EXHIBIT 99.1
Steinway Q2 Sales Up 9%
WALTHAM, MA — August 5, 2010 — Steinway Musical Instruments, Inc. (NYSE: LVB) today reported earnings for the quarter and six months ended June 30, 2010.
Dana Messina, Chief Executive Officer, said, “Results for the second quarter were encouraging as our band and piano divisions posted increased sales, margins and operating profits. We saw improved order flows, better manufacturing performance and stronger retail traffic. The impact of improving operations and a focus on inventory reduction strengthened an already solid balance sheet.”
Second Quarter Results
· Sales of $78 million, up 9%
· Gross margin increased to 28.3% from 26.2%
· Income from operations up $3.6 million
· Adjusted EBITDA up over 50%, to $7 million
· Earnings per share of $0.10
YTD Results
· Sales of $147 million, up 3%
· Gross margin increased to 29.6% from 26.4%
· Income from operations up $7.4 million
· Adjusted EBITDA nearly doubled, to $15 million
· Diluted earnings per share of $0.26
Adjustments are detailed in the attached financial tables.
Balance Sheet Highlights
· Cash of $92 million
· Net debt of $61 million
Domestic piano sales rebounded in the second quarter, growing 20% over the prior year period. Overall piano gross margins improved 300 basis points as a result of higher utilization rates in our manufacturing facilities and higher U.S. retail sales. Inventory levels in the piano segment continued to improve with a year over year decline of 18%.
The Company’s band segment also posted significantly improved results for the quarter as sales increased 12% over the prior year. A shift toward higher margin brass sales coupled with better factory performance led to a 100 basis point increase in gross margin. Band inventories declined 5% and are expected to decline further as a result of back-to-school shipments and reduced production in the second half of the year.
Outlook
Discussing the remainder of 2010, Messina said, “We expect to see strength in our domestic piano operations led by healthy institutional sales and improved sales to our dealer channel. In Europe, business remains difficult and shows no signs of improving. Our New York real estate operations cost us $0.07 per share this quarter due to low rental demand and rates. We expect similar trends to continue through the remainder of 2010.”
Messina continued, “We have seen improving order trends within our band business which we expect to result in increased sales. As revenue growth returns, we should be able to deliver further gains in manufacturing performance.”
Messina concluded, “We’re pleased that, during a difficult last 12 months, the Company generated $38 million in cash from operations. We remain focused on those aspects of our business within our control as we advance our efforts to improve our product quality, operating efficiency and customer service.”
Segment Information
Piano Segment
Second Quarter Results
· Sales of $45 million, up 6%
· Steinway grand piano unit increase of 7%
· Mid-priced piano unit increase of 20%
· Gross margin increased to 32.9% from 29.9%
YTD Results
· Sales of $84 million, up 6%
· Steinway grand piano units consistent with prior year
· Mid-priced piano unit increase of 12%
· Gross margin increased to 32.9% from 30.7%
Band Segment
Second Quarter Results
· Sales of $33 million, up 11%
· Gross margin increased to 22.0% from 21.0%
YTD Results
· Sales of $62 million, consistent with prior year
· Gross margin increased to 25.2% from 20.9%
Conference Call
Management will be discussing the Company’s second quarter results as well as its outlook for the remainder of 2010 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. Through its online music retailer, ArkivMusic, the Company also distributes classical music recordings. For more information about Steinway Musical Instruments, Inc. please visit the Company’s website at www.steinwaymusical.com.
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. Adjustments are detailed in the attached financial tables. 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 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.
