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 29, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-75072
STEINWAY MUSICAL INSTRUMENTS, INC.
(FORMERLY SELMER INDUSTRIES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35-1910745
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
and
THE SELMER COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4432228
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Industrial Parkway, Elkhart, Indiana 46516
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (219) 522-1675
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 during the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock issued and outstanding as of July 29, 1996:
1,797,037
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
June 29, 1996 and December 31, 1995..........................3
Condensed Consolidated Statements of Operations
Six months ended June 29, 1996 and July 1, 1995..............4
Condensed Consolidated Statements of Cash Flows
Six months ended June 29, 1996 and July 1, 1995..............5
Notes to Condensed Consolidated Financial Statements..............6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................14
SIGNATURES.......................................................15
2
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 29, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
Current assets:
Cash $ 1,670 $ 3,706
Accounts, notes and leases receivable, net of allowance for
bad debts of $7,156 and $6,281 in 1996 and 1995, respectively 59,894 41,860
Inventories 76,539 79,063
Prepaid expenses and other current assets 3,426 3,058
Deferred tax asset 4,570 4,693
------------ ------------
Total current assets 146,099 132,380
Property, plant and equipment, net of accumulated depreciation of
$10,818 and $7,596 in 1996 and 1995, respectively 61,556 64,132
Other assets, net 29,407 32,114
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $1,457 and $1,024 in 1996 and 1995, respectively 33,986 35,170
------------ ------------
TOTAL ASSETS $ 271,048 $ 263,796
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 6,534 $ 2,306
Accounts payable 4,795 8,172
Other current liabilities 22,709 31,289
------------ ------------
Total current liabilities 34,038 41,767
Long-term debt 187,614 171,733
Deferred taxes 27,506 29,452
Non-current pension liability 14,569 15,016
------------ ------------
Total liabilities 263,727 257,968
Commitments and Contingencies
Stockholders' equity:
Common and preferred equity 1 1
Warrants 2,335 2,335
Additional paid in capital 5,629 5,629
Retained earnings (accumulated deficit) 1,030 (2,261)
Accumulated translation adjustment (1,674) 124
------------ ------------
Total stockholders' equity 7,321 5,828
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 271,048 $ 263,796
------------ ------------
------------ ------------
See notes to condensed consolidated financial statements.
3
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales $ 64,367 $ 39,834 $ 133,416 $ 71,714
Cost of sales 43,400 29,458 90,729 51,191
---------- ---------- ---------- ----------
Gross profit 20,967 10,376 42,687 20,523
Operating Expenses:
Sales and marketing 7,227 4,391 15,499 7,961
Provision for doubtful accounts 181 148 410 398
General and administrative 3,942 2,364 7,873 3,615
Amortization 1,205 582 2,305 864
Other expense 166 329 247 442
---------- ---------- ---------- ----------
Total Operating Expenses 12,721 7,814 26,334 13,280
---------- ---------- ---------- ----------
Earnings from operations 8,246 2,562 16,353 7,243
Other expense, net 4,916 3,000 9,576 4,608
---------- ---------- ---------- ----------
Income (loss) before income taxes 3,330 (438) 6,777 2,635
Provision for (benefit of) income taxes 1,620 (199) 3,486 926
---------- ---------- ---------- ----------
Net income (loss) $ 1,710 $ (239) $ 3,291 $ 1,709
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share $ .29 $ (.16) $ .55 $ .30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares outstanding 5,957,127 1,499,900 5,957,127 5,660,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See notes to condensed consolidated financial statements.
4
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
------------------------------
June 29, July 1,
1996 1995
---------- ----------
Cash flows from operating activities
Net income $ 3,291 $ 1,709
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 5,654 2,249
Provision for doubtful accounts 410 380
Amortization of senior note discount 152 135
Deferred tax benefit (1,127) (999)
Other 11 -
Changes in operating assets and liabilities:
Accounts, notes and leases receivable (18,818) (13,035)
Inventories 928 2,026
Prepaid expense and other current assets (356) (319)
Accounts payable (4,913) (1,694)
Accrued expenses (5,811) (2,419)
---------- ----------
Net cash flows from operating activities (20,579) (11,967)
Cash flows from investing activities
Capital expenditures (1,555) (1,005)
Proceeds from disposals of fixed assets 12 50
Acquisition of Steinway Musical Properties, Inc.
