Steinway Reports Q3 Results
Steinway Reports Q3 Results
GAAP EPS ($0.03); Adjusted EPS $0.57
WALTHAM, Mass., Nov. 6 /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 nine months ended September 30, 2008.
Revenues for the third quarter increased 1% over the same period in the prior year. A 7% increase in piano segment revenues, which includes the Company's recently acquired online music business, more than offset a 5% decrease in band segment revenues. Overall gross margins improved to 29.8% from 28.3%.
In connection with the Company's annual impairment testing of goodwill, in the third quarter the band segment recorded a non-cash charge of $8.6 million, impacting after tax earnings by $0.60 per diluted share. Controllable operating expenses were flat with the prior year period but the negative impact of the impairment charge caused a $6.6 million decline in operating income for the quarter. Net interest expense decreased 18% as a result of lower borrowings during the third quarter of 2008.
Adjusted EBITDA improved to $12.2 million, or 25%, over the prior year period. The Company posted a loss per share of $0.03 and Adjusted earnings per share of $0.57 compared to earnings per share of $0.35 in the third quarter of 2007. Adjustments for the quarter are detailed in the attached financial tables.
For the first nine months of 2008, revenue increased 3% and gross margins improved slightly, to 29.5% from 29.4%. Operating income declined $7.4 million as a result of the charge to goodwill. Adjusted EBITDA improved to $31.4 million, or 14%, reflecting improvement in both the band and piano segments.
Band Operations
In the third quarter, band revenues decreased $2.5 million, or 5%, despite a unit sales decline of 15%. Declines occurred in all major product categories, with the most significant shortfall in student level instruments. Gross margins improved from 19.5% to 23.2% as a result of a change in product mix toward higher priced instruments, reduced sales incentive programs, and greater manufacturing efficiencies.
For the nine-month period, band sales were nearly equal to the prior year period. Gross margins improved from 20.7% to 22.2%, despite $0.9 million of severance costs during the period.
Piano Operations
Piano segment revenues for the third quarter increased $3.7 million, or 7%, to $55.7 million. An increase in piano sales overseas offset a domestic decline while online music sales contributed an additional $1.8 million in revenue during the quarter. Overall unit shipments of Steinway grand pianos decreased 5% from the prior year period. Domestic shipments of Steinway grand pianos decreased 6% and overseas shipments decreased 3%. Unit shipments of mid-priced pianos declined 7%. Gross margins declined from 36.3% to 35.1% due to a decline in domestic retail sales and a change in product mix toward lower margin upright pianos.
For the nine-month period, piano revenues increased 5%. Steinway grand unit shipments declined 6% and mid-priced piano unit shipments decreased 2%. Gross margins decreased to 34.8% from 36.3% 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, "Given the state of the global economy, we are pleased with our third quarter results. We saw significant improvement in Adjusted EBITDA in both the band and piano segments."
Messina added, "We have substantially completed the consolidation of our band manufacturing facilities and we are currently working through the many issues involved in making our reduced production footprint even more efficient. Provided demand remains flat, we expect to start realizing improved profitability from these recent plant consolidation efforts in the first half of 2009."
On the outlook for the remainder of 2008, Messina said, "The outlook for the worldwide economy is uncertain and we expect general weakness in many of our markets for the next few quarters. Our balance sheet is strong and we have substantial liquidity to handle this present economic environment. Steinway has weathered many economic cycles over the last 155 years and has always emerged an even stronger competitor. I am confident that we will successfully navigate the current challenges."