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; reductions in school budgets; increased competition; work stoppages and slowdowns; ability to successfully consolidate band manufacturing; impact of dealer consolidations on orders; ability of dealers to obtain financing; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new products; ability of suppliers to meet demand; concentration of credit risk; ability to lease office space; and fluctuations in effective tax rates resulting from shifts in sources of income. 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 Operations
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 6/30/2010 |
| 6/30/2009 |
| 6/30/2010 |
| 6/30/2009 |
| ||||
Net sales |
| $ | 78,248 |
| $ | 72,113 |
| $ | 146,791 |
| $ | 142,104 |
|
Cost of sales |
| 56,085 |
| 53,215 |
| 103,304 |
| 104,597 |
| ||||
Gross profit |
| 22,163 |
| 18,898 |
| 43,487 |
| 37,507 |
| ||||
|
| 28.3 | % | 26.2 | % | 29.6 | % | 26.4 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 10,032 |
| 9,860 |
| 20,169 |
| 20,480 |
| ||||
General and administrative |
| 6,598 |
| 7,248 |
| 13,717 |
| 14,702 |
| ||||
Other operating expenses |
| 392 |
| 283 |
| 737 |
| 869 |
| ||||
Total operating expenses |
| 17,022 |
| 17,391 |
| 34,623 |
| 36,051 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
| 5,141 |
| 1,507 |
| 8,864 |
| 1,456 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| 2,495 |
| 2,516 |
| 4,854 |
| 5,038 |
| ||||
Other (income) expense, net |
| 554 |
| (253 | ) | (913 | ) | (4,245 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income taxes |
| 2,092 |
| (756 | ) | 4,923 |
| 663 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income tax provision (benefit) |
| 912 |
| (136 | ) | 1,943 |
| 278 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 1,180 |
| $ | (620 | ) | $ | 2,980 |
| $ | 385 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings (loss) per share - basic |
| $ | 0.10 |
| $ | (0.07 | ) | $ | 0.27 |
| $ | 0.05 |
|
Earnings (loss) per share - diluted |
| $ | 0.10 |
| $ | (0.07 | ) | $ | 0.26 |
| $ | 0.05 |
|
Weighted average common shares - basic |
| 12,019 |
| 8,533 |
| 11,227 |
| 8,533 |
| ||||
Weighted average common shares - diluted |
| 12,099 |
| 8,533 |
| 11,291 |
| 8,538 |
| ||||
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
|
| 6/30/2010 |
| 6/30/2009 |
| 12/31/2009 |
| |||
Cash |
| $ | 92,063 |
| $ | 45,700 |
| $ | 65,873 |
|
Receivables, net |
| 46,852 |
| 56,066 |
| 45,073 |
| |||
Inventories, net |
| 151,868 |
| 172,475 |
| 158,030 |
| |||
Other current assets |
| 25,970 |
| 24,871 |
| 24,930 |
| |||
Total current assets |
| 316,753 |
| 299,112 |
| 293,906 |
| |||
|
|
|
|
|
|
|
| |||
Property, plant and equipment, net |
| 84,933 |
| 89,623 |
| 89,538 |
| |||
Other assets |
| 63,541 |
| 66,654 |
| 66,346 |
| |||
Total assets |
| $ | 465,227 |
| $ | 455,389 |
| $ | 449,790 |
|
|
|
|
|
|
|
|
| |||
Debt |
| $ | 1,131 |
| $ | 960 |
| $ | 537 |
|
Other current liabilities |
| 47,577 |
| 51,324 |
| 46,159 |
| |||
Total current liabilities |
| 48,708 |
| 52,284 |
| 46,696 |
| |||
|
|
|
|
|
|
|
| |||
Long-term debt |
| 151,976 |
| 192,528 |
| 157,703 |
| |||
Other liabilities |
| 45,828 |
| 51,435 |
| 48,895 |
| |||
Stockholders’ equity |
| 218,715 |
| 159,142 |
| 196,496 |
| |||
Total liabilities and stockholders’ equity |
| $ | 465,227 |
| $ | 455,389 |
| $ | 449,790 |
|
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended 6/30/10 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 33,126 |
| $ | — |
| $ | 33,126 |
|
Piano sales |
| 45,122 |
| — |
| 45,122 |
| |||
Total sales |
