-----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, Ez/zV3jb9zpw9ZQ2f5ZX4KAZiZk8ABN/bb4iiKGDeje1jw3f1DQEF01EvntcJ5Of tIYmwPriNPXG5aWQ5xglog== 0000912057-96-025785.txt : 19961113 0000912057-96-025785.hdr.sgml : 19961113 ACCESSION NUMBER: 0000912057-96-025785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEINWAY MUSICAL INSTRUMENTS INC CENTRAL INDEX KEY: 0000911583 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] 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: 96660111 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: 96660112 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 FORM 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 SEPTEMBER 28, 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 October 24, 1996: 6,780,286 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES FORM 10Q INDEX PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets September 28, 1996 and December 31, 1995. . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations Nine months ended September 28, 1996 and September 30, 1995 . . 4 Condensed Consolidated Statements of Cash Flows Nine months ended September 28, 1996 and September 30, 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)
SEPTEMBER 28, DECEMBER 31, 1996 1995 -------- -------- ASSETS Current assets: Cash $ 315 $ 3,706 Accounts, notes and leases receivable, net of allowance for bad debts of $7,267 and $6,281 in 1996 and 1995, respectively 67,757 41,860 Inventories 76,920 79,063 Prepaid expenses and other current assets 2,978 3,058 Deferred tax asset 4,570 4,693 -------- -------- Total current assets 152,540 132,380 Property, plant and equipment, net of accumulated depreciation of $12,385 and $7,596 in 1996 and 1995, respectively 61,138 64,132 Other assets, net 27,850 32,114 Cost in excess of fair value of net assets acquired, net of accumulated amortization of $1,678 and $1,024 in 1996 and 1995, respectively 33,765 35,170 -------- -------- TOTAL ASSETS $275,293 $263,796 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 2,988 $ 2,306 Accounts payable 5,149 8,172 Other current liabilities 27,388 31,289 -------- -------- Total current liabilities 35,525 41,767 Long-term debt 132,821 171,733 Deferred taxes 26,973 29,452 Non-current pension liability 14,773 15,016 -------- -------- Total liabilities 210,092 257,968 Commitments and Contingencies Stockholders' equity: Common and preferred equity 5 1 Additional paid in capital 68,982 5,629 Accumulated deficit (2,138) (2,261) Other stockholders' equity (1,648) 2,459 -------- -------- Total stockholders' equity 65,201 5,828 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $275,293 $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 Nine Months Ended ---------------------------- ---------------------------- September 28, September 30, September 28, September 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Net sales $ 61,460 $ 59,223 $ 194,876 $ 130,937 Cost of sales 41,798 47,575 132,527 98,766 ---------- ---------- ---------- ---------- Gross profit 19,662 11,648 62,349 32,171 Operating Expenses: Sales and marketing 6,831 6,638 22,330 14,599 Provision for doubtful accounts 194 141 604 539 General and administrative 4,061 3,754 11,934 7,369 Amortization 1,069 1,097 3,374 1,961 Other expense 112 207 359 649 ---------- ---------- ---------- ---------- Total Operating Expenses 12,267 11,837 38,601 25,117 ---------- ---------- ---------- ---------- Earnings (loss) from operations 7,395 (189) 23,748 7,054 Interest expense, net 4,592 5,160 14,168 9,768 ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary item 2,803 (5,349) 9,580 (2,714) Provision for (benefit of) income taxes 1,603 (2,379) 5,089 (1,453) ---------- ---------- ---------- ---------- Income (loss) before extraordinary item 1,200 (2,970) 4,491 (1,261) Extraordinary item - Early extinguishment of debt (net of tax benefit of $2,640) 4,368 4,368 ---------- ---------- ---------- ---------- Net income (loss) $ (3,168) $ (2,970) $ 123 $ (1,261) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) per share: Income (loss) before extraordinary item $ .14 $ (1.98) $ .67 $ (.84) Extraordinary item (.52) (.65) ---------- ---------- ---------- ---------- Net income (loss) per share $ (.38) $ (1.98) $ .02 $ (.84) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 8,337,127 1,499,900 6,750,460 1,499,900 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See notes to condensed consolidated financial statements. 