(net of cash acquired) - (102,790)
(Increase) decrease in other assets 162 (184)
---------- ----------
Net cash flows from investing activities (1,381) (103,929)
Cash flows from financing activities
Net repayments under line of credit agreement 21,131 11,603
Issuance of long-term debt 4,639 110,000
Repayments of long-term debt (5,486) (5,230)
---------- ----------
Net cash flows from financing activities 20,284 116,373
Effects of foreign exchange rate changes on cash (360) 196
---------- ----------
Increase (Decrease) in Cash (2,036) 673
Cash, beginning of period 3,706 380
---------- ----------
Cash, end of period $ 1,670 $ 1,053
---------- ----------
---------- ----------
Supplemental Cash Flow Information
Interest paid $ 9,564 $ 3,663
---------- ----------
---------- ----------
Taxes paid $ 7,468 $ 3,018
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
5
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Steinway Musical Instruments, Inc. (formerly Selmer Industries, Inc.) and
subsidiaries (the "Company") for the six months ended June 29, 1996 and July 1,
1995 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements as
of and for the year ended December 31, 1995, and include all adjustments which
are of a normal and recurring nature, necessary for the fair presentation of
financial position, results of operations and cash flows for the interim period.
The condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. The results of operations for the six months
ended June 29, 1996 are not necessarily indicative of the results which may be
expected for the entire year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
the Company include the accounts of its wholly-owned subsidiary, The Selmer
Company, Inc. ("Selmer") and its wholly-owned subsidiaries, Steinway Musical
Properties, Inc. ("Steinway") and Vincent Bach International, Ltd. ("VBI").
Significant intercompany balances have been eliminated in consolidation.
RECLASSIFICATIONS - Certain reclassifications of 1995 amounts have
been made to conform to the financial statement classification adopted in 1996.
(3) COMMITMENTS AND CONTINGENCIES
Certain environmental matters are pending against the Company, which
might result in monetary damages, the amount of which, if any, cannot be
determined at the present time. Philips Electronics, a previous owner of the
Company, has agreed to hold the Company harmless from any financial liability
arising from these environmental matters which were pending as of December 29,
1988. Management believes that these matters will not have a material adverse
impact on the Company's results of operations or financial condition.
6
(4) SUMMARIZED FINANCIAL INFORMATION
Steinway Musical Instruments, Inc. is a holding company whose only
asset consists of its investment in its wholly-owned subsidiary, The Selmer
Company, Inc. Summarized financial information for The Selmer Company, Inc. and
subsidiaries is as follows:
Six Months Ended
June 29, December 31, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- ---------
Current assets $ 146,099 $ 132,380
Total assets 271,048 263,796
Current liabilities 34,038 41,767
Stockholder's equity 6,691 5,198
Total revenues $ 133,416 $ 71,714
Gross profit 42,687 20,523
Net income 3,291 1,709
(5) STOCKHOLDERS' EQUITY
On May 14, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the public offering of shares of
its ordinary common stock with an aggregate offering price of approximately $75
million. The Company intends to use the net proceeds from the offering to repay
existing indebtedness. On July 3, 1996, the Company effected a 2.83-to-1 stock
split. All share and per share amounts have been retroactively adjusted for all
periods presented and give effect to the stock split. Additionally, on July 3,
1996, the Company changed its name from Selmer Industries, Inc. to Steinway
Musical Instruments, Inc.
(6) SUMMARY OF MERGER AND GUARANTEES
On May 25, 1995, Selmer acquired Steinway pursuant to an Agreement and
Plan of Merger dated as of April 11, 1995. The total purchase price of
approximately $104 million, including fees and expenses, was funded by Selmer's
issuance of $105 million of 11% Senior Subordinated Notes due 2005 and available
cash balances of the Company.
The following pro forma financial information gives effect to the
acquisition as if it had occurred as of January 1, 1995 (in thousands, except
per share data):
Six Months
Ended
July 1, 1995
------------
Revenues $ 115,640
Net income 321
Net income per share $ .06
7
Selmer's payment obligations under the Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several basis by the Company
as Parent (the "Guarantor Parent"), and by Steinway and certain wholly-owned
subsidiaries of Steinway, each a direct or indirect wholly-owned subsidiary of
the Company and each a "Guarantor", (the "Guarantor Subsidiaries"). These
subsidiaries, together with the operating divisions of Selmer, represent all of
the operations of the Company conducted in the United States. The remaining
subsidiaries, which do not guarantee the Notes, represent foreign operations
(the "Non Guarantor Subsidiaries").
