Exhibit 99.1
Steinway Q3 EPS $0.13 vs. $0.07
WALTHAM, MA — November 4, 2010 — Steinway Musical Instruments, Inc. (NYSE: LVB) today reported earnings for the quarter and nine months ended September 30, 2010.
Dana Messina, Chief Executive Officer, said, “Our third quarter results continued along the trend that we’ve seen in the global markets. We experienced a pickup in demand in the United States, continued strength in Asia, and weakness in Europe. We were pleased to see acceleration in the recovery of domestic demand for most of our instruments, with gains in both Steinway grand and band instrument units. Our piano business in Asia remains strong but was not enough to offset the softness in Europe.”
“Operating income improved 12% in the quarter, but continued weak market demand in our New York real estate operations dampened our total results,” said Messina. “On a year-to-date basis, we continue to deliver improved profitability as we manage expenses and operate our factories with greater efficiency.”
Q3 Compared to Prior Year Period
· Sales of $83 million, up 1%
· Gross margin decreased to 27.9% from 28.3%
· Income from operations of $6 million, up 12%
· Adjusted EBITDA down 10%, to $8 million
· Earnings per share increase to $0.13 from $0.07
YTD Compared to Prior Year Period
· Sales of $230 million, up 2%
· Gross margin increased to 29.0% from 27.1%
· Income from operations doubled to $15 million
· Adjusted EBITDA up 38%, to $23 million
· Diluted earnings per share increased to $0.39 from $0.12
Adjustments are detailed in the attached financial tables.
Balance Sheet Highlights
· Cash of $96 million
· Inventory reduced 11% from September 2009
The Company’s domestic piano business showed significant recovery at the high end as sales of Steinway grand piano units improved 11% over the prior year period. Domestic sales of mid-priced units were soft, down 3%. Overseas, the Company’s piano operations achieved very different results. High end Steinway grand piano units were off 11% while mid-priced units were up 33%. Worldwide, total piano units improved 8%.
Band customers continued to gain confidence in a domestic recovery, resulting in a 13% increase in student brass and woodwind shipments in the third quarter. A combination of higher sales program costs
and reduced manufacturing production rates contributed to a decline in gross margins from the prior year period.
Outlook
Discussing the remainder of 2010, Messina commented, “We are expecting a moderate increase in band segment revenue in the fourth quarter as positive order trends continue. However, we plan to operate some of our facilities at reduced production schedules in order to continue our drive to reduce band instrument inventory. This may negatively affect band gross margins. We expect to see a continuation of worldwide trends in the piano business. For the fourth quarter, we are expecting overall piano revenue and gross margins to be slightly better than last year.”
Messina continued, “Our focus on reducing inventories across business units had a dramatic impact in the third quarter, with inventories down $19 million from September of 2009. We will continue to seek out ways to lower working capital and expect to continue to make modest improvements.”
