EXHIBIT 99.1
For Immediate Release:
Steinway’s Q4 Sales Up 14%
EPS $0.91 vs. $0.13
WALTHAM, MA – March 5, 2008 – 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, 2007.
Revenues jumped 14% for the quarter, to $121.3 million, and overall gross margins improved 220 basis points from 30.4% to 32.6%. Operating income more than doubled to $15.6 million from $6.3 million in the prior year period.
For the quarter, the Company posted Basic EPS of $0.91 compared to $0.13 in the prior year period. For 2007, the Company generated Basic EPS of $1.81 compared to a Basic loss per share of $0.08 in the prior year. Adjusted EPS was $1.82 compared to $0.77 in 2006. 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 following financial tables.
Band Operations
Band revenues for the quarter surged 30% primarily as a result of improved availability of professional horns from the Company’s Elkhart, Indiana brass plant. Unit shipments of woodwind and brass instruments climbed 13% as compared to the prior year period. The improved sales mix also contributed to an increase in gross margins for the quarter, from 15.9% to 18.1%.
The continued improvement in sales of professional instruments in the second half of the year offset performance in earlier months, resulting in sales of $171.1 million for 2007, topping the prior year. Gross margins also improved, from 18.6% to 20.0%, due to increased shipments of higher margin professional instruments.
Piano Operations
Worldwide piano sales for the quarter increased $4.8 million, or 7%. Demand continued to be strong overseas where fourth quarter unit shipments of Steinway grand pianos rose 7% and unit shipments of mid-priced pianos increased 16% over the prior year period. Domestically, Steinway grand unit shipments declined 4% primarily as a result of soft sales at Company-operated retail stores. Piano gross margins improved from 37.5% to 41.3% in the quarter due to a better mix of higher priced instruments.
Year-to-date piano sales were up 10% led by the exceptionally strong performance of the Company’s overseas business. Piano gross margins rose from 35.4% to 37.9% primarily as a result of the larger proportion of sales from the Company’s higher margin overseas operations as compared to 2006.
Comments
Discussing fourth quarter results, CEO Dana Messina stated, “We are very pleased with our overall performance this quarter. We saw significant increases in both sales and gross margins in both of our operating segments.”
Regarding piano operations, Messina said, “Our overseas piano operations had a very good quarter, posting a 19% increase in revenue. This more than offset a 7% decline in domestic revenue. For the quarter, worldwide unit shipments in the mid-priced segment decreased 10% in 2007 while unit shipments of Steinway grands increased modestly.”
Turning to band operations, Messina said, “This quarter, we achieved sales and gross margins in line with the fourth quarter of 2005, indicating that the impact of the ongoing strike at our brass plant in Elkhart is becoming less of a factor in our financial results. More important, the feedback from our dealers on the quality of the product coming from our Elkhart brass facility is both gratifying and a source of great pride to our employees engaged in the production process.”
Discussing his outlook for 2008, Messina said, “With production of professional brass instruments back on track, we should have a healthy increase in band sales this year. As we announced in December, we expect approximately $1.0 million of out-of-pocket expenses as we transition our Kenosha woodwind production to our Elkhart woodwind facility. We expect to incur approximately $2.0 million in additional costs in 2008 as we wind down production in one plant and ramp up in the other. Over the long term, this consolidation should help us gain efficiencies and improve profitability. Looking at our piano business for 2008, the U.S. market is expected to be soft but we expect Europe and Asia to have a solid year.”
Conference Call
Management will be discussing the Company’s fourth quarter results and outlook for 2008 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 in that it eliminates the impact of items that are either out of operating management’s control or are otherwise unrelated to how well the Company is completing its manufacturing and operating responsibilities. In addition, the Company uses Adjusted EBITDA as the basis for determining bonuses for its managers.
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 as it factors out non-cash expenses such as depreciation and amortization. The Company’s domestic credit agreement, which provides for borrowings up to $110.0 million and is a material credit agreement to the Company, contains a minimum Fixed Charge Coverage Ratio which is based on Adjusted EBITDA. A minimum ratio of 1.1 to 1.0 is required to be met if the Company has had less than $20.0 million of availability on its line of credit in the last thirty days. At the end of the most recent period the Company had remaining borrowing availability on the line of credit of $108.8 million (net of letters of credit) and therefore this covenant did not apply. Should this covenant apply and not be met, the Company could be required to make immediate repayment of its line of credit borrowings, if it were unable to obtain a waiver from the lenders.
There are limitations in the use of Adjusted EBITDA because the Company’s actual results do include the impact of the noted Adjustments. Accordingly, Adjusted EBITDA should be used as a supplement to the comparable GAAP measures and should not be construed as a substitute for income from operations or net income, or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.
