10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-11911

STEINWAY MUSICAL INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	35-1910745
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
800 South Street, Suite 305
Waltham, Massachusetts	02453
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number including area code: (781) 894-9770

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements during the past 90 days. Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

Number of shares of Common Stock issued and outstanding as of August 2, 2013: 12,548,317

STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I	FINANCIAL STATEMENTS
Item 1.	Unaudited Condensed Consolidated Financial Statements:
	Condensed Consolidated Statements of Operations Three and six months ended June 30, 2013 and 2012	3
	Condensed Consolidated Statements of Comprehensive Income Three and six months ended June 30, 2013 and 2012	4
	Condensed Consolidated Balance Sheets June 30, 2013 and December 31, 2012	5
	Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2013 and 2012	6
	Condensed Consolidated Statement of Stockholders’ Equity Six months ended June 30, 2013	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION
Item 6.	Exhibits	30
	Signatures	31

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PART IFINANCIAL STATEMENTS

ITEM 1CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In Thousands Except Share and Per Share Amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net sales	$	92,353		$	85,704		$	169,156		$	163,657
Cost of sales	61,063			58,339			112,516			113,145
Gross profit	31,290			27,365			56,640			50,512
Operating expenses:
Sales and marketing	10,969			11,072			22,249			23,057
General and administrative	11,266			10,144			19,736			19,105
Other operating (income) expenses, net	(46		)	12			(27		)	50
Impairment charges	500			166			500			166
Total operating expenses	22,689			21,394			42,458			42,378
Income from operations	8,601			5,971			14,182			8,134
Gain on sale of West 57th Street property	(22,725		)	—			(22,725		)	—
Other expense, net	1,018			1,277			1,419			1,631
Interest income	(258		)	(276		)	(540		)	(634		)
Interest expense	1,197			1,218			2,396			2,426
Total non-operating (income) expenses	(20,768		)	2,219			(19,450		)	3,423
Income before income taxes	29,369			3,752			33,632			4,711
Income tax provision	9,214			1,355			10,787			1,724
Net income	$	20,155		$	2,397		$	22,845		$	2,987
Earnings per share:
Basic	$	1.62		$	0.19		$	1.83		$	0.24
Diluted	$	1.60		$	0.19		$	1.82		$	0.24
Weighted average shares:
Basic	12,463,406			12,378,371			12,461,010			12,373,143
Diluted	12,571,105			12,506,701			12,558,434			12,507,559

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

(In Thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net income	$	20,155		$	2,397		$	22,845		$	2,987
Other comprehensive income (expense) items:
Foreign currency translation adjustments	(427		)	(1,976		)	(3,474		)	(1,052		)
Amortization of defined benefit pension and postretirement benefit plans
Prior service credit	(173		)	—			(195		)	—
Actuarial losses	522			—			1,284			—
Effect of income taxes	(140		)	—			(397		)	—
Total comprehensive income	$	19,937		$	421		$	20,063		$	1,935

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(In Thousands)

	June 30,			December 31,
	2013			2012
Assets
Current assets:
Cash	$	106,500		$	73,406
Accounts, notes, and other receivables, net of allowances of $8,684 and $7,972 in 2013 and 2012, respectively	49,211			43,536
Inventories	133,974			125,081
Prepaid expenses and other current assets	10,331			9,079
Deferred tax assets	5,489			5,230
Total current assets	$	305,505		$	256,332
Property, plant and equipment, net of accumulated depreciation of $107,746 and $117,558 in 2013 and 2012, respectively	67,936			91,485
Trademarks	12,860			13,420
Goodwill	22,727			22,916
Other intangibles, net	905			1,328
Other assets	16,060			15,801
Long-term deferred tax assets	25,999			24,385
Total assets	$	451,992		$	425,667
Liabilities and stockholders’ equity
Current liabilities:
Debt	$	67,968		$	576
Accounts payable	16,344			12,867
Other current liabilities	45,632			40,175
Total current liabilities	129,944			53,618
Long-term debt	—			67,431
Deferred tax liabilities	700			560
Pension and other postretirement benefit liabilities	52,703			54,501
Other non-current liabilities	6,166			7,712
Total liabilities	189,513			183,822
Commitments and contingent liabilities
Stockholders’ equity:
Common stock	14			14
Additional paid-in capital	163,103			162,579
Retained earnings	171,779			148,934
Accumulated other comprehensive loss	(28,391		)	(25,609		)
Treasury stock, at cost	(44,026		)	(44,073		)
Total stockholders’ equity	262,479			241,845
Total liabilities and stockholders’ equity	$	451,992		$	425,667

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In Thousands)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	22,845		$	2,987
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	4,301			4,466
Impairment charges	500			166
Stock-based compensation expense	188			211
Excess tax benefit from stock-based awards	(46		)	(16		)
Tax benefit from stock option exercises	48			18
Deferred tax benefit	(2,064		)	(111		)
Provision for doubtful accounts	239			915
Gain on sale of West 57th Street property	(22,725		)	—
(Gain) loss on sale of assets	(12		)	12
Other	531			(112		)
Changes in operating assets and liabilities:
Accounts, notes and other receivables	(6,110		)	(5,313		)
Inventories	(9,909		)	(8,204		)
Prepaid expenses and other assets	(1,082		)	(489		)
Accounts payable	3,350			1,723
Other liabilities	4,859			(5,905		)
Cash flows from operating activities	(5,087		)	(9,652		)
Cash flows from investing activities:
Capital expenditures	(2,847		)	(3,431		)
Proceeds from sale of West 57th Street property	43,318			—
Proceeds from sale of property, plant and equipment	117			1
Other	37			77
Acquisition of subsidiary	(1,332		)	—
Cash flows from investing activities	39,293			(3,353		)
Cash flows from financing activities:
Borrowings under lines of credit	—			4,500
Repayments under lines of credit	—			(1,000		)
Proceeds from issuance of common stock	335			298
Excess tax benefit from stock-based awards	46			16
Cash flows from financing activities	381			3,814
Effect of foreign exchange rate changes on cash	(1,493		)	(236		)
Increase (decrease) in cash	33,094			(9,427		)
Cash, beginning of period	73,406			49,888
Cash, end of period	$	106,500		$	40,461
Supplemental Cash Flow Information:
Interest paid	$	2,380		$	2,427
Income taxes paid	$	4,628		$	4,626

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Unaudited

(In Thousands Except Share Data)

	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
Balance, January 1, 2013	$	14	$	162,579	$	148,934	$	(25,609	)	$	(44,073	)	$	241,845
Comprehensive income (loss)					22,845		(2,782		)				20,063
Exercise of 18,500 options for shares of common stock			288							47			335
Tax benefit of options exercised			48										48
Stock-based compensation			188										188
Balance, June 30, 2013	$	14	$	163,103	$	171,779	$	(28,391	)	$	(44,026	)	$	262,479

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

JUNE 30, 2013

Unaudited

(Tabular Amounts In Thousands Except Share, Per Share, Option, and Per Option Data)

(1)Basis of Presentation

The accompanying condensed consolidated financial statements of Steinway Musical Instruments, Inc. and subsidiaries (the “Company”) for the three and six months ended June 30, 2013 and 2012 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2012, and include all adjustments which are of a normal and recurring nature, necessary for the fair presentation of financial position, results of operations and cash flows for the interim periods. We encourage you to read the condensed consolidated financial statements in conjunction with the risk factors, consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Throughout this report “we,” “us,” and “our” refer to Steinway Musical Instruments, Inc. and subsidiaries taken as a whole.

(2)Summary of Significant Accounting Policies

Our significant accounting policies were described in Note 2 to our audited Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for the fiscal year ended December 31, 2012. There have been no significant changes in our accounting policies during the first six months of 2013.

Recent Accounting Pronouncements — We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

(3)Recent Events

On June 30, 2013, Steinway Musical Instruments, Inc. (“SMI”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KSTW Holdings, Inc., a Delaware corporation (“Parent”), and KSTW Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Acquisition Sub”), providing for the merger of Acquisition Sub with and into SMI, with SMI being the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”).  Parent and Acquisition Sub are affiliates of Kohlberg Management VII, L.P. (“Kohlberg”).

On July 15, 2013, Acquisition Sub commenced a cash tender offer (the “Offer”) to acquire all of the outstanding shares of SMI common stock.  Upon the successful closing of the Offer, stockholders of SMI who tender their shares in the Offer will receive $35.00 per share, in cash, payable without interest and less any applicable withholding taxes.

The Offer will expire at 11:59 p.m., New York City time, on August 21, 2013, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the SEC.  Consummation of the Offer is subject to customary conditions, including, among others, (i) the valid tender of the number of shares that would represent at least a majority of the outstanding shares of common stock of SMI; (ii) Parent’s receipt of the proceeds of the debt financing; (iii) the Rights Agreement shall have no force or effect with respect to the Offer and the Merger; (iv) the absence of certain legal impediments to the consummation of the Merger; and (v) the absence of any change, event or occurrence that has had or would reasonably be expected to have a material adverse effect on SMI.

The Merger Agreement provides for a 45-day “go-shop” period, which will end on August 14, 2013, during which time SMI may solicit alternative proposals to the transaction with Kohlberg. Any shares not tendered in the Offer will be acquired in a second-step merger at the same cash price as paid in the Offer.  The transaction is expected to close in the third quarter of 2013.

8

(4)Other comprehensive income (loss)

The changes, net of income tax, in our other comprehensive income (loss) for the three and six months ended June 30, 2013 consist of the following:

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, April 1, 2013 (net of tax of $18,741)	$	(29,902	)	$	1,729		$	(28,173	)
Other comprehensive income (loss) before reclassifications	—			(427		)	(427		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $48)	(125		)	—			(125		)
Amortization of actuarial losses (net of tax of $188)	334			—			334
Net current period other comprehensive income (loss)	209			(427		)	(218		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, January 1, 2013 (net of tax of $18,998)	$	(30,385	)	$	4,776		$	(25,609	)
Other comprehensive income (loss) before reclassifications	—			(3,474		)	(3,474		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $58)	(137		)	—			(137		)
Amortization of actuarial losses (net of tax of $455)	829			—			829
Net current period other comprehensive income (loss)	692			(3,474		)	(2,782		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

Amounts reclassified from accumulated other comprehensive income (loss) associated with pensions are included in the computation of net periodic pension costs discussed in Note 15. Amounts related to our Postretirement Benefit Plan are not material to the condensed consolidated financial statements.

(5)Earnings per Common Share

We compute earnings per share using the weighted-average number of common shares outstanding during each period. Diluted earnings per common share reflects the dilutive impact of shares subscribed under the Employee Stock Purchase Plan (“Purchase Plan”) and effect of our outstanding options using the treasury stock method, except when such items would be antidilutive.

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The following table presents the calculation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Numerator:
Net income:	$	20,155	$	2,397	$	22,845	$	2,987
Denominator:
Weighted-average common shares outstanding - basic	12,463,406		12,378,371		12,461,010		12,373,143
Dilutive effect of stock-based compensation plans	107,699		128,330		97,424		134,416
Weighted-average common shares outstanding - diluted	12,571,105		12,506,701		12,558,434		12,507,559
Net income per share - basic	$	1.62	$	0.19	$	1.83	$	0.24
Net income per share - diluted	$	1.60	$	0.19	$	1.82	$	0.24

We did not include 349,900 of the outstanding options to purchase shares of common stock in the computation of diluted earnings per share for the three and six months ended June 30, 2013, because generally their exercise prices were more than the average market price of our common shares, and therefore antidilutive. We did not include 372,000 of the outstanding options to purchase shares of common stock in the computation of diluted earnings per share for the three and six month periods ended June 30, 2012 for the same reason.

(6)Inventories

	June 30,		December 31,
	2013		2012
Raw materials	$	19,451	$	18,582
Work-in-process	35,333		34,923
Finished goods	79,190		71,576
Total inventory	$	133,974	$	125,081

Finished goods inventory was impacted by the preliminary purchase price allocation of $1.0 million relating to our acquisition of assets associated with piano retail stores in San Francisco, Sacramento, and Walnut Creek, California on June 2, 2013. This acquisition, which also included $0.4 million of property, plant and equipment, was not material to our financial condition or results of operations.

(7)Divestiture of Assets Held for Sale

On June 28, 2013 we sold our building on West 57th Street in New York City for $46.3 million, subject to a potential increase based on post-closing conditions. A summary of the transaction is as follows:

Gross proceeds:		$	46,300
Net assets tendered
Building	22,726
Other assets	1,502
Subtotal	24,228
Less:
Deferred rent credits	1,783
Total net assets tendered		22,445
Subtotal		23,855
Capitalized rent asset		1,852
Transaction costs		(2,982		)
Net gain on transaction		$	22,725

Transaction costs consisted of real estate transfer taxes of $1.4 million and commissions, fees, and legal costs of $1.6 million. The capitalized rent asset, which is based on the fair market value of the space we are leasing, will be recognized ratably over the 15-month free rent period. The potential incremental proceeds from this transaction relate to contingent payments from an escrow account. We will not recognize these proceeds, if any, unless and until we receive them. We expect to utilize $4.4 million of foreign tax credits as a result of this transaction. Accordingly, we have removed the valuation allowance of $2.2 million related to these deferred tax assets during the second quarter of 2013. This directly benefited our effective tax rate in the second quarter of 2013.

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(8)Goodwill, Trademarks, and Other Intangible Assets

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. Deferred financing costs are amortized over the repayment periods of the underlying debt. Goodwill and indefinite-lived trademarks are not amortized but are subject to impairment testing. We conduct our annual impairment test on July 31st each year, and also when events and circumstances indicate that the fair value of any of our reporting units may be below the unit’s carrying value. We consider our band division, piano division, and our online music business to be separate reporting units.

Our annual impairment testing date of July 31st was selected to coincide with the timing of our fall budgeting and planning process, which provides multi-year cash flows that are used to conduct our annual impairment testing. However, in the second quarter of 2013, changes in our online music business, including increased costs and a deterioration in our revenue growth assumptions, caused us to test the related trademark asset for recoverability. We determined that the future anticipated cash flows for this business were reduced and our trademark was impaired. As a result, we recorded an impairment charge of $0.5 million for the trademark associated with our online music business, which is included in the piano segment. No other events or circumstances occurred subsequent to our 2012 annual impairment test which would have indicated that our assets may be impaired.

The changes in carrying amounts of goodwill and trademarks are as follows:

	Piano			Band		Total
Goodwill:
Balance, January 1, 2013	$	22,916		$	—	$	22,916
Foreign currency translation impact	(189		)	—		(189		)
Balance, June 30, 2013	$	22,727		$	—	$	22,727
Trademarks:
Balance, January 1, 2013	$	8,846		$	4,574	$	13,420
Impairment	(500		)	—		(500		)
Foreign currency translation impact	(60		)	—		(60		)
Balance, June 30, 2013	$	8,286		$	4,574	$	12,860

Our cumulative impairment losses are $8.8 million associated with band division goodwill, $1.3 million related to band division trademarks, $2.7 million attributable to online music business goodwill, and $1.7 million associated with online music business trademarks.

