5,084,527 5,342,393 Vanguard Index 500 Fund 1,267 68,017 87,622 Templeton Foreign Fund 119,908 1,137,253 1,242,244 Musicland Common Stock* 1,244,636 11,512,753 1,866,954 Loans to Participants, at interest rates ranging from 4% to 11% 673,928 ------------ TOTAL INVESTMENTS $ 20,353,708 ------------ ------------ * Party in interest to the Plan. 12 Schedule II THE MUSICLAND GROUP'S CAPITAL ACCUMULATION PLAN (EMPLOYER IDENTIFICATION NUMBER: 41-1307776) (PLAN NUMBER: 002) ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1996
NUMBER OF NUMBER VALUE OF VALUE OF COST OF NET GAIN DESCRIPTION OF INVESTMENT PURCHASES OF SALES PURCHASES SALES ASSETS SOLD (LOSS) - ------------------------- --------- -------- ---------- ---------- ----------- --------- Collective Stable Asset Fund 13 29 $ 843,203 $ 807,316 $ 715,253 $ 92,063 Variable Mututal Funds: Income Fund of America 102 80 658,062 348,787 256,525 92,262 Aim Charter Fund 101 89 937,250 627,140 362,663 264,477 20th Century Growth Investors 94 98 1,081,159 766,343 710,376 55,967 Templeton Foreign Fund 89 66 467,540 222,701 189,550 33,151 Musicland Common Stock * 55 75 268,637 132,254 433,682 (301,428)
*Party in interest to the Plan. 13 -----END PRIVACY-ENHANCED MESSAGE-----