WALTHAM, Mass., Aug. 5 MA-Steinway-2Q-earns
WALTHAM, Mass., Aug. 5 /PRNewswire-FirstCall/ -- Steinway Musical
Instruments, Inc. (NYSE: LVB), one of the world's leading manufacturers of
musical instruments, today announced results for the quarter and six months
ended June 30, 2008.
Revenues for the second quarter rose 7% over the prior year period on the
strength of sales in both the band and piano segments as well as $0.9 million
in sales from a new online music business. As anticipated, overall gross
margins decreased, from 31.0% to 29.5%, due to $0.6 million of severance costs
for band plant closures and $0.4 million of costs associated with a shutdown
at the domestic piano plant taken to control inventory levels. Operating
expenses increased 8% as compared to the prior year period primarily due to
$1.1 million of costs related to band facility rationalization. Net interest
expense decreased 10% due to lower borrowings during the quarter. The Company
posted EPS of $0.35 and Adjusted EPS of $0.47 compared to Basic EPS of $0.37
in the second quarter of 2007. Adjustments are detailed in the attached
financial tables.
Revenues for the six-month period increased 4% and gross profit increased
slightly to $56.4 million. Operating income declined 6% as costs associated
with band facility rationalization and piano plant shutdowns negatively
impacted results. On an Adjusted basis, EBITDA improved 7%, reflecting
improvement in band manufacturing efficiency absent the impact of plant
closure costs.
Band Operations
Band sales for the quarter increased $3.1 million, or 8%, over the prior
year period as the business realized revenue increases in all major product
categories. Gross margins decreased from 22.7% to 21.8% as a result of
severance costs associated with previously announced plant closures. Adjusted
margins improved to 23.2% for the quarter.
The Company recently sold its clarinet facility in France and moved
production to its woodwind facility in Indiana. No severance costs were
incurred as the existing workforce transferred to the new owner. In the
second quarter, the Company recognized fixed asset impairment charges of
approximately $0.9 million related to this sale.
For the six-month period, unit shipments of higher priced professional
instruments returned to prior year levels. However, delayed deliveries from
offshore suppliers had a negative impact on unit shipments of student
instruments for the first half of the year. The resulting product mix
contributed to an increase in gross margin from 21.4% to 21.7%, despite $1.0
million of severance costs in the period.
Piano Operations
Piano revenues for the second quarter increased $2.2 million, or 4%.
Worldwide, unit shipments of Steinway grand pianos remained level with the
prior year period. Domestically, shipments of Steinway grand pianos
increased 10% over the prior year period. Overseas, the Company saw a 9%
decrease in shipments of Steinway grands due to the absence of a large
institutional sale which was recorded in the second quarter of 2007.
Excluding that sale, overseas unit shipments would have increased 10%.
Unit shipments of mid-priced pianos declined 15% as compared to the second
quarter of 2007. This decrease is primarily a result of unusually high
shipments in the second quarter of 2007 when many dealers took initial
delivery of the re-launched Essex piano line. In order to control inventory
levels of Steinway pianos, the Company operated its New York piano factory
under a reduced production schedule during the second quarter of 2008. This
action negatively impacted gross margins, which declined from 36.7% to 35.1%.
For the six-month period, piano revenues increased 4%. Steinway grand
unit shipments declined 7% and mid-priced piano unit shipments remained level
with prior year. Sales remained strong in China and former Eastern Bloc
countries, somewhat mitigating the impact of soft demand in the United States.
Gross margins for the six-month period decreased from 36.3% to 34.8% primarily
as a result of lower production levels at the Company's New York piano plant.
Comments
CEO Dana Messina discussed the Company's results, "We are very pleased
with our results for the second quarter. In the midst of band plant
consolidation and a difficult U.S. economy, both the band and piano divisions
posted increased sales for the period."
