EX-99.1 2 a04-12740_1ex99d1.htm EX-99.1

 

Exhibit 99.1

 

 

For Immediate Release:

 

Steinway Reports 3rd Quarter 2004 Results

 

WALTHAM, MA - November 4, 2004 – Steinway Musical Instruments, Inc. (NYSE: LVB), one of the world’s leading manufacturers of musical instruments, today announced results for the quarter ended September 30, 2004.  Net sales rose from $83 million to $95 million, an increase of 15%.

 

During the third quarter, operating profit jumped 37% despite a negative impact of nearly $1.2 million, or $0.09 per share, associated with professional services fees related to regulatory compliance with the Sarbanes-Oxley Act.  In addition, the Company recorded a $0.9 million charge for its recent Leblanc acquisition.  The Company posted Basic EPS of $0.35, an increase of 67% over the third quarter of 2003.

 

Year to date, sales increased 10%, to $268 million, and gross margins improved 100 basis points to 28.3%.  Net income rose from $4.7 million to $8.9 million and Basic EPS was $1.10 compared to $0.53 in 2003.

 

Piano Operations

 

Third quarter piano sales increased 13% over the prior year period.  Led by strong domestic demand, unit shipments of Steinway grand pianos rose 8% worldwide.  Shipments of the Company’s mid-priced lines increased 10% as a result of improved demand both in the U.S. and overseas.  Gross margins increased from 31.7% to 36.3% due to favorable product mix, higher production levels and a strong domestic retail performance.

 

For the first nine months, piano sales increased 15%, to $138 million from $120 million.  Unit sales of Steinway grand pianos rose 11% and unit sales of mid-priced pianos increased 12%.  Gross margins increased from 32.6% to 35.1% for the nine-month period.

 

Band Operations

 

Band instrument sales increased 17% overall, with 6% growth on our base Conn-Selmer business. The sales increase was led by improved sales of student level instruments and continued strong demand for percussion products.  The recent addition of Leblanc contributed $4.5 million to this increase.  Gross margins fell from 23.5% to 18.3% in the third quarter of 2004.  Disruptions and inefficiencies resulting from plant consolidations and the realignment of domestic production levels negatively impacted gross margins.  A $.9 million charge to cost of sales that arose from the step up of Leblanc inventory also contributed to the decline.

 


 

For the first nine months, sales increased 5% to $130 million.  Gross margins slipped from 22.3% to 21.2% as the Company continued to sell through high cost inventory produced in 2003.  Severance payments associated with plant closures and charges to cost of sales for the step up of inventory also contributed to the decrease.

 

Comments

 

CEO Dana Messina remarked, “We are very pleased with our third quarter performance.  With two consecutive quarters of sales increases, we are confident that our band instrument business is turning around and that our strategy is working.  Sales of imported student instruments are now 25% of our student band sales.  While gross margins did not meet our expectations this quarter, we anticipate improvement as production volumes increase in our domestic facilities.”

 

Turning to piano operations, Messina said, “Our piano business did exceptionally well.  A strong performance in our retail business and additional sales of higher margin piano models had a significant positive impact on our results this quarter.  Also, improved wholesale demand has left us in a backorder position on most models.”

 

Charges associated with the step up of Leblanc inventory and severance associated with plant closures have negatively impacted Basic EPS by $0.17 year-to-date.  In the fourth quarter, the Company expects additional charges associated with the step up of inventory to reduce Basic EPS by approximately $0.13.  Currently, management expects Basic EPS of at least $1.70 for 2004 on a GAAP basis.

 

Conference Call

 

Management will be discussing the Company’s results and outlook for the remainder of 2004 on a conference call today beginning at 5:30 p.m. EST.  A live web cast and an archived version of the call will be available to all interested parties on the Company’s web site, 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 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 EBITDA because it is useful to management and investors as a measure of the Company’s core operating performance. The

 


 

Company also believes 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 EBITDA calculations and the Company uses EBITDA as the basis for determining bonuses for its managers.  However, EBITDA should not be construed as a substitute for operating income 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 better understand the Company’s core operating performance on a going forward basis.  This Adjusted information also provides 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; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new band instrument product and distribution strategies; ability of suppliers to meet demand; 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

E-mail: ir@steinwaymusical.com

 


 

STEINWAY MUSICAL INSTRUMENTS, INC.

