Exhibit 99.1
For Immediate Release:
Steinway Reports Q3 2005 Results
Basic EPS up 31%
WALTHAM, MA – November 3, 2005 – Steinway Musical Instruments, Inc. (NYSE: LVB), one of the world’s leading manufacturers of musical instruments, today announced results for the quarter and nine months ended September 30, 2005.
Net sales for the third quarter increased 1% over the prior year period and gross margins improved 130 basis points. Operating profits climbed 23%, to $9 million, and EBITDA rose 6%, to $13 million. The Company posted Basic EPS of $0.46, an increase of 31% over the comparable quarter. Adjusted EPS was $0.48 compared to $0.42 in 2004. Adjustments for the third quarter of 2005 are comprised of charges relating to the step-up of acquired inventory and are detailed in the attached financial tables.
For the nine-month period, sales rose 3%, to $277 million, and gross margins improved from 28.3% to 28.6%. Operating profits increased 5%, to $24 million. Basic EPS was $1.09.
Piano Operations
Third quarter piano sales increased 3% as compared to the prior year period. A 25% jump in overseas Steinway grand piano shipments was offset by a 15% decrease in grand shipments in the U.S. As a result, worldwide Steinway grand piano unit shipments declined 6%. Total piano unit shipments, including the Company’s mid-priced lines, decreased 8% from the third quarter of 2004. Piano gross margins remained strong at 36.3%.
Year-to-date piano sales increased slightly, to $139 million. Price increases and a favorable sales mix offset a decrease in total piano unit shipments of 5%. Gross margins rose from 35.1% to 36.1%.
Band Operations
Third quarter sales of band & orchestral instruments remained level at $47 million. Unit shipments of woodwind and brass instruments increased 3% over the prior year period. Gross margins increased from 18.3% to 20.7%. Adjusted gross margins improved from 20.2% to 21.3%, as production facilities continue to increase their efficiency.
For the first nine months, sales increased 6%, to $138 million. Year-to-date gross margins were 21.1%.
Comments
CEO Dana Messina commented, “We are very pleased with our third quarter performance. We are seeing overall improvement in our band business. Export sales are still strong and gross margins continue to increase.”
Turning to piano operations, Messina added, “Our European piano operation is doing very well, with strong sales into Eastern Europe and a positive product mix. In the U.S., the piano business was soft during the third quarter, particularly in the mid-priced segment of the market.”
Looking toward the fourth quarter, Messina said, “While our piano business overseas should stay strong, we expect our U.S. piano business to continue to remain challenging through the end of this year. In the upcoming quarter, we expect to realize lower piano gross margins than in the fourth quarter of 2004. In our band operations, we are experiencing an increase in orders and gaining traction on our turnaround efforts. We expect both sales and margin improvement in our band business for the fourth quarter.”
The Company anticipates its full year tax rate to be approximately 40% for 2005. The Company continues to expect 2005 sales and operating profits to show improvement over the prior year.
Conference Call
Management will be discussing the Company’s third quarter results and outlook for the remainder of 2005 on a conference call today beginning at 5:30 p.m. ET. 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 make 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 |
| Nine Months Ended |
| ||||||||
|
| 9/30/2005 |
| 9/30/2004 |
| 9/30/2005 |
| 9/30/2004 |
| ||||
Net sales |
| $ | 95,914 |
| $ | 94,653 |
| $ | 277,017 |
| $ | 268,402 |
|
Cost of sales |
| 68,418 |
| 68,757 |
| 197,698 |
| 192,378 |
| ||||
Gross profit |
| 27,496 |
| 25,896 |
| 79,319 |
| 76,024 |
| ||||
|
| 28.7 | % | 27.4 | % | 28.6 | % | 28.3 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
| 18,158 |
| 18,299 |
| 55,196 |
| 53,116 |
| ||||
Income from operations |
| 9,338 |
| 7,597 |
| 24,123 |
| 22,908 |
| ||||
Interest expense, net |
| 3,562 |
| 3,690 |
| 10,397 |
| 10,254 |
| ||||
Other (income) expense, net |
| (467 | ) | (806 | ) | (873 | ) | (2,152 | ) | ||||
Income before taxes |
| 6,243 |
| 4,713 |
| 14,599 |
| 14,806 |
| ||||
Provision for income taxes |
| 2,500 |
| 1,885 |
| 5,840 |
| 5,920 |
| ||||