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We also carry certain intangible assets that are amortized. Once fully amortized, these assets are removed from both the gross and accumulated amortization balances. These assets consist of the following:

	June 30, 2013			December 31, 2012
Gross deferred financing costs	$	3,932		$	3,932
Accumulated amortization	(3,332		)	(3,130		)
Deferred financing costs, net	$	600		$	802
Gross non-compete agreements	$	—		$	250
Accumulated amortization	—			(231		)
Non-compete agreements, net	$	—		$	19
Gross customer relationships	$	459		$	843
Accumulated amortization	(154		)	(506		)
Customer relationships, net	$	305		$	337
Gross website and developed technology	$	—		$	2,176
Accumulated amortization	—			(2,006		)
Website and developed technology, net	$	—		$	170
Total gross other intangibles	$	4,391		$	7,201
Accumulated amortization	(3,486		)	(5,873		)
Total other intangibles, net	$	905		$	1,328

The weighted-average amortization period for deferred financing costs is six years, and the weighted-average amortization period for all other amortizable intangibles is approximately five years. The remaining weighted-average amortization period for deferred financing costs is approximately one year and the remaining weighted-average amortization period for all other amortizable intangibles is approximately three years. Total amortization expense, which includes amortization of deferred financing costs, is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Amortization expense	$	200	$	261	$	463	$	523

The following table shows the total estimated amortization expense for the remainder of 2013 and beyond:

Remainder of 2013	$	247
2014	330
2015	245
2016	57
2017	19
Thereafter	7
Total	$	905

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(9)Other Current Liabilities

Our other current liabilities consist of the following:

	June 30,  2013		December 31, 2012
Accrued payroll and related benefits	$	15,206	$	15,748
Current portion of pension and other postretirement benefit liabilities	1,368		1,389
Accrued warranty expense	1,427		1,327
Accrued interest	1,566		1,563
Deferred income	9,924		10,834
Income and other taxes payable	9,009		202
Other accrued expenses	7,132		9,112
Total	$	45,632	$	40,175

Accrued warranty expense is recorded at the time of sale for instruments that have a warranty period ranging from one to ten years. The accrued expense recorded is generally calculated on a ratio of warranty costs to sales based on our warranty history and is adjusted periodically following an analysis of actual warranty claims. The accrued warranty expense activity for the three months ended June 30, 2013 and 2012, and the year ended December 31, 2012 is as follows:

	June 30, 2013			June 30, 2012			December 31, 2012
Beginning balance	$	1,327		$	1,242		$	1,242
Additions	496			698			1,099
Claims and reversals	(379		)	(481		)	(1,031		)
Foreign currency translation impact	(17		)	(15		)	17
Ending balance	$	1,427		$	1,444		$	1,327

(10)Debt

Our outstanding debt consists of the following:

	June 30, 2013			December 31, 2012
7.00% Senior Notes	$	67,506		$	67,506
Unamortized bond discount	(43		)	(75		)
Overseas lines of credit	505			576
Total	67,968			68,007
Less: current portion	67,968			576
Long-term debt	$	—		$	67,431

Scheduled repayments of outstanding debt as of June 30, 2013 are as follows:

Remainder of 2013	$	68,011
Total	$	68,011

On June 14, 2013, we called all of our outstanding 7.00% Senior Notes, to be redeemed on July 15, 2013. This redemption is discussed further in Note 17.

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(11)Fair Values

Our financial instruments, which are recorded at fair value, consist primarily of foreign currency contracts and marketable equity securities. We assess the inputs used to measure fair value using the following three-tier hierarchy, which indicates the extent to which inputs used are observable in the market.

Level 1	Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for identical or similar instruments such as interest rates, foreign currency exchange rates, commodity rates and yield curves, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We value our foreign currency contracts using internal and third-party models with observable inputs, including currency forward and spot prices, volatility factors, and net present value factors. Estimated fair value has been determined as the difference between the current forward or option rate and the contract rate, multiplied by the notional amount of the contract, or upon the estimated fair value of purchased option contracts.

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 and the fair value hierarchy of the valuation techniques we utilized. We classify these assets and liabilities as either short term or long term based on maturity or anticipated realization dates.

	June 30, 2013		December 31, 2012
Financial assets:
Trading securities - Level 1	$	2,374	$	1,952
Foreign currency contracts - Level 2	1,566		779
	$	3,940	$	2,731
Financial liabilities:
Foreign currency contracts - Level 2	$	96	$	122

Our trading securities pertain to the Supplemental Executive Retirement Plan (“SERP”) and are held in a Rabbi Trust. We record a corresponding liability for the same amount in our financial statements, which represents our obligation to SERP participants. Our foreign currency contracts pertain to obligations or potential obligations to purchase or sell euros, pounds, U.S. dollars, and yen under various forward and option contracts.

We base the estimated fair value of our debt on institutional quotes currently available to us. The cost-based net carrying value and estimated fair value are as follows:

	June 30, 2013				December 31, 2012
	Net Carrying Value		Estimated Fair Value		Net Carrying Value		Estimated Fair Value
Financial liabilities:
Debt	$	67,968	$	68,566	$	68,007	$	68,631

The carrying values of accounts, notes and other receivables, and accounts payable approximate fair value. Certain assets, including long-lived assets held and used, and trademarks associated with our online music business, are measured at fair value on a non-recurring basis. We recognized a fair value measurement loss of $0.5 million related to online music business trademarks during the second quarter of 2013.

14

(12)Stockholders’ Equity and Stock-based Compensation Arrangements

We have a Stockholder Rights Plan, an Employee Stock Purchase Plan, and Stock Plans, all of which are discussed fully in our Annual Report on Form 10-K for the year ended December 31, 2012.

The compensation cost and the income tax benefit recognized for these plans are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Compensation cost included in:
Basic income per share	$	0.01	$	0.01	$	0.01	$	0.01
Diluted income per share	$	0.01	$	0.01	$	0.01	$	0.01
Stock-based compensation expense	92		100		188		211
Income tax benefit	18		21		39		47

We measure the fair value of options on their grant date, including the valuation of the option feature implicit in our Purchase Plan, using the Black-Scholes option-pricing model. The risk-free interest rate is based on the weighted-average of U.S. Treasury rates over the expected life of the stock option or the contractual life of the option feature in the Purchase Plan.

The expected life of a stock option is based on historical data of similar option holders. We have segregated our employees into two groups based on historical exercise and termination behavior. The expected life of the option feature in the Purchase Plan is the same as its contractual life. Expected volatility is based on historical volatility of our stock over the expected life of the option, as our options are not readily tradable.

There were no options granted during the three and six months ended June 30, 2013 or 2012. The following table sets forth information regarding the Stock Plans:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	641,050		$	22.12
Granted	—		—
Exercised	(18,500	)	17.99
Forfeited	—		—
Outstanding, June 30, 2013	622,550		$	22.24	4.6	$	5,011
Exercisable, June 30, 2013	582,550		$	23.00	4.4	$	4,261

The total intrinsic value of the options exercised during the three and six month periods ended June 30, 2013 was $0.2 million. As of June 30, 2013, there was $0.1 million of unrecognized compensation cost related to nonvested share-based compensation arrangements. This compensation is expected to be recognized over a weighted-average period of approximately one year. Cash received from option exercises under the Stock Plans for the three and six month periods ended June 30, 2013 was $0.3 million.

15

The following tables set forth information regarding the Purchase Plan:

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Risk-free interest rate	0.2%	0.2%	0.2%	0.2%
Weighted-average expected life of option feature (in years)	1.0	1.0	1.0	1.0
Expected volatility of underlying stock	28.7%	28.6%	28.7%	28.6%
Expected dividends	n/a	n/a	n/a	n/a
Weighted-average fair value of option feature	$5.98	$7.19	$5.98	$7.19

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	12,641		$	20.56
Shares subscribed	15,140		20.56
Exercised	—		—
Forfeited	(1,310	)	20.56
Outstanding, June 30, 2013	26,471		$	20.56	0.1	$	249

(13)Other Expense, Net

	Three Months Ended June 30						Six Months Ended June 30,
	2013			2012			2013			2012
West 57th Street building income	$	(518	)	$	(586	)	$	(974	)	$	(1,141	)
West 57th Street building expense	1,499			1,685			3,349			3,490
Foreign exchange loss (gain), net	179			131			(537		)	(488		)
Miscellaneous, net	(142		)	47			(419		)	(230		)
Other expense, net	$	1,018		$	1,277		$	1,419		$	1,631

Prior to its sale on June 28, 2013, which is discussed in Note 7, our building on West 57th Street in New York City was managed by an outside company. West 57th Street building income includes all rent and other income attributable to the property; West 57th Street building expense includes the land lease, real estate taxes, depreciation, and other building costs. We allocate a ratable portion of the building expenses that relate to our retail store to sales and marketing expenses.

(14)Commitments and Contingent Liabilities

We are involved in certain legal proceedings regarding environmental matters, which were previously disclosed in our 2012 Annual Report on Form 10-K. Further, in the ordinary course of business, we are party to various legal actions that we believe are routine in nature and incidental to the operation of our business. While the outcome of such actions cannot be predicted with certainty, we believe that, based on our experience in dealing with these matters, their ultimate resolution will not have a material adverse impact on our business, financial condition, results of operations or prospects.

Certain environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances, which liability is broadly construed. Under CERCLA and other laws, we may have liability for investigation and cleanup costs and other damages relating to our current or former properties, or third-party sites to which we sent wastes for disposal. Our potential liability at any of these sites is affected by many factors including, but not limited to, the method of remediation, our portion of the hazardous substances at the site relative to that of other parties, the number of responsible parties, the financial capabilities of other parties, and contractual rights and obligations.

16

Based on our past experience and currently available information, these matters and our other liabilities and compliance costs arising under environmental laws are not expected to have a material impact on our capital expenditures, earnings or financial position in an individual year. However, some risk of environmental liability is inherent in the nature of our current and former businesses and we may, in the future, incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws.

(15)Retirement Plans

We have defined benefit pension plans covering many of our employees, including certain employees in Germany and the U.K. The components of net periodic pension cost for these plans are as follows:

	Domestic Plan						Foreign Plans
	Three Months Ended June 30,						Three Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	11		$	20		$	145		$	112
Interest cost	770			829			380			400
Expected return on plan assets	(1,137		)	(1,048		)	(143		)	(119		)
Amortization of prior service credit	—			—			(13		)	(13		)
Amortization of net loss	365			310			134			12
Net periodic pension cost	$	9		$	111		$	503		$	392

	Domestic Plan						Foreign Plans
	Six Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	23		$	24		$	287		$	225
Interest cost	1,540			1,679			754			805
Expected return on plan assets	(2,275		)	(2,094		)	(287		)	(237		)
Amortization of prior service credit	—			—			(26		)	(26		)
Amortization of net loss	730			623			270			24
Net periodic pension cost	$	18		$	232		$	998		$	791

Based on our domestic plan’s current funded status, we anticipate making contributions of $2.3 million to our domestic plan in 2013 as required by federal laws and regulations. As of June 30, 2013, we have contributed $0.8 million to this plan. Our anticipated contributions to the pension plan of our U.K. subsidiary approximate $0.7 million for the current year. As of June 30, 2013, we have made contributions of $0.4 million to this plan. The pension plans of our German entities hold insurance contracts which relate to a single participant. These entities use operating cash to pay participant benefits as they become due. Expected 2013 benefit payments under these plans are $1.3 million, of which $0.7 million was paid through June 30, 2013.

We provide postretirement life insurance benefits to a limited number of certain eligible hourly retirees and their dependents. The activity in this plan is not material to the condensed consolidated financial statements.

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(16)Segment Information

We have identified two reportable segments: the piano segment and the band & orchestral instrument segment. We consider these two segments reportable as they are managed separately and the operating results of each segment are separately reviewed and evaluated by our senior management on a regular basis. We have included the results of our online music division within the “U.S. Piano Segment” as we believe its results are not material and its products and customer base are most correlated with piano operations. Management and the chief operating decision maker use income from operations as a meaningful measurement of profit or loss for the segments. Income from operations for the reportable segments includes certain corporate costs allocated to the segments based primarily on revenue, as well as intercompany profit. Amounts reported as “Other & Elim” contain corporate costs that were not allocated to the reportable segments, and the remaining intercompany profit elimination.

The following tables present information about our operating segments as of and for the three and six months ended June 30, 2013 and 2012 and as of the year ended December 31, 2012:

	Piano Segment								Band Segment						Other &			Consol
As of June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	33,520	$	15,945	$	5,504	$	54,969	$	12,870	$	—	$	12,870	$	97		$	67,936
Total assets	167,447		75,552		41,588		284,587		249,849		5,153		255,002		(87,597		)	451,992

	Piano Segment								Band Segment						Other &			Consol
As of December 31, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	55,596	$	16,423	$	6,044	$	78,063	$	13,366	$	2	$	13,368	$	54		$	91,485
Total assets	149,686		78,481		47,850		276,017		234,428		5,966		240,394		(90,744		)	425,667

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	28,424	$	16,234	$	12,099	$	56,757	$	34,750	$	846	$	35,596	$	—		$	92,353
Income (loss) from operations	1,384		3,713		1,749		6,846		5,077		61		5,138		(3,383		)	8,601

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	24,049	$	14,445	$	11,870	$	50,364	$	34,560	$	780	$	35,340	$	—		$	85,704
Income (loss) from operations	921		3,271		1,148		5,340		3,428		10		3,438		(2,807		)	5,971

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	52,679	$	26,813	$	22,679	$	102,171	$	65,293	$	1,692	$	66,985	$	—		$	169,156
Income (loss) from operations	2,807		4,334		3,059		10,200		8,170		144		8,314		(4,332		)	14,182

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	44,461	$	27,036	$	23,010	$	94,507	$	67,458	$	1,692	$	69,150	$	—		$	163,657
Income (loss) from operations	648		5,148		2,542		8,338		4,491		80		4,571		(4,775		)	8,134

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(17)Subsequent Events

Following the announcement of the Merger Agreement described in Note 3, three separate putative stockholder class action lawsuits were filed in the Court of Chancery of the State of Delaware against SMI, the members of the SMI board of directors, Parent, Acquisition Sub and Kohlberg & Company, L.L.C.  On July 30, 2013, these lawsuits were consolidated into a single class action.  The complaint alleges that SMI’s directors breached their fiduciary duties to SMI’s stockholders because, among other things, they allegedly failed to take steps to maximize the value of SMI to its public stockholders.  The complaint also alleges that the directors of SMI failed to provide the SMI stockholders with material information and provided them with materially misleading information in the Solicitation/Recommendation Statement on Schedule 14D-9 filed by SMI with the SEC on July 15, 2013.  Management does not expect that this lawsuit will have a material impact on either the Company’s operations or completing the transaction contemplated by the Merger Agreement.

