Exhibit 99.1
For Immediate Release:
Steinway Reports Q2 2005 Results
Sales, Operating Profits Up 7%
WALTHAM, MA – August 4, 2005 – Steinway Musical Instruments, Inc. (NYSE: LVB), one of the world’s leading manufacturers of musical instruments, today announced results for the quarter and six months ended June 30, 2005.
Net sales and gross profits for the second quarter increased 7% over the prior year period. Operating profits rose 7%, to $8 million and EBITDA rose 5%, to $11 million. Basic EPS decreased to $0.30 from $0.34 in the second quarter of 2004. Adjusted EPS held at $0.34. Adjustments for the second quarter of 2005 are comprised of charges relating to the step-up of acquired inventory and are detailed in the attached financial tables.
Operating expenses increased 7% for the quarter, primarily as a result of a shift in timing of fees related to compliance with the Sarbanes-Oxley Act and additional SG&A from an acquisition. An increase in foreign exchange losses as compared to the prior year period contributed to a decrease in other income.
Piano Operations
Second quarter piano sales increased 3% to $46 million. Price increases coupled with a strong performance overseas, where Steinway grand unit shipments rose 11%, more than offset a unit decline in the United States. This resulted in an increase in total piano revenue despite a decrease in overall units of 2%. Gross margins increased from 34.5% to 35.5% as a result of a shift in sales mix toward higher margin grand pianos and an increase in sales to territories where the Company realizes more favorable pricing.
The Company’s second quarter sales increase brought year-to-date sales for 2005 to $90 million, a level consistent with prior year. A decrease in total piano unit shipments of 3% for the six-month period was offset by price increases and a favorable sales mix. Favorable sales mix also led to an increase in gross margins from 34.4% to 35.9%.
Band Operations
Second quarter sales of band & orchestral instruments rose 12%, to $43 million, on additional sales from an acquisition. Unit shipments of woodwind and brass instruments rose 13% over the prior year period. Gross margins fell from 23.0% to 22.3% as a result of inventory step-up charges related to the acquisition as well as production inefficiencies and training costs associated with plant consolidation. The margin decline was somewhat mitigated by lower employee medical costs. Adjusted band margins improved from 23.1% in the second quarter of 2004 to 23.6% in the current quarter.
For the first six months, sales increased 9%, to $91 million. Production inefficiencies and inventory step-up charges led to a reduction in year-to-date gross margins from 22.8% to 21.3%.
Comments
CEO Dana Messina remarked, “The second quarter was a good quarter for our business. Piano sales in Europe and Asia have bounced back from earlier in the year. Also, demand in the U.S. is showing signs of improvement, as sales picked up toward the end of the quarter.”
Turning to band operations, Messina said, “Our band business is beginning to turn around. Orders for our outsourced instruments have been strong and product quality is meeting our expectations. We are seeing improvement in our domestic manufacturing as disruptions from plant consolidation have been reduced. Sequentially, our Adjusted band margins increased from 22.0% to 23.6%. More significantly, Adjusted margins improved over the prior year period for the first time in over a year.”
The Company expects the remaining $0.4 million of charges related to the step-up of acquired inventory to roll through the second half of the year. While the Company anticipates an increase in its annual effective tax rate (as compared to 2004) to approximately 40%, it expects sales and operating profits for 2005 to show improvement over the prior year.
Conference Call
Management will be discussing the Company’s second quarter results and outlook for the remainder of 2005 on a conference call today beginning at 5:30 p.m. EDT. A live web cast and an archived version of the call will be available to all interested parties on the Company’s web site, www.steinwaymusical.com.
About Steinway Musical Instruments
Steinway Musical Instruments, Inc., through its Steinway and Conn-Selmer divisions, is one of the world’s leading manufacturers of musical instruments. Its notable products include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones, Ludwig snare drums and Steinway & Sons pianos.