“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; impact of dealer consolidations on orders; 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 |
| Twelve Months Ended |
| ||||||||
|
| 12/31/2007 |
| 12/31/2006 |
| 12/31/2007 |
| 12/31/2006 |
| ||||
Net sales |
| $ | 121,332 |
| $ | 106,127 |
| $ | 406,314 |
| $ | 384,620 |
|
Cost of sales |
| 81,742 |
| 73,906 |
| 282,828 |
| 277,213 |
| ||||
Gross profit |
| 39,590 |
| 32,221 |
| 123,486 |
| 107,407 |
| ||||
|
| 32.6 | % | 30.4 | % | 30.4 | % | 27.9 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 13,057 |
| 12,395 |
| 48,393 |
| 45,586 |
| ||||
Provision for doubtful accounts |
| 930 |
| 4,416 |
| 2,442 |
| 9,150 |
| ||||
General and administrative |
| 9,493 |
| 8,730 |
| 35,005 |
| 33,062 |
| ||||
Amortization |
| 198 |
| 197 |
| 786 |
| 812 |
| ||||
Other operating expenses |
| 361 |
| 166 |
| 1,658 |
| 419 |
| ||||
Total operating expenses |
| 24,039 |
| 25,904 |
| 88,284 |
| 89,029 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
| 15,551 |
| 6,317 |
| 35,202 |
| 18,378 |
| ||||
Interest expense, net |
| 2,191 |
| 2,690 |
| 9,771 |
| 11,255 |
| ||||
Other (income) expense, net |
| 95 |
| (329 | ) | (59 | ) | 7,504 |
| ||||
Income (loss) before income taxes |
| 13,265 |
| 3,956 |
| 25,490 |
| (381 | ) | ||||
Provision for income taxes |
| 5,446 |
| 2,889 |
| 10,080 |
| 287 |
| ||||
Net income (loss) |
| $ | 7,819 |
| $ | 1,067 |
| $ | 15,410 |
| $ | (668 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Earnings (loss) per share - basic |
| $ | 0.91 |
| $ | 0.13 |
| $ | 1.81 |
| $ | (0.08 | ) |
Earnings (loss) per share - diluted |
| $ | 0.90 |
| $ | 0.13 |
| $ | 1.78 |
| $ | (0.08 | ) |
Weighted average common shares - basic |
| 8,577 |
| 8,374 |
| 8,522 |
| 8,304 |
| ||||
Weighted average common shares - diluted |
| 8,673 |
| 8,516 |
| 8,647 |
| 8,304 |
|
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
|
| 12/31/2007 |
| 12/31/2006 |
| ||
Cash |
| $ | 37,304 |
| $ | 30,409 |
|
Receivables, net |
| 73,131 |
| 75,161 |
| ||
Inventories |
| 152,451 |
| 154,623 |
| ||
Other current assets |
| 22,843 |
| 22,485 |
| ||
Total current assets |
| 285,729 |
| 282,678 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment, net |
| 94,150 |
| 95,598 |
| ||
Other assets |
| 77,799 |
| 68,899 |
| ||
Total assets |
| $ | 457,678 |
| $ | 447,175 |
|
|
|
|
|
|
| ||
Debt |
| $ | 2,285 |
| $ | 4,595 |
|
Other current liabilities |
| 64,701 |
| 61,453 |
| ||
Total current liabilities |
| 66,986 |
| 66,048 |
| ||
|
|
|
|
|
| ||
Long-term debt |
| 173,981 |
| 173,816 |
| ||
Other liabilities |
| 52,932 |
| 49,310 |
| ||
Stockholders’ equity |
| 163,779 |
| 158,001 |
| ||
Total liabilities and stockholders’ equity |
| $ | 457,678 |
| $ | 447,175 |
|
5
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended 12/31/07 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 45,434 |
| $ | — |
| $ | 45,434 |
|
Piano sales |
| 75,898 |
| — |
| 75,898 |
| |||
Total sales |
| 121,332 |
| — |
| 121,332 |
| |||
|
|
|
|
|
|
|
| |||
Band cost of sales |
| 37,192 |
| (39 | )(1) | 37,153 |
| |||
Piano cost of sales |
| 44,550 |
| — |
| 44,550 |
| |||
Total cost of sales |
| 81,742 |
| (39 | ) | 81,703 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 8,242 |
| 39 |
| 8,281 |
| |||
Piano gross profit |
| 31,348 |
| — |
| 31,348 |
| |||
Total gross profit |
| 39,590 |
| 39 |
| 39,629 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 18.1 | % |
|
| 18.2 | % | |||
Piano GM % |
| 41.3 | % |
|
| 41.3 | % | |||
Total GM % |
| 32.6 | % |
|
| 32.7 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 24,039 |
| (128 | )(2) | 23,911 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 15,551 |
| 167 |
| 15,718 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 2,191 |
| — |
| 2,191 |
| |||
Other (income) expense, net |
| 95 |
| — |
| 95 |