Segment Information
Piano Segment
Q3 Compared to Prior Year Period
· Sales of $45 million, consistent with prior year
· Steinway grand piano unit increase of 1%
· Mid-priced piano unit increase of 13%
· Gross margin increased to 31.5% from 31.1%
· Inventories reduced by $11 million
YTD Compared to Prior Year Period
· Sales of $129 million, up 4%
· Steinway grand piano units consistent with prior year
· Mid-priced piano unit increase of 13%
· Gross margin increased to 32.4% from 30.8%
Band Segment
Q3 Compared to Prior Year Period
· Sales of $38 million, up 1%
· Gross margin decreased to 23.5% from 25.0%
· Inventories reduced by $8 million
YTD Compared to Prior Year Period
· Sales of $101 million, consistent with prior year
· Gross margin increased to 24.6% from 22.5%
Conference Call
Management will be discussing the Company’s third 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 | | Nine Months Ended | |
| | 9/30/2010 | | 9/30/2009 | | 9/30/2010 | | 9/30/2009 | |
Net sales | | $ | 83,261 | | $ | 82,634 | | $ | 230,052 | | $ | 224,738 | |
Cost of sales | | 60,066 | | 59,229 | | 163,370 | | 163,826 | |
Gross profit | | 23,195 | | 23,405 | | 66,682 | | 60,912 | |
| | 27.9% | | 28.3% | | 29.0% | | 27.1% | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Sales and marketing | | 9,587 | | 9,638 | | 29,756 | | 30,118 | |
General and administrative | | 7,768 | | 7,491 | | 22,096 | | 22,860 | |
Other | | 46 | | 145 | | 172 | | 347 | |
Impairment charges | | — | | 976 | | — | | 976 | |
Total operating expenses | | 17,401 | | 18,250 | | 52,024 | | 54,301 | |
| | | | | | | | | |
Income from operations | | 5,794 | | 5,155 | | 14,658 | | 6,611 | |
| | | | | | | | | |
Interest expense, net | | 2,464 | | 2,634 | | 7,318 | | 7,672 | |
Other expense (income), net | | 110 | | (223 | ) | (803 | ) | (4,468 | ) |
| | | | | | | | | |
Income before income taxes | | 3,220 | | 2,744 | | 8,143 | | 3,407 | |
| | | | | | | | | |
Income tax provision | | 1,655 | | 2,107 | | 3,598 | | 2,385 | |
| | | | | | | | | |
Net income | | $ | 1,565 | | $ | 637 | | $ | 4,545 | | $ | 1,022 | |
| | | | | | | | | |
Earnings per share - basic | | $ | 0.13 | | $ | 0.07 | | $ | 0.40 | | $ | 0.12 | |
Earnings per share - diluted | | $ | 0.13 | | $ | 0.07 | | $ | 0.39 | | $ | 0.12 | |
Weighted average common shares - basic | | 12,056 | | 8,581 | | 11,503 | | 8,549 | |
Weighted average common shares - diluted | | 12,099 | | 8,583 | | 11,559 | | 8,552 | |
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
| | 9/30/2010 | | 9/30/2009 | | 12/31/2009 | |
Cash | | $ | 96,214 | | $ | 50,254 | | $ | 65,873 | |
Receivables, net | | 52,383 | | 59,448 | | 45,073 | |
Inventories, net | | 149,300 | | 167,997 | | 158,030 | |
Other current assets | | 25,086 | | 24,439 | | 24,930 | |
Total current assets | | 322,983 | | 302,138 | | 293,906 | |
| | | | | | | |
Property, plant and equipment, net | | 85,850 | | 88,932 | | 89,538 | |
Other assets | | 67,443 | | 65,143 | | 66,346 | |
Total assets | | $ | 476,276 | | $ | 456,213 | | $ | 449,790 | |
| | | | | | | |
Debt | | $ | 1,198 | | $ | 561 | | $ | 537 | |
Other current liabilities | | 47,230 | | 46,592 | | 46,159 | |
Total current liabilities | | 48,428 | | 47,153 | | 46,696 | |
| | | | | | | |
Long-term debt | | 152,012 | | 192,565 | | 157,703 | |
Other liabilities | | 48,668 | | 51,014 | | 48,895 | |
Stockholders’ equity | | 227,168 | | 165,481 | | 196,496 | |
Total liabilities and stockholders’ equity | | $ | 476,276 | | $ | 456,213 | | $ | 449,790 | |
