Steinway's Q4 Sales Up 14%
Steinway's Q4 Sales Up 14%
EPS $0.91 vs. $0.13
WALTHAM, Mass., March 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 twelve months ended December 31, 2007.
Revenues jumped 14% for the quarter, to $121.3 million, and overall gross margins improved 220 basis points from 30.4% to 32.6%. Operating income more than doubled to $15.6 million from $6.3 million in the prior year period.
For the quarter, the Company posted Basic EPS of $0.91 compared to $0.13 in the prior year period. For 2007, the Company generated Basic EPS of $1.81 compared to a Basic loss per share of $0.08 in the prior year. Adjusted EPS was $1.82 compared to $0.77 in 2006. Adjustments, which are comprised primarily of costs associated with a labor strike and a loss on the early extinguishment of debt, are detailed in the following financial tables.
Band Operations
Band revenues for the quarter surged 30% primarily as a result of improved availability of professional horns from the Company's Elkhart, Indiana brass plant. Unit shipments of woodwind and brass instruments climbed 13% as compared to the prior year period. The improved sales mix also contributed to an increase in gross margins for the quarter, from 15.9% to 18.1%.
The continued improvement in sales of professional instruments in the second half of the year offset performance in earlier months, resulting in sales of $171.1 million for 2007, topping the prior year. Gross margins also improved, from 18.6% to 20.0%, due to increased shipments of higher margin professional instruments.
Piano Operations
Worldwide piano sales for the quarter increased $4.8 million, or 7%. Demand continued to be strong overseas where fourth quarter unit shipments of Steinway grand pianos rose 7% and unit shipments of mid-priced pianos increased 16% over the prior year period. Domestically, Steinway grand unit shipments declined 4% primarily as a result of soft sales at Company-operated retail stores. Piano gross margins improved from 37.5% to 41.3% in the quarter due to a better mix of higher priced instruments.
Year-to-date piano sales were up 10% led by the exceptionally strong performance of the Company's overseas business. Piano gross margins rose from 35.4% to 37.9% primarily as a result of the larger proportion of sales from the Company's higher margin overseas operations as compared to 2006.
Comments
Discussing fourth quarter results, CEO Dana Messina stated, "We are very pleased with our overall performance this quarter. We saw significant increases in both sales and gross margins in both of our operating segments."
Regarding piano operations, Messina said, "Our overseas piano operations had a very good quarter, posting a 19% increase in revenue. This more than offset a 7% decline in domestic revenue. For the quarter, worldwide unit shipments in the mid-priced segment decreased 10% in 2007 while unit shipments of Steinway grands increased modestly."
Turning to band operations, Messina said, "This quarter, we achieved sales and gross margins in line with the fourth quarter of 2005, indicating that the impact of the ongoing strike at our brass plant in Elkhart is becoming less of a factor in our financial results. More important, the feedback from our dealers on the quality of the product coming from our Elkhart brass facility is both gratifying and a source of great pride to our employees engaged in the production process."
Discussing his outlook for 2008, Messina said, "With production of professional brass instruments back on track, we should have a healthy increase in band sales this year. As we announced in December, we expect approximately $1.0 million of out-of-pocket expenses as we transition our Kenosha woodwind production to our Elkhart woodwind facility. We expect to incur approximately $2.0 million in additional costs in 2008 as we wind down production in one plant and ramp up in the other. Over the long term, this consolidation should help us gain efficiencies and improve profitability. Looking at our piano business for 2008, the U.S. market is expected to be soft but we expect Europe and Asia to have a solid year."
Conference Call
Management will be discussing the Company's fourth quarter results and outlook for 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.
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 $108.8 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; impact of dealer consolidations on orders; ability of new workers to meet desired production levels; 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 integrate and operate acquired businesses. Further information on these risk factors is included in the Company's filings with the Securities and Exchange Commission.