The following condensed consolidating supplementary data illustrates
the composition of the combined Guarantors. Separate complete financial
statements of the respective Guarantors would not provide additional material
information which would be useful in assessing the financial composition of the
Guarantors. No single Guarantor has any significant legal restrictions on the
ability of investors or creditors to obtain access to its assets in event of
default on the Guarantee other than its subordination to senior indebtedness.
Investments in subsidiaries are accounted for by the parent on the
cost method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are therefore not reflected in the parent's investment
accounts and earnings. The principal elimination entries eliminate investments
in subsidiaries and intercompany balances and transactions.
8
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 29, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Guarantor Guarantor
Parent Issuer Subsidiaries Subsidiaries Eliminations Consolidated
------- ------- ------- ------- ------- -------
ASSETS
Current assets:
Cash $ (839) $ 1,642 $ 867 $ 1,670
Accounts, notes and leases receivable, net 47,411 4,569 7,914 59,894
Inventories 25,708 24,698 26,424 $ (291) 76,539
Prepaid expenses and other current assets 1,420 1,185 821 3,426
Deferred tax asset 700 1,888 1,982 4,570
------- ------- ------- ------- -------
Total current assets 74,400 33,982 38,008 (291) 146,099
Property, plant and equipment, net 14,130 27,434 19,992 61,556
Investment in subsidiaries $ 7,335 105,630 30,521 178 (143,664) -
Intercompany 630 1,174 3,923 (5,727) -
Other assets, net 3,575 17,008 10,137 (1,313) 29,407
Cost in excess of fair value
of net assets acquired, net 10,043 11,926 12,017 33,986
------- ------- ------- ------- -------
TOTAL ASSETS $ 7,965 $ 208,952 $ 124,794 $ 80,332 $(150,995) $ 271,048
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of long-term debt $ 750 $ 5,784 $ 6,534
Accounts payable 2,247 $ 1,345 1,203 4,795
Other current liabilities 8,031 5,952 8,726 22,709
------- ------- ------- ------- -------
Total current liabilities 11,028 7,297 15,713 34,038
Long-term debt 180,060 3,554 4,000 187,614
Intercompany 630 80,000 5,097 $ (85,727) -
Deferred taxes 880 12,974 13,652 27,506
Non-current pension liability 2,206 13,676 (1,313) 14,569
------- ------- ------- ------- -------
Total liabilities 194,804 103,825 52,138 (87,040) 263,727
Stockholders' equity $ 7,965 14,148 20,969 28,194 (63,955) 7,321
------- ------- ------- ------- ------- -------
Total $ 7,965 $ 208,952 $ 124,794 $ 80,332 $(150,995) $ 271,048
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
9
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Guarantor Guarantor
Parent Issuer Subsidiaries Subsidiaries Eliminations Consolidated
------- ------- ------- ------- ------- -------
Net sales $ 68,853 $ 38,775 $ 28,493 $ (2,705) $ 133,416
Cost of sales 46,607 27,879 19,034 (2,791) 90,729
------- ------- ------- ------- -------
Gross profit 22,246 10,896 9,459 86 42,687
Operating expenses:
Sales and marketing 6,966 5,023 3,588 (78) 15,499
Provision for doubtful accounts 351 51 8 410
General and administrative 2,942 2,570 2,361 7,873
Amortization 400 1,035 870 2,305
Other expense 85 (222) 306 78 247
------- ------- ------- ------- -------
Total operating expenses 10,744 8,457 7,133 - 26,334
------- ------- ------- ------- -------
Earnings (loss) from operations 11,502 2,439 2,326 86 16,353
Other (income) expense:
Other income (4,564) - (26) 4,413 (177)
Interest expense 9,365 4,460 341 (4,413) 9,753
------- ------- ------- ------- -------
Other expense, net 4,801 4,460 315 - 9,576
------- ------- ------- ------- -------
Income (loss) before income taxes 6,701 (2,021) 2,011 86 6,777
Provision for (benefit of) income taxes 2,605 (707) 1,588 3,486
------- ------- ------- ------- -------
Net income (loss) $ 4,096 $ (1,314) $ 423 $ 86 $ 3,291
------- ------- ------- ------- -------
------- ------- ------- ------- -------
