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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 28, 1997
[] 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.
(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.)
800 South Street, Suite 425
Waltham, Massachusetts 02154
Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (617) 894-9770
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 31, 1997: Class A 477,953
Ordinary 8,944,984
---------
Total 9,422,937
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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
June 28, 1997 and December 31, 1996.............................. 3
Condensed Consolidated Statements of Operations
Six months ended June 28, 1997 and June 29, 1996................. 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 28, 1997 and June 29, 1996................. 5
Notes to Condensed Consolidated Financial Statements............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14
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 28, DECEMBER 31,
1997 1996
--------- ------------
ASSETS
Current assets:
Cash
$ 1,923 $ 3,277
Accounts, notes and leases receivable, net of allowance for
bad debts of $7,682 and $7,120 in 1997 and 1996, respectively 67,404 45,563
Inventories 84,411 82,950
Prepaid expenses and other current assets 4,927 2,867
Deferred tax asset 5,404 5,696
--------- ---------
Total current assets 164,069 140,353
Property, plant and equipment, net of accumulated
depreciation of $16,797 and $13,904 in 1997 and 1996, respectively 58,739 62,101
Other assets, net 23,652 26,291
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $2,298 and $1,894 in 1997 and 1996, respectively 34,451 36,621
--------- --------
TOTAL ASSETS $280,911 $265,366
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 3,208 $ 2,354
Accounts payable 6,005 6,453
Other current liabilities 27,682 28,913
--------- --------
Total current liabilities 36,895 37,720
Long-term debt 133,040 116,037
Deferred taxes 27,086 30,003
Non-current pension liability 12,570 13,728
--------- --------
Total liabilities 209,591 197,488
Commitments and Contingencies
Stockholders' equity:
Common stock 9 9
Additional paid in capital 68,729 68,729
Retained earnings 7,696 792
Accumulated translation adjustment (5,114) (1,652)
-------- ---------
Total stockholders' equity 71,320 67,878
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $280,911 $265,366
-------- --------
-------- --------
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 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $ 69,775 $ 64,367 $ 143,501 $ 133,416
Cost of sales 46,734 43,400 96,839 90,729
--------- --------- --------- ---------
Gross profit 23,041 20,967 46,662 42,687
Operating Expenses:
Sales and marketing 7,924 7,227 16,544 15,499
Provision for doubtful accounts 121 181 322 410
General and administrative 4,364 3,942 8,617 7,873
Amortization 969 1,205 1,953 2,305
Other expense 10 166 164 247
--------- --------- --------- ---------
Total Operating Expenses 13,388 12,721 27,600 26,334
--------- --------- --------- ---------
Earnings from operations 9,653 8,246 19,062 16,353
Interest expense, net 3,217 4,916 6,256 9,576
--------- --------- --------- ---------
Income before income taxes 6,436 3,330 12,806 6,777
Provision for income taxes 2,970 1,620 5,902 3,486
--------- -------- --------- ---------
Net income $ 3,466 $ 1,710 $ 6,904 $ 3,291
-------- -------- --------- ---------
-------- -------- --------- ---------
Net income per share $ .37 $ .29 $ .73 $ .55
-------- -------- --------- ---------
-------- -------- --------- ---------
Weighted average common and
common equivalent shares outstanding 9,422,937 5,957,127 9,422,937 5,957,127
--------- --------- --------- ---------
--------- --------- --------- ---------
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 28, June 29,
1997 1996
----------- ---------
Cash flows from operating activities
Net income $ 6,904 $ 3,291
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 5,366 5,654
Deferred tax benefit (1,152) (1,127)
Other 368 573
Changes in operating assets and liabilities:
Accounts, notes and leases receivable (22,499) (18,818)
Inventories (2,726) 928
Prepaid expense and other current assets (746) (356)
Accounts payable (390) (4,913)
Accrued expenses (53) (5,811)
---------- ----------
Net cash flows from operating activities (14,928) (20,579)
Cash flows from investing activities
Capital expenditures (1,871) (1,555)
Proceeds from disposals of fixed assets 33 12
Acquisition of business (net of cash acquired) (1,606)
Changes in other assets (1,391) 162
--------- ----------
Net cash flows from investing activities (4,835) (1,381)
Cash flows from financing activities
Net borrowings under line of credit agreements 18,880 21,131
Net repayments of long-term debt (453) (847)
--------- ---------
Net cash flows from financing activities 18,427 20,284
Effect of foreign exchange rate changes on cash (18) (360)
--------- ----------
Decrease in cash (1,354) (2,036)
Cash, beginning of period 3,277 3,706
--------- ----------
Cash, end of period $ 1,923 $ 1,670
--------- ----------
--------- ----------
Supplemental Cash Flow Information
Interest paid $ 6,554 $ 9,564
---------- ----------
---------- ----------
Taxes paid $ 6,332 $ 7,468
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
5
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Steinway
Musical Instruments, Inc. and subsidiaries (the "Company") for the six months
ended June 28, 1997 and June 29, 1996 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, 1996, 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, 1996. The results of operations for the six
months ended June 28, 1997 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 all of its direct and indirect wholly-owned
subsidiaries, including The Selmer Company, Inc. ("Selmer") and The Steinway
Piano Company, Inc. ("Steinway"). Significant intercompany balances have been
eliminated in consolidation.