Non-GAAP Financial Measures Used by Steinway Musical Instruments
The Company uses the non-GAAP measurement EBITDA, which it defines as earnings before net interest expense, income taxes, depreciation and amortization, adjusted to exclude non-recurring, infrequent or unusual items. The Company uses EBITDA because it is useful to management and investors as a measure of the Company’s core operating performance. The Company also believes EBITDA is helpful in determining the Company’s ability to meet future debt service, capital expenditures and working capital requirements. In addition, certain of the Company’s debt covenants are based upon EBITDA calculations and the Company uses EBITDA as the basis for determining bonuses for its managers. However, EBITDA should not be construed as a substitute for operating income or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.
The Company has provided other non-GAAP measurements which present operating results on a basis excluding certain non-comparable items. The Company has provided Adjusted financial information because management uses it to better understand the Company’s core operating performance on a going forward basis. This Adjusted information also provides meaningful comparisons of performance between periods. However, there are limitations in the use of such information because the Company’s actual results do include the impact of these Adjustments. The non-GAAP measures are intended only as a supplement to the comparable GAAP measures.
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995
This release contains “forward-looking statements” which 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 which could cause actual results to differ materially from those indicated in this release. These risk factors include the following: changes in general economic conditions; recent geopolitical events; increased competition; work stoppages and slowdowns; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new band instrument product and distribution strategies; ability of suppliers to meet demand; fluctuations in effective tax rates resulting from shifts in sources of income; and the ability to successfully integrate and operate acquired businesses. Further information on these risk factors is included in the Company’s filings with the Securities and Exchange Commission.
Contact: | Julie A. Theriault |
| Telephone: 781-894-9770 |
| E-mail: ir@steinwaymusical.com |
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands, Except Per Share Data)
(Unaudited)
Condensed Consolidated Statements of Income
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 6/30/2005 |
| 6/30/2004 |
| 6/30/2005 |
| 6/30/2004 |
| ||||
Net sales |
| $ | 89,761 |
| $ | 83,688 |
| $ | 181,103 |
| $ | 173,749 |
|
Cost of sales |
| 63,635 |
| 59,285 |
| 129,280 |
| 123,621 |
| ||||
Gross profit |
| 26,126 |
| 24,403 |
| 51,823 |
| 50,128 |
| ||||
|
| 29.1 | % | 29.2 | % | 28.6 | % | 28.9 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
| 18,399 |
| 17,190 |
| 37,038 |
| 34,817 |
| ||||
Income from operations |
| 7,727 |
| 7,213 |
| 14,785 |
| 15,311 |
| ||||
Interest expense, net |
| 3,666 |
| 3,423 |
| 6,835 |
| 6,564 |
| ||||
Other (income) expense, net |
| 33 |
| (734 | ) | (406 | ) | (1,346 | ) | ||||
Income before taxes |
| 4,028 |
| 4,524 |
| 8,356 |
| 10,093 |
| ||||
Provision for income taxes |
| 1,610 |
| 1,810 |
| 3,340 |
| 4,035 |
| ||||
Net income |
| $ | 2,418 |
| $ | 2,714 |
| $ | 5,016 |
| $ | 6,058 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share - basic |