10
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 29, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Guarantor Guarantor
Parent Issuer Subsidiaries Subsidiaries Eliminations Consolidated
------- ------- ------- ------- ------- -------
Cash flows from operating activities
Net income (loss) $ 4,096 $ (1,314) $ 423 $ 86 $ 3,291
Adjustments to reconcile net income (loss)
to cash flows from operating activities:
Depreciation and amortization 1,641 2,332 1,681 5,654
Provision for doubtful accounts 351 51 8 410
Amortization of senior note discount 152 - - 152
Deferred tax benefit - (592) (535) (1,127)
Other - 11 - 11
Changes in operating assets and liabilities:
Accounts, notes and leases receivable (22,062) 2,883 361 (18,818)
Inventories 2,803 (754) (1,035) (86) 928
Prepaid expense and other current assets (312) (173) 129 (356)
Accounts payable (838) (1,151) (2,924) (4,913)
Accrued expenses (1,988) (1,123) (2,700) (5,811)
------- ------- ------- ------- -------
Net cash flows from operating activities (16,157) 170 (4,592) - (20,579)
Cash flows from investing activities
Capital expenditures (729) (665) (161) (1,555)
Proceeds from disposals of fixed assets - 12 - 12
(Increase) decrease in other assets 231 (6) (63) 162
------- ------- ------- ------- -------
Net cash flows from investing activities (498) (659) (224) - (1,381)
Cash flows from financing activities
Net borrowings (repayments)
under line of credit agreement 15,053 1,906 4,172 21,131
Issuance of long-term debt - - 4,639 4,639
Repayments of long-term debt - - (5,486) (5,486)
Intercompany 402 (1,401) 999 -
------- ------- ------- ------- ------- -------
Net cash flows from financing activities - 15,455 505 4,324 - 20,284
Effect of exchange rate changes on cash - - (360) (360)
Increase (decrease) in cash - (1,200) 16 (852) - (2,036)
Cash, beginning of period 361 1,626 1,719 3,706
------- ------- ------- ------- ------- -------
Cash, end of period $ - $ (839) $ 1,642 $ 867 $ - $ 1,670
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS) (UNAUDITED)
INTRODUCTION
On May 25, 1995, Selmer acquired Steinway Musical Properties, Inc. for
approximately $104 million. The Steinway Acquisition was effected pursuant to a
Merger Agreement dated as of April 11, 1995. The Steinway Acquisition is being
accounted for as a purchase for financial reporting purposes. The interim
financial statements of the Company as of and for the six months ending July 1,
1995 include the effects of the acquisition as well as the results of operations
for Steinway for the period May 25, 1995 to July 1, 1995. On July 3, 1996, the
Company changed its name from Selmer Industries, Inc. to Steinway Musical
Instruments, Inc.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1996 COMPARED TO THREE MONTHS ENDED JULY 1, 1995
NET SALES - Net sales increased by $24.5 million (61.6%) to $64.4 million
in the second quarter of 1996. The Steinway Acquisition accounted for $20.9
million of the increase.
GROSS PROFIT - Gross profit increased by $8.2 million (63.7%) to $21.0
million in the second quarter of 1996, after positive adjustments of $2.4
million in the second quarter of 1995 relating to purchase accounting
adjustments to inventory. Steinway contributed $6.4 million of the increase.
OPERATING EXPENSES - Operating expenses increased by $4.9 million (62.8%)
to $12.7 million in the second quarter of 1996. Steinway operating expenses
accounted for $4.3 million of the increase.
EARNINGS FROM OPERATIONS - Earnings from operations increased by $3.3
million (65.1%) to $8.2 million in the second quarter of 1996, after positive
adjustments of $2.4 million in the second quarter of 1995 relating to purchase
accounting adjustments to inventory. Steinway contributed $2.1 million of the
increase in earnings during the period.
NET INTEREST EXPENSE. Net interest expense increased by $1.9 million
(63.9%) to $4.9 million in the second quarter of 1996 primarily due to higher
outstanding long-term debt balances relating to the acquisition of Steinway.