On July 15, 2013 we redeemed all of our outstanding Senior Notes, which totaled $67.5 million as of June 30, 2013, at principal plus accrued interest pursuant to a call we issued on June 14, 2013.  We will record a net loss on extinguishment of debt of $0.2 million relating to the write-off of deferred financing costs and bond discount during the third quarter of 2013.

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ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Tabular Amounts in Thousands Except Percentages, Share and Per Share Data)

Introduction

We are a world leader in the design, manufacture, marketing, and distribution of high quality musical instruments. Our piano division concentrates on the high-end grand piano segment of the industry, handcrafting Steinway pianos in New York and Germany. We also offer Steinway upright pianos and two mid-priced lines of pianos under the Boston and Essex brand names. We are also an online retailer of classical music recordings. Through our band division, we are the largest domestic producer of band and orchestral instruments and offer a complete line of brass, woodwind, percussion and string instruments and related accessories with well-known brand names such as Bach, Selmer, C.G. Conn, Leblanc, King, and Ludwig. We sell our products through dealers and distributors worldwide. Our piano customer base consists of professional artists, amateur pianists, and institutions such as concert halls, universities, and music schools. Our band and orchestral instrument customer base consists primarily of middle school and high school students, but also includes adult amateur and professional musicians.

Recent Events

On June 30, 2013, Steinway Musical Instruments, Inc. (“SMI”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KSTW Holdings, Inc., a Delaware corporation (“Parent”), and KSTW Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Acquisition Sub”), providing for the merger of Acquisition Sub with and into SMI, with SMI being the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”).  Parent and Acquisition Sub are affiliates of Kohlberg Management VII, L.P. (“Kohlberg”).

On July 15, 2013, Acquisition Sub commenced a cash tender offer (the “Offer”) to acquire all of the outstanding shares of SMI common stock.  Upon the successful closing of the Offer, stockholders of SMI who tender their shares in the Offer will receive $35.00 per share, in cash, payable without interest and less any applicable withholding taxes.

The Offer will expire at 11:59 p.m., New York City time, on August 21, 2013, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”).  Consummation of the Offer is subject to customary conditions, including, among others, (i) the valid tender of the number of shares that would represent at least a majority of the outstanding shares of common stock of SMI; (ii) Parent’s receipt of the proceeds of the debt financing; (iii) the Rights Agreement shall have no force or effect with respect to the Offer and the Merger; (iv) the absence of certain legal impediments to the consummation of the Merger; and (v) the absence of any change, event or occurrence that has had or would reasonably be expected to have a material adverse effect on SMI.

The Merger Agreement provides for a 45-day “go-shop” period, which will end on August 14, 2013, during which time SMI may solicit alternative proposals to the transaction with Kohlberg. Any shares not tendered in the Offer will be acquired in a second-step merger at the same cash price as paid in the Offer.  The transaction is expected to close in the third quarter of 2013.

Critical Accounting Policies and Estimates

The SEC has issued disclosure guidance for “critical accounting policies and estimates.” The SEC defines “critical accounting policies and estimates” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Management is required to make certain estimates and assumptions during the preparation of the condensed consolidated financial statements. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.

The significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in the Company’s 2012 Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management considers the following to be critical accounting policies and estimates based on the definition above.

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Accounts Receivable

We establish allowances for accounts receivable and notes receivable. We review overall collectibility trends and customer characteristics such as debt leverage, solvency, and outstanding balances in order to develop our reserve estimates. Historically, a large portion of our sales at both our piano and band divisions has been generated by our top fifteen customers. As a result, we experience some inherent concentration of credit risk in our accounts receivable due to its composition and the relative proportion of large customer receivables to the total. This is especially true at our band division, which characteristically has a majority of our consolidated accounts receivable balance. We consider the credit health and solvency of our customers when developing our receivable allowance estimates.

Inventory

We adjust our inventory carrying values for items such as lower-of-cost-or-market and obsolescence. We review inventory levels on a detailed basis, concentrating on the age and amounts of raw materials, work-in-process, and finished goods, as well as recent usage and sales dates and quantities to help develop our estimates. Ongoing changes in our business strategy, coupled with increased offshore sourcing, could affect our ability to realize the current cost of our inventory, and are considered by management when developing our estimates. We also establish reserves for anticipated book-to-physical adjustments based upon our historical level of adjustments from our annual physical inventories. We account for our inventory using standard costs. Accordingly, variances between actual and standard costs that are not abnormal in nature are capitalized into inventory and released based on calculated inventory turns. Abnormal costs are expensed in the period in which they occur.

Workers’ Compensation and Self-Insured Health Claims

We establish self-insured workers’ compensation and health claims reserves based on our trend analysis of data provided by third-party administrators regarding historical claims and anticipated future claims.

Long-lived Assets

We review long-lived assets, such as property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. We measure recoverability by comparing the carrying amount of the asset or asset group to the estimated future cash flows the asset or asset group is expected to generate.

We record long-lived intangible assets based on estimated acquisition-date fair values, and amortize finite-lived intangibles over their estimated useful lives. We test our goodwill and indefinite-lived trademark assets for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset may have decreased below its carrying value. We determine our reporting units by first identifying our operating segments, and then assess whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within a reporting unit that have similar economic characteristics.

Our assessment is based on a comparison of net book value to estimated fair values primarily using an income approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our discounted cash flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in our analysis and reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market participant weighted-average costs of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows, adjusted for the risks and uncertainty inherent in our industry generally and in our internally developed forecasts. We also use a market approach against which we benchmark the results of our income approach to ensure that the results are appropriate.

Our assessment of indefinite-lived trademarks compares the present value of the future estimated after tax royalty payments, discounted at a risk-adjusted rate of return, to the carrying value of the trademark. This relief-from-royalty method estimates the savings in royalties a company would otherwise have had to pay if it did not own the trademarks and had to license them from a third party.

21

Pensions and Other Postretirement Benefit Costs

We make certain assumptions when calculating our benefit obligations and expenses. We base our selection of assumptions, such as discount rates and long-term rates of return, on information provided by our actuaries, investment advisors, investment committee, current rate trends, and historical trends for our pension asset portfolio. Our benefit obligations and expenses can fluctuate significantly based on the assumptions management selects.

Income Taxes

When appropriate, we record valuation allowances for certain deferred tax assets related to foreign tax credit carryforwards and net operating loss carryforwards. When assessing the realizability of deferred tax assets, we consider whether it is more likely than not that the deferred tax assets will be fully realized. The ultimate realization of these assets is dependent upon many factors, including the ratio of foreign source income to overall income and generation of sufficient future taxable income in the jurisdictions for which we have loss carryforwards. When establishing or adjusting valuation allowances, we consider these factors, as well as anticipated trends in foreign source income and tax planning strategies which may impact future realizability of these assets.

When appropriate, a liability has been recorded for uncertain tax positions. When analyzing these positions, we consider the probability of various outcomes which could result from examination, negotiation, or settlement with various taxing authorities. The final outcome on these positions could differ significantly from our original estimates due to the following: expiring statutes of limitations; availability of detailed historical data; results of audits or examinations conducted by taxing authorities or agents that vary from management’s anticipated results; identification of new tax contingencies; release of applicable administrative tax guidance; management’s decision to settle or appeal assessments; the rendering of court decisions affecting our estimates of tax liabilities; or other factors.

Environmental Liabilities

We make certain assumptions when calculating our environmental liabilities. We base our selection of assumptions, such as cost and length of time for remediation, on data provided by our environmental consultants, as well as information provided by regulatory authorities. We also make certain assumptions regarding the indemnifications we have received from others, including whether remediation costs are within the scope of the indemnification, the indemnifier’s ability to perform under the agreement, and whether past claims have been successful. Amounts recorded for our environmental obligations and expenses can fluctuate significantly based on management’s assumptions.

We believe the assumptions made by management provide a reasonable basis for the estimates reflected in our condensed consolidated financial statements.

Forward-Looking Statements

Certain statements contained in this report are “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent our present expectations or beliefs concerning future events, including with respect to the Offer and related transactions. We caution 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 report. When used in this report, the words “can,” “will,” “intends,” “expects,” “is expected,” similar expressions and any other statements that are not historical facts are intended to identify those assertions as forward-looking statements. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements contained in this report, speak only as of the date of this report (unless another date is indicated). We do not assume any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law. Risk factors include the following: uncertainties regarding the timing of the closing of the transaction; uncertainties as to the number of stockholders of SMI who may tender their stock in the Offer; the risk of failing to obtain any regulatory approvals or satisfy conditions to the transaction; the risk that Kohlberg is unable to obtain adequate financing; the risk that the transaction will not close or that the closing will be delayed; the risk that SMI’s businesses will suffer due to uncertainty related to the transaction; competitive responses to the transaction; changes in general economic conditions; reductions in school budgets; increased competition; 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 fulfill piano orders in a timely manner; and fluctuations in effective tax rates resulting from shifts in sources of income. Further information on these risk factors is included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. We encourage you to read those descriptions carefully.

22

Results of Operations

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

	Three Months Ended June 30,							Change
	2013				2012			$		%
Net sales
Band	$	35,596			$	35,340		256		0.7
Piano	56,757				50,364			6,393		12.7
Total sales	92,353				85,704			6,649		7.8
Cost of sales
Band	25,312				26,210			(898	)	(3.4	)
Piano	35,751				32,129			3,622		11.3
Total cost of sales	61,063				58,339			2,724		4.7
Gross profit
Band	10,284			28.9%	9,130		25.8%	1,154		12.6
Piano	21,006			37.0%	18,235		36.2%	2,771		15.2
Total gross profit	31,290				27,365			3,925		14.3
	33.9%				31.9%
Operating expenses	22,189				21,228			961		4.5
Impairment charges	500				166			334		201.2
Income from operations	8,601				5,971			2,630		44.0
Gain on sale of West 57th Street property	(22,725		)		—			(22,725	)	100.0
Other expense, net	1,018				1,277			(259	)	(20.3	)
Net interest expense	939				942			(3	)	(0.3	)
Non-operating (income) expenses	(20,768		)		2,219			(22,987	)	(1,035.9	)
Income before income taxes	29,369				3,752			25,617		682.8
Income tax provision	9,214			31.4%	1,355		36.1%	7,859		580.0
Net income	$	20,155			$	2,397		17,758		740.8

Overview — Piano division revenue improved as a result of stronger wholesale demand for Steinway grand pianos in the Americas and Europe regions, and improved shipments of Boston and Essex pianos in the Americas and Asia-Pacific regions. Piano gross margins benefited from standard price increases on most Steinway pianos. The modest increase in band division revenues corresponded to the improvement in band instrument unit shipments. Band gross margin improved largely due to price increases.

Net Sales — Revenue generated by our Americas region of $28.4 million increased 18% over the year-ago period. Although retail revenue decreased $1.3 million, this was more than offset by the wholesale revenue improvement of $5.2 million. Steinway grand unit shipments by the Americas region rose 34% and Boston and Essex unit shipments increased 16% during the period. Standard price increases of 3.5% on Steinway grand pianos also contributed to the revenue improvement. Sales in Europe were $2.7 million higher than the year-ago period due to a 20% increase in Steinway grand unit shipments and standard price increases of nearly 5%. Despite a 40% increase in Boston and Essex unit shipments in the Asia-Pacific region, sales dropped $0.7 million due to a 15% decrease in Steinway grand unit shipments and an unfavorable foreign currency exchange rate impact of $0.6 million.

Band division revenue increased $0.3 million over the year-ago period. An average price increase of 4% and stable unit shipments of band instruments more than offset a $1.0 million decrease in accessories revenue.

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Cost of Sales — Cost of sales increased $3.1 million at our domestic piano division due to the revenue improvement. Cost of sales overseas was $0.5 million higher than the year-ago period, reflecting a $1.2 million increase related to revenue, offset by efficiencies at our overseas manufacturing facility. Band division cost of sales was $0.9 million less than the year-ago period. This resulted from lower costs due to shifts in production and the mix of products sold.

Gross Profit — Gross profit was $3.9 million higher largely due to improved sales at our piano division and better margins generated by the band division. While gross margins in the Americas decreased from 32.7% to 32.2% due to a shift from retail to wholesale demand, this was more than offset by the increase in revenue. Also, our costs remained stable, so standard price increases directly benefited gross profit. Gross margins on sales made by the Europe and Asia-Pacific regions rose from 39.4% to 41.8%.  Fewer factory inefficiencies and standard price increases contributed to the improvement. Additionally, overall piano division gross profit also benefited from a favorable foreign currency exchange rate impact on the cost of Boston pianos.

Gross margin generated by the band division increased from 25.8% to 28.9% in the current period as manufacturing costs improved slightly, resulting in implemented price increases directly benefiting gross profit.

Operating Expenses — Operating expenses increased $1.0 million during the period. Sales and marketing costs were slightly lower than the year-ago period due to a decrease in bad debt expense of $0.2 million. General and administrative costs were $1.1 million higher in part due to $0.4 million in additional legal and consulting costs related to the Merger Agreement and related activities, as well as increased employee benefit costs.

Impairment Charges — Impairment charges increased $0.3 million due to a $0.5 million impairment charge for the trademark associated with our online music retail business taken in the current period. In the year-ago period, impairment charges were limited to a $0.2 million write-down on an asset held for sale.

Non-operating (Income) Expenses — Non-operating income was $23.0 million higher due to a $22.7 million gain on the sale of our West 57th Street property on June 28, 2013. Prior to its sale, net expenses related to this facility were $0.1 million lower than the year-ago period. Other costs, expenses such as foreign exchange losses and net interest expense, were relatively consistent with the year-ago period.

Income Taxes — We recorded income tax expense of $9.2 million, reflecting our anticipated annual effective income tax rate of 38.6% associated with current year income and a benefit of 7.2% related to discrete items, including uncertain tax positions. The tax benefit of discrete items resulted from the reversal of the valuation allowance associated with our foreign tax credits, which we expect to realize as a result of the sale of our West 57th Street property. The rate of 36.1% in the year-ago period reflected an anticipated annual effective income tax rate of 37.2% as well as uncertain tax positions and other discrete items.

