Steinway Reports Q2 2009 Results
Steinway Reports Q2 2009 Results
WALTHAM, Mass., Aug. 6 /PRNewswire-FirstCall/ -- Steinway Musical Instruments, Inc. (NYSE:LVB) today reported results for the quarter and six months ended June 30, 2009.
Dana Messina, Chief Executive Officer, said, "We continue to navigate well through a very uncertain market. We planned our business carefully and are managing our operations around the world in a disciplined manner. By executing on areas under our control, we have succeeded in dramatically reducing our cost structure. As expected, difficult sales trends carried through the second quarter as global consumer spending remained weak. We continue to operate our factories at significantly reduced production levels to reflect the weak demand."
Second Quarter Results -- Sales of $72 million, down 27% -- Gross margin decreased to 26.2% from 29.5% -- Operating expenses reduced by 22% -- Loss per share of $0.07 YTD Results -- Sales of $142 million, down 26% -- Gross margin decreased to 26.4% from 29.3% -- Operating expenses reduced by 20% -- Earnings per share of $0.05 Balance Sheet Highlights -- Cash of $46 million -- Revolver availability of $74 million -- Working capital of $229 million
Messina added, "The softness in our band business has been more dramatic than we anticipated. Dealers are reducing inventories, purchasing clearance product from other manufacturers, and pushing on the supply chain to carry larger inventories. That said, we do not believe that industry sales will decline further. Our superior products, including our new woodwind models, will help us maintain our competitive position as we move through this cycle for the remainder of the year."
Outlook
Mr. Messina continued, "While we remain cautious with our outlook, our products are highly desired and we believe we will increase market share. Our dealers have reduced inventories significantly and we are seeing higher sell through levels at retail. With the lending markets easing and dealer inventories at low levels, we expect to see some recovery in the fourth quarter."
"We have seen a few competitors fail and we expect more to follow," said Messina. "As a result, the supply of manufacturing capacity is likely to shrink over the next year. The tough decisions we made to reduce costs dramatically have given us the needed flexibility to weather this difficult economic environment. We remain confident that we will emerge an even stronger competitor."
Segment Information Piano Segment Second Quarter -- Sales of $42 million, down 26% -- Gross margin decreased to 29.9% from 34.9% YTD -- Sales of $80 million, down 29% -- Gross margin decreased to 30.7% from 34.7% Band Segment Second Quarter -- Sales of $30 million, down 28% -- Gross margin decreased to 21.0% from 21.8% YTD -- Sales of $62 million, down 23% -- Gross margin decreased to 20.9% from 21.7% UAW Decertification
The Company also announced that the union has been decertified at its Elkhart brass instrument facility. John Stoner, President of Conn-Selmer explained, "We are pleased that a majority of our employees voted to terminate their relationship with the UAW. We look forward to the future with our skilled team of brass instrument workers who continue to improve the quality and efficiencies in that plant. I have no doubt that we will be better able to satisfy customers by delivering the finest brass musical instruments and customer service in the world."