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995
NET SALES - Net sales increased by $61.7 million (86.0%) to $133.4 million
in the first six months of 1996. The Steinway Acquisition contributed $52.6
million of the increase for the first six months of 1996. Selmer sales
increased $9.1 million (15.0%) with instrument unit growth of 7.6% representing
$3.8 million of the increase. The balance of the increase relates to price
realization.
12
GROSS PROFIT - Gross profit increased by $19.7 million (85.9%) to $42.7
million in the first six months of 1996, after positive adjustments of $2.4
million in the first six months of 1995 relating to purchase accounting
adjustments to inventory.
OPERATING EXPENSES - Operating expenses increased by $13.0 million (98.3%)
to $26.3 million in the first six months of 1996. Steinway operating expenses
accounted for $12.0 million of the increase.
EARNINGS FROM OPERATIONS - Earnings from operations increased by $6.7
million (69.0%) to $16.4 million in the first six months of 1996, after positive
adjustments of $2.4 million in the first six months of 1995 relating to purchase
accounting adjustments to inventory. The Steinway Acquisition contributed $4.1
million of the increase in earnings during the period.
NET INTEREST EXPENSE. Net interest expense increased by $5.0 million
(107.8%) to $9.6 million in the first six months of 1996 primarily due to higher
outstanding long-term debt balances relating to the acquisition of Steinway.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon cash provided by operations,
supplemented as necessary by seasonal borrowings under its working capital line,
to finance its operations, repay long-term indebtedness and fund capital
expenditures.
Cash required for operations was $20.6 million for the six months ended
June 29, 1996 and $12.0 million for the same period in 1995. Increases in
accounts receivable balances, primarily due to Selmer's financing arrangements
with its customers, offset by decreases in inventory balances and current
liability balances, contributed to the $29.0 increase in working capital from
December 31, 1995 to June 29, 1996. The seasonal increase in receivables
generally peaks in September. The Company anticipates that these balances will
decrease in October as customer payments accelerate and will continue to
decrease through the end of the year.
Capital expenditures were $1.6 million and $1.0 million for the six month
periods ended in 1996 and 1995, respectively. These capital expenditures were
mainly used for the purchase of new machinery and building improvements. The
Company expects to increase its level of capital expenditures in the future in
order to modernize, expand and renovate its equipment and facilities. The
Company's debt agreements limit domestic capital expenditures to $5.0 million
per year.
The Bank Credit Facility provides the Company with a potential borrowing
capacity of up to $60 million, based on eligible accounts receivable and
inventory balances. As of June 29, 1996, $21.4 million was outstanding, and
availability was approximately $43.5 million. Open account loans with foreign
banks also provide for borrowings by Steinway's foreign subsidiaries of up to 20
million Deutsche Marks.
The Company's long-term financing consists primarily of $45 million of 11%
Senior Secured Notes, $10 million of 10.92% Senior Secured Notes and $110
million of Senior Subordinated Notes. The Company's debt agreements contain
restrictive covenants that place certain restrictions on the Company, including
restrictions to the Company's ability to incur additional indebtedness, to make
investments in other entities, or to pay cash dividends.
13
On May 14, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the public offering of shares of
its ordinary common stock with an aggregate offering price of approximately $75
million. The Company intends to use the net proceeds from the offering to repay
existing indebtedness. On July 3, 1996, the Company effected a 2.83-to-1 stock
split. All share and per share amounts have been retroactively adjusted for all
periods presented and give effect to the stock split.
Management believes that cash on hand, together with cash flow anticipated
from operations and available borrowings under the Bank Credit Facility, will be
adequate to fund the Company's operations through 1996.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended June 29, 1996.
14
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.
STEINWAY MUSICAL INSTRUMENTS INC.
/s/ Dana D. Messina
-------------------------------------
Dana D. Messina
Director and Chief Executive Officer
/s/ Dennis Hanson
-------------------------------------
Dennis Hanson
Chief Financial Officer
THE SELMER COMPANY, INC.
/s/ Thomas T. Burzycki
-------------------------------------
Thomas T. Burzycki
Director, President and Chief Executive Officer
/s/ Michael R. Vickrey
-------------------------------------
Michael R. Vickrey
Executive Vice President and Chief Financial
Officer
Date: July 30, 1996
15