RECLASSIFICATIONS - Certain reclassifications of 1996 amounts have
been made to conform to the financial statement classification adopted in 1997.
(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
The Company is a holding company whose only material 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 28, December 31, June 28, June 29
1997 1996 1997 1996
---------- ------------- --------- ----------
Current assets $ 161,176 $ 140,335
Total assets 277,669 265,348
Current liabilities 40,143 37,673
Stockholder's equity 72,267 68,718
Total revenues $ 142,003 $ 133,416
Gross profit 46,307 42,687
Net income 7,011 3,291
(5) SUMMARY OF MERGER AND GUARANTEES
The acquisition of Steinway in May 1995 was funded by Selmer's
issuance of $105 million of 11% Senior Subordinated Notes due 2005 and available
cash balances of the Company. 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 direct and indirect wholly-owned subsidiaries of the Company, 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.
7
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Issuer Guarantor Guarantor
Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash $ - $ (547) $ 1,017 $ 1,453 $ - $ 1,923
Accounts, notes and leases receivable, net 52,498 8,032 6,874 67,404
Inventories 29,845 30,740 24,439 (613) 84,411
Prepaid expenses and other current assets 846 1,256 782 2,043 4,927
Deferred tax asset 700 2,024 3,653 (973) 5,404
------- -------- -------- --------- --------- --------
Total current assets 846 83,752 42,595 38,462 (1,586) 164,069
Property, plant and equipment, net 89 14,485 27,242 16,923 58,739
Investment in subsidiaries 71,143 168,557 30,698 (270,398) -
Other assets, net 613 1,629 14,709 8,014 (1,313) 23,652
Cost in excess of fair value
of net assets acquired, net 9,773 11,620 13,058 34,451
------- -------- -------- ------- --------- -------
TOTAL ASSETS $72,691 $278,196 $126,864 $76,457 $(273,297) $280,911
------- -------- -------- ------- --------- --------
------- -------- -------- ------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of long-term debt $ - $ - $ - $ 3,208 $ - $ 3,208
Accounts payable 24 2,898 1,519 1,564 6,005
Other current liabilities (3,398) 10,331 11,382 10,951 (1,584) 27,682
-------- -------- ------- ------- -------- --------
Total current liabilities (3,374) 13,229 12,901 15,723 (1,584) 36,895
Long-term debt 230 119,444 10,737 2,629 133,040
Intercompany 7,169 60,436 (69,893) 2,288 -
Deferred taxes 1,165 11,191 14,730 27,086
Non-current pension liability 721 12,570 (721) 12,570
-------- -------- ------- ------- -------- --------
Total liabilities 4,025 194,995 (35,064) 47,940 (2,305) 209,591
Stockholders' equity 68,666 83,201 161,928 28,517 (270,992) 71,320
-------- --------- -------- ------- --------- --------
Total $72,691 $278,196 $126,864 $76,457 $(273,297) $280,911
-------- -------- -------- ------- --------- --------
-------- -------- -------- ------- --------- --------
8
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Issuer Guarantor Guarantor
Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------- ------------ ------------ ------------ ------------
Net sales $ - $75,150 $45,729 $26,294 $(3,672) $143,501
Cost of sales 50,589 31,443 18,335 (3,528) 96,839
-------- ------- -------- ------- -------- --------
Gross profit - 24,561 14,286 7,959 (144) 46,662
Operating expenses:
Sales and marketing 7,276 5,837 3,488 (57) 16,544
Provision for doubtful accounts 214 65 43 322
General and administrative 1,307 3,215 1,878 2,217 8,617
Amortization 230 1,035 688 1,953
Other (income) expense (1,084) 49 849 293 57 164
------- ------- -------- ------- ------- --------
Total operating expenses 223 10,984 9,664 6,729 - 27,600
------- ------- -------- ------- ------- --------
Earnings (loss) from operations (223) 13,577 4,622 1,230 (144) 19,062
Interest (income) expense:
Interest income (188) (7,749) (99) 7,743 (293)
Interest expense 9,501 4,530 261 (7,743) 6,549
------- ------- ------- ------- -------- -------
Interest expense, net - 9,313 (3,219) 162 - 6,256
------- ------- ------- ------- -------- -------
Income (loss) before income taxes (223) 4,264 7,841 1,068 (144) 12,806
Provision for (benefit of) income taxes (86) 1,902 3,394 711 (19) 5,902
------ ------- ------ ------ ----- -------
Net income (loss) $ (137) $ 2,362 $ 4,447 $ 357 $ (125) $ 6,904
------ ------- ------- ------- ------- -------
------ ------- ------- ------- ------- -------
9
STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 28, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Non