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
| | Three Months Ended 9/30/10 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 38,261 | | $ | — | | $ | 38,261 | |
Piano sales | | 45,000 | | — | | 45,000 | |
Total sales | | 83,261 | | — | | 83,261 | |
| | | | | | | |
Band gross profit | | 9,002 | | — | | 9,002 | |
Piano gross profit | | 14,193 | | — | | 14,193 | |
Total gross profit | | 23,195 | | — | | 23,195 | |
| | | | | | | |
Band GM % | | 23.5% | | | | 23.5% | |
Piano GM % | | 31.5% | | | | 31.5% | |
Total GM % | | 27.9% | | | | 27.9% | |
| | | | | | | |
Operating expenses | | 17,401 | | — | | 17,401 | |
| | | | | | | |
Income from operations | | 5,794 | | — | | 5,794 | |
| | | | | | | |
Interest expense, net | | 2,464 | | — | | 2,464 | |
Other (income) expense, net | | 110 | | — | | 110 | |
| | | | | | | |
Income before income taxes | | 3,220 | | — | | 3,220 | |
| | | | | | | |
Income tax provision | | 1,655 | | — | | 1,655 | |
| | | | | | | |
Net income | | $ | 1,565 | | $ | — | | $ | 1,565 | |
| | | | | | | |
Earnings per share - basic | | $ | 0.13 | | | | $ | 0.13 | |
Earnings per share - diluted | | $ | 0.13 | | | | $ | 0.13 | |
Weighted average common shares - basic | | 12,056 | | | | 12,056 | |
Weighted average common shares - diluted | | 12,099 | | | | 12,099 | |
| | Three Months Ended 9/30/09 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 37,701 | | $ | — | | $ | 37,701 | |
Piano sales | | 44,933 | | — | | 44,933 | |
Total sales | | 82,634 | | — | | 82,634 | |
| | | | | | | |
Band gross profit | | 9,417 | | — | | 9,417 | |
Piano gross profit | | 13,988 | | — | | 13,988 | |
Total gross profit | | 23,405 | | — | | 23,405 | |
| | | | | | | |
Band GM % | | 25.0% | | | | 25.0% | |
Piano GM % | | 31.1% | | | | 31.1% | |
Total GM % | | 28.3% | | | | 28.3% | |
| | | | | | | |
Operating expenses | | 18,250 | | (976 | )(1) | 17,274 | |
| | | | | | | |
Income from operations | | 5,155 | | 976 | | 6,131 | |
| | | | | | | |
Interest expense, net | | 2,634 | | — | | 2,634 | |
Other (income) expense, net | | (223 | ) | — | | (223 | ) |
| | | | | | | |
Income before income taxes | | 2,744 | | 976 | | 3,720 | |
| | | | | | | |
Income tax provision | | 2,107 | | 468 | (2) | 2,575 | |
| | | | | | | |
Net income | | $ | 637 | | $ | 508 | | $ | 1,145 | |
| | | | | | | |
Earnings per share - basic | | $ | 0.07 | | | | $ | 0.13 | |
Earnings per share - diluted | | $ | 0.07 | | | | $ | 0.13 | |
Weighted average common shares - basic | | 8,581 | | | | 8,581 | |
Weighted average common shares - diluted | | 8,583 | | | | 8,583 | |
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects impairment of trademark associated with online music business.
(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)
| | Nine Months Ended 9/30/10 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 100,754 | | $ | — | | $ | 100,754 | |
Piano sales | | 129,298 | | — | | 129,298 | |
Total sales | | 230,052 | | — | | 230,052 | |
| | | | | | | |
Band gross profit | | 24,761 | | — | | 24,761 | |
Piano gross profit | | 41,921 | | — | | 41,921 | |
Total gross profit | | 66,682 | | — | | 66,682 | |
| | | | | | | |
Band GM % | | 24.6% | | | | 24.6% | |
Piano GM % | | 32.4% | | | | 32.4% | |
Total GM % | | 29.0% | | | | 29.0% | |
| | | | | | | |
Operating expenses | | 52,024 | | — | | 52,024 | |
| | | | | | | |
Income from operations | | 14,658 | | — | | 14,658 | |
| | | | | | | |