Messina added, "We are nearing completion of our band facility
rationalization and expect to start realizing improved profitability from our
plant consolidation efforts in the fourth quarter of this year. Regarding
revenue expectations, our band instrument orders were up slightly through
June. Solid order rates coupled with less plant disruption should result in
improved sales for 2008."
Discussing management's outlook for piano operations, Messina said, "While
we had decent domestic shipments of Steinway grands this quarter, there is
much uncertainty in the current worldwide economic outlook. Over the next six
months, we expect worldwide piano sales to be in line with last year. We plan
to continue a reduced production schedule at our domestic piano facility in
the third and fourth quarters."
Conference Call
Management will be discussing the Company's second quarter results and
outlook for the remainder of 2008 on a conference call today beginning at 5:00
p.m. ET. A live webcast and an archive of the call will be available to all
interested parties on the Company's website, http://www.steinwaymusical.com.
About Steinway Musical Instruments
Steinway Musical Instruments, Inc., through its Steinway and Conn-Selmer
divisions, is one of the world's leading manufacturers of musical instruments.
Its notable products include Bach Stradivarius trumpets, Selmer Paris
saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones, Ludwig
snare drums and Steinway & Sons pianos. Through its online music retailer,
ArkivMusic, the Company also distributes classical music recordings.
Non-GAAP Financial Measures Used by Steinway Musical Instruments
The Company uses the non-GAAP measurement Adjusted EBITDA, which it
defines as earnings before net interest expense, income taxes, depreciation
and amortization, adjusted to exclude non-recurring, infrequent, or unusual
items. The Company uses Adjusted EBITDA because it is useful to management and
investors as a measure of the Company's core operating performance in that it
eliminates the impact of items that are either out of operating management's
control or are otherwise unrelated to how well the Company is completing its
manufacturing and operating responsibilities. In addition, the Company uses
Adjusted EBITDA as the basis for determining bonuses for its managers.
The Company also believes Adjusted EBITDA is helpful in determining the
Company's ability to meet future debt service, capital expenditures and
working capital requirements as it factors out non-cash expenses such as
depreciation and amortization. The Company's domestic credit agreement, which
provides for borrowings up to $110.0 million and is a material credit
agreement to the Company, contains a minimum Fixed Charge Coverage Ratio which
is based on Adjusted EBITDA. A minimum ratio of 1.1 to 1.0 is required to be
met if the Company has had less than $20.0 million of availability on its line
of credit in the last thirty days. At the end of the most recent period the
Company had remaining borrowing availability on the line of credit of $107.5
million (net of letters of credit) and therefore this covenant did not apply.
Should this covenant apply and not be met, the Company could be required to
make immediate repayment of its line of credit borrowings, if it were unable
to obtain a waiver from the lenders.
There are limitations in the use of Adjusted EBITDA because the Company's
actual results do include the impact of the noted Adjustments. Accordingly,
Adjusted EBITDA should be used as a supplement to the comparable GAAP measures
and should not be construed as a substitute for income from operations or net
income, or a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with GAAP.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act
of 1995
This release contains "forward-looking statements" which represent the
Company's present expectations or beliefs concerning future events. The
Company cautions that such statements are necessarily based on certain
assumptions which are subject to risks and uncertainties which could cause
actual results to differ materially from those indicated in this release.
These risk factors include the following: changes in general economic
conditions; recent geopolitical events; increased competition; work stoppages
and slowdowns; ability to successfully consolidate band manufacturing; impact
of dealer consolidations on orders; exchange rate fluctuations; variations in
the mix of products sold; market acceptance of new product and distribution
strategies; ability of suppliers to meet demand; concentration of credit risk;
fluctuations in effective tax rates resulting from shifts in sources of
income; and the ability to successfully operate acquired businesses. Further
information on these risk factors is included in the Company's filings with
the Securities and Exchange Commission.
