-----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, S2TeJE9VBBNd7UipOe3a+yuCAERe+Ueu0RWOrn7KTQNsDCCnLPiY3oNXw8pTgRxm LX4DJb0pVvxTP+uHtXkr9w== 0000912057-97-026969.txt : 19970812 0000912057-97-026969.hdr.sgml : 19970812 ACCESSION NUMBER: 0000912057-97-026969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEINWAY MUSICAL INSTRUMENTS INC CENTRAL INDEX KEY: 0000911583 STANDARD INDUSTRIAL CLASSIFICATION: MUSICAL INSTRUMENTS [3931] IRS NUMBER: 351910745 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11911 FILM NUMBER: 97655606 BUSINESS ADDRESS: STREET 1: 600 INDUSTRIAL PARKWAY CITY: ELKHART STATE: IN ZIP: 46516 BUSINESS PHONE: 2195221675 MAIL ADDRESS: STREET 1: 600 INDUSTRIAL PARKWAY CITY: ELKHART STATE: IN ZIP: 46516 FORMER COMPANY: FORMER CONFORMED NAME: SELMER INDUSTRIES INC DATE OF NAME CHANGE: 19940209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SELMER CO INC CENTRAL INDEX KEY: 0000918904 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 954432228 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-75072-01 FILM NUMBER: 97655607 BUSINESS ADDRESS: STREET 1: 600 INDUSTRIAL PARKWAY CITY: ELKHART STATE: IN ZIP: 46516 BUSINESS PHONE: 2195221675 MAIL ADDRESS: STREET 1: 600 INDUSTRIAL PARKWAY CITY: ELKHART STATE: IN ZIP: 46516 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 EX-27.1 2 EXHIBIT 27.1
5 0000911583 STEINWAY MUSICAL INSTRUMENTS INC. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-28-1997 1,923 0 75,086 7,682 84,411 164,069 75,536 16,797 280,911 36,895 130,411 0 0 9 68,729 280,911 143,501 143,501 96,839 25,161 2,117 322 6,256 12,806 5,902 6,904 0 0 0 6,904 .73 .73
EX-27.2 3 EXHIBIT 27.2
5 0000918904 THE SELMER COMPANY, INC. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-28-1997 1,902 0 74,300 7,667 83,159 161,176 75,093 16,638 277,669 40,143 130,181 0 0 0 69,643 277,669 142,003 142,003 95,696 23,661 3,087 322 6,262 12,975 5,964 7,011 0 0 0 7,011 7011.00 7011.00
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