4 STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Nine Months Ended ----------------------------- September 30, September 30, 1996 1995 ------------- ------------- Cash flows from operating activities Net income (loss) $ 123 $ (1,261) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 8,317 4,739 Provision for doubtful accounts 604 473 Amortization of senior note discount 213 206 Deferred tax benefit (1,666) (4,895) Early extinguishment of debt 4,368 - Other 10 132 Changes in operating assets and liabilities: Accounts, notes and leases receivable (26,888) (24,336) Inventories 425 12,426 Prepaid expense and other current assets 143 318 Accounts payable (3,031) (2,140) Accrued expenses 211 836 -------- --------- Net cash flows from operating activities (17,171) (13,502) Cash flows from investing activities Capital expenditures (2,765) (2,680) Proceeds from disposals of fixed assets 16 145 Acquisition of Steinway Musical Properties, Inc. (net of cash acquired) - (102,790) Increase in other assets (113) (248) -------- --------- Net cash flows from investing activities (2,862) (105,573) Cash flows from financing activities Net borrowings under line of credit agreement 15,704 15,547 Proceeds from issuance of long-term debt 4,639 110,000 Repayments of long-term debt (64,582) (5,499) Proceeds from issuance of stock 61,022 - -------- --------- Net cash flows from financing activities 16,783 120,048 Effects of foreign exchange rate changes on cash (141) 34 -------- --------- Increase (Decrease) in Cash (3,391) 1,007 Cash, beginning of period 3,706 380 -------- --------- Cash, end of period $ 315 $ 1,387 -------- --------- -------- --------- Supplemental Cash Flow Information Interest paid $ 11,368 $ 4,312 -------- --------- -------- --------- Taxes paid $ 8,698 $ 4,559 -------- --------- -------- ---------
See notes to condensed consolidated financial statements. 5 STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 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 nine months ended September 28, 1996 and September 30, 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 nine months ended September 28, 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 Selmer's 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 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: Nine Months Ended September 28, December 31, September 28, September 30, 1996 1995 1996 1995 ------------- ------------ ------------- ------------- Current assets $152,132 $132,380 Total assets 274,885 263,796 Current liabilities 34,921 41,767 Stockholder's equity 3,107 5,198 Total revenues $194,876 $130,937 Gross profit 62,349 32,171 Net loss (319) (1,261) (5) STOCKHOLDERS' EQUITY In August 1996, the Company completed an initial public offering of its ordinary common stock which raised approximately $63.1 million. After deducting expenses of approximately $2.1 million, the Company used the net proceeds from the offering to repay $54.6 million of Senior Secured Notes, and related prepayment penalties of $4.5 million. Prior to the offering, 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. (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): Nine Months Ended September 30, 1995 ------------------ Revenues $174,863 Net income $ 403 Net income per share $ .07 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 SEPTEMBER 28, 1996 (DOLLARS IN THOUSANDS) (UNAUDITED)
Non Guarantor Issuer Guarantor Guarantor Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated --------- --------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash $ 408 $ (1,346) $ 780 $ 473 $ 315 Accounts, notes and leases receivable, net 52,530 6,009 9,218 67,757 Inventories 26,907 24,562 25,794 $ (343) 76,920 Prepaid expenses and other current assets 1,150 982 846 2,978 Deferred tax asset 700 1,888 1,982 4,570 ------- -------- -------- ------- --------- -------- Total current assets 408 79,941 34,221 38,313 (343) 152,540 Property, plant and equipment, net 14,254 27,136 19,748 61,138 Investment in subsidiaries 7,335 105,630 30,521 178 (143,664) - Intercompany 62,305 1,343 (63,648) - Other assets, net 2,734 16,568 9,861 (1,313) 27,850 Cost in excess of fair value of net assets acquired, net 9,976 11,849 11,940 33,765 ------- -------- -------- ------- --------- -------- TOTAL ASSETS $70,048 $213,878 $120,295 $80,040 $(208,968) $275,293 ------- -------- -------- ------- --------- -------- ------- -------- -------- ------- --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 2,988 $ 2,988 Accounts payable $ 2,360 $ 1,578 1,211 5,149 Other current liabilities $ 604 8,800 8,233 10,205 $ (454) 27,388 ------- -------- -------- ------- --------- -------- Total current liabilities 604 11,160 9,811 14,404 (454) 35,525 Long-term debt 126,445 2,626 3,750 132,821 Intercompany 15 61,967 74,893 6,319 (143,194) - Deferred taxes 880 12,701 13,392 26,973 Non-current pension liability 2,206 13,880 (1,313) 14,773 ------- -------- -------- ------- --------- -------- Total liabilities 619 202,658 100,031 51,745 (144,961) 210,092 Stockholders' equity 69,429 11,220 20,264 28,295 (64,007) 65,201 ------- -------- -------- ------- --------- -------- Total $70,048 $213,878 $120,295 $80,040 $(208,968) $275,293 ------- -------- -------- ------- --------- -------- ------- -------- -------- ------- --------- --------
9 STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 28, 1996 (DOLLARS IN THOUSANDS) (UNAUDITED)