Contact: Julie A. Theriault
Telephone: 781-894-9770
Email: ir@steinwaymusical.com
STEINWAY MUSICAL INSTRUMENTS, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
06/30/2008 06/30/2007 06/30/2008 06/30/2007
Net sales $98,521$92,257 $192,707 $185,689
Cost of sales 69,476 63,692136,270129,884
Gross profit 29,045 28,565 56,437 55,805
29.5% 31.0% 29.3% 30.1%
Operating expenses:
Sales and marketing 11,818 11,429 24,869 24,093
Provision for doubtful
accounts 119592472718
General and administrative8,892 8,141 17,475 17,151
Amortization261196459392
Other operating expenses 1,128158 1,531 1,035
Total operating expenses 22,218 20,516 44,806 43,389
Income from operations6,827 8,049 11,631 12,416
Interest expense, net 2,276 2,523 4,433 4,675
Other (income) expense, net54(21) (619) (191)
Income before income taxes4,497 5,547 7,817 7,932
Income tax provision1,452 2,394 2,797 3,349
Net income $3,045 $3,153 $5,020 $4,583
Earnings per share - basic $0.35 $0.37 $0.59 $0.54
Earnings per share - diluted$0.35 $0.36 $0.58 $0.53
Weighted average common shares
- basic8,580 8,521 8,580 8,470
Weighted average common shares
- diluted 8,671 8,662 8,664 8,622
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
06/30/2008 06/30/2007 12/31/2007
Cash $29,416 $9,701 $37,304
Receivables, net 72,953 77,284 73,131
Inventories 168,208 177,144 152,451
Other current assets 23,813 24,906 22,843
Total current assets 294,390 289,035 285,729
Property, plant and equipment, net92,277 94,714 94,150
Other assets 82,925 70,325 77,799
Total assets $469,592$454,074$457,678
Debt $2,354 $2,889 $2,285
Other current liabilities 69,128 60,602 64,701
Total current liabilities 71,482 63,491 66,986
Long-term debt 168,345 194,749 173,981
Other liabilities 56,389 55,314 52,932
Stockholders' equity 173,376 140,520 163,779
Total liabilities and
stockholders' equity $469,592$454,074$457,678
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended 6/30/08
GAAPAdjustments Adjusted
Band sales $41,018$- $41,018
Piano sales 56,616 -56,616
Online music sales 887 - 887
Total sales98,521 -98,521
Band gross profit 8,953 571 (1) 9,524
Piano gross profit 19,853 -19,853
Online music gross profit 239 - 239
Total gross profit 29,045 57129,616
Band GM% 21.8% 23.2%
Piano GM% 35.1% 35.1%
Online music GM% 26.9% 26.9%
Total GM% 29.5% 30.1%
Operating expenses 22,218(1,062)(2)21,156
Income from operations6,827 1,633 8,460
Interest expense, net 2,276 - 2,276
Other (income) expense, net 54 -54
Income before income taxes4,497 1,633 6,130
Income tax provision 1,452 607 (3) 2,059
Net income $3,045$1,026$4,071
Earnings per share - basic$0.35 $0.47
Earnings per share - diluted $0.35 $0.47
Weighted average common shares - basic8,580 8,580
Weighted average common shares - diluted 8,671 8,671
Three Months Ended 6/30/07
GAAPAdjustments Adjusted
Band sales $37,875$- $37,875
Piano sales 54,382 -54,382
Total sales92,257 -92,257
Band gross profit 8,601 - 8,601
Piano gross profit 19,964 -19,964
Total gross profit 28,565 -28,565
Band GM% 22.7% 22.7%
Piano GM% 36.7% 36.7%
Total GM% 31.0% 31.0%
Operating expenses 20,516 -20,516
Income from operations8,049 - 8,049
Interest expense, net 2,523 - 2,523
Other (income) expense, net (21)- (21)
Income before income taxes5,547 - 5,547
Income tax provision 2,394 - 2,394
Net income $3,153$-$3,153
Earnings per share - basic$0.37 $0.37
Earnings per share - diluted $0.36 $0.36
Weighted average common shares - basic8,521 8,521
Weighted average common shares - diluted 8,662 8,662
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects employee severance costs associated with plant closures.