Net income |
| $ | 3,743 |
| $ | 2,828 |
| $ | 8,759 |
| $ | 8,886 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share - basic |
| $ | 0.46 |
| $ | 0.35 |
| $ | 1.09 |
| $ | 1.10 |
|
Earnings per share - diluted |
| $ | 0.45 |
| $ | 0.34 |
| $ | 1.06 |
| $ | 1.06 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares - basic |
| 8,088 |
| 7,998 |
| 8,057 |
| 8,055 |
| ||||
Weighted average common shares - diluted |
| 8,284 |
| 8,282 |
| 8,268 |
| 8,386 |
| ||||
Condensed Consolidated Balance Sheets
|
| 9/30/2005 |
| 9/30/2004 |
| 12/31/2004 |
| |||
Cash |
| $ | 21,012 |
| $ | 14,118 |
| $ | 27,372 |
|
Receivables, net |
| 93,424 |
| 107,076 |
| 88,059 |
| |||
Inventories |
| 173,981 |
| 176,392 |
| 172,346 |
| |||
Other current assets |
| 21,357 |
| 17,287 |
| 20,984 |
| |||
Total current assets |
| 309,774 |
| 314,873 |
| 308,761 |
| |||
|
|
|
|
|
|
|
| |||
Property, plant and equipment, net |
| 97,502 |
| 100,665 |
| 102,944 |
| |||
Other assets |
| 61,681 |
| 66,023 |
| 65,840 |
| |||
Total assets |
| $ | 468,957 |
| $ | 481,561 |
| $ | 477,545 |
|
|
|
|
|
|
|
|
| |||
Notes payable and current portion of long-term debt |
| $ | 13,902 |
| $ | 10,427 |
| $ | 14,212 |
|
Other current liabilities |
| 56,342 |
| 59,723 |
| 58,681 |
| |||
Total current liabilities |
| 70,244 |
| 70,150 |
| 72,893 |
| |||
|
|
|
|
|
|
|
| |||
Long-term debt |
| 201,816 |
| 229,742 |
| 208,580 |
| |||
Other liabilities |
| 47,951 |
| 46,042 |
| 50,519 |
| |||
Stockholders’ equity |
| 148,946 |
| 135,627 |
| 145,553 |
| |||
Total liabilities and stockholders’ equity |
| $ | 468,957 |
| $ | 481,561 |
| $ | 477,545 |
|
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands, Except Per Share Data)
(Unaudited)
Reconciliation of GAAP Earnings to Adjusted Earnings
|
| Three Months Ended 9/30/05 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 46,943 |
| $ | — |
| $ | 46,943 |
|
Piano sales |
| 48,971 |
| — |
| 48,971 |
| |||
Total sales |
| 95,914 |
| — |
| 95,914 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 9,712 |
| 274 | (1) | 9,986 |
| |||
Piano gross profit |
| 17,784 |
| — |
| 17,784 |
| |||
Total gross profit |
| 27,496 |
| 274 |
| 27,770 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 20.7 | % |
|
| 21.3 | % | |||
Piano GM % |
| 36.3 | % |
|
| 36.3 | % | |||
Total GM % |
| 28.7 | % |
|
| 29.0 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 18,158 |
| — |
| 18,158 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 9,338 |
| 274 |
| 9,612 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 3,562 |
| — |
| 3,562 |
| |||
Other (income) expense, net |
| (467 | ) | — |
| (467 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 6,243 |
| 274 |
| 6,517 |
| |||
|
|
|
|
|
|
|
| |||
Provision for income taxes |
| 2,500 |
| 110 | (2) | 2,610 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 3,743 |
| $ | 164 |
| $ | 3,907 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.46 |
|
|
| $ | 0.48 |
| |
Earnings per share - diluted |
| $ | 0.45 |
|
|
| $ | 0.47 |
| |
|
| Three Months Ended 9/30/04 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 47,052 |
| $ | — |
| $ | 47,052 |
|
Piano sales |
| 47,601 |
| — |
| 47,601 |
| |||
Total sales |
| 94,653 |
| — |
| 94,653 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 8,596 |
| 932 | (1) | 9,528 |
| |||
Piano gross profit |
| 17,300 |
| — |
| 17,300 |
| |||
Total gross profit |
| 25,896 |
| 932 |
| 26,828 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 18.3 | % |
|
| 20.2 | % | |||
Piano GM % |
| 36.3 | % |
|
| 36.3 | % | |||
Total GM % |
| 27.4 | % |
|
| 28.3 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 18,299 |
| — |
| 18,299 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 7,597 |
| 932 |
| 8,529 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 3,690 |
| — |
| 3,690 |
| |||
Other (income) expense, net |
| (806 | ) | — |
| (806 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 4,713 |
| 932 |
| 5,645 |
| |||
|
|
|
|
|
|
|
| |||
Provision for income taxes |
| 1,885 |
| 373 | (2) | 2,258 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 2,828 |
| $ | 559 |
| $ | 3,387 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.35 |
|
|
| $ | 0.42 |
| |
Earnings per share - diluted |
| $ | 0.34 |
|
|
| $ | 0.41 |
| |
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects charges relating to the step-up of acquired inventory.