| |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 13,265 |
| 167 |
| 13,432 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 5,446 |
| 66 | (3) | 5,512 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 7,819 |
| $ | 101 |
| $ | 7,920 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.91 |
|
|
| $ | 0.92 |
| |
Earnings per share - diluted |
| $ | 0.90 |
|
|
| $ | 0.91 |
| |
Weighted average common shares - basic |
| 8,577 |
|
|
| 8,577 |
| |||
Weighted average common shares - diluted |
| 8,673 |
|
|
| 8,673 |
|
|
| Three Months Ended 12/31/06 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 35,028 |
| $ | — |
| $ | 35,028 |
|
Piano sales |
| 71,099 |
| — |
| 71,099 |
| |||
Total sales |
| 106,127 |
| — |
| 106,127 |
| |||
|
|
|
|
|
|
|
| |||
Band cost of sales |
| 29,454 |
| — |
| 29,454 |
| |||
Piano cost of sales |
| 44,452 |
| — |
| 44,452 |
| |||
Total cost of sales |
| 73,906 |
| — |
| 73,906 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 5,574 |
| — |
| 5,574 |
| |||
Piano gross profit |
| 26,647 |
| — |
| 26,647 |
| |||
Total gross profit |
| 32,221 |
| — |
| 32,221 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 15.9 | % |
|
| 15.9 | % | |||
Piano GM% |
| 37.5 | % |
|
| 37.5 | % | |||
Total GM % |
| 30.4 | % |
|
| 30.4 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 25,904 |
| — |
| 25,904 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 6,317 |
| — |
| 6,317 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 2,690 |
| — |
| 2,690 |
| |||
Other (income) expense, net |
| (329 | ) | — |
| (329 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 3,956 |
| — |
| 3,956 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 2,889 |
| — |
| 2,889 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 1,067 |
| $ | — |
| $ | 1,067 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.13 |
|
|
| $ | 0.13 |
| |
Earnings per share - diluted |
| $ | 0.13 |
|
|
| $ | 0.13 |
| |
Weighted average common shares - basic |
| 8,374 |
|
|
| 8,374 |
| |||
Weighted average common shares - diluted |
| 8,516 |
|
|
| 8,516 |
|
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects employee severance costs associated with a plant closure.
(2) Reflects asset impairment charges related to a plant closure.
(3) Reflects the tax effect of Adjustments.
6
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Twelve Months Ended 12/31/07 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 171,124 |
| $ | — |
| $ | 171,124 |
|
Piano sales |
| 235,190 |
| — |
| 235,190 |
| |||
Total sales |
| 406,314 |
| — |
| 406,314 |
| |||
|
|
|
|
|
|
|
| |||
Band cost of sales |
| 136,870 |
| (39 | )(1) | 136,831 |
| |||
Piano cost of sales |
| 145,958 |
| — |
| 145,958 |
| |||
Total cost of sales |
| 282,828 |
| (39 | ) | 282,789 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 34,254 |
| 39 |
| 34,293 |
| |||
Piano gross profit |
| 89,232 |
| — |
| 89,232 |
| |||
Total gross profit |
| 123,486 |
| 39 |
| 123,525 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 20.0 | % |
|
| 20.0 | % | |||
Piano GM % |
| 37.9 | % |
|
| 37.9 | % | |||
Total GM % |
| 30.4 | % |
|
| 30.4 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 88,284 |
| (128 | )(2) | 88,156 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 35,202 |
| 167 |
| 35,369 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 9,771 |
| — |
| 9,771 |
| |||
Other (income) expense, net |
| (59 | ) | — |
| (59 | ) | |||
|
|
|
|
|
|
|
| |||
Income before taxes |
| 25,490 |
| 167 |
| 25,657 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 10,080 |
| 66 | (3) | 10,146 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 15,410 |
| $ | 101 |
| $ | 15,511 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 1.81 |
|
|
| $ | 1.82 |
| |
Earnings per share - diluted |
| $ | 1.78 |
|
|
| $ | 1.79 |
| |