| 78,248 |
| — |
| 78,248 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 7,304 |
| — |
| 7,304 |
| |||
Piano gross profit |
| 14,859 |
| — |
| 14,859 |
| |||
Total gross profit |
| 22,163 |
| — |
| 22,163 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 22.0 | % |
|
| 22.0 | % | |||
Piano GM % |
| 32.9 | % |
|
| 32.9 | % | |||
Total GM % |
| 28.3 | % |
|
| 28.3 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 17,022 |
| — |
| 17,022 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 5,141 |
| — |
| 5,141 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 2,495 |
| — |
| 2,495 |
| |||
Other (income) expense, net |
| 554 |
| 104 | (1) | 658 |
| |||
|
|
|
|
|
|
|
| |||
Income before income taxes |
| 2,092 |
| (104 | ) | 1,988 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 912 |
| (41 | )(2) | 871 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 1,180 |
| $ | (63 | ) | $ | 1,117 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.10 |
|
|
| $ | 0.09 |
| |
Earnings per share - diluted |
| $ | 0.10 |
|
|
| $ | 0.09 |
| |
Weighted average common shares - basic |
| 12,019 |
|
|
| 12,019 |
| |||
Weighted average common shares - diluted |
| 12,099 |
|
|
| 12,099 |
| |||
|
| Three Months Ended 6/30/09 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 29,713 |
| $ | — |
| $ | 29,713 |
|
Piano sales |
| 42,400 |
| — |
| 42,400 |
| |||
Total sales |
| 72,113 |
| — |
| 72,113 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 6,229 |
| — |
| 6,229 |
| |||
Piano gross profit |
| 12,669 |
| — |
| 12,669 |
| |||
Total gross profit |
| 18,898 |
| — |
| 18,898 |
| |||
|
|
|
|
|
|
|
| |||
Band GM% |
| 21.0 | % |
|
| 21.0 | % | |||
Piano GM% |
| 29.9 | % |
|
| 29.9 | % | |||
Total GM% |
| 26.2 | % |
|
| 26.2 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 17,391 |
| — |
| 17,391 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 1,507 |
| — |
| 1,507 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 2,516 |
| — |
| 2,516 |
| |||
Other (income) expense, net |
| (253 | ) | — |
| (253 | ) | |||
|
|
|
|
|
|
|
| |||
(Loss) before income taxes |
| (756 | ) | — |
| (756 | ) | |||
|
|
|
|
|
|
|
| |||
Income tax (benefit) |
| (136 | ) | — |
| (136 | ) | |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | (620 | ) | $ | — |
| $ | (620 | ) |
|
|
|
|
|
|
|
| |||
Loss per share - basic |
| $ | (0.07 | ) |
|
| $ | (0.07 | ) | |
Loss per share - diluted |
| $ | (0.07 | ) |
|
| $ | (0.07 | ) | |
Weighted average common shares - basic |
| 8,533 |
|
|
| 8,533 |
| |||
Weighted average common shares - diluted |
| 8,533 |
|
|
| 8,533 |
| |||
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects a net gain on early extinguishment of debt.
(2) Reflects the tax effect of Adjustments.
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Six Months Ended 6/30/10 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 62,493 |
| $ | — |
| $ | 62,493 |
|
Piano sales |
| 84,298 |
| — |
| 84,298 |
| |||
Total sales |
| 146,791 |
| — |
| 146,791 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 15,759 |
| — |
| 15,759 |
| |||
Piano gross profit |
| 27,728 |
| — |
| 27,728 |
| |||
Total gross profit |
| 43,487 |
| — |
| 43,487 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 25.2 | % |
|
| 25.2 | % | |||
Piano GM % |
| 32.9 | % |
|
| 32.9 | % | |||
Total GM % |
| 29.6 | % |
|
| 29.6 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 34,623 |
| — |
| 34,623 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 8,864 |
| — |
| 8,864 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 4,854 |
| — |
| 4,854 |
| |||
Other (income) expense, net |
