Exhibit 99.1
For Immediate Release:
Steinway Reports Q1 Results
Piano Division Sales Up 26%; Overall GM up 190 Basis Points
WALTHAM, MA — May 3, 2007 — Steinway Musical Instruments, Inc. (NYSE: LVB), one of the world’s leading manufacturers of musical instruments, today announced results for the quarter ended March 31, 2007.
Piano sales increased $10.8 million, or 26%, as compared to the first quarter of 2006. This increase mitigated a sales decline in band instruments of $12.6 million, of which an estimated $7.2 million was caused by a labor strike. Despite the strike, overall revenues decreased only 2%. Gross margins improved from 27.3% to 29.2% despite lost profit and unabsorbed overhead from the strike of approximately $4.6 million.
Operating expenses increased $2.4 million primarily as a result of sales and marketing expenses related to the launch of new piano models and $0.5 million in reserves associated with recent acquisition activities. Net interest expense decreased 22% compared to the first quarter of 2006 as a result of debt reduction and the Company’s successful debt refinancing last year.
For the quarter, earnings per share increased to $0.17 from a loss per share of $0.23 in the prior year period. The $0.17 EPS compares to Adjusted EPS of $0.26 in the first quarter of 2006. Adjustments for 2006, which were comprised primarily of a loss on the early extinguishment of debt, are detailed in the attached financial tables.
Band Operations
Band sales for the quarter decreased $12.6 million, or 24%, primarily due to an estimated $7.2 million of lost sales caused by a labor strike at the Company’s Elkhart brass facility and $3.5 million of reduced sales due to dealer consolidation. Gross margins of 20.2% this quarter compare to 22.7% in the first quarter of 2006, which was pre-strike. Sequentially, gross margins improved from 15.9% in the last quarter of 2006 to 20.2% in the first quarter of 2007.
Piano Operations
Worldwide piano sales for the quarter increased $10.8 million, or 26%, over the prior year period. Shipments of Steinway grand pianos increased 11% (8% in the U.S. and 16% overseas) and shipments of mid-priced pianos climbed 88%. Higher production levels at the Company’s domestic piano factory and an increase in higher margin European sales led to an increase in piano gross margins from 33.1% to 36.0%.
Comments
“We are excited to report another good quarter for our piano business,” stated CEO Dana Messina. “We posted double-digit revenue growth both domestically and overseas. Steinway sales were strong worldwide
and our re-launched Essex line continues to exceed our expectations. Institutional sales continue to be a healthy part of our business as we recently shipped 141 Steinway pianos to the Crane School of Music at SUNY Potsdam. We also introduced a limited edition piano in the first quarter of this year which has generated a great deal of excitement throughout our dealer network.”
Regarding band operations, Messina said, “Our band business continues to improve. If you factor out the impact of the strike, band gross margins would have increased compared to the first quarter of 2006. We are pleased to report that our Elkhart brass facility returned to profitability in March of 2007 and that production continues to increase. Daily output of professional instruments recently reached pre-strike levels.”
Messina continued, “Since the strike, we have not produced student level brass instruments at our Elkhart brass plant because we were losing money on them. For student brass orders, we are shipping a combination of imported horns and horns made at our Eastlake facility. Standard margins in this product category have increased from 3% to approximately 30%.”
Regarding the remainder of 2007, Messina commented, “We expect production levels of professional instruments at our Elkhart brass plant to increase throughout 2007 and band margins are expected to continue to rise. Looking at our piano business, we remain cautious about the U.S. market but we expect Europe and Asia to continue to perform well.”
Conference Call
Management will be discussing the Company’s first quarter results and outlook for the remainder of 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.
Management to Present at the UBS Leveraged Finance Conference
CEO Dana Messina will give a presentation at the UBS Leveraged Finance Conference 2007 in Las Vegas, NV on Wednesday, May 9, 2007, at 8:00 a.m. PDT. Investors may listen to an audio version of the presentation via a live web cast in the Investor Relations section of Steinway’s website, www.steinwaymusical.com. A replay will be available until June 10, 2007.
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 |
STEINWAY MUSICAL INSTRUMENTS, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
| | Three Months Ended | |
| | 3/31/2007 | | 3/31/2006 | |
Net sales | | $ | 93,432 | | $ | 95,194 | |
Cost of sales | | 66,192 | | 69,202 | |
Gross profit | | 27,240 | | 25,992 | |
| | 29.2 | % | 27.3 | % |
| | | | | |
Operating expenses: | | | | | |
Sales and marketing | | 12,664 | | 11,670 | |
Provision for doubtful accounts | | 126 | | 57 | |
General and administrative | | 9,010 | | 8,378 | |
Amortization | | 196 | | 229 | |
Other operating expenses | | 877 | | 147 | |
Total operating expenses | | 22,873 | | 20,481 | |
| | | | | |
Income from operations | | 4,367 | | 5,511 | |
Interest expense, net | | 2,152 | | 2,748 | |
Other (income) expense, net | | (170 | ) | 5,860 | |
Income (loss) before income taxes | | 2,385 | | (3,097 | ) |
Income tax provision (benefit) | | 955 | | (1,255 | ) |
Net income (loss) | | $ | 1,430 | | $ | (1,842 | ) |
| | | | | |
Earnings (loss) per share - basic | | $ | 0.17 | | $ | (0.23 | ) |
Earnings (loss) per share - diluted | | $ | 0.17 | | $ | (0.23 | ) |
Weighted average common shares - basic | | 8,419 | | 8,152 | |
Weighted average common shares - diluted | | 8,580 | | 8,152 | |
Selected Balance Sheet Data (1)
(In Thousands)
(Unaudited)
| | 3/31/2007 | | 3/31/2006 | | 12/31/2006 | |
Cash | | $ | 9,449 | | $ | 71,926 | | $ | 30,409 | |
Receivables, net | | 74,025 | | 86,966 | | 75,161 | |
Inventories | | 165,686 | | 159,123 | | 154,623 | |
Accounts payable | | 16,646 | | 15,836 | | 16,805 | |
Senior Notes | | 173,857 | | 225,307 | | 173,816 | |
Other debt | | 18,830 | | 20,580 | | 4,595 | |
| | | | | | | | | | |
(1) The Company is in the process of finalizing its implementation of FIN 48, a recent accounting pronouncement related to income tax. This may affect certain components of the Company’s balance sheet as of March 31, 2007. A complete balance sheet will be available in the Company’s 10-Q which will be filed on or before May 10, 2007.