Conference Call
Management will be discussing the Company's third 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, 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 $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; 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 Nine Months Ended 9/30/2008 9/30/2007 9/30/2008 9/30/2007 Net sales $100,488 $99,293 $293,195 $284,982 Cost of sales 70,559 71,202 206,829 201,086 Gross profit 29,929 28,091 86,366 83,896 29.8% 28.3% 29.5% 29.4% Operating expenses: Sales and marketing 11,670 11,243 36,539 35,336 Provision for doubtful accounts 12 794 484 1,512 General and administrative 8,701 8,361 26,176 25,512 Amortization 336 196 795 588 Other operating expenses 68 262 537 1,297 Facility rationalization and impairment charges 8,555 - 9,617 - Total operating expenses 29,342 20,856 74,148 64,245 Income from operations 587 7,235 12,218 19,651 Interest expense, net 2,378 2,905 6,811 7,580 Other income, net (405) 37 (1,024) (154) (Loss) income before income taxes (1,386) 4,293 6,431 12,225 Income tax (benefit) provision (1,126) 1,285 1,671 4,634 Net (loss) income $(260) $3,008 $4,760 $7,591 (Loss) earnings per share - basic ($0.03) $0.35 $0.56 $0.89 (Loss) earnings per share - diluted ($0.03) $0.35 $0.55 $0.88 Weighted average common shares - basic 8,538 8,569 8,566 8,503 Weighted average common shares - diluted 8,538 8,683 8,653 8,641 Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) 9/30/2008 9/30/2007 12/31/2007 Cash $22,288 $14,988 $37,304 Receivables, net 77,340 86,061 73,131 Inventories 161,752 167,733 152,451 Other current assets 25,551 24,311 22,843 Total current assets 286,931 293,093 285,729 Property, plant and equipment, net 88,014 94,676 94,150 Other assets 72,410 70,935 77,799 Total assets $447,355 $458,704 $457,678 Debt $2,983 $3,369 $2,285 Other current liabilities 63,424 56,170 64,701 Total current liabilities 66,407 59,539 66,986 Long-term debt 168,385 194,672 173,981 Other liabilities 46,956 57,165 52,932 Stockholders' equity 165,607 147,328 163,779 Total liabilities and stockholders' equity $447,355 $458,704 $457,678 STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended 9/30/08 GAAP Adjustments Adjusted Band sales $44,782 $- $44,782 Piano sales (1) 55,706 - 55,706 Total sales 100,488 - 100,488 Band gross profit 10,377 (62)(2) 10,315 Piano gross profit (1) 19,552 - 19,552 Total gross profit 29,929 (62) 29,867 Band GM% 23.2% 23.0% Piano GM% (1) 35.1% 35.1% Total GM% 29.8% 29.7% Operating expenses 29,342 (8,555)(3) 20,787 Income from operations 587 8,493 9,080 Interest expense, net 2,378 - 2,378 Other (income) expense, net (405) - (405) (Loss) income before income taxes (1,386) 8,493 7,107 Income tax (benefit) provision (1,126) 3,312(4) 2,186 Net (loss) income $(260) $5,181 $4,921 (Loss) earnings per share - basic ($0.03) $0.58 (Loss) earnings per share - diluted ($0.03) $0.57 Weighted average common shares - basic 8,538 8,538 Weighted average common shares - diluted 8,538 8,631 Three Months Ended 9/30/07 GAAP Adjustments Adjusted Band sales $47,308 $- $47,308 Piano sales 51,985 - 51,985 Total sales 99,293 - 99,293 Band gross profit 9,209 - 9,209 Piano gross profit 18,882 - 18,882 Total gross profit 28,091 - 28,091 Band GM% 19.5% 19.5% Piano GM% 36.3% 36.3% Total GM% 28.3% 28.3% Operating expenses 20,856 - 20,856 Income from operations 7,235 - 7,235 Interest expense, net 2,905 - 2,905 Other (income) expense, net 37 - 37 Income before income taxes 4,293 - 4,293 Income tax provision 1,285 - 1,285 Net income $3,008 $- $3,008 Earnings per share - basic $0.35 $0.35 Earnings per share - diluted $0.35 $0.35 Weighted average common