(2) Reflects facility rationalization costs due to the impairment of
plants in Elkhorn, WI and France.
(3) Reflects the tax effect of Adjustments.
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
Six Months Ended 6/30/08
GAAPAdjustments Adjusted
Band sales $80,518$- $80,518
Piano sales 111,302 - 111,302
Online music sales 887 - 887
Total sales 192,707 - 192,707
Band gross profit17,478 1,003 (1)18,481
Piano gross profit 38,720 -38,720
Online music gross profit 239 - 239
Total gross profit 56,437 1,00357,440
Band GM% 21.7% 23.0%
Piano GM% 34.8% 34.8%
Online music GM% 26.9% 26.9%
Total GM% 29.3% 29.8%
Operating expenses 44,806(1,062)(2)43,744
Income from operations 11,631 2,06513,696
Interest expense, net 4,433 - 4,433
Other (income) expense, net(619) 636 (3)17
Income before income taxes7,817 1,429 9,246
Income tax provision 2,797 529 (4) 3,326
Net income $5,020 $900$5,920
Earnings per share - basic$0.59 $0.69
Earnings per share - diluted $0.58 $0.68
Weighted average common shares - basic8,580 8,580
Weighted average common shares - diluted 8,664 8,664
Six Months Ended 6/30/07
GAAPAdjustments Adjusted
Band sales $78,382$- $78,382
Piano sales 107,307 - 107,307
Total sales 185,689 - 185,689
Band gross profit16,803 -16,803
Piano gross profit 39,002 -39,002
Total gross profit 55,805 -55,805
Band GM% 21.4% 21.4%
Piano GM% 36.3% 36.3%
Total GM% 30.1% 30.1%
Operating expenses 43,389 -43,389
Income from operations 12,416 -12,416
Interest expense, net 4,675 - 4,675
Other (income) expense, net(191)- (191)
Income before income taxes7,932 - 7,932
Income tax provision 3,349 - 3,349
Net income $4,583$-$4,583
Earnings per share - basic$0.54 $0.54
Earnings per share - diluted $0.53 $0.53
Weighted average common shares - basic8,470 8,470
Weighted average common shares - diluted 8,622 8,622
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects costs (primarily employee severance) associated with plant
closures.
(2) Reflects facility rationalization costs due to the impairment of
plants in Elkhorn, WI and France.
(3) Reflects a gain on early extinguishment of debt.
(4) Reflects the tax effect of Adjustments.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
Three Months Ended Six Months Ended
06/30/2008 06/30/2007 06/30/2008 06/30/2007
Cash flows from operating
activities $5,315$(4,547)$3,036 $(16,539)
Changes in operating assets and
liabilities 1,961 10,780 7,844 25,856
Stock based compensation expense (266) (379) (511) (643)
Income taxes, net of deferred
tax benefit 1,504 2,949 4,146 5,256
Net interest expense 2,276 2,523 4,433 4,675
Provision for doubtful accounts(119) (592) (472) (718)
Other (56) (20) (335) (67)
Non-recurring, infrequent or
unusual cash charges 571-1,003-
Adjusted EBITDA $11,186$10,714$19,144$17,820
Reconciliation from Net Income to Adjusted EBITDA
Three Months Ended Six Months Ended
06/30/2008 06/30/2007 06/30/2008 06/30/2007
Net income $3,045 $3,153 $5,020 $4,583
Income taxes 1,452 2,394 2,797 3,349
Net interest expense 2,276 2,523 4,433 4,675
Depreciation 2,519 2,448 5,006 4,821
Amortization261196459392
Non-recurring, infrequent or
unusual items1,633-1,429-
Adjusted EBITDA $11,186$10,714$19,144$17,820
SOURCE Steinway Musical Instruments, Inc.