(2) Reflects the tax effect of Adjustments at the Company’s effective rate for the period.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands, Except Per Share Data)
(Unaudited)
Reconciliation of GAAP Earnings to Adjusted Earnings
|
| Nine Months Ended 9/30/05 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 137,878 |
| $ | — |
| $ | 137,878 |
|
Piano sales |
| 139,139 |
| — |
| 139,139 |
| |||
Total sales |
| 277,017 |
| — |
| 277,017 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 29,124 |
| 1,544 | (1) | 30,668 |
| |||
Piano gross profit |
| 50,195 |
| — |
| 50,195 |
| |||
Total gross profit |
| 79,319 |
| 1,544 |
| 80,863 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 21.1 | % |
|
| 22.2 | % | |||
Piano GM % |
| 36.1 | % |
|
| 36.1 | % | |||
Total GM % |
| 28.6 | % |
|
| 29.2 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 55,196 |
| — |
| 55,196 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 24,123 |
| 1,544 |
| 25,667 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 10,397 |
| — |
| 10,397 |
| |||
Other (income) expense, net |
| (873 | ) | — |
| (873 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 14,599 |
| 1,544 |
| 16,143 |
| |||
|
|
|
|
|
|
|
| |||
Provision for income taxes |
| 5,840 |
| 618 | (2) | 6,458 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 8,759 |
| $ | 926 |
| $ | 9,685 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 1.09 |
|
|
| $ | 1.20 |
| |
Earnings per share - diluted |
| $ | 1.06 |
|
|
| $ | 1.17 |
| |
|
| Nine Months Ended 9/30/04 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 130,151 |
| $ | — |
| $ | 130,151 |
|
Piano sales |
| 138,251 |
| — |
| 138,251 |
| |||
Total sales |
| 268,402 |
| — |
| 268,402 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 27,535 |
| 2,376 | (3) | 29,911 |
| |||
Piano gross profit |
| 48,489 |
| — |
| 48,489 |
| |||
Total gross profit |
| 76,024 |
| 2,376 |
| 78,400 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 21.2 | % |
|
| 23.0 | % | |||
Piano GM % |
| 35.1 | % |
|
| 35.1 | % | |||
Total GM % |
| 28.3 | % |
|
| 29.2 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 53,116 |
| 76 | (4) | 53,192 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 22,908 |
| 2,300 |
| 25,208 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 10,254 |
| — |
| 10,254 |
| |||
Other (income) expense, net |
| (2,152 | ) | — |
| (2,152 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 14,806 |
| 2,300 |
| 17,106 |
| |||
|
|
|
|
|
|
|
| |||
Provision for income taxes |
| 5,920 |
| 920 | (2) | 6,840 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 8,886 |
| $ | 1,380 |
| $ | 10,266 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 1.10 |
|
|
| $ | 1.27 |
| |
Earnings per share - diluted |
| $ | 1.06 |
|
|
| $ | 1.22 |
| |
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects charges relating to the step-up of acquired inventory.
(2) Reflects the tax effect of Adjustments at the Company’s effective rate for the period.
(3) Reflects $1,444 of employee severance costs associated with plant closures; and $932 of charges relating to the step up of acquired inventory.
(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 |
| ||||
|
| 9/30/2005 |
| 9/30/2004 |
| ||
Cash flows from operating activities |
| $ | 12,575 |
| $ | 2,928 |
|
Changes in operating assets and liabilities |
| (6,230 | ) | 2,763 |
| ||
Income taxes, net of deferred tax benefit |
| 2,549 |
| 1,990 |
| ||
Net interest expense |
| 3,562 |
| 3,690 |
| ||
Other |
| 154 |
| (153 | ) | ||
Non-recurring, infrequent or unusual cash charges |
| 274 |
| 932 |
| ||
EBITDA |
| $ | 12,884 |
| $ | 12,150 |
|
|
|
|
|
|
| ||
|
| Nine Months Ended |
| ||||
|
| 9/30/2005 |
| 9/30/2004 |
| ||
Cash flows from operating activities |
| $ | 2,478 |
| $ | (7,684 | ) |
Changes in operating assets and liabilities |
| 14,420 |
| 25,152 |
| ||
Income taxes, net of deferred tax benefit |
| 6,168 |
| 6,243 |
| ||
Net interest expense |
| 10,397 |
| 10,254 |
| ||
Other |
| 77 |
| (752 | ) | ||
Non-recurring, infrequent or unusual cash charges |
| 1,544 |
| 2,300 |
| ||
EBITDA |
| $ | 35,084 |
| $ | 35,513 |
|