| (913 | ) | 104 | (1) | (809 | ) | |||
|
|
|
|
|
|
|
| |||
Income before income taxes |
| 4,923 |
| (104 | ) | 4,819 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 1,943 |
| (41 | )(2) | 1,902 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 2,980 |
| $ | (63 | ) | $ | 2,917 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.27 |
|
|
| $ | 0.26 |
| |
Earnings per share - diluted |
| $ | 0.26 |
|
|
| $ | 0.26 |
| |
Weighted average common shares - basic |
| 11,227 |
|
|
| 11,227 |
| |||
Weighted average common shares - diluted |
| 11,291 |
|
|
| 11,291 |
| |||
|
| Six Months Ended 6/30/09 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 62,425 |
| $ | — |
| $ | 62,425 |
|
Piano sales |
| 79,679 |
| — |
| 79,679 |
| |||
Total sales |
| 142,104 |
| — |
| 142,104 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 13,074 |
| — |
| 13,074 |
| |||
Piano gross profit |
| 24,433 |
| — |
| 24,433 |
| |||
Total gross profit |
| 37,507 |
| — |
| 37,507 |
| |||
|
|
|
|
|
|
|
| |||
Band GM% |
| 20.9 | % |
|
| 20.9 | % | |||
Piano GM% |
| 30.7 | % |
|
| 30.7 | % | |||
Total GM% |
| 26.4 | % |
|
| 26.4 | % | |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 36,051 |
| — |
| 36,051 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 1,456 |
| — |
| 1,456 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense, net |
| 5,038 |
| — |
| 5,038 |
| |||
Other (income) expense, net |
| (4,245 | ) | 3,434 | (1) | (811 | ) | |||
|
|
|
|
|
|
|
| |||
Income (loss) before income taxes |
| 663 |
| (3,434 | ) | (2,771 | ) | |||
|
|
|
|
|
|
|
| |||
Income tax provision (benefit) |
| 278 |
| (721 | )(2) | (443 | ) | |||
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 385 |
| $ | (2,713 | ) | $ | (2,328 | ) |
|
|
|
|
|
|
|
| |||
Earnings (loss) per share - basic |
| $ | 0.05 |
|
|
| $ | (0.27 | ) | |
Earnings (loss) per share - diluted |
| $ | 0.05 |
|
|
| $ | (0.27 | ) | |
Weighted average common shares - basic |
| 8,533 |
|
|
| 8,533 |
| |||
Weighted average common shares - diluted |
| 8,538 |
|
|
| 8,533 |
| |||
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects a net gain on early extinguishment of debt.
(2) Reflects the tax effect of Adjustments.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 6/30/2010 |
| 6/30/2009 |
| 6/30/2010 |
| 6/30/2009 |
| ||||
Cash flows from operating activities |
| $ | 8,404 |
| $ | 3,119 |
| $ | 8,111 |
| $ | (5,981 | ) |
Changes in operating assets and liabilities |
| (5,563 | ) | (665 | ) | (174 | ) | 8,957 |
| ||||
Stock based compensation expense |
| (375 | ) | (293 | ) | (741 | ) | (562 | ) | ||||
Income taxes, net of deferred tax benefit |
| 1,998 |
| (136 | ) | 3,150 |
| 957 |
| ||||
Net interest expense |
| 2,495 |
| 2,516 |
| 4,854 |
| 5,038 |
| ||||
Provision for doubtful accounts |
| 2 |
| (290 | ) | (248 | ) | (876 | ) | ||||
Other |
| (114 | ) | 187 |
| (229 | ) | 96 |
| ||||
Adjusted EBITDA |
| $ | 6,847 |
| $ | 4,438 |
| $ | 14,723 |
| $ | 7,629 |
|
Reconciliation from Net Income to Adjusted EBITDA
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 6/30/2010 |
| 6/30/2009 |
| 6/30/2010 |
| 6/30/2009 |
| ||||
Net income |
| $ | 1,180 |
| $ | (620 | ) | $ | 2,980 |
| $ | 385 |
|
Income taxes |
| 912 |
| (136 | ) | 1,943 |
| 278 |
| ||||
Net interest expense |
| 2,495 |
| 2,516 |
| 4,854 |
| 5,038 |
| ||||
Depreciation |
| 2,059 |
| 2,346 |
| 4,439 |
| 4,695 |
| ||||
Amortization |
| 305 |
| 332 |
| 611 |
| 667 |
| ||||
Non-recurring, infrequent or unusual items |
| (104 | ) | — |
| (104 | ) | (3,434 | ) | ||||
Adjusted EBITDA |
| $ | 6,847 |
| $ | 4,438 |
| $ | 14,723 |
| $ | 7,629 |
|