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Results of Operations

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

	Six Months Ended June 30,							Change
	2013				2012			$		%
Net sales
Band	$	66,985			$	69,150		(2,165	)	(3.1	)
Piano	102,171				94,507			7,664		8.1
Total sales	169,156				163,657			5,499		3.4
Cost of sales
Band	47,443				52,064			(4,621	)	(8.9	)
Piano	65,073				61,081			3,992		6.5
Total cost of sales	112,516				113,145			(629	)	(0.6	)
Gross profit
Band	19,542			29.2%	17,086		24.7%	2,456		14.4
Piano	37,098			36.3%	33,426		35.4%	3,672		11.0
Total gross profit	56,640				50,512			6,128		12.1
	33.5%				30.9%
Operating expenses	41,958				42,212			(254	)	(0.6	)
Impairment charges	500				166			334		201.2
Income from operations	14,182				8,134			6,048		74.4
Gain on sale of West 57th Street property	(22,725		)		—			(22,725	)	100.0
Other expense, net	1,419				1,631			(212	)	(13.0	)
Net interest expense	1,856				1,792			64		3.6
Non-operating (income) expenses	(19,450		)		3,423			(22,873	)	(668.2	)
Income before income taxes	33,632				4,711			28,921		613.9
Income tax provision	10,787			32.1%	1,724		36.6%	9,063		525.7
Net income	$	22,845			$	2,987		19,858		664.8

Overview — Piano division revenue improved due to price increases, better wholesale demand for Steinway grand pianos in the Americas, and improved shipments of Boston and Essex pianos in the Americas and Asia-Pacific regions. Piano gross margins benefited from standard price increases on most Steinway pianos. Band division revenue decreased due to lower shipments of most product categories. However, band gross margin improved significantly due to price increases and shifts in mix of products sold.

Net Sales — Revenue generated by our Americas region of $52.7 million increased 18% over the year-ago period. Retail revenue was stable and wholesale revenue improved $8.3 million. Steinway grand unit shipments by the Americas region rose 24%, as did shipments of Boston and Essex piano units. Standard price increases of 3.5% on Steinway grand pianos also contributed to the revenue improvement. Sales in Europe were $0.3 million lower than the year-ago period. Strong wholesale demand and reduced manufacturing backlogs in the second quarter somewhat offset softer sales during the first quarter. Steinway grand unit shipments decreased 6% and Boston and Essex unit shipments decreased 14%. However, standard price increases on Steinway grands of nearly 5% helped mitigate the adverse impact of lower shipments. Despite a 47% increase in Boston and Essex unit shipments in the Asia-Pacific region, sales dropped $0.3 million due to a 14% decrease in Steinway grand unit shipments and an unfavorable foreign currency exchange rate impact of $1.1 million.

Band division revenue decreased $2.2 million compared to the year-ago period. An average price increase of 4% partially offset the impact of a 5% decrease in overall unit shipments.

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Cost of Sales — Cost of sales increased $5.1 million at our domestic piano division, correlating to the increase in revenue. Cost of sales overseas was $1.1 million lower than the year-ago period, in part due to the decrease in revenue, as well as efficiencies at our overseas manufacturing facility. Band division cost of sales was $4.6 million less than the year-ago period. This resulted from lower costs due to shifts in production, as well as lower sales.

Gross Profit — Gross profit was $6.1 million higher largely due to improved sales at our piano division and better margins generated by the band division. Gross margins in the Americas went from 32.3% to 33.2% despite the shift in sales from retail to wholesale, which typically generate lower margins. There was little manufacturing cost increase, so the implemented price increases directly benefited gross profit. Gross margins on sales made by the Europe and Asia-Pacific regions rose from 38.1% to 39.7%.  Standard price increases and a beneficial impact of shifts in mix of products sold contributed to the gross profit improvement. Overall piano gross margins also benefited from more favorable exchange rates on the cost of Boston pianos.

Gross margin generated by the band division increased from 24.7% to 29.2% in the current period. Manufacturing costs were slightly lower than the year-ago period therefore overall price increases directly benefited gross profit.

Operating Expenses — Operating expenses decreased $0.3 million during the period. Sales and marketing costs were $0.8 million less than the year-ago period due to a decrease in bad debt expense of $0.7 million. General and administrative costs were $0.6 million higher due to employee benefit costs. Legal and consulting costs related to the Merger and associated activities of $2.5 million were slightly lower than the costs incurred in the year-ago period associated with our strategic alternatives process.

Impairment Charges — Impairment charges increased $0.3 million due to a $0.5 million impairment charge for the trademark associated with our online music retail business taken in the current period. In the year-ago period, impairment charges were limited to a $0.2 million write-down on an asset held for sale.

Non-operating (Income) Expenses — Non-operating income was $22.9 million higher due to a $22.7 million gain on the sale of our West 57th Street property on June 28, 2013. Other costs, such as expenses related to this facility prior to its sale, foreign exchange losses, and net interest expense were relatively consistent with the year-ago period.

Income Taxes — We recorded income tax expense of $10.8 million, reflecting our anticipated annual effective income tax rate of 38.6% associated with current year income and a benefit of 6.5% related to discrete items, including uncertain tax positions. The tax benefit of discrete items resulted from the reversal of the valuation allowance associated with our foreign tax credits, which we expect to realize as a result of the sale of our West 57th Street property. The rate of 36.6% in the year-ago period reflected an anticipated annual effective income tax rate of 37.2% as well as uncertain tax positions and other discrete items.

Liquidity and Capital Resources

We have relied primarily upon cash provided by operations, supplemented as necessary by seasonal borrowings under our working capital line, to finance our operations, repay long-term indebtedness and fund capital expenditures.

Our statements of cash flows for the six months ended June 30, 2013 and 2012 are summarized as follows:

	2013			2012			Change
Net income:	$	22,845		$	2,987		$	19,858
Changes in operating assets and liabilities	(8,892		)	(18,188		)	9,296
Other adjustments to reconcile net income to cash from operating activities	(19,040		)	5,549			(24,589		)
Cash flows from operating activities	(5,087		)	(9,652		)	4,565
Cash flows from investing activities	39,293			(3,353		)	42,646
Cash flows from financing activities	381			3,814			(3,433		)

Cash used by operating activities decreased $4.6 million from the year-ago period. Cash used by accounts receivable increased $0.8 million largely due to the improvement in domestic piano sales. Due to its revenue cycle, our band division typically uses cash for receivables until the fourth quarter. Cash used for inventory was $1.7 million higher since production outpaced shipments, particularly at our band division factories and our piano manufacturing facility in Germany.

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Cash used for prepaids and other assets was $0.6 million higher due to our funding of a worker’s compensation insurance deposit. Lastly, we used $12.4 million less for accounts payable and accrued liabilities in 2013. In the current period, we incurred liabilities related to the Merger, associated activities, and the sale of the building which we have yet to pay since these events occurred so close to period end. In the prior year, we used $4.2 million primarily for vendor and pension payments.

Cash provided by investing activities was $42.6 million higher as a result of the sale of our West 57th Street property which yielded net proceeds of $43.3 million. Although we paid $1.3 million for inventory and other assets associated with piano retail stores in San Francisco, Sacramento, and Walnut Creek, California, we spent $0.6 million less on capital projects in the current period. In 2013, we expect capital expenditures for the full year to be in the range of $8.0 to $10.0 million.

Cash provided by financing activities decreased $3.4 million in the current period. In the year-ago period, we borrowed $3.5 million on our domestic line of credit to fund domestic piano operations. We had no domestic borrowings in 2013.

Borrowing Activities and Availability — We have a domestic credit facility with a syndicate of lenders (the “Credit Facility”) with a potential borrowing capacity of $100.0 million in revolving credit loans, which expires on October 5, 2015. It provides for periodic borrowings at either London Interbank Offering Rate (“LIBOR”) plus a range from 1.75% to 2.25%, or as-needed borrowings at an alternate base rate, plus a range from 0.75% to 1.25%; both ranges depend upon borrowing availability at the time of borrowing. The Credit Facility is collateralized by our domestic accounts receivable, inventory, and certain property, plant and equipment. As of June 30, 2013 we had nothing outstanding on this Credit Facility and $86.3 million of availability, net of borrowing restrictions.

Our non-domestic credit facilities originating from two German banks provide for borrowings by foreign subsidiaries of up to €15.3 million ($19.8 million at the June 30, 2013 exchange rate), net of borrowing restrictions of €0.3 million ($0.4 million at the June 30, 2013 exchange rate) and are payable on December 31, 2013 or February 28, 2014. These borrowings are collateralized by most of the assets of the borrowing subsidiaries. A portion of the loans can be converted into a maximum of £0.9 million ($1.3 million at the June 30, 2013 exchange rate) for use by our U.K. branch and ¥300 million ($3.0 million at the June 30, 2013 exchange rate) for use by our Japanese subsidiary. Our Chinese subsidiary also has the ability to convert the equivalent of up to €2.5 million into U.S. dollars or Chinese yuan ($3.3 million at the June 30, 2013 exchange rate). Euro loans bear interest at rates of Euro Interbank Offered Rate (“EURIBOR”) plus a margin determined at the time of borrowing. Margins fluctuate based on the loan amount and the borrower’s bank rating. The remaining demand borrowings bear interest at rates of the Bank of England base rate plus a fluctuating percentage for British pound loans, a base rate contingent upon currency borrowed plus 1.0% for loans of our Chinese subsidiary, and Tokyo Interbank Offered Rate (“TIBOR”) plus 2.2% for Japanese yen loans. We had nothing outstanding as of June 30, 2013 on these credit facilities.

Our Japanese subsidiary also maintains a separate revolving loan agreement that provides additional borrowing capacity of up to ¥300 million ($3.0 million at the June 30, 2013 exchange rate) based on eligible inventory balances. The revolving loan agreement bears interest at an average 30-day TIBOR rate plus 0.9% (outstanding borrowings at 1.0 % at June 30, 2013) and expires on June 30, 2014. As of June 30, 2013 we had $0.5 million outstanding on this revolving loan agreement.

At June 30, 2013, our total outstanding indebtedness amounted to $68.0 million, consisting of $67.5 million of our 7.00% Senior Notes due March 1, 2014 and $0.5 million of notes payable to foreign banks. On June 14, 2013 we announced a call of all of our outstanding Senior Notes, which we redeemed on July 15, 2013 at a price of 100.00% of principal, plus accrued interest, which resulted in a cash payment of $69.3 million. We utilized the proceeds from the sale of our building on West 57th Street in New York City, which we sold for $46.3 million, coupled with cash on hand, to repay these notes.

All of our debt agreements contain covenants that place certain restrictions on us, including our ability to incur additional indebtedness, to make investments in other entities, and limitations on cash dividend payments. We were in compliance with all such covenants as of June 30, 2013 and do not anticipate any compliance issues in the future.

We experience long production and inventory turnover cycles, which we constantly monitor since fluctuations in demand can have a significant impact on these cycles. In normal economic conditions, we are able to effectively utilize cash flow from operations to fund our debt and capital requirements and pay off borrowings on our domestic line of credit. We intend to manage accounts receivable and credit risk, and control inventory levels by monitoring purchases and production schedules. Our intention is to manage cash outflow and maintain sufficient operating cash on hand to meet short-term requirements.

At June 30, 2013, our operations in foreign tax jurisdictions held $19.9 million in cash, comprised of $10.4 million in renminbi, $4.5 million in yen, $2.8 million in euro, and $2.2 million in pounds. We indefinitely reinvest earnings of our operations in foreign tax jurisdictions, with the exception of our operations in China. Accordingly, we have fully provided for any associated domestic tax liability relating to these earnings. The amount of funds we will be able to repatriate to the

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United States is contingent upon approval of applicable taxing authorities, but we expect to repatriate approximately $11.9 million in 2013. We continue to reinvest the earnings of our other operations in foreign tax jurisdictions. We believe that domestic cash flow from operations, coupled with our domestic borrowing availability is sufficient to fund domestic operations in the next twelve months. Similarly, cash flows from overseas operations coupled with our overseas borrowing availability is sufficient to fund overseas operating activity for the next twelve months.

Other than those described above, we do not have any current plans or intentions that will have a material impact on our liquidity in 2013, although we may consider acquisitions that may require funding from operations or from our credit facilities. Other than those described, we are not aware of any trends, demands, commitments, or costs of resources that are expected to materially impact our liquidity or capital resources. Accordingly, we believe that cash on hand, together with cash flows anticipated from operations, transactions, and available borrowings under the Credit Facility, will be adequate to fund regular capital requirements and satisfy our working capital and general corporate needs for the next twelve months.

Contractual Obligations - The following table provides a summary of our contractual obligations at June 30, 2013.

	Payments due by period
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Contractual Obligations
Long-term debt(1)	$	69,772	$	69,772	$	—	$	—	$	—
Capital leases	4		4		—		—		—
Operating leases(2)	14,541		4,165		5,637		3,327		1,412
Purchase obligations(3)	20,145		20,145		—		—		—
Other long-term liabilities(4)	60,889		3,855		1,883		1,873		53,278
Total	$	165,351	$	97,941	$	7,520	$	5,200	$	54,690

Notes to Contractual Obligations:

(1)Long-term debt represents long-term debt obligations, the fixed interest on our Notes, which we redeemed on July 15, 2013, and the variable interest on our other loans. We estimated the future variable interest obligation using the applicable June 30, 2013 rates. The nature of our long-term debt obligations, including changes to our long-term debt structure, is described more fully in the “Borrowing Activities and Availability” section of “Liquidity and Capital Resources.”

(2)This obligation is attributable to the leasing of facilities and equipment.

(3)Purchase obligations consist of firm purchase commitments for raw materials, finished goods, and service agreements.

(4)Our other long-term liabilities consist primarily of the long-term portion of our pension obligations, which are described in Note 15 in the Notes to Condensed Consolidated Financial Statements included within this filing and obligations under employee and consultant agreements. We have not included $0.2 million of liabilities relating to uncertain tax positions within this schedule due to the uncertainty of the payment date, if any.

Recent Accounting Pronouncements

We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

ITEM 3                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk associated with changes in foreign currency exchange rates and interest rates. We mitigate a portion of our foreign currency exchange rate risk by maintaining foreign currency cash balances and holding option and forward foreign currency contracts. They are not designated as hedges for accounting purposes. These contracts relate primarily to intercompany transactions and are not used for trading or speculative purposes. The fair value of the option and forward foreign currency exchange contracts is sensitive to changes in foreign currency exchange rates. The impact of an

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adverse change in foreign currency exchange rates would not be materially different than that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Our revolving loans bear interest at rates that fluctuate with changes in the Prime Rate, Federal Funds Rate, LIBOR, TIBOR, EURIBOR, the Bank of England Rate, and other base rates. As such, our interest expense on our revolving loans and the fair value of our fixed long-term debt are sensitive to changes in market interest rates. The effect of an adverse change in market interest rates on our interest expense would not be materially different than that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

The majority of our debt is at a fixed interest rate. Therefore, the associated interest expense is not sensitive to fluctuations in market interest rates. However, the fair value of our fixed interest debt would be sensitive to market rate changes.

ITEM 4                 CONTROLS AND PROCEDURES

Our principal executive officer and our principal financial officer, after evaluating together with management the design and operation of our disclosure controls and procedures, have concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2013, the end of the period covered by this report. In designing disclosure controls and procedures, management recognizes that any controls, no matter how well designed and operated, can only provide reasonable, not absolute, assurance of achieving the desired control objectives.