| $ | 0.30 |
| $ | 0.34 |
| $ | 0.62 |
| $ | 0.75 |
|
Earnings per share - diluted |
| $ | 0.29 |
| $ | 0.33 |
| $ | 0.61 |
| $ | 0.72 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares - basic |
| 8,052 |
| 7,957 |
| 8,042 |
| 8,084 |
| ||||
Weighted average common shares - diluted |
| 8,276 |
| 8,341 |
| 8,259 |
| 8,437 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Condensed Consolidated Balance Sheets |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
| 6/30/2005 |
| 6/30/2004 |
| 12/31/2004 |
| ||||
Cash |
|
|
| $ | 17,742 |
| $ | 30,323 |
| $ | 27,372 |
| |
Receivables, net |
|
|
| 90,354 |
| 84,653 |
| 88,059 |
| ||||
Inventories |
|
|
| 179,872 |
| 159,384 |
| 172,346 |
| ||||
Other current assets |
|
|
| 18,311 |
| 17,661 |
| 20,984 |
| ||||
Total current assets |
|
|
| 306,279 |
| 292,021 |
| 308,761 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, net |
|
|
| 98,739 |
| 95,912 |
| 102,944 |
| ||||
Other assets |
|
|
| 63,019 |
| 62,236 |
| 65,840 |
| ||||
Total assets |
|
|
| $ | 468,037 |
| $ | 450,169 |
| $ | 477,545 |
| |
|
|
|
|
|
|
|
|
|
| ||||
Notes payable and current portion of long-term debt |
|
|
| $ | 13,794 |
| $ | 10,501 |
| $ | 14,212 |
| |
Other current liabilities |
|
|
| 50,702 |
| 49,798 |
| 58,681 |
| ||||
Total current liabilities |
|
|
| 64,496 |
| 60,299 |
| 72,893 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
|
|
| 210,887 |
| 213,312 |
| 208,580 |
| ||||
Other liabilities |
|
|
| 47,848 |
| 45,282 |
| 50,519 |
| ||||
Stockholders’ equity |
|
|
| 144,806 |
| 131,276 |
| 145,553 |
| ||||
Total liabilities and stockholders’ equity |
|
|
| $ | 468,037 |
| $ | 450,169 |
| $ | 477,545 |
|
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands, Except Per Share Data)
(Unaudited)
Reconciliation of GAAP Earnings to Adjusted Earnings
|
|
|
| Three Months Ended 6/30/05 |
|
|
| |||||||
|
|
|
| GAAP |
| Adjustments |
| Adjusted |
|
|
| |||
Band sales |
|
|
| $ | 43,368 |
| $ | — |
| $ | 43,368 |
|
|
|
Piano sales |
|
|
| 46,393 |
| — |
| 46,393 |
|
|
| |||
Total sales |
|
|
| 89,761 |
| — |
| 89,761 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band cost of sales |
|
|
| 33,709 |
| (567 | )(1) | 33,142 |
|
|
| |||
Piano cost of sales |
|
|
| 29,926 |
| — |
| 29,926 |
|
|
| |||
Total cost of sales |
|
|
| 63,635 |
| (567 | ) | 63,068 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band gross profit |
| 22.3 | % | 9,659 |
| 567 |
| 10,226 |
| 23.6 | % | |||
Piano gross profit |
| 35.5 | % | 16,467 |
| — |
| 16,467 |
| 35.5 | % | |||
Total gross profit |
| 29.1 | % | 26,126 |
| 567 |
| 26,693 |
| 29.7 | % | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses |
|
|
| 18,399 |
| — |
| 18,399 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income from operations |
|
|
| 7,727 |
| 567 |
| 8,294 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
|
| 3,666 |
| — |
| 3,666 |
|
|
| |||
Other (income) expense, net |
|
|
| 33 |
| — |
| 33 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income before taxes |
|
|
| 4,028 |
| 567 |
| 4,595 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Provision for income taxes |
|
|
| 1,610 |
| 227 | (2) | 1,837 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
|
|
| $ | 2,418 |
| $ | 340 |
| $ | 2,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
|
|
| $ | 0.30 |
|
|
| $ | 0.34 |
|
|
| |
Earnings per share - diluted |
|
|
| $ | 0.29 |
|
|
| $ | 0.33 |
|
|
| |
Weighted average common shares - basic |
|
|
| 8,052 |
|
|
| 8,052 |
|
|
| |||