Non Guarantor Issuer Guarantor Guarantor Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated --------- --------- ------------ ------------ ------------ ------------ Net sales $98,141 $57,320 $43,400 $(3,985) $194,876 Cost of sales 66,217 41,119 29,210 (4,019) 132,527 ------- ------- ------- ------- -------- Gross profit 31,924 16,201 14,190 34 62,349 Operating expenses: Sales and marketing 9,679 7,396 5,343 (88) 22,330 Provision for doubtful accounts 500 76 28 604 General and administrative 4,256 4,136 3,542 11,934 Amortization 586 1,552 1,236 3,374 Other (income) expense 119 (515) 667 88 359 ------- ------- ------- ------- -------- Total operating expenses 15,140 12,645 10,816 - 38,601 ------- ------- ------- ------- -------- Earnings from operations 16,784 3,556 3,374 34 23,748 Interest (income) expense: Interest income $(698) (6,791) - (36) 7,067 (458) Interest expense 14,473 6,706 514 (7,067) 14,626 ----- ------- ------- ------- ------- -------- Interest expense, net (698) 7,682 6,706 478 - 14,168 ----- ------- ------- ------- ------- -------- Income (loss) before income taxes and extraordinary item 698 9,102 (3,150) 2,896 34 9,580 Provision for (benefit of) income taxes 256 3,566 (1,131) 2,398 5,089 ----- ------- ------- ------- ------- -------- Income (loss) before extraordinary item 442 5,536 (2,019) 498 34 4,491 Extraordinary item - Early extinguishment of debt 4,368 4,368 ----- ------- ------- ------- ------- -------- Net income (loss) $ 442 $ 1,168 $(2,019) $ 498 $ 34 $ 123 ----- ------- ------- ------- ------- -------- ----- ------- ------- ------- ------- --------
10 STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 28, 1996 (DOLLARS IN THOUSANDS) (UNAUDITED)
Non Guarantor Issuer Guarantor Guarantor Parent of Notes Subsidiaries Subsidiaries Eliminations Consolidated --------- --------- ------------ ------------ ------------ ------------ Cash flows from operating activities Net income (loss) $ 442 $ 1,168 $(2,019) $ 498 $ 34 $ 123 Adjustments to reconcile net income (loss) to cash flows from operating activities: Depreciation and amortization 2,445 3,419 2,453 8,317 Provision for doubtful accounts 500 76 28 604 Amortization of senior note discount 213 - - 213 Deferred tax benefit - (864) (802) (1,666) Early extinguishment of debt 4,368 - - 4,368 Other - 14 (4) 10 Changes in operating assets and liabilities: Accounts, notes and leases receivable (27,330) 1,418 (976) (26,888) Inventories 1,604 (474) (671) (34) 425 Prepaid expense and other current assets (42) 34 151 143 Accounts payable (725) (651) (1,655) (3,031) Accrued expenses 604 1,421 890 (2,250) (454) 211 -------- -------- ------- ------- ----- -------- Net cash flows from operating activities 1,046 (16,378) 1,843 (3,228) (454) (17,171) Cash flows from investing activities Capital expenditures (1,471) (1,084) (210) (2,765) Proceeds from disposals of fixed assets - 12 4 16 (Increase) decrease in other assets 14 (10) (117) (113) -------- -------- ------- ------- ----- -------- Net cash flows from investing activities (1,457) (1,082) (323) - (2,862) Cash flows from financing activities Net borrowings under line of credit agreement 13,654 978 1,072 15,704 Issuance of long-term debt - - 4,639 4,639 Repayments of long-term debt (59,096) - (5,486) (64,582) Proceeds from issuance of stock 61,022 - - - 61,022 Intercompany (61,660) 61,570 (2,585) 2,221 454 - -------- -------- ------- ------- ----- -------- Net cash flows from financing activities (638) 16,128 (1,607) 2,446 454 16,783 Effect of exchange rate changes on cash - - (141) (141) Increase (decrease) in cash 408 (1,707) (846) (1,246) - (3,391) Cash, beginning of period 361 1,626 1,719 3,706 -------- -------- ------- ------- ----- -------- Cash, end of period $ 408 $ (1,346) $ 780 $ 473 $ - $ 315 -------- -------- ------- ------- ----- -------- -------- -------- ------- ------- ----- --------
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 nine months ending September 30, 1995 include the effects of the acquisition as well as the results of operations for Steinway for the period May 25, 1995 to September 30, 1995. On July 3, 1996, the Company changed its name from Selmer Industries, Inc. to Steinway Musical Instruments, Inc. 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 qualified by and subject to important factors. Such factors could cause actual results to differ materially from those indicated herein. Further information on these factors is included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and its Registration Statement on Form S-1 filed on May 14, 1996, particularly the section therein entitled "Risk Factors." RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 NET SALES - Net sales increased by $2.2 million (3.8%) to $61.4 million in the third quarter of 1996. While Selmer instrument unit sales remained unchanged from the prior year, realization of price increases, as well as a favorable mix of higher priced instruments, resulted in an 8.2% increase in revenues for Selmer. Overall sales for Steinway pianos for the quarter were essentially unchanged from the prior year. While unit volume in the United States increased by 10%, continued sluggishness in Europe, a strong U.S. dollar and a slight change in product mix combined to offset this increase. GROSS PROFIT - Consistent with the increase in sales, gross profit increased by $0.8 million (4.2%) to $19.7 million in the third quarter of 1996, after positive adjustments of $7.2 million in the third quarter of 1995 relating to purchase accounting adjustments to inventory. Gross margins increased slightly to 32.0% for the third quarter of 1996 compared to 31.9% in 1995. OPERATING EXPENSES - Operating expenses increased by $0.4 million (3.6%) to $12.3 million in the third quarter of 1996, reflecting both inflation and increased sales volume. The expenses represented 20.0% of third quarter sales in both 1996 and 1995. EARNINGS FROM OPERATIONS - Earnings from operations increased by $0.4 million (5.1%) to $7.4 million in the third quarter of 1996, after positive adjustments of $7.2 million in the third quarter of 1995 relating to purchase accounting adjustments to inventory. These improved earnings resulted from increased sales combined with consistent profit margins. 