Interest expense, net | | 7,318 | | — | | 7,318 | |
Other (income) expense, net | | (803 | ) | 104 | (1) | (699 | ) |
| | | | | | | |
Income before income taxes | | 8,143 | | (104 | ) | 8,039 | |
| | | | | | | |
Income tax provision | | 3,598 | | (41 | )(2) | 3,557 | |
| | | | | | | |
Net income | | $ | 4,545 | | $ | (63 | ) | $ | 4,482 | |
| | | | | | | |
Earnings per share - basic | | $ | 0.40 | | | | $ | 0.39 | |
Earnings per share - diluted | | $ | 0.39 | | | | $ | 0.39 | |
Weighted average common shares - basic | | 11,503 | | | | 11,503 | |
Weighted average common shares - diluted | | 11,559 | | | | 11,559 | |
| | Nine Months Ended 9/30/09 | |
| | GAAP | | Adjustments | | Adjusted | |
Band sales | | $ | 100,126 | | $ | — | | $ | 100,126 | |
Piano sales | | 124,612 | | — | | 124,612 | |
Total sales | | 224,738 | | — | | 224,738 | |
| | | | | | | |
Band gross profit | | 22,491 | | — | | 22,491 | |
Piano gross profit | | 38,421 | | — | | 38,421 | |
Total gross profit | | 60,912 | | — | | 60,912 | |
| | | | | | | |
Band GM % | | 22.5% | | | | 22.5% | |
Piano GM % | | 30.8% | | | | 30.8% | |
Total GM % | | 27.1% | | | | 27.1% | |
| | | | | | | |
Operating expenses | | 54,301 | | (976 | )(3) | 53,325 | |
| | | | | | | |
Income from operations | | 6,611 | | 976 | | 7,587 | |
| | | | | | | |
Interest expense, net | | 7,672 | | — | | 7,672 | |
Other (income) expense, net | | (4,468 | ) | 3,434 | (1) | (1,034 | ) |
| | | | | | | |
Income before income taxes | | 3,407 | | (2,458 | ) | 949 | |
| | | | | | | |
Income tax provision | | 2,385 | | (1,180 | )(2) | 1,205 | |
| | | | | | | |
Net income (loss) | | $ | 1,022 | | $ | (1,278 | ) | $ | (256 | ) |
| | | | | | | |
Earnings (loss) per share - basic | | $ | 0.12 | | | | $ | (0.03 | ) |
Earnings (loss) per share - diluted | | $ | 0.12 | | | | $ | (0.03 | ) |
Weighted average common shares - basic | | 8,549 | | | | 8,549 | |
Weighted average common shares - diluted | | 8,552 | | | | 8,549 | |
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.
(3) Reflects impairment of trademark associated with online music business.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
| | Three Months Ended | | Nine Months Ended | |
| | 9/30/2010 | | 9/30/2009 | | 9/30/2010 | | 9/30/2009 | |
Cash flows from operating activities | | $ | 3,003 | | $ | 4,512 | | $ | 11,114 | | $ | (1,469 | ) |
Changes in operating assets and liabilities | | 726 | | 1,101 | | 552 | | 10,058 | |
Stock based compensation expense | | (368 | ) | (328 | ) | (1,109 | ) | (890 | ) |
Income taxes, net of deferreds | | 1,705 | | 1,259 | | 4,855 | | 2,216 | |
Net interest expense | | 2,464 | | 2,634 | | 7,318 | | 7,672 | |
Provision for (recovery of) doubtful accounts | | 311 | | (426 | ) | 63 | | (1,302 | ) |
Other | | 95 | | 85 | | (134 | ) | 181 | |
Adjusted EBITDA | | $ | 7,936 | | $ | 8,837 | | $ | 22,659 | | $ | 16,466 | |
Reconciliation from Net Income to Adjusted EBITDA
| | Three Months Ended | | Nine Months Ended | |
| | 9/30/2010 | | 9/30/2009 | | 9/30/2010 | | 9/30/2009 | |
Net income | | $ | 1,565 | | $ | 637 | | $ | 4,545 | | $ | 1,022 | |
Income taxes | | 1,655 | | 2,107 | | 3,598 | | 2,385 | |
Net interest expense | | 2,464 | | 2,634 | | 7,318 | | 7,672 | |
Depreciation | | 1,952 | | 2,155 | | 6,391 | | 6,850 | |
Amortization | | 300 | | 328 | | 911 | | 995 | |
Non-recurring, infrequent or unusual items | | — | | 976 | | (104 | ) | (2,458 | ) |
Adjusted EBITDA | | $ | 7,936 | | $ | 8,837 | | $ | 22,659 | | $ | 16,466 | |