Conference Call
Management will be discussing the Company's second quarter results as well as its outlook for the remainder of 2009 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 $73.9 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; reductions in school budgets; increased competition; work stoppages and slowdowns; ability to successfully consolidate band manufacturing; impact of dealer consolidations on orders; ability of dealers to obtain financing; 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; 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 ------------------ ---------------- 6/30/2009 6/30/2008 6/30/2009 6/30/2008 --------- --------- --------- --------- Net sales $72,113 $98,521 $142,104 $192,707 Cost of sales 53,215 69,476 104,597 136,270 ------ ------ ------- ------- Gross profit 18,898 29,045 37,507 56,437 26.2% 29.5% 26.4% 29.3% Operating expenses: Sales and marketing 9,570 11,818 19,604 24,869 Provision for doubtful accounts 290 119 876 472 General and administrative 7,248 8,892 14,702 17,475 Amortization 332 261 667 459 Other operating expenses (49) 1,128 202 1,531 --- ----- --- ----- Total operating expenses 17,391 22,218 36,051 44,806 Income from operations 1,507 6,827 1,456 11,631 Interest income (420) (789) (982) (1,741) Interest expense 2,936 3,065 6,020 6,174 Other (income) expense, net (253) 54 (4,245) (619) ---- -- ------ ---- (Loss) income before taxes (756) 4,497 663 7,817 Income tax (benefit) provision (136) 1,452 278 2,797 ---- ----- --- ----- Net (loss) income $(620) $3,045 $385 $5,020 ===== ====== ==== ====== (Loss) earnings per share - basic ($0.07) $0.35 $0.05 $0.59 (Loss) earnings per share - diluted ($0.07) $0.35 $0.05 $0.58 Weighted average common shares - basic 8,533 8,580 8,533 8,580 Weighted average common shares - diluted 8,533 8,671 8,538 8,664 Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) 6/30/2009 6/30/2008 12/31/2008 --------- --------- ---------- Cash $45,700 $29,416 $44,380 Receivables, net 56,066 72,953 60,581 Inventories, net 172,475 168,208 166,508 Other current assets 24,871 23,813 25,798 ------ ------ ------ Total current assets 299,112 294,390 297,267 Property, plant and equipment, net 89,623 92,277 88,708 Other assets 66,654 82,925 67,343 ------ ------ ------ Total assets $455,389 $469,592 $453,318 ======== ======== ======== Short-term debt $960 $2,354 $3,325 Other current liabilities 51,324 69,128 59,229 ------ ------ ------ Total current liabilities 52,284 71,482 62,554 Long-term debt 192,528 168,345 183,425 Other liabilities 51,435 56,389 50,258 Stockholders' equity 159,142 173,376 157,081 ------- ------- ------- Total liabilities and stockholders' equity $455,389 $469,592 $453,318 ======== ======== ======== STEINWAY MUSICAL INSTRUMENTS, INC. Reconciliation of GAAP Earnings to Adjusted Earnings (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended 6/30/09 -------------------------- GAAP Adjustments Adjusted ---- ----------- -------- Band sales $29,713 $- $29,713 Piano sales 42,400 - 42,400 ------ --- ------ Total sales 72,113 - 72,113 Band gross profit 6,229 - 6,229 Piano gross profit 12,669 - 12,669 ------ --- ------ Total gross profit 18,898 - 18,898 Band GM % 21.0% 21.0% Piano GM % 29.9% 29.9% Total GM % 26.2% 26.2% Operating expenses 17,391 - 17,391 ------ --- ------ Income from operations 1,507 - 1,507 Interest expense, net 2,516 - 2,516 Other (income) expense, net (253) - (253) ---- --- ---- Loss before income taxes (756) - (756) Income tax benefit (136) - (136) ---- --- ---- Net loss $(620) $- $(620) ===== === ===== Loss per share - basic ($0.07) ($0.07) Loss per share - diluted ($0.07) ($0.07) Weighted average common shares - basic 8,533 8,533 Weighted average common shares - diluted 8,533 8,533 Three Months Ended 6/30/08 -------------------------- GAAP Adjustments Adjusted ---- ----------- -------- Band sales $41,018 $- $41,018 Piano sales 57,503 - 57,503 ------ --- ------ Total sales 98,521 - 98,521 Band gross profit 8,953 571(1) 9,524 Piano gross profit 20,092 - 20,092 ------ --- ------ Total gross profit 29,045 571 29,616 