Weighted average common shares - diluted |
|
|
| 8,276 |
|
|
| 8,276 |
|
|
|
|
|
|
| Three Months Ended 6/30/04 |
|
|
| |||||||
|
|
|
| GAAP |
| Adjustments |
| Adjusted |
|
|
| |||
Band sales |
|
|
| $ | 38,755 |
| $ | — |
| $ | 38,755 |
|
|
|
Piano sales |
|
|
| 44,933 |
| — |
| 44,933 |
|
|
| |||
Total sales |
|
|
| 83,688 |
| — |
| 83,688 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band cost of sales |
|
|
| 29,844 |
| (32 | )(3) | 29,812 |
|
|
| |||
Piano cost of sales |
|
|
| 29,441 |
| — |
| 29,441 |
|
|
| |||
Total cost of sales |
|
|
| 59,285 |
| (32 | ) | 59,253 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band gross profit |
| 23.0 | % | 8,911 |
| 32 |
| 8,943 |
| 23.1 | % | |||
Piano gross profit |
| 34.5 | % | 15,492 |
| — |
| 15,492 |
| 34.5 | % | |||
Total gross profit |
| 29.2 | % | 24,403 |
| 32 |
| 24,435 |
| 29.2 | % | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses |
|
|
| 17,190 |
| — |
| 17,190 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income from operations |
|
|
| 7,213 |
| 32 |
| 7,245 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
|
| 3,423 |
| — |
| 3,423 |
|
|
| |||
Other (income) expense, net |
|
|
| (734 | ) | — |
| (734 | ) |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income before taxes |
|
|
| 4,524 |
| 32 |
| 4,556 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Provision for income taxes |
|
|
| 1,810 |
| 13 | (2) | 1,823 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
|
|
| $ | 2,714 |
| $ | 19 |
| $ | 2,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
|
|
| $ | 0.34 |
|
|
| $ | 0.34 |
|
|
| |
Earnings per share - diluted |
|
|
| $ | 0.33 |
|
|
| $ | 0.33 |
|
|
| |
Weighted average common shares - basic |
|
|
| 7,957 |
|
|
| 7,957 |
|
|
| |||
Weighted average common shares - diluted |
|
|
| 8,341 |
|
|
| 8,341 |
|
|
|
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects charges relating to the step-up of Leblanc inventory.
(2) Reflects the tax effect of Adjustments at the Company’s effective rate for the period.
(3) Reflects employee severance costs associated with plant closures.
|
|
|
| Six Months Ended 6/30/05 |
|
|
| |||||||
|
|
|
| GAAP |
| Adjustments |
| Adjusted |
|
|
| |||
Band sales |
|
|
| $ | 90,935 |
| $ | — |
| $ | 90,935 |
|
|
|
Piano sales |
|
|
| 90,168 |
| — |
| 90,168 |
|
|
| |||
Total sales |
|
|
| 181,103 |
| — |
| 181,103 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band cost of sales |
|
|
| 71,523 |
| (1,270 | )(1) | 70,253 |
|
|
| |||
Piano cost of sales |
|
|
| 57,757 |
| — |
| 57,757 |
|
|
| |||
Total cost of sales |
|
|
| 129,280 |
| (1,270 | ) | 128,010 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band gross profit |
| 21.3 | % | 19,412 |
| 1,270 |
| 20,682 |
| 22.7 | % | |||
Piano gross profit |
| 35.9 | % | 32,411 |
| — |
| 32,411 |
| 35.9 | % | |||
Total gross profit |
| 28.6 | % | 51,823 |
| 1,270 |
| 53,093 |
| 29.3 | % | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses |
|
|
| 37,038 |
| — |
| 37,038 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income from operations |
|
|
| 14,785 |
| 1,270 |
| 16,055 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
|
| 6,835 |
| — |
| 6,835 |
|
|
| |||
Other (income) expense, net |
|
|
| (406 | ) | — |
| (406 | ) |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income before taxes |
|
|
| 8,356 |
| 1,270 |
| 9,626 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Provision for income taxes |
|
|
| 3,340 |
| 508 | (2) | 3,848 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