STEINWAY MUSICAL INSTRUMENTS, INC. Condensed Consolidated Statements of Income (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended Twelve Months Ended 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Net sales $121,332 $106,127 $406,314 $384,620 Cost of sales 81,742 73,906 282,828 277,213 Gross profit 39,590 32,221 123,486 107,407 32.6% 30.4% 30.4% 27.9% Operating expenses Sales and marketing 13,057 12,395 48,393 45,586 Provision for doubtful accounts 930 4,416 2,442 9,150 General and administrative 9,493 8,730 35,005 33,062 Amortization 198 197 786 812 Other operating expenses 361 166 1,658 419 Total operating expenses 24,039 25,904 88,284 89,029 Income from operations 15,551 6,317 35,202 18,378 Interest expense, net 2,191 2,690 9,771 11,255 Other (income) expense, net 95 (329) (59) 7,504 Income (loss) before income taxes 13,265 3,956 25,490 (381) Provision for income taxes 5,446 2,889 10,080 287 Net income (loss) $7,819 $1,067 $15,410 $(668) Earnings (loss) per share - basic $0.91 $0.13 $1.81 $(0.08) Earnings (loss) per share - diluted $0.90 $0.13 $1.78 $(0.08) Weighted average common shares - basic 8,577 8,374 8,522 8,304 Weighted average common shares - diluted 8,673 8,516 8,647 8,304 Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) 12/31/2007 12/31/2006 Cash $37,304 $30,409 Receivables, net 73,131 75,161 Inventories 152,451 154,623 Other current assets 22,843 22,485 Total current assets 285,729 282,678 Property, plant and equipment, net 94,150 95,598 Other assets 77,799 68,899 Total assets $457,678 $447,175 Debt $2,285 $4,595 Other current liabilities 64,701 61,453 Total current liabilities 66,986 66,048 Long-term debt 173,981 173,816 Other liabilities 52,932 49,310 Stockholders' equity 163,779 158,001 Total liabilities and stockholders' equity $457,678 $447,175 STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended 12/31/07 GAAP Adjustments Adjusted Band sales $45,434 $- $45,434 Piano sales 75,898 - 75,898 Total sales 121,332 - 121,332 Band cost of sales 37,192 (39)(1) 37,153 Piano cost of sales 44,550 - 44,550 Total cost of sales 81,742 (39) 81,703 Band gross profit 8,242 39 8,281 Piano gross profit 31,348 - 31,348 Total gross profit 39,590 39 39,629 Band GM % 18.1% 18.2% Piano GM % 41.3% 41.3% Total GM % 32.6% 32.7% Operating expenses 24,039 (128)(2) 23,911 Income from operations 15,551 167 15,718 Interest expense, net 2,191 - 2,191 Other (income) expense, net 95 - 95 Income before taxes 13,265 167 13,432 Income tax provision 5,446 66(3) 5,512 Net income $7,819 $101 $7,920 Earnings per share - basic $0.91 $0.92 Earnings per share - diluted $0.90 $0.91 Weighted average common shares - basic 8,577 8,577 Weighted average common shares - diluted 8,673 8,673 Three Months Ended 12/31/06 GAAP Adjustments Adjusted Band sales $35,028 $- $35,028 Piano sales 71,099 - 71,099 Total sales 106,127 - 106,127 Band cost of sales 29,454 - 29,454 Piano cost of sales 44,452 - 44,452 Total cost of sales 73,906 - 73,906 Band gross profit 5,574 - 5,574 Piano gross profit 26,647 - 26,647 Total gross profit 32,221 - 32,221 Band GM % 15.9% 15.9% Piano GM% 37.5% 37.5% Total GM % 30.4% 30.4% Operating expenses 25,904 - 25,904 Income from operations 6,317 - 6,317 Interest expense, net 2,690 - 2,690 Other (income) expense, net (329) - (329) Income before taxes 3,956 - 3,956 Income tax provision 2,889 - 2,889 Net income $1,067 $- $1,067 Earnings per share - basic $0.13 $0.13 Earnings per share - diluted $0.13 $0.13 Weighted average common shares - basic 8,374 8,374 Weighted average common shares - diluted 8,516 8,516 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects employee severance costs associated with a plant closure. (2) Reflects asset impairment charges related to a plant closure. (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) Twelve