12 NET INTEREST EXPENSE - Net interest expense decreased by $0.6 million (11.0%) to $4.6 million in the third quarter of 1996 primarily due to lower outstanding long-term debt balances resulting from the retirement of the Company's Senior Secured Notes. NINE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 NET SALES - Net sales increased by $63.9 million (48.8%) to $194.9 million in the first nine months of 1996. The Steinway Acquisition contributed $52.6 million of this increase. Selmer sales increased $11.3 million (12.9%) with instrument unit growth of 5% representing $3.5 million of the increase. The balance of the increase relates to price realization and a favorable mix of higher priced instruments. GROSS PROFIT - Gross profit increased by $20.5 million (49.0%) to $62.3 million in the first nine months of 1996, after positive adjustments of $9.6 million in the first nine months of 1995 relating to purchase accounting adjustments to inventory. The Steinway Acquisition contributed $15.8 million of the increase. Selmer gross profit increased $4.7 million (16.9%) in 1996, reflecting the increase in sales. Gross margins increased slightly to 32.0% in 1996 compared to 31.9% in 1995. OPERATING EXPENSES - Operating expenses increased by $13.5 million (53.7%) to $38.6 million in the first nine months of 1996. Steinway operating expenses accounted for $12.4 million of the increase. Selmer operating expenses increased $1.1 million (7.5%) for the first nine months of 1996. This increase occurred primarily in sales and marketing expenses associated with the increased sales level. As a percentage of sales, Selmer operating expenses decreased from 16.6% of sales in 1995 to 15.8% in 1996. EARNINGS FROM OPERATIONS - Earnings from operations increased by $7.0 million (42.1%) to $23.7 million in the first nine months of 1996, after positive adjustments of $9.6 million in the first nine months of 1995 relating to purchase accounting adjustments to inventory. The Steinway Acquisition contributed $3.4 million of the increase in earnings during the period. The remaining $3.6 million increase in earnings represents the contribution from Selmer's increased sales level. NET INTEREST EXPENSE - Net interest expense increased by $4.4 million (45.0%) to $14.2 million in the first nine months of 1996 primarily due to higher outstanding long-term debt balances relating to the Steinway Acquisition. 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 for the first nine months of 1996 increased $3.7 million over the comparable period in 1995 primarily due to increased receivables arising from higher Selmer sales and the Steinway Acquisition. The higher Selmer sales combined with its special receivable financing arrangements were the major determinants of the seasonal growth in working capital which increased $29.1 million during the first nine months of 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. 13 Capital expenditures were $2.8 million and $2.7 million for the nine 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 September 28, 1996, $19.1 million was outstanding, and availability was approximately $40.5 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 $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. In August 1996, the Company completed an initial public offering of its ordinary common stock which raised approximately $63.1 million. After deducting expenses of approximately $2.1 million, the Company used the net proceeds from the offering to repay $54.6 million of Senior Secured Notes, and related prepayment penalties of $4.5 million. Prior to the offering, 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 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 September 28, 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, 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: November 8, 1996 15 EX-27.1 2 EXHIBIT 27.1
5 0000911583 Steinway Musical Instruments, Inc. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-28-1996 315 0 75024 7267 76920 152540 73523 12385 275293 35525 132821 0 0 5 65196 275293 194876 194876 132527 34264 3733 604 14168 9580 5089 4491 0 4368 0 123 .02 .02
EX-27.2 3 EXHIBIT 27.2
5 0000918904 The Selmer Company, Inc. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-28-1996 0 0 75024 7267 76920 152225 73523 12385 274978 35468 132821 0 0 0 3107 274978 194876 194876 132527 34264 3733 604 14866 8882 4833 4049 0 4368 0 (319) (319.00) (319.00)
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