|
|
| $ | 5,016 |
| $ | 762 |
| $ | 5,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
|
|
| $ | 0.62 |
|
|
| $ | 0.72 |
|
|
| |
Earnings per share - diluted |
|
|
| $ | 0.61 |
|
|
| $ | 0.70 |
|
|
| |
Weighted average common shares - basic |
|
|
| 8,042 |
|
|
| 8,042 |
|
|
| |||
Weighted average common shares - diluted |
|
|
| 8,259 |
|
|
| 8,259 |
|
|
|
|
|
|
| Six Months Ended 6/30/04 |
|
|
| |||||||
|
|
|
| GAAP |
| Adjustments |
| Adjusted |
|
|
| |||
Band sales |
|
|
| $ | 83,099 |
| $ | — |
| $ | 83,099 |
|
|
|
Piano sales |
|
|
| 90,650 |
| — |
| 90,650 |
|
|
| |||
Total sales |
|
|
| 173,749 |
| — |
| 173,749 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band cost of sales |
|
|
| 64,160 |
| (1,444 | )(3) | 62,716 |
|
|
| |||
Piano cost of sales |
|
|
| 59,461 |
| — |
| 59,461 |
|
|
| |||
Total cost of sales |
|
|
| 123,621 |
| (1,444 | ) | 122,177 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Band gross profit |
| 22.8 | % | 18,939 |
| 1,444 |
| 20,383 |
| 24.5 | % | |||
Piano gross profit |
| 34.4 | % | 31,189 |
| — |
| 31,189 |
| 34.4 | % | |||
Total gross profit |
| 28.9 | % | 50,128 |
| 1,444 |
| 51,572 |
| 29.7 | % | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses |
|
|
| 34,817 |
| 76 | (4) | 34,893 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income from operations |
|
|
| 15,311 |
| 1,368 |
| 16,679 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
|
| 6,564 |
| — |
| 6,564 |
|
|
| |||
Other (income) expense, net |
|
|
| (1,346 | ) | — |
| (1,346 | ) |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income before taxes |
|
|
| 10,093 |
| 1,368 |
| 11,461 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Provision for income taxes |
|
|
| 4,035 |
| 547 | (2) | 4,582 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
|
|
| $ | 6,058 |
| $ | 821 |
| $ | 6,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
|
|
| $ | 0.75 |
|
|
| $ | 0.85 |
|
|
| |
Earnings per share - diluted |
|
|
| $ | 0.72 |
|
|
| $ | 0.82 |
|
|
| |
Weighted average common shares - basic |
|
|
| 8,084 |
|
|
| 8,084 |
|
|
| |||
Weighted average common shares - diluted |
|
|
| 8,437 |
|
|
| 8,437 |
|
|
|
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects charges relating to the step-up of Leblanc inventory.
(2) Reflects the tax effect of Adjustments at the Company’s effective rate for the period.
(3) Reflects employee severance costs associated with plant closures.
(4) Reflects gain on sale of equipment associated with plant closures.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to EBITDA
|
| Three Months Ended |
| ||||
|
| 6/30/2005 |
| 6/30/2004 |
| ||
Cash flows from operating activities |
| $ | (9,719 | ) | $ | (11,702 | ) |
Changes in operating assets and liabilities |
| 14,894 |
| 16,928 |
| ||
Income taxes, net of deferred tax benefit |
| 1,730 |
| 1,901 |
| ||
Net interest expense |
| 3,666 |
| 3,423 |
| ||
Other |
| 23 |
| 32 |
| ||
Non-recurring, infrequent or unusual cash charges |
| 567 |
| 32 |
| ||
EBITDA |
| $ | 11,161 |
| $ | 10,614 |
|
|
|
|
|
|
| ||
|
| Six Months Ended |
| ||||
|
| 6/30/2005 |
| 6/30/2004 |
| ||
Cash flows from operating activities |
| $ | (10,097 | ) | $ | (10,612 | ) |
Changes in operating assets and liabilities |
| 20,650 |
| 22,389 |
| ||
Income taxes, net of deferred tax benefit |
| 3,619 |
| 4,253 |
| ||
Net interest expense |
| 6,835 |
| 6,564 |
| ||
Other |
| (77 | ) | (599 | ) | ||
Non-recurring, infrequent or unusual cash charges |
| 1,270 |
| 1,368 |
| ||
EBITDA |
| $ | 22,200 |
| $ | 23,363 |
|