Months Ended 12/31/07 GAAP Adjustments Adjusted Band sales $171,124 $- $171,124 Piano sales 235,190 - 235,190 Total sales 406,314 - 406,314 Band cost of sales 136,870 (39)(1) 136,831 Piano cost of sales 145,958 - 145,958 Total cost of sales 282,828 (39) 282,789 Band gross profit 34,254 39 34,293 Piano gross profit 89,232 - 89,232 Total gross profit 123,486 39 123,525 Band GM % 20.0% 20.0% Piano GM % 37.9% 37.9% Total GM % 30.4% 30.4% Operating expenses 88,284 (128)(2) 88,156 Income from operations 35,202 167 35,369 Interest expense, net 9,771 - 9,771 Other (income) expense, net (59) - (59) Income before taxes 25,490 167 25,657 Income tax provision 10,080 66(3) 10,146 Net income $15,410 $101 $15,511 Earnings per share - basic $1.81 $1.82 Earnings per share - diluted $1.78 $1.79 Weighted average common shares - basic 8,522 8,522 Weighted average common shares - diluted 8,647 8,647 Twelve Months Ended 12/31/06 GAAP Adjustments Adjusted Band sales $170,426 $- $170,426 Piano sales 214,194 - 214,194 Total sales 384,620 - 384,620 Band cost of sales 138,745 (2,155)(4) 136,590 Piano cost of sales 138,468 - 138,468 Total cost of sales 277,213 (2,155) 275,058 Band gross profit 31,681 2,155 33,836 Piano gross profit 75,726 - 75,726 Total gross profit 107,407 2,155 109,562 Band GM % 18.6% 19.9% Piano GM% 35.4% 35.4% Total GM % 27.9% 28.5% Operating expenses 89,029 - 89,029 Income from operations 18,378 2,155 20,533 Interest expense, net 11,255 - 11,255 Other (income) expense, net 7,504 (9,674)(5) (2,170) (Loss) income before taxes (381) 11,829 11,448 Income tax provision 287 4,732(3) 5,019 Net (loss) income $(668) $7,097 $6,429 (Loss) earnings per share - basic $(0.08) $0.77 (Loss) earnings per share - diluted $(0.08) $0.76 Weighted average common shares - basic 8,304 8,304 Weighted average common shares - diluted 8,304 8,438 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects employee severance costs associated with a plant closure. (2) Reflects asset impairment charges related to a plant closure. (3) Reflects the tax effect of Adjustments. (4) Reflects $130 charges relating to the step-up of inventory and $2,025 of unabsorbed overhead associated with a labor strike. (5) Reflects loss on extinguishment of debt. STEINWAY MUSICAL INSTRUMENTS, INC. (In Thousands) (Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
Three Months Ended Twelve Months Ended 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Cash flows from operating activities $45,439 $27,845 $34,065 $29,220 Changes in operating assets and liabilities (35,400) (19,366) (8,296) (8,607) Stock based compensation expense (250) (283) (1,103) (1,174) Income taxes, net of deferred tax benefit 7,332 2,741 14,004 8,414 Net interest expense 2,191 2,690 9,771 11,255 Provision for doubtful accounts (930) (4,416) (2,442) (9,150) Other (160) 49 (133) 1,249 Non-recurring, infrequent or unusual cash charges 39 - 39 2,155 Adjusted EBITDA $18,261 $9,260 $45,905 $33,362 Reconciliation from Net Income to Adjusted EBITDA Three Months Ended Twelve Months Ended 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Net income $7,819 $1,067 $15,410 $(668) Income taxes 5,446 2,889 10,080 287 Net interest expense 2,191 2,690 9,771 11,255 Depreciation 2,440 2,417 9,691 9,847 Amortization 198 197 786 812 Non-recurring, infrequent or unusual items 167 - 167 11,829 Adjusted EBITDA $18,261 $9,260 $45,905 $33,362 Contact: Julie A. Theriault Telephone: 781-894-9770 Email: ir@steinwaymusical.com
First Call Analyst:
FCMN Contact:
Source: Steinway Musical Instruments, Inc.
CONTACT: Julie A. Theriault of Steinway Musical Instruments, Inc.,
+1-781-894-9770, ir@steinwaymusical.com
Web site: http://www.steinwaymusical.com/
Profile: International Entertainment
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