Weighted average common shares - basic |
| 8,522 |
|
|
| 8,522 |
| |||
Weighted average common shares - diluted |
| 8,647 |
|
|
| 8,647 |
|
|
| Twelve Months Ended 12/31/06 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 170,426 |
| $ | — |
| $ | 170,426 |
|
Piano sales |
| 214,194 |
| — |
| 214,194 |
| |||
Total sales |
| 384,620 |
| — |
| 384,620 |
| |||
|
|
|
|
|
|
|
| |||
Band cost of sales |
| 138,745 |
| (2,155 | )(4) | 136,590 |
| |||
Piano cost of sales |
| 138,468 |
| — |
| 138,468 |
| |||
Total cost of sales |
| 277,213 |
| (2,155 | ) | 275,058 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 31,681 |
| 2,155 |
| 33,836 |
| |||
Piano gross profit |
| 75,726 |
| — |
| 75,726 |
| |||
Total gross profit |
| 107,407 |
| 2,155 |
| 109,562 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 18.6 | % |
|
| 19.9 | % | |||
Piano GM% |
| 35.4 | % |
|
| 35.4 | % | |||
Total GM % |
| 27.9 | % |
|
| 28.5 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 89,029 |
| — |
| 89,029 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 18,378 |
| 2,155 |
| 20,533 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 11,255 |
| — |
| 11,255 |
| |||
Other (income) expense, net |
| 7,504 |
| (9,674 | )(5) | (2,170 | ) | |||
|
|
|
|
|
|
|
| |||
(Loss) income before taxes |
| (381 | ) | 11,829 |
| 11,448 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 287 |
| 4,732 | (3) | 5,019 |
| |||
|
|
|
|
|
|
|
| |||
Net (loss) income |
| $ | (668 | ) | $ | 7,097 |
| $ | 6,429 |
|
|
|
|
|
|
|
|
| |||
(Loss) earnings per share - basic |
| $ | (0.08 | ) |
|
| $ | 0.77 |
| |
(Loss) earnings per share - diluted |
| $ | (0.08 | ) |
|
| $ | 0.76 |
| |
Weighted average common shares - basic |
| 8,304 |
|
|
| 8,304 |
| |||
Weighted average common shares - diluted |
| 8,304 |
|
|
| 8,438 |
|
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects employee severance costs associated with a plant closure.
(2) Reflects asset impairment charges related to a plant closure.
(3) Reflects the tax effect of Adjustments.
(4) Reflects $130 charges relating to the step-up of inventory and $2,025 of unabsorbed overhead associated with a labor strike.
(5) Reflects loss on extinguishment of debt.
7
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
|
| Three Months Ended |
|
| Twelve Months Ended |
| ||||||||
|
| 12/31/2007 |
| 12/31/2006 |
|
| 12/31/2007 |
| 12/31/2006 |
| ||||
Cash flows from operating activities |
| $ | 45,439 |
| $ | 27,845 |
|
| $ | 34,065 |
| $ | 29,220 |
|
Changes in operating assets and liabilities |
| (35,400 | ) | (19,366 | ) |
| (8,296 | ) | (8,607 | ) | ||||
Stock based compensation expense |
| (250 | ) | (283 | ) |
| (1,103 | ) | (1,174 | ) | ||||
Income taxes, net of deferred tax benefit |
| 7,332 |
| 2,741 |
|
| 14,004 |
| 8,414 |
| ||||
Net interest expense |
| 2,191 |
| 2,690 |
|
| 9,771 |
| 11,255 |
| ||||
Provision for doubtful accounts |
| (930 | ) | (4,416 | ) |
| (2,442 | ) | (9,150 | ) | ||||
Other |
| (160 | ) | 49 |
|
| (133 | ) | 1,249 |
| ||||
Non-recurring, infrequent or unusual cash charges |
| 39 |
| — |
|
| 39 |
| 2,155 |
| ||||
Adjusted EBITDA |
| $ | 18,261 |
| $ | 9,260 |
|
| $ | 45,905 |
| $ | 33,362 |
|
Reconciliation from Net Income to Adjusted EBITDA
|
| Three Months Ended |
|
| Twelve Months Ended |
| ||||||||
|
| 12/31/2007 |
| 12/31/2006 |
|
| 12/31/2007 |
| 12/31/2006 |
| ||||
Net income |
| $ | 7,819 |
| $ | 1,067 |
|
| $ | 15,410 |
| $ | (668 | ) |
Income taxes |
| 5,446 |
| 2,889 |
|
| 10,080 |
| 287 |
| ||||
Net interest expense |
| 2,191 |
| 2,690 |
|
| 9,771 |
| 11,255 |
| ||||
Depreciation |
| 2,440 |
| 2,417 |
|
| 9,691 |
| 9,847 |
| ||||
Amortization |
| 198 |
| 197 |
|
| 786 |
| 812 |
| ||||
Non-recurring, infrequent or unusual items |
| 167 |
| — |
|
| 167 |
| 11,829 |
| ||||
Adjusted EBITDA |
| $ | 18,261 |
| $ | 9,260 |
|
| $ | 45,905 |
| $ | 33,362 |
|
8