shares - basic 8,569 8,569 Weighted average common shares - diluted 8,683 8,683 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Includes results of online music business. (2) Reflects reversal of employee severance costs associated with plant closures. (3) Reflects impairment of goodwill. (4) Reflects the tax effect of Adjustments. STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Nine Months Ended 9/30/08 GAAP Adjustments Adjusted Band sales $125,300 $- $125,300 Piano sales (1) 167,895 - 167,895 Total sales 293,195 - 293,195 Band gross profit 27,855 941(2) 28,796 Piano gross profit (1) 58,511 - 58,511 Total gross profit 86,366 941 87,307 Band GM% 22.2% 23.0% Piano GM% (1) 34.8% 34.8% Total GM% 29.5% 29.8% Operating expenses 74,148 (9,617)(3) 64,531 Income from operations 12,218 10,558 22,776 Interest expense, net 6,811 - 6,811 Other (income) expense, net (1,024) 636(4) (388) Income before income taxes 6,431 9,922 16,353 Income tax provision 1,671 3,841(5) 5,512 Net income $4,760 $6,081 $10,841 Earnings per share - basic $0.56 $1.27 Earnings per share - diluted $0.55 $1.25 Weighted average common shares - basic 8,566 8,566 Weighted average common shares - diluted 8,653 8,653 Nine Months Ended 9/30/07 GAAP Adjustments Adjusted Band sales $125,690 $- $125,690 Piano sales 159,292 - 159,292 Total sales 284,982 - 284,982 Band gross profit 26,012 - 26,012 Piano gross profit 57,884 - 57,884 Total gross profit 83,896 - 83,896 Band GM% 20.7% 20.7% Piano GM% 36.3% 36.3% Total GM% 29.4% 29.4% Operating expenses 64,245 - 64,245 Income from operations 19,651 - 19,651 Interest expense, net 7,580 - 7,580 Other (income) expense, net (154) - (154) Income before income taxes 12,225 - 12,225 Income tax provision 4,634 - 4,634 Net income $7,591 $- $7,591 Earnings per share - basic $0.89 $0.89 Earnings per share - diluted $0.88 $0.88 Weighted average common shares - basic 8,503 8,503 Weighted average common shares - diluted 8,641 8,641 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Includes results of online music business. (2) Reflects costs (primarily employee severance) associated with plant closures. (3) Reflects facility rationalization costs of $1,062 due to the impairment of plants in Elkhorn, WI and France and $8,555 impairment of goodwill. (4) Reflects a gain on early extinguishment of debt. (5) 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 Nine Months Ended 9/30/2008 9/30/2007 9/30/2008 9/30/2007 Cash flows from operating activities $(3,833) $5,165 $(2,402) $(11,374) Changes in operating assets and liabilities 12,667 1,248 22,116 27,104 Stock based compensation expense (300) (210) (811) (853) Income taxes, net of deferred tax benefit 1,445 1,416 5,591 6,672 Net interest expense 2,378 2,905 6,811 7,580 Provision for doubtful accounts (12) (794) (484) (1,512) Other (46) 94 (381) 27 Non-recurring, infrequent or unusual cash charges (62) - 941 - Adjusted EBITDA $12,237 $9,824 $31,381 $27,644 Reconciliation from Net Income to Adjusted EBITDA Three Months Ended Nine Months Ended 9/30/2008 9/30/2007 9/30/2008 9/30/2007 Net (loss) income $(260) $3,008 $4,760 $7,591 Income taxes (1,126) 1,285 1,671 4,634 Net interest expense 2,378 2,905 6,811 7,580 Depreciation 2,416 2,430 7,422 7,251 Amortization 336 196 795 588 Non-recurring, infrequent or unusual items 8,493 - 9,922 - Adjusted EBITDA $12,237 $9,824 $31,381 $27,644
First Call Analyst:
FCMN Contact:
Source: Steinway Musical Instruments, Inc.
CONTACT: Julie A. Theriault, +1-781-894-9770, ir@steinwaymusical.com
Web site: http://www.steinwaymusical.com/
Profile: International Entertainment
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