During the quarter covered by this report, there were no significant changes in our internal controls that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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PART II		OTHER INFORMATION
ITEM 6		EXHIBITS
	31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	XBRL Instance Document*
	101.SCH	XBRL Taxonomy Extension Schema Document*
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

	STEINWAY MUSICAL INSTRUMENTS, INC.
	/s/ Michael T. Sweeney
	Michael T. Sweeney
	President and Chief Executive Officer
	/s/ Dennis M. Hanson
	Dennis M. Hanson
	Senior Executive Vice President and
	Chief Financial Officer
Date: August 9, 2013

31

EX-31.1

EXHIBIT 31.1

I, Michael T. Sweeney, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Steinway Musical Instruments, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2013
	/s/ Michael T. Sweeney
	Michael T. Sweeney
	President and Chief
	Executive Officer

EX-31.2

EXHIBIT 31.2

I, Dennis M. Hanson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Steinway Musical Instruments, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2013	/s/ Dennis M. Hanson
	Dennis M. Hanson
	Senior Executive Vice President and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS REQUIRED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Steinway Musical Instruments, Inc. (the “Company”) for the fiscal period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael T. Sweeney, Chief Executive Officer of the Company, certify that to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael T. Sweeney

President and Chief Executive Officer

(Principal Executive Officer)

August 9, 2013

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS REQUIRED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Steinway Musical Instruments, Inc. (the “Company”) for the fiscal period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis M. Hanson, Senior Executive Vice President and Chief Financial Officer of the Company, certify that to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis M. Hanson

Senior Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

August 9, 2013

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Other Current Liabilities

6 Months Ended

Jun. 30, 2013

Other Current Liabilities

Other Current Liabilities

(9) Other Current Liabilities

Our other current liabilities consist of the following:

	June 30,  2013		December 31, 2012
Accrued payroll and related benefits	$	15,206	$	15,748
Current portion of pension and other postretirement benefit liabilities	1,368		1,389
Accrued warranty expense	1,427		1,327
Accrued interest	1,566		1,563
Deferred income	9,924		10,834
Income and other taxes payable	9,009		202
Other accrued expenses	7,132		9,112
Total	$	45,632	$	40,175

Accrued warranty expense is recorded at the time of sale for instruments that have a warranty period ranging from one to ten years. The accrued expense recorded is generally calculated on a ratio of warranty costs to sales based on our warranty history and is adjusted periodically following an analysis of actual warranty claims. The accrued warranty expense activity for the three months ended June 30, 2013 and 2012, and the year ended December 31, 2012 is as follows:

	June 30, 2013			June 30, 2012			December 31, 2012
Beginning balance	$	1,327		$	1,242		$	1,242
Additions	496			698			1,099
Claims and reversals	(379		)	(481		)	(1,031		)
Foreign currency translation impact	(17		)	(15		)	17
Ending balance	$	1,427		$	1,444		$	1,327

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Stockholders' Equity and Stock-based Compensation Arrangements (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012
Compensation cost included in:
Basic income per share (in dollars per share)	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Diluted income per share (in dollars per share)	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Stock-based compensation expense	$ 92,000	$ 100,000	$ 188,000	$ 211,000
Income tax benefit	18,000	21,000	39,000	47,000
Number of employee groups			2
Stock options
Number of Options
Outstanding at the beginning of the period (in shares)			641,050
Exercised (in shares)	(18,500)		(18,500)
Outstanding at the end of the period (in shares)	622,550		622,550
Exercisable at the end of the period (in shares)	582,550		582,550
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)			$ 22.12
Exercised (in dollars per share)			$ 17.99
Outstanding at the end of the period (in dollars per share)	$ 22.24		$ 22.24
Exercisable at the end of the period (in dollars per share)	$ 23.00		$ 23.00
Weighted-Average Remaining Contractual Life (in years)
Outstanding at the end of the period			4 years 7 months 6 days
Exercisable at the end of the period			4 years 4 months 24 days
Aggregate Intrinsic Value
Outstanding at the end of the period	5,011,000		5,011,000
Exercisable at the end of the period	4,261,000		4,261,000
Total intrinsic value of options exercised	200,000		200,000
Unrecognized compensation cost related to nonvested share-based compensation arrangements	100,000		100,000
Weighted-average period for compensation to be recognized			1 year
Cash received from option exercises under the stock plans	300,000		300,000
Employee Stock Purchase Plan
Fair value assumptions
Risk free interest rate (as a percent)	0.20%	0.20%	0.20%	0.20%
Weighted-average expected life of option feature	1 year	1 year	1 year	1 year
Expected volatility of underlying stock (as a percent)	28.70%	28.60%	28.70%	28.60%
Weighted-average fair value of option feature (in dollars per share)	$ 5.98	$ 7.19	$ 5.98	$ 7.19
Number of Options
Outstanding at the beginning of the period (in shares)			12,641
Shares subscribed			15,140
Forfeited (in shares)			(1,310)
Outstanding at the end of the period (in shares)	26,471		26,471
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)			$ 20.56
Shares subscribed (in dollars per share)			$ 20.56
Forfeited (in dollars per share)			$ 20.56
Outstanding at the end of the period (in dollars per share)	$ 20.56		$ 20.56
Remaining Contract Life (in years)
Outstanding at the end of the period			1 month 6 days
Aggregate Intrinsic Value
Outstanding at the end of the period	$ 249,000		$ 249,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash	$ 106,500	$ 73,406
Accounts, notes, and other receivables, net of allowances of $8,684 and $7,972 in 2013 and 2012, respectively	49,211	43,536
Inventories	133,974	125,081
Prepaid expenses and other current assets	10,331	9,079
Deferred tax assets	5,489	5,230
Total current assets	305,505	256,332
Property, plant and equipment, net of accumulated depreciation of $107,746 and $117,558 in 2013 and 2012, respectively	67,936	91,485
Trademarks	12,860	13,420
Goodwill	22,727	22,916
Other intangibles, net	905	1,328
Other assets	16,060	15,801
Long-term deferred tax assets	25,999	24,385
Total assets	451,992	425,667
Current liabilities:
Debt	67,968	576
Accounts payable	16,344	12,867
Other current liabilities	45,632	40,175
Total current liabilities	129,944	53,618
Long-term debt		67,431
Deferred tax liabilities	700	560
Pension and other postretirement benefit liabilities	52,703	54,501
Other non-current liabilities	6,166	7,712
Total liabilities	189,513	183,822
Commitments and contingent liabilities
Stockholders' equity:
Common stock	14	14
Additional paid-in capital	163,103	162,579
Retained earnings	171,779	148,934
Accumulated other comprehensive loss	(28,391)	(25,609)
Treasury stock, at cost	(44,026)	(44,073)
Total stockholders' equity	262,479	241,845
Total liabilities and stockholders' equity	$ 451,992	$ 425,667

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Our significant accounting policies were described in Note 2 to our audited Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for the fiscal year ended December 31, 2012. There have been no significant changes in our accounting policies during the first six months of 2013.

Recent Accounting Pronouncements — We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

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Segment Information

6 Months Ended

Jun. 30, 2013

Segment Information

Segment Information

(16) Segment Information

We have identified two reportable segments: the piano segment and the band & orchestral instrument segment. We consider these two segments reportable as they are managed separately and the operating results of each segment are separately reviewed and evaluated by our senior management on a regular basis. We have included the results of our online music division within the “U.S. Piano Segment” as we believe its results are not material and its products and customer base are most correlated with piano operations. Management and the chief operating decision maker use income from operations as a meaningful measurement of profit or loss for the segments. Income from operations for the reportable segments includes certain corporate costs allocated to the segments based primarily on revenue, as well as intercompany profit. Amounts reported as “Other & Elim” contain corporate costs that were not allocated to the reportable segments, and the remaining intercompany profit elimination.

The following tables present information about our operating segments as of and for the three and six months ended June 30, 2013 and 2012 and as of the year ended December 31, 2012:

	Piano Segment								Band Segment						Other &			Consol
As of June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	33,520	$	15,945	$	5,504	$	54,969	$	12,870	$	—	$	12,870	$	97		$	67,936
Total assets	167,447		75,552		41,588		284,587		249,849		5,153		255,002		(87,597		)	451,992

	Piano Segment								Band Segment						Other &			Consol
As of December 31, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	55,596	$	16,423	$	6,044	$	78,063	$	13,366	$	2	$	13,368	$	54		$	91,485
Total assets	149,686		78,481		47,850		276,017		234,428		5,966		240,394		(90,744		)	425,667

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	28,424	$	16,234	$	12,099	$	56,757	$	34,750	$	846	$	35,596	$	—		$	92,353
Income (loss) from operations	1,384		3,713		1,749		6,846		5,077		61		5,138		(3,383		)	8,601

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	24,049	$	14,445	$	11,870	$	50,364	$	34,560	$	780	$	35,340	$	—		$	85,704
Income (loss) from operations	921		3,271		1,148		5,340		3,428		10		3,438		(2,807		)	5,971

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	52,679	$	26,813	$	22,679	$	102,171	$	65,293	$	1,692	$	66,985	$	—		$	169,156
Income (loss) from operations	2,807		4,334		3,059		10,200		8,170		144		8,314		(4,332		)	14,182

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	44,461	$	27,036	$	23,010	$	94,507	$	67,458	$	1,692	$	69,150	$	—		$	163,657
Income (loss) from operations	648		5,148		2,542		8,338		4,491		80		4,571		(4,775		)	8,134

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012	Dec. 31, 2012
Segment Information
Number of reportable segments			2
Segment information
Property, plant and equipment	$ 67,936		$ 67,936		$ 91,485
Total assets	451,992		451,992		425,667
Net sales to external customers	92,353	85,704	169,156	163,657
Income (loss) from operations	8,601	5,971	14,182	8,134
Piano Segment
Segment information
Property, plant and equipment	54,969		54,969		78,063
Total assets	284,587		284,587		276,017
Net sales to external customers	56,757	50,364	102,171	94,507
Income (loss) from operations	6,846	5,340	10,200	8,338
Piano Segment | U.S.
Segment information
Property, plant and equipment	33,520		33,520		55,596
Total assets	167,447		167,447		149,686
Net sales to external customers	28,424	24,049	52,679	44,461
Income (loss) from operations	1,384	921	2,807	648
Piano Segment | Germany
Segment information
Property, plant and equipment	15,945		15,945		16,423
Total assets	75,552		75,552		78,481
Net sales to external customers	16,234	14,445	26,813	27,036
Income (loss) from operations	3,713	3,271	4,334	5,148
Piano Segment | Other
Segment information
Property, plant and equipment	5,504		5,504		6,044
Total assets	41,588		41,588		47,850
Net sales to external customers	12,099	11,870	22,679	23,010
Income (loss) from operations	1,749	1,148	3,059	2,542
Band Segment
Segment information
Property, plant and equipment	12,870		12,870		13,368
Total assets	255,002		255,002		240,394
Net sales to external customers	35,596	35,340	66,985	69,150
Income (loss) from operations	5,138	3,438	8,314	4,571
Band Segment | U.S.
Segment information
Property, plant and equipment	12,870		12,870		13,366
Total assets	249,849		249,849		234,428
Net sales to external customers	34,750	34,560	65,293	67,458
Income (loss) from operations	5,077	3,428	8,170	4,491
Band Segment | Europe
Segment information
Property, plant and equipment					2
Total assets	5,153		5,153		5,966
Net sales to external customers	846	780	1,692	1,692
Income (loss) from operations	61	10	144	80
Other & Elim
Segment information
Property, plant and equipment	97		97		54
Total assets	(87,597)		(87,597)		(90,744)
Income (loss) from operations	$ (3,383)	$ (2,807)	$ (4,332)	$ (4,775)

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Debt

6 Months Ended

Jun. 30, 2013

Debt

Debt

(10) Debt

Our outstanding debt consists of the following:

	June 30, 2013			December 31, 2012
7.00% Senior Notes	$	67,506		$	67,506
Unamortized bond discount	(43		)	(75		)
Overseas lines of credit	505			576
Total	67,968			68,007
Less: current portion	67,968			576
Long-term debt	$	—		$	67,431

Scheduled repayments of outstanding debt as of June 30, 2013 are as follows:

Remainder of 2013	$	68,011
Total	$	68,011

On June 14, 2013, we called all of our outstanding 7.00% Senior Notes, to be redeemed on July 15, 2013. This redemption is discussed further in Note 17.

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Goodwill, Trademarks, and Other Intangible Assets (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Estimated future amortization expense
Remainder of 2013	$ 247
2014	330
2015	245
2016	57
2017	19
Thereafter	7
Total other intangibles, net	$ 905	$ 1,328

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Subsequent Events (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	0 Months Ended	3 Months Ended
	Jun. 30, 2013 item	Jul. 15, 2013 Subsequent event Senior Notes	Sep. 30, 2013 Subsequent event Senior Notes
Subsequent events
Number of putative class action lawsuits filed	3
Debt instrument, redemption amount		$ 67.5
Net loss on extinguishment of debt			$ 0.2

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2013

Segment Information

Schedule of information about operating segments

	Piano Segment								Band Segment						Other &			Consol
As of June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	33,520	$	15,945	$	5,504	$	54,969	$	12,870	$	—	$	12,870	$	97		$	67,936
Total assets	167,447		75,552		41,588		284,587		249,849		5,153		255,002		(87,597		)	451,992

	Piano Segment								Band Segment						Other &			Consol
As of December 31, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Property, plant and equipment	$	55,596	$	16,423	$	6,044	$	78,063	$	13,366	$	2	$	13,368	$	54		$	91,485
Total assets	149,686		78,481		47,850		276,017		234,428		5,966		240,394		(90,744		)	425,667

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	28,424	$	16,234	$	12,099	$	56,757	$	34,750	$	846	$	35,596	$	—		$	92,353
Income (loss) from operations	1,384		3,713		1,749		6,846		5,077		61		5,138		(3,383		)	8,601

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	24,049	$	14,445	$	11,870	$	50,364	$	34,560	$	780	$	35,340	$	—		$	85,704
Income (loss) from operations	921		3,271		1,148		5,340		3,428		10		3,438		(2,807		)	5,971

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	52,679	$	26,813	$	22,679	$	102,171	$	65,293	$	1,692	$	66,985	$	—		$	169,156
Income (loss) from operations	2,807		4,334		3,059		10,200		8,170		144		8,314		(4,332		)	14,182

	Piano Segment								Band Segment						Other &			Consol
Six Months Ended June 30, 2012	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	44,461	$	27,036	$	23,010	$	94,507	$	67,458	$	1,692	$	69,150	$	—		$	163,657
Income (loss) from operations	648		5,148		2,542		8,338		4,491		80		4,571		(4,775		)	8,134

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Other comprehensive income (loss) (Tables)

6 Months Ended

Jun. 30, 2013

Other comprehensive income (loss)

Schedule of changes, net of income tax, in other comprehensive income (loss)

