WALTHAM, Mass., Aug. 5 /PRNewswire-FirstCall/ -- Steinway Musical
Instruments, Inc. (NYSE: LVB), i of the world's leading manufacturers of
musical instruments, today proclaimed results for the quarter and sextet months
over June 30, 2008.
Revenues for the second quarter rose 7% over the prior year period on
the strength of gross revenue in both the banding and pianissimo 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 trillion of
severance costs for band imbed closures and $0.4 million of costs
associated with a shutdown at the domestic piano constitute taken to control
inventory levels. Operating expenses increased 8% as compared to the prior
year period primarily due to $1.1 1000000 of costs related to band installation
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 connected financial tables.
Revenues for the six-month period increased 4% and gross gain
increased more or less to $56.4 zillion. Operating income declined 6% as costs
associated with band facility rationalization and piano plant shutdowns
negatively impacted results. On an Adjusted ground, EBITDA improved 7%,
reflecting improvement in band fabrication efficiency absent the impact
of implant 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
production categories. Gross margins reduced 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 break costs were
incurred as the existing workforce transferred to the new possessor. In the
second quarter, the Company recognized rigid asset damage charges of
approximately $0.9 1000000 related to this sales event.
For the six-month geological period, unit shipments of higher priced professional
instruments returned to prior year levels. However, delayed deliveries from
offshore suppliers had a negative impingement on whole 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 rupture 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 degree with the
prior year period. Domestically, shipments of Steinway magisterial 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 in the main a final result of unusually
high shipments in the second quarter of 2007 when many dealers took initial
speech of the re-launched Essex piano railway line. In order to control inventory
levels of Steinway pianos, the Company operated its New York pianoforte factory
under a rock-bottom production schedule during the second quarter of 2008. This
action negatively impacted double-dyed margins, which declined from 36.7% to
35.1%.
For the six-month period, piano revenues increased 4%. Steinway grand
building block shipments declined 7% and mid-priced pianoforte unit shipments remained
level with prior year. Sales remained potent in China and former Eastern
Bloc countries, somewhat mitigating the impact of sonant demand in the United
States. Gross margins for the six-month period decreased from 36.3% to
34.8% in the first place 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 implant
consolidation and a unmanageable U.S. economy, both the band and piano
divisions posted increased sales for the period."
Messina added, "We ar nearing completion of our band adroitness
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 quartern,
there is much precariousness in the current worldwide economic expectation. Over
the next six months, we have a bun in the oven worldwide piano sales to be in line with
last class. We plan to continue a reduced production schedule at our
domestic forte-piano facility in the third base and fourth quarters."
Conference Call
Management will be discussing the Company's second quarter results and
mind-set for the remainder of 2008 on a league 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,
hypertext transfer protocol://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 trap drums and Steinway & Sons pianos.
Through its online music retailer, ArkivMusic, the Company as well distributes
authoritative music recordings.
Non-GAAP Financial Measures Used by Steinway Musical Instruments
The Company uses the non-GAAP measuring 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 amount of the Company's essence operating performance in
that it eliminates the impact of items that ar either out of in operation
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 footing for deciding bonuses for
its managers.
The Company also believes Adjusted EBITDA is helpful in deciding the
Company's ability to encounter future debt service, washington expenditures and
working capital requirements as it factors out non-cash expenses such as
depreciation and amortization. The Company's domestic course credit agreement,
which provides for borrowings up to $110.0 jillion and is a material credit
agreement to the Company, contains a lower limit 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 stock of credit in the last thirty days. At the terminal of
the most recent period the Company had remaining borrowing availability on
the line of credit of $107.5 meg (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 entry borrowings, if it were unable to obtain a waiver from the
lenders.
There ar tions in the employment of Adjusted EBITDA because the
Company's actual results do include the impact of the noted Adjustments.
Accordingly, Adjusted EBITDA should be secondhand as a supplement to the
comparable GAAP measures and should not be construed as a reserve for
income from operations or 8,601 - 8,601
Piano gross gain 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 operations 8,049 - 8,049
Interest disbursal, net 2,523 - 2,523
Other (income) expense, net (21) - (21)
Income before income taxes 5,547 - 5,547
Income tax provision 2,394 - 2,394
Net income $3,153 $- $3,153
Earnings per part - basic $0.37 $0.37
Earnings per share - diluted $0.36 $0.36
Weighted average common shares - basic 8,521 8,521
Weighted average common shares - diluted 8,662 8,662
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects employee breach 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
GAAP Adjustments Adjusted
Band sales $80,518 $- $80,518
Piano gross revenue 111,302 - 111,302
Online music sales 887 - 887
Total sales 192,707 - 192,707
Band double-dyed profit 17,478 1,003 (1) 18,481
Piano double-dyed profit 38,720 - 38,720
Online music gross gain 239 - 239
Total gross gain 56,437 1,003 57,440
Band GM% 21.7% 23.0%
Piano GM% 34.8% 34.8%
Online euphony 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 2,065 13,696
Interest expense, net 4,433 - 4,433
Other (income) expense, net (619) 636 (3) 17
Income before income taxes 7,817 1,429 9,246
Income tax provision 2,797 529 (4) 3,326
Net income $5,020 $900 $5,920
Earnings per share - introductory $0.59 $0.69
Earnings per share - diluted $0.58 $0.68
Weighted average common shares - basic 8,580 8,580
Weighted average mutual shares - diluted 8,664 8,664
Six Months Ended 6/30/07
GAAP Adjustments Adjusted
Band gross revenue $78,382 $- $78,382
Piano sales 107,307 - 107,307
Total gross sales 185,689 - 185,689
Band gross net profit 16,803 - 16,803
Piano gross lucre 39,002 - 39,002
Total gross net 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 disbursement, net 4,675 - 4,675
Other (income) expense, net (191) - (191)
Income before income taxes 7,932 - 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 - basic 8,470 8,470
Weighted average coarse 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 gist 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,gross $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 disbursement 2,276 2,523 4,433 4,675
Depreciation 2,519 2,448 5,006 4,821
Amortization 261 196 459 392
Non-recurring, quent or
unusual items 1,633 - 1,429 -
Adjusted EBITDA $11,186 $10,714 $19,gross $17,820
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