Condensed Consolidated Statements of Income

 

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

9/30/2004

 

9/27/2003

 

9/30/2004

 

9/27/2003

 

Net sales

 

$

94,653

 

$

82,546

 

$

268,402

 

$

243,090

 

Cost of sales

 

68,757

 

59,655

 

192,378

 

176,654

 

Gross profit

 

25,896

 

22,891

 

76,024

 

66,436

 

 

 

27.4

%

27.7

%

28.3

%

27.3

%

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

18,299

 

17,336

 

53,116

 

51,667

 

Income from operations

 

7,597

 

5,555

 

22,908

 

14,769

 

Interest expense, net

 

3,690

 

3,189

 

10,254

 

9,168

 

Other income, net

 

(806

)

(699

)

(2,152

)

(2,032

)

Income before taxes

 

4,713

 

3,065

 

14,806

 

7,633

 

Provision for income taxes

 

1,885

 

1,227

 

5,920

 

2,952

 

Net income

 

$

2,828

 

$

1,838

 

$

8,886

 

$

4,681

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

$

0.35

 

$

0.21

 

$

1.10

 

$

0.53

 

Earnings per share - diluted

 

$

0.34

 

$

0.21

 

$

1.06

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares - basic

 

7,998

 

8,931

 

8,055

 

8,914

 

Weighted average common shares - diluted

 

8,282

 

8,932

 

8,386

 

8,915

 

 

Condensed Consolidated Balance Sheets

 

 

 

9/30/2004

 

9/27/2003

 

12/31/2003

 

Cash

 

$

14,118

 

$

18,713

 

$

42,283

 

Receivables, net

 

107,076

 

94,638

 

76,403

 

Inventories

 

176,392

 

153,935

 

152,029

 

Other current assets

 

17,287

 

15,012

 

17,555

 

Total current assets

 

314,873

 

282,298

 

288,270

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

100,665

 

97,897

 

98,937

 

Other assets

 

66,023

 

54,399

 

58,458

 

Total assets

 

$

481,561

 

$

434,594

 

$

445,665

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

10,427

 

$

9,159

 

$

10,638

 

Other current liabilities

 

59,723

 

47,733

 

50,666

 

Total current liabilities

 

70,150

 

56,892

 

61,304

 

 

 

 

 

 

 

 

 

Long-term debt

 

229,742

 

187,627

 

185,964

 

Other liabilities

 

46,042

 

50,303

 

45,762

 

Stockholders’ equity

 

135,627

 

139,772

 

152,635

 

Total liabilities and stockholders’ equity

 

$

481,561

 

$

434,594

 

$

445,665

 

 


 

STEINWAY MUSICAL INSTRUMENTS, INC.

Reconciliation of GAAP Earnings to Adjusted Earnings

 

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended 9/30/04

 

Three Months Ended 9/27/03

 

 

 

GAAP

 

Adjustments

 

Adjusted

 

GAAP

 

Adjustments

 

Adjusted

 

Net sales

 

$

94,653

 

$

—

 

$

94,653

 

$

82,546

 

$

—

 

$

82,546

 

Cost of sales

 

68,757

 

(932

)(1)

67,825

 

59,655

 

(260

)(3)

59,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

25,896

 

932

 

26,828

 

22,891

 

260

 

23,151

 

 

 

27.4

%

 

 

28.3

%

27.7

%

 

 

28.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

18,299

 

—

 

18,299

 

17,336

 

(2,075

)(4)

15,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

7,597

 

932

 

8,529

 

5,555

 

2,335

 

7,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

3,690

 

—

 

3,690

 

3,189

 

—

 

3,189

 

Other income, net

 

(806

)

—

 

(806

)

(699

)

—

 

(699

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

4,713

 

932

 

5,645

 

3,065

 

2,335

 

5,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,885

 

373

 (2)

2,258

 

1,227

 

935

 (2)

2,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,828

 

$

559

 

$

3,387

 

$

1,838

 

$

1,400

 

$

3,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

 

$

0.42

 

$

0.21

 

 

 

$

0.36

 

Diluted

 

$

0.34

 

 

 

$

0.41

 

$

0.21

 

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

7,998

 

 

 

7,998

 

8,931

 

 

 

8,931

 

Diluted

 

8,282

 

 

 

8,282

 

8,932

 

 

 

8,932

 

 

Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
 

(1)   Reflects charges related to the step up of Leblanc inventory.