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, April 1, 2013 (net of tax of $18,741)	$	(29,902	)	$	1,729		$	(28,173	)
Other comprehensive income (loss) before reclassifications	—			(427		)	(427		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $48)	(125		)	—			(125		)
Amortization of actuarial losses (net of tax of $188)	334			—			334
Net current period other comprehensive income (loss)	209			(427		)	(218		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, January 1, 2013 (net of tax of $18,998)	$	(30,385	)	$	4,776		$	(25,609	)
Other comprehensive income (loss) before reclassifications	—			(3,474		)	(3,474		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $58)	(137		)	—			(137		)
Amortization of actuarial losses (net of tax of $455)	829			—			829
Net current period other comprehensive income (loss)	692			(3,474		)	(2,782		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements — We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

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Goodwill, Trademarks, and Other Intangible Assets (Details 2) (USD $)	6 Months Ended			6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013 Band	Jun. 30, 2013 Online music business	Jun. 30, 2013 Piano Segment Trademarks	Jun. 30, 2013 Piano Segment Trademarks Online music business	Jun. 30, 2013 Band Segment Trademarks	Dec. 31, 2012 Band Segment Trademarks
Trademarks:
Balance at the beginning of the period	$ 13,420,000			$ 8,846,000		$ 4,574,000	$ 4,574,000
Impairment	(500,000)				(500,000)
Foreign currency translation impact	(60,000)			(60,000)
Balance at the end of the period	12,860,000			8,286,000		4,574,000	4,574,000
Indefinite-lived intangible assets, cumulative impairment losses		$ 1,300,000	$ 1,700,000

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Fair Values (Tables)

6 Months Ended

Jun. 30, 2013

Fair Values

Schedule of assets and liabilities measured at fair value on recurring basis and the fair value hierarchy of the valuation techniques utilized

	June 30, 2013		December 31, 2012
Financial assets:
Trading securities - Level 1	$	2,374	$	1,952
Foreign currency contracts - Level 2	1,566		779
	$	3,940	$	2,731
Financial liabilities:
Foreign currency contracts - Level 2	$	96	$	122

Schedule of net carrying value and estimated fair value of the entity's debt

	June 30, 2013				December 31, 2012
	Net Carrying Value		Estimated Fair Value		Net Carrying Value		Estimated Fair Value
Financial liabilities:
Debt	$	67,968	$	68,566	$	68,007	$	68,631

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Other comprehensive income (loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Changes, net of income tax, in other comprehensive income
Balance at the beginning of the period	$ (28,173)	$ (25,609)
Balance at the beginning of the period, tax	18,741	18,998
Other comprehensive income (loss) before reclassifications	(427)	(3,474)
Amount reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit, net of tax	(125)	(137)
Amortization of prior service credit, tax	48	58
Amortization of actuarial losses, net of tax	334	829
Amortization of actuarial losses, tax	188	455
Net current-period other comprehensive income (loss)	(218)	(2,782)
Balance at the end of the period	(28,391)	(28,391)
Balance at the end of the period, tax	18,601	18,601
Pension and Other Postretirement Benefit Costs
Changes, net of income tax, in other comprehensive income
Balance at the beginning of the period	(29,902)	(30,385)
Amount reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit, net of tax	(125)	(137)
Amortization of actuarial losses, net of tax	334	829
Net current-period other comprehensive income (loss)	209	692
Balance at the end of the period	(29,693)	(29,693)
Foreign Currency Translation Adjustments
Changes, net of income tax, in other comprehensive income
Balance at the beginning of the period	1,729	4,776
Other comprehensive income (loss) before reclassifications	(427)	(3,474)
Amount reclassified from accumulated other comprehensive income (loss)
Net current-period other comprehensive income (loss)	(427)	(3,474)
Balance at the end of the period	$ 1,302	$ 1,302

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Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Other Current Liabilities
Accrued payroll and related benefits	$ 15,206		$ 15,748
Current portion of pension and other postretirement benefit liabilities	1,368		1,389
Accrued warranty expense	1,427	1,444	1,327
Accrued interest	1,566		1,563
Deferred income	9,924		10,834
Income and other taxes payable	9,009		202
Other accrued expenses	7,132		9,112
Total	45,632		40,175
Standard product warranty
Warranty period, minimum	1 year
Warranty period, maximum	10 years
Accrued warranty expense activity
Beginning balance	1,327	1,242	1,242
Additions	496	698	1,099
Claims and reversals	(379)	(481)	(1,031)
Foreign currency translation impact	(17)	(15)	17
Ending balance	$ 1,427	$ 1,444	$ 1,327

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Goodwill, Trademarks, and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2013

Goodwill, Trademarks, and Other Intangible Assets

Schedule of changes in carrying amounts of goodwill and trademarks

	Piano			Band		Total
Goodwill:
Balance, January 1, 2013	$	22,916		$	—	$	22,916
Foreign currency translation impact	(189		)	—		(189		)
Balance, June 30, 2013	$	22,727		$	—	$	22,727
Trademarks:
Balance, January 1, 2013	$	8,846		$	4,574	$	13,420
Impairment	(500		)	—		(500		)
Foreign currency translation impact	(60		)	—		(60		)
Balance, June 30, 2013	$	8,286		$	4,574	$	12,860

Schedule of certain intangible assets that are amortized

	June 30, 2013			December 31, 2012
Gross deferred financing costs	$	3,932		$	3,932
Accumulated amortization	(3,332		)	(3,130		)
Deferred financing costs, net	$	600		$	802
Gross non-compete agreements	$	—		$	250
Accumulated amortization	—			(231		)
Non-compete agreements, net	$	—		$	19
Gross customer relationships	$	459		$	843
Accumulated amortization	(154		)	(506		)
Customer relationships, net	$	305		$	337
Gross website and developed technology	$	—		$	2,176
Accumulated amortization	—			(2,006		)
Website and developed technology, net	$	—		$	170
Total gross other intangibles	$	4,391		$	7,201
Accumulated amortization	(3,486		)	(5,873		)
Total other intangibles, net	$	905		$	1,328

Schedule of total amortization expense including amortization of deferred financing costs

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Amortization expense	$	200	$	261	$	463	$	523

Schedule of total estimated future amortization expense

Remainder of 2013	$	247
2014	330
2015	245
2016	57
2017	19
Thereafter	7
Total	$	905

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Inventories (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Piano retail stores in San Francisco, Sacramento, and Walnut Creek, California	Jun. 02, 2013 Piano retail stores in San Francisco, Sacramento, and Walnut Creek, California
Business acquisition
Finished goods	$ 79,190	$ 71,576	$ 1,000
Property, plant and equipment	$ 67,936	$ 91,485		$ 400

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Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events

Subsequent Events

(17) Subsequent Events

Following the announcement of the Merger Agreement described in Note 3, three separate putative stockholder class action lawsuits were filed in the Court of Chancery of the State of Delaware against SMI, the members of the SMI board of directors, Parent, Acquisition Sub and Kohlberg & Company, L.L.C.  On July 30, 2013, these lawsuits were consolidated into a single class action.  The complaint alleges that SMI’s directors breached their fiduciary duties to SMI’s stockholders because, among other things, they allegedly failed to take steps to maximize the value of SMI to its public stockholders.  The complaint also alleges that the directors of SMI failed to provide the SMI stockholders with material information and provided them with materially misleading information in the Solicitation/Recommendation Statement on Schedule 14D-9 filed by SMI with the SEC on July 15, 2013.  Management does not expect that this lawsuit will have a material impact on either the Company’s operations or completing the transaction contemplated by the Merger Agreement.

On July 15, 2013 we redeemed all of our outstanding Senior Notes, which totaled $67.5 million as of June 30, 2013, at principal plus accrued interest pursuant to a call we issued on June 14, 2013.  We will record a net loss on extinguishment of debt of $0.2 million relating to the write-off of deferred financing costs and bond discount during the third quarter of 2013.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income	$ 22,845	$ 2,987
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	4,301	4,466
Impairment charges	500	166
Stock-based compensation expense	188	211
Excess tax benefit from stock-based awards	(46)	(16)
Tax benefit from stock option exercises	48	18
Deferred tax benefit	(2,064)	(111)
Provision for doubtful accounts	239	915
Gain on sale of West 57th street property	(22,725)
(Gain) loss on sale of assets	(12)	12
Other	531	(112)
Changes in operating assets and liabilities:
Accounts, notes and other receivables	(6,110)	(5,313)
Inventories	(9,909)	(8,204)
Prepaid expenses and other assets	(1,082)	(489)
Accounts payable	3,350	1,723
Other liabilities	4,859	(5,905)
Cash flows from operating activities	(5,087)	(9,652)
Cash flows from investing activities:
Capital expenditures	(2,847)	(3,431)
Proceeds from sale of West 57th street property	43,318
Proceeds from sale of property, plant and equipment	117	1
Other	37	77
Acquisition of subsidiary	(1,332)
Cash flows from investing activities	39,293	(3,353)
Cash flows from financing activities:
Borrowings under lines of credit		4,500
Repayments under lines of credit		(1,000)
Proceeds from issuance of common stock	335	298
Excess tax benefit from stock-based awards	46	16
Cash flows from financing activities	381	3,814
Effect of foreign exchange rate changes on cash	(1,493)	(236)
Increase (decrease) in cash	33,094	(9,427)
Cash, beginning of period	73,406	49,888
Cash, end of period	106,500	40,461
Supplemental Cash Flow Information:
Interest paid	2,380	2,427
Income taxes paid	$ 4,628	$ 4,626

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical)	6 Months Ended
	Jun. 30, 2013
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Exercise of options for shares of common stock (in shares)	18,500

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Recent Events

6 Months Ended

Jun. 30, 2013

Recent Events

Recent Events

(3) Recent Events

On June 30, 2013, Steinway Musical Instruments, Inc. (“SMI”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KSTW Holdings, Inc., a Delaware corporation (“Parent”), and KSTW Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Acquisition Sub”), providing for the merger of Acquisition Sub with and into SMI, with SMI being the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”).  Parent and Acquisition Sub are affiliates of Kohlberg Management VII, L.P. (“Kohlberg”).

On July 15, 2013, Acquisition Sub commenced a cash tender offer (the “Offer”) to acquire all of the outstanding shares of SMI common stock.  Upon the successful closing of the Offer, stockholders of SMI who tender their shares in the Offer will receive $35.00 per share, in cash, payable without interest and less any applicable withholding taxes.

The Offer will expire at 11:59 p.m., New York City time, on August 21, 2013, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the SEC.  Consummation of the Offer is subject to customary conditions, including, among others, (i) the valid tender of the number of shares that would represent at least a majority of the outstanding shares of common stock of SMI; (ii) Parent’s receipt of the proceeds of the debt financing; (iii) the Rights Agreement shall have no force or effect with respect to the Offer and the Merger; (iv) the absence of certain legal impediments to the consummation of the Merger; and (v) the absence of any change, event or occurrence that has had or would reasonably be expected to have a material adverse effect on SMI.

The Merger Agreement provides for a 45-day “go-shop” period, which will end on August 14, 2013, during which time SMI may solicit alternative proposals to the transaction with Kohlberg. Any shares not tendered in the Offer will be acquired in a second-step merger at the same cash price as paid in the Offer.  The transaction is expected to close in the third quarter of 2013.

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Basis of Presentation

6 Months Ended

Jun. 30, 2013

Basis of Presentation

Basis of Presentation

(1) Basis of Presentation

The accompanying condensed consolidated financial statements of Steinway Musical Instruments, Inc. and subsidiaries (the “Company”) for the three and six months ended June 30, 2013 and 2012 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2012, and include all adjustments which are of a normal and recurring nature, necessary for the fair presentation of financial position, results of operations and cash flows for the interim periods. We encourage you to read the condensed consolidated financial statements in conjunction with the risk factors, consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Throughout this report “we,” “us,” and “our” refer to Steinway Musical Instruments, Inc. and subsidiaries taken as a whole.

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Earnings per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator:
Net income:	$ 20,155	$ 2,397	$ 22,845	$ 2,987
Denominator:
Weighted-average common shares outstanding - basic	12,463,406	12,378,371	12,461,010	12,373,143
Dilutive effect of stock-based compensation plans (in shares)	107,699	128,330	97,424	134,416
Weighted-average common shares outstanding - diluted	12,571,105	12,506,701	12,558,434	12,507,559
Earnings per share
Net income per share - basic (in dollars per share)	$ 1.62	$ 0.19	$ 1.83	$ 0.24
Net income per share - diluted (in dollars per share)	$ 1.60	$ 0.19	$ 1.82	$ 0.24
Stock options
Antidilutive securities excluded from computation of diluted earnings per share
Antidilutive securities excluded from computation of diluted earnings per share (in shares)	349,900	372,000	349,900	372,000

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Earnings per Common Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings per Common Share

Schedule of calculation of basic and diluted earnings per share

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Numerator:
Net income:	$	20,155	$	2,397	$	22,845	$	2,987
Denominator:
Weighted-average common shares outstanding - basic	12,463,406		12,378,371		12,461,010		12,373,143
Dilutive effect of stock-based compensation plans	107,699		128,330		97,424		134,416
Weighted-average common shares outstanding - diluted	12,571,105		12,506,701		12,558,434		12,507,559
Net income per share - basic	$	1.62	$	0.19	$	1.83	$	0.24
Net income per share - diluted	$	1.60	$	0.19	$	1.82	$	0.24

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Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Other Current Liabilities

Schedule of other current liabilities

	June 30,  2013		December 31, 2012
Accrued payroll and related benefits	$	15,206	$	15,748
Current portion of pension and other postretirement benefit liabilities	1,368		1,389
Accrued warranty expense	1,427		1,327
Accrued interest	1,566		1,563
Deferred income	9,924		10,834
Income and other taxes payable	9,009		202
Other accrued expenses	7,132		9,112
Total	$	45,632	$	40,175

Schedule of accrued warranty expense activity

	June 30, 2013			June 30, 2012			December 31, 2012
Beginning balance	$	1,327		$	1,242		$	1,242
Additions	496			698			1,099
Claims and reversals	(379		)	(481		)	(1,031		)
Foreign currency translation impact	(17		)	(15		)	17
Ending balance	$	1,427		$	1,444		$	1,327

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Retirement Plans (Tables)

6 Months Ended

Jun. 30, 2013

Retirement Plans

Schedule of components of net periodic pension cost

	Domestic Plan						Foreign Plans
	Three Months Ended June 30,						Three Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	11		$	20		$	145		$	112
Interest cost	770			829			380			400
Expected return on plan assets	(1,137		)	(1,048		)	(143		)	(119		)
Amortization of prior service credit	—			—			(13		)	(13		)
Amortization of net loss	365			310			134			12
Net periodic pension cost	$	9		$	111		$	503		$	392

	Domestic Plan						Foreign Plans
	Six Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	23		$	24		$	287		$	225
Interest cost	1,540			1,679			754			805
Expected return on plan assets	(2,275		)	(2,094		)	(287		)	(237		)
Amortization of prior service credit	—			—			(26		)	(26		)
Amortization of net loss	730			623			270			24
Net periodic pension cost	$	18		$	232		$	998		$	791