Band GM% 21.8% 23.2% Piano GM% 34.9% 34.9% Total GM% 29.5% 30.1% Operating expenses 22,218 (1,062)(1) 21,156 ------ ------ ------ Income from operations 6,827 1,633 8,460 Interest expense, net 2,276 - 2,276 Other (income) expense, net 54 - 54 -- --- -- Income before income taxes 4,497 1,633 6,130 Income tax provision 1,452 607(2) 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 - basic 8,580 8,580 Weighted average common shares - diluted 8,671 8,671 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects facility rationalization costs. (2) 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 6/30/09 ------------------------ GAAP Adjustments Adjusted ---- ----------- -------- Band sales $62,425 $- $62,425 Piano sales 79,679 - 79,679 ------ --- ------ Total sales 142,104 - 142,104 Band gross profit 13,074 - 13,074 Piano gross profit 24,433 - 24,433 ------ --- ------ Total gross profit 37,507 - 37,507 Band GM % 20.9% 20.9% Piano GM % 30.7% 30.7% Total GM % 26.4% 26.4% Operating expenses 36,051 - 36,051 ------ --- ------ Income from operations 1,456 - 1,456 Interest expense, net 5,038 - 5,038 Other (income) expense, net (4,245) 3,434(1) (811) ------ ----- ---- Income (loss) before income taxes 663 (3,434) (2,771) Income tax provision (benefit) 278 (721)(2) (443) --- ---- ---- Net income (loss) $385 $(2,713) $(2,328) ==== ======= ======= Earnings (loss) per share - basic $0.05 ($0.27) Earnings (loss) per share - diluted $0.05 ($0.27) Weighted average common shares - basic 8,533 8,533 Weighted average common shares - diluted 8,538 8,533 Six Months Ended 6/30/08 ------------------------ GAAP Adjustments Adjusted ---- ----------- -------- Band sales $80,518 $- $80,518 Piano sales 112,189 - 112,189 ------- --- ------- Total sales 192,707 - 192,707 Band gross profit 17,478 1,003(3) 18,481 Piano gross profit 38,959 - 38,959 ------------------ ------ --- ------ Total gross profit 56,437 1,003 57,440 Band GM% 21.7% 23.0% Piano GM% 34.7% 34.7% Total GM% 29.3% 29.8% Operating expenses 44,806 (1,062)(3) 43,744 ------ ------ ------ Income from operations 11,631 2,065 13,696 Interest expense, net 4,433 - 4,433 Other (income) expense, net (619) 636(1) 17 ---- --- -- Income before income taxes 7,817 1,429 9,246 Income tax provision 2,797 529(2) 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 - basic 8,580 8,580 Weighted average common shares - diluted 8,664 8,664 Notes to Reconciliation of GAAP Earnings to Adjusted Earnings (1) Reflects a gain on early extinguishment of debt. (2) Reflects the tax effect of Adjustments. (3) Reflects facility rationalization costs. STEINWAY MUSICAL INSTRUMENTS, INC. (In Thousands) (Unaudited) Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA Three Months Ended Six Months Ended ------------------ ---------------- 6/30/2009 6/30/2008 6/30/2009 6/30/2008 --------- --------- --------- --------- Cash flows from operating activities $3,119 $3,710 $(5,981) $1,431 Changes in operating assets and liabilities (665) 3,566 8,957 9,449 Stock based compensation expense (293) (266) (562) (511) Income taxes, net of deferred tax benefit (136) 1,504 957 4,146 Net interest expense 2,516 2,276 5,038 4,433 Provision for doubtful accounts (290) (119) (876) (472) Other 187 (56) 96 (335) Non-recurring, infrequent or unusual cash charges - 571 - 1,003 ---------------------- --- --- --- ----- Adjusted EBITDA $4,438 $11,186 $7,629 $19,144 ====== ======= ====== ======= Reconciliation from Net (Loss) Income to Adjusted EBITDA Three Months Ended Six Months Ended ------------------ ---------------- 6/30/2009 6/30/2008 6/30/2009 6/30/2008 --------- --------- --------- --------- Net (loss) income $(620) $3,045 $385 $5,020 Income taxes (136) 1,452 278 2,797 Net interest expense 2,516 2,276 5,038 4,433 Depreciation 2,346 2,519 4,695 5,006 Amortization 332 261 667 459 Non-recurring, infrequent or unusual items - 1,633 (3,434) 1,429 --- ----- ------ ----- Adjusted EBITDA $4,438 $11,186 $7,629 $19,144 ====== ======= ====== =======
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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