Guarantor Issuer Guarantor Guarantor
Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------- ------------ ------------ ------------ ------------
Cash flows from operating
activities
Net income (loss) $ (137) $ 2,362 $ 4,447 $ 357 $ (125) $ 6,904
Adjustments to reconcile
net income (loss) to cash
flows from operating activities
Depreciation and amortization 12 1,555 2,363 1,436 5,366
Deferred tax benefit (514) (638) (1,152)
Other 264 65 39 368
Changes in operating assets
and liabilities:
Accounts, notes and leases
receivable 25 (23,001) (1,925) 2,402 (22,499)
Inventories (13) 4,862 (4,222) (3,497) 144 (2,726)
Prepaid expense and other
current assets (623) 204 107 (434) (746)
Accounts payable (14) 149 (1,055) 530 (390)
Accrued expenses (4,196) 31 2,901 1,230 (19) (53)
------- ------- -------- -------- ---- --------
Net cash flows from operating
activities (4,946) (13,574) 2,167 1,425 (14,928)
Cash flows from investing
activities
Capital expenditures (18) (758) (843) (252) (1,871)
Proceeds from disposals of
fixed assets 9 24 33
Acquisition of business (net of
cash acquired) (1,730) 124 (1,606)
Changes in other assets (7) 252 (67) (1,569) (1,391)
------- ------- -------- -------- ---- ------
Net cash flows from investing
activities (1,755) (506) (777) (1,797) - (4,835)
Cash flows from financing
activities
Net borrowings under line of
credit agreements 95 9,444 8,299 1,042 18,880
Repayments of long-term debt (453) (453)
Intercompany dividend 7,203 (7,203) -
Intercompany 6,588 (2,764) (3,689) (135) -
------- ------- -------- ------- ---- -------
Net cash flows from financing
activities 6,683 13,883 (2,593) 454 - 18,427
Effect of exchange rate changes
on cash - - - (18) - (18)
Increase (decrease) in cash (18) (197) (1,203) 64 - (1,354)
Cash, beginning of period 18 (350) 2,220 1,389 3,277
------- ------- -------- -------- ------ -----
Cash, end of period $ - $ (547) $ 1,017 $ 1,453 $ - $ 1,923
------- ------- -------- -------- ------ --------
------- ------- --------- -------- ------ --------
10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS) (UNAUDITED)
INTRODUCTION
The Company, through its subsidiaries Steinway and Selmer, is one of the
world's leading manufacturers of musical instruments. In January 1997, the
Company acquired Emerson Musical Instruments, Inc. ("Emerson"), a
manufacturer of flutes and piccolos, for approximately $2.0 million,
including assumed liabilities. The acquisition has been accounted for as a
purchase for financial reporting purposes. In February 1997, the Company
formed a new wholly-owned subsidiary, Steinway & Sons Japan Ltd. ("SJL"), to
increase its distribution of pianos in Japan.
Certain statements contained in the following Discussion and Analysis of
Financial Condition and Results of Operations are "forward-looking
statements" within the meaning of Section 21E of the Securities and Exchange
Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The
Company cautions that such statements are necessarily based on certain
assumptions which are subject to risks and uncertainties, including, but not
limited to, changes in general economic conditions, exchange rate
fluctuations, and the availability of production capacity which could cause
actual results to differ materially from those indicated herein. Further
information on these risk factors is included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and its Final Prospectus
filed in August, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 28, 1997 COMPARED TO THREE MONTHS ENDED JUNE 29, 1996
NET SALES - Net sales increased by $5.4 million (8.4%) to $69.8 million
in the second quarter of 1997. Band instrument sales increased $3.5 million.
Contributing to the increase were Emerson sales of $0.8 million and unit
growth of 7% in Selmer instruments. Piano sales increased $1.9 million over
the previous year. Unit growth of 4% in the Steinway line and 33% in the
Boston line were offset by the translation of foreign sales at a stronger
dollar exchange rate and changes in the mix of units sold.
GROSS PROFIT - Consistent with the increase in sales, gross profit
increased by $2.1 million (9.9%) to $23.0 million in the second quarter of
1997. Gross margins increased to 33.0% for the second quarter of 1997
compared to 32.6% in 1996. This improvement reflects continued manufacturing
efficiencies throughout U.S. production facilities combined with a reduction
in the cost of the Boston piano line caused by the increase in the dollar
against the yen.