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Retirement Plans (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Domestic Plan
Components of net periodic pension cost
Service cost	$ 11,000	$ 20,000	$ 23,000	$ 24,000
Interest cost	770,000	829,000	1,540,000	1,679,000
Expected return on plan assets	(1,137,000)	(1,048,000)	(2,275,000)	(2,094,000)
Amortization of net loss	365,000	310,000	730,000	623,000
Net periodic pension cost	9,000	111,000	18,000	232,000
Employer contributions			800,000
Domestic Plan | Annual estimate
Components of net periodic pension cost
Anticipated contributions	2,300,000		2,300,000
Foreign Plans
Components of net periodic pension cost
Service cost	145,000	112,000	287,000	225,000
Interest cost	380,000	400,000	754,000	805,000
Expected return on plan assets	(143,000)	(119,000)	(287,000)	(237,000)
Amortization of prior service credit	(13,000)	(13,000)	(26,000)	(26,000)
Amortization of net loss	134,000	12,000	270,000	24,000
Net periodic pension cost	503,000	392,000	998,000	791,000
Pension plan of U.K. subsidiary
Components of net periodic pension cost
Employer contributions			400,000
Pension plan of U.K. subsidiary | Annual estimate
Components of net periodic pension cost
Anticipated contributions	700,000		700,000
Pension plan of German subsidiaries
Components of net periodic pension cost
Payments made			700,000
Pension plan of German subsidiaries | Annual estimate
Components of net periodic pension cost
Expected 2013 benefit payments	$ 1,300,000		$ 1,300,000

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Debt (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Outstanding debt
Total	$ 68,011
Unamortized bond discount	(43)	(75)
Total	67,968	68,007
Less: current portion	67,968	576
Long-term debt		67,431
Scheduled repayments of outstanding debt
Remainder of 2013	68,011
Total	68,011
7.00% Senior Notes
Outstanding debt
Total	67,506	67,506
Interest rate (as a percent)	7.00%	7.00%
Scheduled repayments of outstanding debt
Total	67,506	67,506
Overseas lines of credit
Outstanding debt
Total	$ 505	$ 576

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Goodwill, Trademarks, and Other Intangible Assets (Details) (USD $)	6 Months Ended
	Jun. 30, 2013 item
Goodwill, Trademarks, and Other Intangible Assets
Number of events occurred subsequent to annual impairment test indicating impairment	0
Goodwill:
Balance at the beginning of the period	$ 22,916,000
Foreign currency translation impact	(189,000)
Balance at the end of the period	22,727,000
Band
Goodwill:
Goodwill, cumulative impairment loss	8,800,000
Online music business
Goodwill:
Goodwill, cumulative impairment loss	2,700,000
Piano Segment
Goodwill:
Balance at the beginning of the period	22,916,000
Foreign currency translation impact	(189,000)
Balance at the end of the period	$ 22,727,000

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 20,155	$ 2,397	$ 22,845	$ 2,987
Other comprehensive income (expense) items:
Foreign currency translation adjustments	(427)	(1,976)	(3,474)	(1,052)
Amortization of defined benefit pension and postretirement benefit plans
Prior service credit	(173)		(195)
Actuarial losses	522		1,284
Effect of income taxes	(140)		(397)
Total comprehensive income	$ 19,937	$ 421	$ 20,063	$ 1,935

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Inventories

6 Months Ended

Jun. 30, 2013

Inventories

Inventories

(6) Inventories

	June 30,		December 31,
	2013		2012
Raw materials	$	19,451	$	18,582
Work-in-process	35,333		34,923
Finished goods	79,190		71,576
Total inventory	$	133,974	$	125,081

Finished goods inventory was impacted by the preliminary purchase price allocation of $1.0 million relating to our acquisition of assets associated with piano retail stores in San Francisco, Sacramento, and Walnut Creek, California on June 2, 2013. This acquisition, which also included $0.4 million of property, plant and equipment, was not material to our financial condition or results of operations.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts, notes, and other receivables, allowances	$ 8,684	$ 7,972
Property, plant and equipment, accumulated depreciation	$ 107,746	$ 117,558

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 92,353	$ 85,704	$ 169,156	$ 163,657
Cost of sales	61,063	58,339	112,516	113,145
Gross profit	31,290	27,365	56,640	50,512
Operating expenses:
Sales and marketing	10,969	11,072	22,249	23,057
General and administrative	11,266	10,144	19,736	19,105
Other operating (income) expenses, net	(46)	12	(27)	50
Impairment charges	500	166	500	166
Total operating expenses	22,689	21,394	42,458	42,378
Income from operations	8,601	5,971	14,182	8,134
Gain on sale of West 57th street property	(22,725)		(22,725)
Other expense, net	1,018	1,277	1,419	1,631
Interest income	(258)	(276)	(540)	(634)
Interest expense	1,197	1,218	2,396	2,426
Total non-operating (income) expenses	(20,768)	2,219	(19,450)	3,423
Income before income taxes	29,369	3,752	33,632	4,711
Income tax provision	9,214	1,355	10,787	1,724
Net income	$ 20,155	$ 2,397	$ 22,845	$ 2,987
Earnings per share:
Basic (in dollars per share)	$ 1.62	$ 0.19	$ 1.83	$ 0.24
Diluted (in dollars per share)	$ 1.60	$ 0.19	$ 1.82	$ 0.24
Weighted average shares:
Basic (in shares)	12,463,406	12,378,371	12,461,010	12,373,143
Diluted (in shares)	12,571,105	12,506,701	12,558,434	12,507,559

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Fair Values (Details) (Recurring basis, USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financial assets:
Total financial assets	$ 3,940	$ 2,731
Level 1
Financial assets:
Trading securities	2,374	1,952
Level 2
Financial assets:
Foreign currency contracts	1,566	779
Financial liabilities:
Foreign currency contracts	$ 96	$ 122

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Inventories (Tables)

6 Months Ended

Jun. 30, 2013

Inventories

Schedule of inventories

	June 30,		December 31,
	2013		2012
Raw materials	$	19,451	$	18,582
Work-in-process	35,333		34,923
Finished goods	79,190		71,576
Total inventory	$	133,974	$	125,081

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Retirement Plans

6 Months Ended

Jun. 30, 2013

Retirement Plans

Retirement Plans

(15) Retirement Plans

We have defined benefit pension plans covering many of our employees, including certain employees in Germany and the U.K. The components of net periodic pension cost for these plans are as follows:

	Domestic Plan						Foreign Plans
	Three Months Ended June 30,						Three Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	11		$	20		$	145		$	112
Interest cost	770			829			380			400
Expected return on plan assets	(1,137		)	(1,048		)	(143		)	(119		)
Amortization of prior service credit	—			—			(13		)	(13		)
Amortization of net loss	365			310			134			12
Net periodic pension cost	$	9		$	111		$	503		$	392

	Domestic Plan						Foreign Plans
	Six Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	23		$	24		$	287		$	225
Interest cost	1,540			1,679			754			805
Expected return on plan assets	(2,275		)	(2,094		)	(287		)	(237		)
Amortization of prior service credit	—			—			(26		)	(26		)
Amortization of net loss	730			623			270			24
Net periodic pension cost	$	18		$	232		$	998		$	791

Based on our domestic plan’s current funded status, we anticipate making contributions of $2.3 million to our domestic plan in 2013 as required by federal laws and regulations. As of June 30, 2013, we have contributed $0.8 million to this plan. Our anticipated contributions to the pension plan of our U.K. subsidiary approximate $0.7 million for the current year. As of June 30, 2013, we have made contributions of $0.4 million to this plan. The pension plans of our German entities hold insurance contracts which relate to a single participant. These entities use operating cash to pay participant benefits as they become due. Expected 2013 benefit payments under these plans are $1.3 million, of which $0.7 million was paid through June 30, 2013.

We provide postretirement life insurance benefits to a limited number of certain eligible hourly retirees and their dependents. The activity in this plan is not material to the condensed consolidated financial statements.

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Divestiture of Assets Held for Sale (Details) (USD $)	0 Months Ended	3 Months Ended	6 Months Ended
	Jun. 28, 2013	Jun. 30, 2013	Jun. 30, 2013
Less:
Net gain on transaction		$ 22,725,000	$ 22,725,000
Building at West 57th Street
Divestiture of Assets Held for Sale
Gross proceeds:	46,300,000
Net assets tendered
Building	22,726,000
Other assets	1,502,000
Subtotal	24,228,000
Less:
Deferred rent credits	1,783,000
Total net assets tendered	22,445,000
Subtotal	23,855,000
Capitalized rent asset	1,852,000
Transaction costs	(2,982,000)
Net gain on transaction	22,725,000
Real estate transfer taxes	1,400,000
Transaction costs consisted of commissions, fees and legal costs	1,600,000
Period ratably recognized of capitalized rent asset			15 months
Foreign tax credits to be utilized	4,400,000
Removal of valuation allowance of deferred tax assets		$ 2,200,000

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Other Expense, Net (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other Expense, Net
West 57th Street building income	$ (518)	$ (586)	$ (974)	$ (1,141)
West 57th Street building expense	1,499	1,685	3,349	3,490
Foreign exchange loss (gain), net	179	131	(537)	(488)
Miscellaneous, net	(142)	47	(419)	(230)
Other expense, net	$ 1,018	$ 1,277	$ 1,419	$ 1,631

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Recent Events (Details) (KSTW Acquisition, Inc, KSTW Holdings, Inc., USD $)	6 Months Ended
	Jun. 30, 2013
KSTW Acquisition, Inc | KSTW Holdings, Inc.
Recent events
Cash consideration for each share under the terms of the merger agreement (in dollars per share)	$ 35.00
Go-shop period	45 days

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Stockholders' Equity and Stock-based Compensation Arrangements (Tables)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity and Stock-based Compensation Arrangements

Schedule of compensation cost and the income tax benefit recognized for the plans

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Compensation cost included in:
Basic income per share	$	0.01	$	0.01	$	0.01	$	0.01
Diluted income per share	$	0.01	$	0.01	$	0.01	$	0.01
Stock-based compensation expense	92		100		188		211
Income tax benefit	18		21		39		47

Schedule of information regarding the stock plans

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	641,050		$	22.12
Granted	—		—
Exercised	(18,500	)	17.99
Forfeited	—		—
Outstanding, June 30, 2013	622,550		$	22.24	4.6	$	5,011
Exercisable, June 30, 2013	582,550		$	23.00	4.4	$	4,261

Schedule of key assumptions used for fair value of options granted under the Purchase Plan

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Risk-free interest rate	0.2%	0.2%	0.2%	0.2%
Weighted-average expected life of option feature (in years)	1.0	1.0	1.0	1.0
Expected volatility of underlying stock	28.7%	28.6%	28.7%	28.6%
Expected dividends	n/a	n/a	n/a	n/a
Weighted-average fair value of option feature	$5.98	$7.19	$5.98	$7.19

Schedule of information regarding the Purchase Plan

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	12,641		$	20.56
Shares subscribed	15,140		20.56
Exercised	—		—
Forfeited	(1,310	)	20.56
Outstanding, June 30, 2013	26,471		$	20.56	0.1	$	249

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Other Expense, Net (Tables)

6 Months Ended

Jun. 30, 2013

Other Expense, Net

Schedule of other expense (income), net

	Three Months Ended June 30						Six Months Ended June 30,
	2013			2012			2013			2012
West 57th Street building income	$	(518	)	$	(586	)	$	(974	)	$	(1,141	)
West 57th Street building expense	1,499			1,685			3,349			3,490
Foreign exchange loss (gain), net	179			131			(537		)	(488		)
Miscellaneous, net	(142		)	47			(419		)	(230		)
Other expense, net	$	1,018		$	1,277		$	1,419		$	1,631

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Earnings per Common Share

6 Months Ended

Jun. 30, 2013

Earnings per Common Share

Earnings per Common Share

(5) Earnings per Common Share

We compute earnings per share using the weighted-average number of common shares outstanding during each period. Diluted earnings per common share reflects the dilutive impact of shares subscribed under the Employee Stock Purchase Plan (“Purchase Plan”) and effect of our outstanding options using the treasury stock method, except when such items would be antidilutive.

The following table presents the calculation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Numerator:
Net income:	$	20,155	$	2,397	$	22,845	$	2,987
Denominator:
Weighted-average common shares outstanding - basic	12,463,406		12,378,371		12,461,010		12,373,143
Dilutive effect of stock-based compensation plans	107,699		128,330		97,424		134,416
Weighted-average common shares outstanding - diluted	12,571,105		12,506,701		12,558,434		12,507,559
Net income per share - basic	$	1.62	$	0.19	$	1.83	$	0.24
Net income per share - diluted	$	1.60	$	0.19	$	1.82	$	0.24

We did not include 349,900 of the outstanding options to purchase shares of common stock in the computation of diluted earnings per share for the three and six months ended June 30, 2013, because generally their exercise prices were more than the average market price of our common shares, and therefore antidilutive. We did not include 372,000 of the outstanding options to purchase shares of common stock in the computation of diluted earnings per share for the three and six month periods ended June 30, 2012 for the same reason.

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Divestiture of Assets Held for Sale (Tables)

6 Months Ended

Jun. 30, 2013

Divestiture of Assets Held for Sale

Schedule of divestiture transaction

Gross proceeds:		$	46,300
Net assets tendered
Building	22,726
Other assets	1,502
Subtotal	24,228
Less:
Deferred rent credits	1,783
Total net assets tendered		22,445
Subtotal		23,855
Capitalized rent asset		1,852
Transaction costs		(2,982		)
Net gain on transaction		$	22,725

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Inventories
Raw materials	$ 19,451	$ 18,582
Work-in-process	35,333	34,923
Finished goods	79,190	71,576
Total inventory	$ 133,974	$ 125,081

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Goodwill, Trademarks, and Other Intangible Assets

6 Months Ended

Jun. 30, 2013

Goodwill, Trademarks, and Other Intangible Assets

Goodwill, Trademarks, and Other Intangible Assets

(8) Goodwill, Trademarks, and Other Intangible Assets

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. Deferred financing costs are amortized over the repayment periods of the underlying debt. Goodwill and indefinite-lived trademarks are not amortized but are subject to impairment testing. We conduct our annual impairment test on July 31st each year, and also when events and circumstances indicate that the fair value of any of our reporting units may be below the unit’s carrying value. We consider our band division, piano division, and our online music business to be separate reporting units.

Our annual impairment testing date of July 31st was selected to coincide with the timing of our fall budgeting and planning process, which provides multi-year cash flows that are used to conduct our annual impairment testing. However, in the second quarter of 2013, changes in our online music business, including increased costs and a deterioration in our revenue growth assumptions, caused us to test the related trademark asset for recoverability. We determined that the future anticipated cash flows for this business were reduced and our trademark was impaired. As a result, we recorded an impairment charge of $0.5 million for the trademark associated with our online music business, which is included in the piano segment. No other events or circumstances occurred subsequent to our 2012 annual impairment test which would have indicated that our assets may be impaired.

