EXHIBIT 99.1
For Immediate Release:
Steinway Reports Q4 2006 Results
WALTHAM, MA – March 1, 2007 – Steinway Musical Instruments, Inc. (NYSE: LVB), one of the world’s leading manufacturers of musical instruments, today announced results for the quarter and twelve months ended December 31, 2006.
Revenues decreased 4% for the quarter, to $106.1 million, due to the loss of an estimated $7.6 million in band instrument sales caused by a labor strike. Lost profit and unabsorbed overhead from the strike also negatively impacted gross profit for the quarter by approximately $4.4 million. Despite these factors, overall gross margins improved from 29.3% to 30.4%.
Operating expenses increased 21% as compared to the prior year period primarily as a result of an increase in bad debt expense of $4.1 million, the majority of which related to the bankruptcy of a band customer. Recruiting costs, stock-based compensation and bonuses paid to our overseas piano operations also contributed to the increase. Operating income was $6.3 million as compared to $10.7 million in the prior year period. Net interest expense decreased 17% compared to the fourth quarter of 2005, as a result of continued debt reduction and the Company’s successful debt refinancing earlier in the year.
Income before taxes was negatively impacted by the following atypical items (shown in millions):
| | Q4 | | 2006 | |
Adjustments included in Adjusted EBITDA: | | | | | |
Loss on extinguishment of debt | | $ | — | | $ | 9.7 | |
Unabsorbed overhead due to strike | | — | | 2.0 | |
Charges relating to step-up of inventory | | — | | 0.1 | |
Total Adjustments | | $ | — | | $ | 11.8 | |
| | | | | |
Other Atypical Items: | | | | | |
Lost gross profit on lost sales due to strike | | $ | 2.5 | | $ | 6.5 | |
Unabsorbed overhead due to replacement worker inefficiencies | | 1.9 | | 1.9 | |
Inventory reserve adjustment | | — | | 2.4 | |
Bad debt expense due to customer bankruptcies | | 2.9 | | 7.2 | |
Unabsorbed overhead due to piano plant shutdowns | | — | | 1.3 | |
Total Other Atypical Items | | $ | 7.3 | | $ | 19.3 | |
| | | | | |
Total Adjustments & Atypical Items | | $ | 7.3 | | $ | 31.1 | |
For the quarter, the Company posted Basic EPS of $0.13 compared to $0.62 in the prior year period. For 2006, the Company posted a Basic loss per share of $0.08 compared to Basic earnings per share of $1.71 in the prior year. Adjusted Basic EPS was $0.77 compared to $1.87 in 2005. Adjustments, which are comprised primarily of costs associated with a labor strike and a loss on the early extinguishment of debt, are detailed in the attached financial tables.
Band Operations
Band sales for the quarter decreased $10.7 million, or 23%, due to the lost sales caused by a labor strike at one of the Company’s manufacturing facilities and the impact of recent customer bankruptcies. Gross margins for the quarter declined to 15.9% due to the negative impact of the strike.
Sales for 2006 declined only $13.2 million, or 7%, as strong sales of other instruments somewhat offset the $19.3 million in lost sales from the strike. Gross margins declined from 20.4% to 18.6% as a result of the strike.
Piano Operations
Worldwide piano sales for the quarter increased $6.7 million, or 10%, including a $2.5 million positive impact from foreign currency translation. Demand continued to be strong overseas where fourth quarter unit shipments of Steinway grand pianos rose 7% and unit shipments of mid-priced pianos more than doubled over the prior year period. Domestically, shipments of mid-priced pianos climbed 70% as a result of the re-launch of the Essex brand. Steinway grand unit shipments declined 14% from the prior year period. Gross margins improved from 37.1% to 37.5%.
Year-to-date piano sales were up 5%. Gross margins declined from 36.4% to 35.4% as a result of plant shutdowns and a shift in product mix.
Comments
Discussing fourth quarter results of the piano segment, CEO Dana Messina stated, “We are extremely pleased with the overall results of our piano business this quarter. Sales were strong, especially overseas, where we had a record year. For the fourth quarter, an increase in domestic sales of mid-priced pianos offset lower sales of Steinway grands. For the year, worldwide unit shipments in the mid-priced segment increased 30% while unit shipments of Steinway grands were virtually level with 2005.”
Regarding band operations, Messina said, “Our band business continues to improve. The ongoing strike at our brass plant in Elkhart impacted revenue more this quarter than in previous quarters because fourth quarter sales typically include a higher proportion of professional instruments. If you factor out the impact of the strike, sales and gross margins would have increased in 2006.”
“We are still negotiating with the union,” said Messina, “but we remain far apart on many important terms. In the meantime, after all of the recruiting and hiring we did in the third quarter, we were at appropriate staffing levels at our Elkhart brass plant throughout the fourth quarter. Quality has improved dramatically and we are making progress on production as the permanent replacement workers become more efficient. Daily production today is double what it was in the fourth quarter.”
Messina commented, “Overall, we should see improved band sales and margins in 2007. Order rates for band instruments are up and our production rates are improving. While we will continue to deal with the impact of the strike for several more months, we expect production levels of professional instruments at our Elkhart brass plant to improve throughout the year. Looking at our piano business, the U.S. market is difficult to predict but we expect Europe and Asia to continue to perform well in 2007.”
Conference Call
Management will be discussing the Company’s fourth quarter results and outlook for 2007 on a conference call today beginning at 5:00 p.m. ET. A live webcast and an archive of the call will be available to all interested parties on the Company’s website, 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 Adjusted 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 Adjusted EBITDA because it is useful to management and investors as a measure of the Company’s core operating performance. The Company also believes Adjusted 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 Adjusted EBITDA calculations and the Company uses Adjusted EBITDA as the basis for determining bonuses for its managers. However, Adjusted EBITDA should not be construed as a substitute for income from operations 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; ability of new workers to meet desired production levels; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new product and distribution strategies; ability of suppliers to meet demand; concentration of credit risk; 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 |
Email: | | ir@steinwaymusical.com |