OPERATING EXPENSES - Operating expenses increased by $0.7 million (5.2%)
to $13.4 million in the second quarter of 1997. Approximately $0.3 million of
the increase relates to Emerson and SJL operating costs with the balance
reflecting inflation. Expenses decreased as a percentage of sales from 19.8%
in 1996 to 19.2% in 1997.
EARNINGS FROM OPERATIONS - Earnings from operations increased by $1.4
million (17.1%) to $9.7 million in the second quarter of 1997. These improved
earnings resulted from increased sales combined with improved gross profit
margins and firm control over operating expenses.
11
NET INTEREST EXPENSE - Net interest expense decreased by $1.7 million
(34.6%) to $3.2 million in the second quarter of 1997 reflecting the $1.6
million reduction in interest expense realized from the retirement of the
Company's Senior Secured Notes.
SIX MONTHS ENDED JUNE 28, 1997 COMPARED TO SIX MONTHS ENDED JUNE 29, 1996
NET SALES - Net sales increased by $10.1 million (7.6%) to $143.5
million in the first six months of 1997. Band instrument sales accounted for
$7.9 million of the increase. Emerson contributed $1.5 million of the
increase and Selmer instruments experienced unit growth of 6%. Piano sales
increased $2.2 million over the previous year. Unit increases of 5% in the
Steinway line and 33% in the Boston line continue to be offset by the
translation of foreign sales at a stronger dollar exchange rate and changes
in the mix of units sold.
GROSS PROFIT - Consistent with the increase in sales, gross profit
increased by $4.0 million (9.3%) to $46.7 million in the first six months of
1997. Gross margins increased to 32.5% in 1997 compared to 32.0% in 1996,
reflecting continued improvement in manufacturing efficiencies throughout
U.S. production facilities. Favorable exchange rates, which have reduced the
cost of the Boston piano line, have also contributed to the improvement.
OPERATING EXPENSES - Operating expenses increased by $1.3 million (4.8%)
to $27.6 million in the first six months of 1997. Approximately $0.5 million
of new expenses associated with Emerson and SJL are included in 1997
operating expenses. Remaining operating expenses have increased 3% over 1996
levels. Expenses decreased as a percentage of sales from 19.7% in 1996 to
19.2% in 1997.
EARNINGS FROM OPERATIONS - Earnings from operations increased by $2.7
million (16.6%) to $19.1 million in the first six months of 1997. This increase
has resulted from increased sales combined with improved gross profit margins
and firm control over operating expenses.
NET INTEREST EXPENSE - Net interest expense decreased by $3.3 million
(34.7%) to $6.3 million in the first six months of 1997 reflecting the $3.1
million savings realized from the retirement of the Company's Senior Secured
Notes.
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 in the first six months was $14.9 million
in 1997 and $20.6 million in 1996. The decrease in cash required for operations
in 1997 resulted from $3.2 million of additional cash earnings from operations
and $2.5 million in lower net working capital requirements.
The Company's investing activities used $1.6 million of cash to acquire
Emerson in January 1997. Capital expenditures were $1.9 million and $1.6
million for the first six months of 1997 and 1996, 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 as it continues to modernize, expand and renovate
its equipment and facilities.
12
The Company's domestic, seasonal borrowing requirements are accommodated
through a committed, revolving credit facility with a domestic bank (the
"Facility"). The 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 28, 1997, $20.4 million was outstanding, with
additional availability of approximately $38.9 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 $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.
Management believes that cash on hand, together with cash flow
anticipated from operations and available borrowings under the Facility, will
be adequate to meet debt service requirements, fund continuing capital
requirements and satisfy working capital and general corporate needs through
1997.
NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". The
adoption of this standard had no effect on the Company's results of
operation, financial position or cash flows.
The Company plans to adopt SFAS No.128, "Earnings per Share", as of
December 31, 1997. The proforma effect of adopting SFAS No. 128 as of June
28, 1997 would not change the reported earnings per share.
13
PART II OTHER INFORMATION
- ------- -----------------
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on June 27, 1997,
the Board of Directors was re-elected in its entirety with 52,774,265 votes
cast for re-election and 17,033 votes withheld.
The proposal to ratify Deloitte & Touche, LLP to serve as the Company's
independent public accountants for the fiscal year ending December 31, 1997
was approved with 52,758,748 votes cast for, 31,050 votes against, and 1,500
abstentions.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1. Steinway Musical Instruments, Inc. - Financial Data Schedule
Exhibit 27.2 The Selmer Company, Inc. - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 28, 1997.
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, President and Chief Executive
Officer
/s/ Dennis M. Hanson
----------------------------------
Dennis M. Hanson
Vice President and 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: August 8, 1997
15