The changes in carrying amounts of goodwill and trademarks are as follows:

	Piano			Band		Total
Goodwill:
Balance, January 1, 2013	$	22,916		$	—	$	22,916
Foreign currency translation impact	(189		)	—		(189		)
Balance, June 30, 2013	$	22,727		$	—	$	22,727
Trademarks:
Balance, January 1, 2013	$	8,846		$	4,574	$	13,420
Impairment	(500		)	—		(500		)
Foreign currency translation impact	(60		)	—		(60		)
Balance, June 30, 2013	$	8,286		$	4,574	$	12,860

Our cumulative impairment losses are $8.8 million associated with band division goodwill, $1.3 million related to band division trademarks, $2.7 million attributable to online music business goodwill, and $1.7 million associated with online music business trademarks.

We also carry certain intangible assets that are amortized. Once fully amortized, these assets are removed from both the gross and accumulated amortization balances. These assets consist of the following:

	June 30, 2013			December 31, 2012
Gross deferred financing costs	$	3,932		$	3,932
Accumulated amortization	(3,332		)	(3,130		)
Deferred financing costs, net	$	600		$	802
Gross non-compete agreements	$	—		$	250
Accumulated amortization	—			(231		)
Non-compete agreements, net	$	—		$	19
Gross customer relationships	$	459		$	843
Accumulated amortization	(154		)	(506		)
Customer relationships, net	$	305		$	337
Gross website and developed technology	$	—		$	2,176
Accumulated amortization	—			(2,006		)
Website and developed technology, net	$	—		$	170
Total gross other intangibles	$	4,391		$	7,201
Accumulated amortization	(3,486		)	(5,873		)
Total other intangibles, net	$	905		$	1,328

The weighted-average amortization period for deferred financing costs is six years, and the weighted-average amortization period for all other amortizable intangibles is approximately five years. The remaining weighted-average amortization period for deferred financing costs is approximately one year and the remaining weighted-average amortization period for all other amortizable intangibles is approximately three years. Total amortization expense, which includes amortization of deferred financing costs, is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Amortization expense	$	200	$	261	$	463	$	523

The following table shows the total estimated amortization expense for the remainder of 2013 and beyond:

Remainder of 2013	$	247
2014	330
2015	245
2016	57
2017	19
Thereafter	7
Total	$	905

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Other comprehensive income (loss)

6 Months Ended

Jun. 30, 2013

Other comprehensive income (loss)

Other comprehensive income (loss)

(4) Other comprehensive income (loss)

The changes, net of income tax, in our other comprehensive income (loss) for the three and six months ended June 30, 2013 consist of the following:

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, April 1, 2013 (net of tax of $18,741)	$	(29,902	)	$	1,729		$	(28,173	)
Other comprehensive income (loss) before reclassifications	—			(427		)	(427		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $48)	(125		)	—			(125		)
Amortization of actuarial losses (net of tax of $188)	334			—			334
Net current period other comprehensive income (loss)	209			(427		)	(218		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

	Pension and Other Postretirement Benefit Costs			Foreign Currency Translation Adjustments			Total
Balance, January 1, 2013 (net of tax of $18,998)	$	(30,385	)	$	4,776		$	(25,609	)
Other comprehensive income (loss) before reclassifications	—			(3,474		)	(3,474		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $58)	(137		)	—			(137		)
Amortization of actuarial losses (net of tax of $455)	829			—			829
Net current period other comprehensive income (loss)	692			(3,474		)	(2,782		)
Balance, June 30, 2013 (net of tax of $18,601)	$	(29,693	)	$	1,302		$	(28,391	)

Amounts reclassified from accumulated other comprehensive income (loss) associated with pensions are included in the computation of net periodic pension costs discussed in Note 15. Amounts related to our Postretirement Benefit Plan are not material to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Balance at Dec. 31, 2012	$ 241,845	$ 14	$ 162,579	$ 148,934	$ (25,609)	$ (44,073)
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)	20,063			22,845	(2,782)
Exercise of 18,500 options for shares of common stock	335		288			47
Tax benefit of options exercised	48		48
Stock-based compensation	188		188
Balance at Jun. 30, 2013	$ 262,479	$ 14	$ 163,103	$ 171,779	$ (28,391)	$ (44,026)

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Fair Values (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013 Net Carrying Value	Dec. 31, 2012 Net Carrying Value	Jun. 30, 2013 Estimated Fair Value	Dec. 31, 2012 Estimated Fair Value
Financial liabilities:
Debt		$ 67,968	$ 68,007	$ 68,566	$ 68,631
Fair value measurement loss	$ (500)

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Goodwill, Trademarks, and Other Intangible Assets (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Finite-lived intangible assets
Total gross other intangibles	$ 4,391		$ 4,391		$ 7,201
Accumulated amortization	(3,486)		(3,486)		(5,873)
Total other intangibles, net	905		905		1,328
Amortization expense	200	261	463	523
Deferred financing costs
Finite-lived intangible assets
Total gross other intangibles	3,932		3,932		3,932
Accumulated amortization	(3,332)		(3,332)		(3,130)
Total other intangibles, net	600		600		802
Weighted-average amortization period			6 years
Remaining weighted-average amortization period			1 year
Non-compete agreements
Finite-lived intangible assets
Total gross other intangibles					250
Accumulated amortization					(231)
Total other intangibles, net					19
Customer relationships
Finite-lived intangible assets
Total gross other intangibles	459		459		843
Accumulated amortization	(154)		(154)		(506)
Total other intangibles, net	305		305		337
Website and developed technology
Finite-lived intangible assets
Total gross other intangibles					2,176
Accumulated amortization					(2,006)
Total other intangibles, net					$ 170
Other amortizable intangibles
Finite-lived intangible assets
Weighted-average amortization period			5 years
Remaining weighted-average amortization period			3 years

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Debt (Tables)

6 Months Ended

Jun. 30, 2013

Debt

Schedule of outstanding debt

	June 30, 2013			December 31, 2012
7.00% Senior Notes	$	67,506		$	67,506
Unamortized bond discount	(43		)	(75		)
Overseas lines of credit	505			576
Total	67,968			68,007
Less: current portion	67,968			576
Long-term debt	$	—		$	67,431

Schedule of repayments of outstanding debt

Remainder of 2013	$	68,011
Total	$	68,011

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Fair Values

6 Months Ended

Jun. 30, 2013

Fair Values

Fair Values

(11) Fair Values

Our financial instruments, which are recorded at fair value, consist primarily of foreign currency contracts and marketable equity securities. We assess the inputs used to measure fair value using the following three-tier hierarchy, which indicates the extent to which inputs used are observable in the market.

Level 1	Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for identical or similar instruments such as interest rates, foreign currency exchange rates, commodity rates and yield curves, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We value our foreign currency contracts using internal and third-party models with observable inputs, including currency forward and spot prices, volatility factors, and net present value factors. Estimated fair value has been determined as the difference between the current forward or option rate and the contract rate, multiplied by the notional amount of the contract, or upon the estimated fair value of purchased option contracts.

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 and the fair value hierarchy of the valuation techniques we utilized. We classify these assets and liabilities as either short term or long term based on maturity or anticipated realization dates.

	June 30, 2013		December 31, 2012
Financial assets:
Trading securities - Level 1	$	2,374	$	1,952
Foreign currency contracts - Level 2	1,566		779
	$	3,940	$	2,731
Financial liabilities:
Foreign currency contracts - Level 2	$	96	$	122

Our trading securities pertain to the Supplemental Executive Retirement Plan (“SERP”) and are held in a Rabbi Trust. We record a corresponding liability for the same amount in our financial statements, which represents our obligation to SERP participants. Our foreign currency contracts pertain to obligations or potential obligations to purchase or sell euros, pounds, U.S. dollars, and yen under various forward and option contracts.

We base the estimated fair value of our debt on institutional quotes currently available to us. The cost-based net carrying value and estimated fair value are as follows:

	June 30, 2013				December 31, 2012
	Net Carrying Value		Estimated Fair Value		Net Carrying Value		Estimated Fair Value
Financial liabilities:
Debt	$	67,968	$	68,566	$	68,007	$	68,631

The carrying values of accounts, notes and other receivables, and accounts payable approximate fair value. Certain assets, including long-lived assets held and used, and trademarks associated with our online music business, are measured at fair value on a non-recurring basis. We recognized a fair value measurement loss of $0.5 million related to online music business trademarks during the second quarter of 2013.

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Divestiture of Assets Held for Sale

6 Months Ended

Jun. 30, 2013

Divestiture of Assets Held for Sale

Divestiture of Assets Held for Sale

(7) Divestiture of Assets Held for Sale

On June 28, 2013 we sold our building on West 57th Street in New York City for $46.3 million, subject to a potential increase based on post-closing conditions. A summary of the transaction is as follows:

Gross proceeds:		$	46,300
Net assets tendered
Building	22,726
Other assets	1,502
Subtotal	24,228
Less:
Deferred rent credits	1,783
Total net assets tendered		22,445
Subtotal		23,855
Capitalized rent asset		1,852
Transaction costs		(2,982		)
Net gain on transaction		$	22,725

Transaction costs consisted of real estate transfer taxes of $1.4 million and commissions, fees, and legal costs of $1.6 million. The capitalized rent asset, which is based on the fair market value of the space we are leasing, will be recognized ratably over the 15-month free rent period. The potential incremental proceeds from this transaction relate to contingent payments from an escrow account. We will not recognize these proceeds, if any, unless and until we receive them. We expect to utilize $4.4 million of foreign tax credits as a result of this transaction. Accordingly, we have removed the valuation allowance of $2.2 million related to these deferred tax assets during the second quarter of 2013. This directly benefited our effective tax rate in the second quarter of 2013.

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Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2013

Commitments and Contingent Liabilities

Commitments and Contingent Liabilities

(14) Commitments and Contingent Liabilities

We are involved in certain legal proceedings regarding environmental matters, which were previously disclosed in our 2012 Annual Report on Form 10-K. Further, in the ordinary course of business, we are party to various legal actions that we believe are routine in nature and incidental to the operation of our business. While the outcome of such actions cannot be predicted with certainty, we believe that, based on our experience in dealing with these matters, their ultimate resolution will not have a material adverse impact on our business, financial condition, results of operations or prospects.

Certain environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances, which liability is broadly construed. Under CERCLA and other laws, we may have liability for investigation and cleanup costs and other damages relating to our current or former properties, or third-party sites to which we sent wastes for disposal. Our potential liability at any of these sites is affected by many factors including, but not limited to, the method of remediation, our portion of the hazardous substances at the site relative to that of other parties, the number of responsible parties, the financial capabilities of other parties, and contractual rights and obligations.

Based on our past experience and currently available information, these matters and our other liabilities and compliance costs arising under environmental laws are not expected to have a material impact on our capital expenditures, earnings or financial position in an individual year. However, some risk of environmental liability is inherent in the nature of our current and former businesses and we may, in the future, incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws.

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Stockholders' Equity and Stock-based Compensation Arrangements

6 Months Ended

Jun. 30, 2013

Stockholders' Equity and Stock-based Compensation Arrangements

Stockholders' Equity and Stock-based Compensation Arrangements

(12) Stockholders’ Equity and Stock-based Compensation Arrangements

We have a Stockholder Rights Plan, an Employee Stock Purchase Plan, and Stock Plans, all of which are discussed fully in our Annual Report on Form 10-K for the year ended December 31, 2012.

The compensation cost and the income tax benefit recognized for these plans are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Compensation cost included in:
Basic income per share	$	0.01	$	0.01	$	0.01	$	0.01
Diluted income per share	$	0.01	$	0.01	$	0.01	$	0.01
Stock-based compensation expense	92		100		188		211
Income tax benefit	18		21		39		47

We measure the fair value of options on their grant date, including the valuation of the option feature implicit in our Purchase Plan, using the Black-Scholes option-pricing model. The risk-free interest rate is based on the weighted-average of U.S. Treasury rates over the expected life of the stock option or the contractual life of the option feature in the Purchase Plan.

The expected life of a stock option is based on historical data of similar option holders. We have segregated our employees into two groups based on historical exercise and termination behavior. The expected life of the option feature in the Purchase Plan is the same as its contractual life. Expected volatility is based on historical volatility of our stock over the expected life of the option, as our options are not readily tradable.

There were no options granted during the three and six months ended June 30, 2013 or 2012. The following table sets forth information regarding the Stock Plans:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	641,050		$	22.12
Granted	—		—
Exercised	(18,500	)	17.99
Forfeited	—		—
Outstanding, June 30, 2013	622,550		$	22.24	4.6	$	5,011
Exercisable, June 30, 2013	582,550		$	23.00	4.4	$	4,261

The total intrinsic value of the options exercised during the three and six month periods ended June 30, 2013 was $0.2 million. As of June 30, 2013, there was $0.1 million of unrecognized compensation cost related to nonvested share-based compensation arrangements. This compensation is expected to be recognized over a weighted-average period of approximately one year. Cash received from option exercises under the Stock Plans for the three and six month periods ended June 30, 2013 was $0.3 million.

The following tables set forth information regarding the Purchase Plan:

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Risk-free interest rate	0.2%	0.2%	0.2%	0.2%
Weighted-average expected life of option feature (in years)	1.0	1.0	1.0	1.0
Expected volatility of underlying stock	28.7%	28.6%	28.7%	28.6%
Expected dividends	n/a	n/a	n/a	n/a
Weighted-average fair value of option feature	$5.98	$7.19	$5.98	$7.19

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	12,641		$	20.56
Shares subscribed	15,140		20.56
Exercised	—		—
Forfeited	(1,310	)	20.56
Outstanding, June 30, 2013	26,471		$	20.56	0.1	$	249

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 02, 2013
Document and Entity Information
Entity Registrant Name	STEINWAY MUSICAL INSTRUMENTS INC
Entity Central Index Key	0000911583
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		12,548,317
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

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Other Expense, Net

6 Months Ended

Jun. 30, 2013

Other Expense, Net

Other Expense, Net

(13) Other Expense, Net

	Three Months Ended June 30						Six Months Ended June 30,
	2013			2012			2013			2012
West 57th Street building income	$	(518	)	$	(586	)	$	(974	)	$	(1,141	)
West 57th Street building expense	1,499			1,685			3,349			3,490
Foreign exchange loss (gain), net	179			131			(537		)	(488		)
Miscellaneous, net	(142		)	47			(419		)	(230		)
Other expense, net	$	1,018		$	1,277		$	1,419		$	1,631

Prior to its sale on June 28, 2013, which is discussed in Note 7, our building on West 57th Street in New York City was managed by an outside company. West 57th Street building income includes all rent and other income attributable to the property; West 57th Street building expense includes the land lease, real estate taxes, depreciation, and other building costs. We allocate a ratable portion of the building expenses that relate to our retail store to sales and marketing expenses.