(2)   Reflects the tax effect of Adjustments at the Company’s effective rate for the quarter.

(3)   Reflects employee severance costs associated with plant closures.

(4)   Reflects asset impairment charges related to plant closures.

 


 

STEINWAY MUSICAL INSTRUMENTS, INC.

Reconciliation of GAAP Earnings to Adjusted Earnings

 

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Nine Months Ended 9/30/04

 

Nine Months Ended 9/27/03

 

 

 

GAAP

 

Adjustments

 

Adjusted

 

GAAP

 

Adjustments

 

Adjusted

 

Net sales

 

$

268,402

 

$

—

 

$

268,402

 

$

243,090

 

$

—

 

$

243,090

 

Cost of sales

 

192,378

 

(2,376

)(1)

190,002

 

176,654

 

(3,421

)(4)

173,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

76,024

 

2,376

 

78,400

 

66,436

 

3,421

 

69,857

 

 

 

28.3

%

 

 

29.2

%

27.3

%

 

 

28.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

53,116

 

76

 (2)

53,192

 

51,667

 

(2,075

)(5)

49,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

22,908

 

2,300

 

25,208

 

14,769

 

5,496

 

20,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

10,254

 

—

 

10,254

 

9,168

 

—

 

9,168

 

Other income, net

 

(2,152

)

—

 

(2,152

)

(2,032

)

—

 

(2,032

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

14,806

 

2,300

 

17,106

 

7,633

 

5,496

 

13,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

5,920

 

920

(3)

6,840

 

2,952

 

2,126

(3)

5,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,886

 

$

1,380

 

$

10,266

 

$

4,681

 

$

3,370

 

$

8,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.10

 

 

 

$

1.27

 

$

0.53

 

 

 

$

0.90

 

Diluted

 

$

1.06

 

 

 

$

1.22

 

$

0.53

 

 

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

8,055

 

 

 

8,055

 

8,914

 

 

 

8,914

 

Diluted

 

8,386

 

 

 

8,386

 

8,915

 

 

 

8,915

 

 

Notes to Reconciliation of GAAP Earnings to Adjusted Earnings

 

(1)   Reflects $1,444 of employee severance costs associated with plant closures; and $932 of charges relating to the step up of Leblanc inventory.

(2)   Reflects gain on sale of equipment associated with plant closures.

(3)   Reflects the tax effect of Adjustments at the Company’s effective rate for the period.

(4)   Reflects $1,903 paid in accordance with the terms of expired labor contracts; $1,258 impact of labor strikes; and $260 of employee severance costs associated with plant closures.

(5)   Reflects asset impairment charges related to plant closures.

 


 

STEINWAY MUSICAL INSTRUMENTS, INC.

Reconciliation from Cash Flows from Operating Activities to EBITDA

 

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

9/30/2004

 

9/27/2003

 

Cash flows from operating activities

 

$

2,928

 

$

12,516

 

Changes in operating assets and liabilities

 

2,681

 

(5,396

)

Income taxes, net of deferred tax benefit

 

1,990

 

744

 

Net interest expense

 

3,690

 

3,189

 

Other

 

(71

)

(56

)

Non-recurring, infrequent or unusual cash charges

 

932

 

260

 

EBITDA

 

$

12,150

 

$

11,257

 

 

 

 

Nine Months Ended

 

 

 

9/30/2004

 

9/27/2003

 

Cash flows from operating activities

 

$

(7,789

)

$

5,727

 

Changes in operating assets and liabilities

 

24,338

 

9,709

 

Income taxes, net of deferred tax benefit

 

6,243

 

2,721

 

Net interest expense

 

10,254

 

9,168

 

Other

 

167

 

(235

)

Non-recurring, infrequent or unusual cash charges

 

2,300

 

3,421

 

EBITDA

 

$

35,513

 

$

30,511