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
| | Three Months Ended 3/31/07 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 40,507 | | $ | — | | $ | 40,507 | |
Piano sales | | 52,925 | | — | | 52,925 | |
Total sales | | 93,432 | | — | | 93,432 | |
| | | | | | | |
Band cost of sales | | 32,305 | | — | | 32,305 | |
Piano cost of sales | | 33,887 | | — | | 33,887 | |
Total cost of sales | | 66,192 | | — | | 66,192 | |
| | | | | | | |
Band gross profit | | 8,202 | | — | | 8,202 | |
Piano gross profit | | 19,038 | | — | | 19,038 | |
Total gross profit | | 27,240 | | — | | 27,240 | |
| | | | | | | |
Band GM% | | 20.2 | % | | | 20.2 | % |
Piano GM% | | 36.0 | % | | | 36.0 | % |
Total GM% | | 29.2 | % | | | 29.2 | % |
| | | | | | | |
Operating expenses | | 22,873 | | — | | 22,873 | |
| | | | | | | |
Income from operations | | 4,367 | | — | | 4,367 | |
| | | | | | | |
Interest expense, net | | 2,152 | | — | | 2,152 | |
Other income, net | | (170 | ) | — | | (170 | ) |
| | | | | | | |
Income before income taxes | | 2,385 | | — | | 2,385 | |
| | | | | | | |
Income tax provision | | 955 | | — | | 955 | |
| | | | | | | |
Net income | | $ | 1,430 | | $ | — | | $ | 1,430 | |
| | | | | | | |
Earnings per share - basic | | $ | 0.17 | | | | $ | 0.17 | |
Earnings per share - diluted | | $ | 0.17 | | | | $ | 0.17 | |
Weighted average common shares - basic | | 8,419 | | | | 8,419 | |
Weighted average common shares - diluted | | 8,580 | | | | 8,580 | |
| | Three Months Ended 3/31/06 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 53,066 | | $ | — | | $ | 53,066 | |
Piano sales | | 42,128 | | — | | 42,128 | |
Total sales | | 95,194 | | — | | 95,194 | |
| | | | | | | |
Band cost of sales | | 41,005 | | (71 | )(1) | 40,934 | |
Piano cost of sales | | 28,197 | | — | | 28,197 | |
Total cost of sales | | 69,202 | | (71 | ) | 69,131 | |
| | | | | | | |
Band gross profit | | 12,061 | | 71 | (1) | 12,132 | |
Piano gross profit | | 13,931 | | — | | 13,931 | |
Total gross profit | | 25,992 | | 71 | | 26,063 | |
| | | | | | | |
Band GM% | | 22.7 | % | | | 22.9 | % |
Piano GM% | | 33.1 | % | | | 33.1 | % |
Total GM% | | 27.3 | % | | | 27.4 | % |
| | | | | | | |
Operating expenses | | 20,481 | | — | | 20,481 | |
| | | | | | | |
Income from operations | | 5,511 | | 71 | | 5,582 | |
| | | | | | | |
Interest expense, net | | 2,748 | | — | | 2,748 | |
Other (income) expense, net | | 5,860 | | (6,611 | )(2) | (751 | ) |
| | | | | | | |
(Loss) income before income taxes | | (3,097 | ) | 6,682 | | 3,585 | |
| | | | | | | |
Income tax (benefit) provision | | (1,255 | ) | 2,708 | (3) | 1,453 | |
| | | | | | | |
Net (loss) income | | $ | (1,842 | ) | $ | 3,974 | | $ | 2,132 | |
| | | | | | | |
(Loss) earnings per share - basic | | $ | (0.23 | ) | | | $ | 0.26 | |
(Loss) earnings per share - diluted | | $ | (0.23 | ) | | | $ | 0.26 | |
Weighted average common shares - basic | | 8,152 | | | | 8,152 | |
Weighted average common shares - diluted | | 8,152 | | | | 8,351 | |
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects charges relating to the step-up of Leblanc inventory.
(2) Reflects loss on extinguishment of debt.
(3) Reflects the tax effect of Adjustments at the Company’s effective rate for the period.
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation from Income from Operations to Adjusted EBITDA
(In Thousands)
(Unaudited)
| | Three Months Ended | |
| | 3/31/2007 | | 3/31/2006 | |
Income from operations | | $ | 4,367 | | $ | 5,511 | |
Other (income) expense, net | | 170 | | (5,860 | ) |
Depreciation | | 2,373 | | 2,438 | |
Amortization | | 196 | | 229 | |
Non-recurring, infrequent or unusual items | | — | | 6,682 | |
Adjusted EBITDA | | $ | 7,106 | | $ | 9,000 | |
