Steinway Reports Second Quarter 2013 Results

                 Steinway Reports Second Quarter 2013 Results

- Net sales rise 8% to $92.4 million

- GAAP EPS of $1.60; adjusted EPS of $0.35

- Adjusted EBITDA increases to $10.0 million from $7.1 million

PR Newswire

WALTHAM, Mass., Aug. 6, 2013

WALTHAM, Mass., Aug. 6, 2013 /PRNewswire/ --Steinway Musical Instruments,
Inc. (NYSE: LVB) today announced its financial results for the second quarter
and six months ended June 30, 2013.

Net sales for the second quarter of 2013 totaled $92.4million compared to
$85.7million for the prior-year quarter. The Company reported net income of
$20.2million, or $1.60 per diluted share, for the second quarter of 2013
compared to $2.4million, or $0.19 per diluted share, for the second quarter
of 2012.

During the second quarter of 2013, the Company recognized a net $22.7million
gain on the sale of its West 57^th Street office building and $0.5million in
impairment charges related to its online music business. Before giving effect
to those items, second quarter net income was $4.5million, or $0.35 per
diluted share.

CEO Michael Sweeney commented on the quarter, "We delivered solid results,
improving total revenues by 8% while boosting gross margin by 200 basis points
and Adjusted EBITDA by 42%. We're especially pleased with our double-digit
increase in piano sales. Both our band and piano divisions turned in strong
operating performances this quarter.

"At the end of June, we achieved a major objective with the sale of Steinway
Hall. Shortly thereafter, we redeemed our Senior Notes, paying down all of the
Company's long-term debt. With these actions completed, we can now concentrate
all our efforts on achieving our operational objectives and continuing our
heritage of offering the world's finest musical instruments."

SECOND QUARTER RESULTS

Piano Operations

Second quarter revenue increased to $56.8million, or 12.7%, over the
prior-year quarter due to strong wholesale piano sales. Worldwide, unit
shipments of Steinway grand pianos increased 20.7% and Boston and Essex piano
shipments rose 21.0%. In the Americas and Europe, revenue increased 18.2% and
19.6%, respectively, while exchange rate changes negatively impacted revenue
in the Asia-Pacific region. Without these changes, revenue from the region
would have been stable.

On a combined basis, production at the Company's New York and Hamburg
factories rose approximately 25% over the prior-year quarter, helping meet the
increased demand for Steinway pianos. Overall gross margin increased 80 basis
points over the prior year. The gross margin improvement that results from
higher production levels was somewhat offset by lower revenue from the
Company's retail operations during the quarter. Training processes in the
Company's Hamburg factory progressed during the second quarter, resulting in
gross margin improvement of 160 basis points over the first quarter of 2013.

Band Operations

Revenues for the second quarter totaled $35.6million, an increase of 0.7%
over the prior-year period. Results were mixed, with a 2.2% increase in
student unit shipments and a 2.7% decrease in professional unit sales. Strong
sales of background brass instruments and higher sales of drum outfits offset
lower sales of accessories.

Gross margin improved 310 basis points over the second quarter of 2012. Firm
control over manufacturing costs allowed price increases to directly benefit
gross profit. A higher mix of brass instruments and more efficient production
also contributed to the improvement.

Operating Expenses

Operating expenses for the quarter increased $1.3million over the prior-year
period. For the second quarter, legal and consulting fees associated with the
Company's evaluation of strategic alternatives were $2.4million in 2013 and
$1.9million in 2012. Excluding these costs and $0.5million and $0.2million
in impairment charges from each period, respectively, operating expenses were
up 2.7%.

YTD RESULTS

Piano Operations

Year-to-date, revenue increased 8.1% over the prior-year period, to
$102.2million. Sales in the Americas were robust, up 18.5%, while sales in
the Company's Europe and Asia-Pacific regions were on par with prior year.
Worldwide, unit shipments of Steinway grand pianos increased 9.2% and Boston
and Essex piano shipments increased 22.2%. Overall gross margin improved 90
basis points over the prior-year period, somewhat less than expected due to
the higher mix of lower-margin pianos.

Band Operations

Year-to-date, revenue decreased 3.1% from the prior-year period, to
$67.0million. Increased revenue from brass instruments mitigated lower sales
of accessories and percussion instruments. Relatively stable manufacturing
costs, coupled with price increases, contributed to an increase in gross
margin of 450 basis points over the prior-year period. A higher mix of
professional instruments and more efficient production also contributed to the
increase.

Capitalization

As of June 30, 2013, the Company's cash balance totaled $106.5million. This
amount included net cash proceeds of approximately $43.3million from the sale
of the Company's interest in the West 57^th Street building, which closed on
June 28, 2013. The Company realized a pre-tax gain of $22.7million on the
sale. On July 15, 2013, the Company completed its redemption of $67.5million
in aggregate principal amount of its 7% Senior Notes due 2014. As a result,
the Company has no remaining long-term debt.

Merger Agreement with Kohlberg & Company

On June 30, 2013, Steinway entered into a definitive agreement to be acquired
by an affiliate of Kohlberg & Company ("Kohlberg"), a global private equity
investment firm, in a transaction valued at approximately $438million. Upon
the completion of the transaction, the Company will become a privately held
company. The agreement provides for a 45-day "go-shop" period, which will end
on August 14, 2013, during which time the Company may solicit alternative
proposals to the transaction with Kohlberg. Any shares not tendered in the
offer will be acquired in a second-step merger at the same cash price as paid
in the tender offer. The transaction is expected to close in the third quarter
of 2013.

Upon the successful closing of the tender offer, stockholders of the Company
who tender their shares in the tender offer will receive $35.00 per share, in
cash, payable without interest and less any applicable withholding taxes. This
represents a premium of approximately 33% based on the average closing price
of the Company's common stock during the 90 trading days ended June 28, 2013.

Conference Call

In light of its pending acquisition by an affiliate of Kohlberg, the Company
will not host a conference call relating to its second quarter 2013 financial
results.

About Steinway Musical Instruments

Steinway Musical Instruments, Inc., through its Steinway and Conn-Selmer
divisions, is a global leader in the design, manufacture, marketing and
distribution of high quality musical instruments. These 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
produces and distributes classical music recordings. For more information
about Steinway Musical Instruments,Inc., please visit the Company's website
at www.steinwaymusical.com.

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
(if any). 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 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, amortization, and impairment charges.

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.

Cautionary Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements which represent the
Company's present expectations or beliefs concerning future events, including
with respect to the tender offer and related transactions. When used in this
press release, the words "can," "will," "intends," "expects," "is expected,"
similar expressions and any other statements that are not historical facts are
intended to identify those assertions as forward-looking statements. Such
statements are based on a number of assumptions that could ultimately prove
inaccurate, and are subject to a number of risk factors. The Company does not
assume any obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise. Risk factors include
the following: uncertainties regarding the timing of the closing of the
transaction; uncertainties as to the number of stockholders of the Company who
may tender their stock in the tender offer; the risk of failing to obtain any
regulatory approvals or satisfy conditions to the transaction; the risk that
Kohlberg is unable to obtain adequate financing; the risk that the transaction
will not close or that the closing will be delayed; the risk that the
Company's businesses will suffer due to uncertainty related to the
transaction; competitive responses to the transaction; changes in general
economic conditions; reductions in school budgets; increased competition;
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; ability to fulfill piano orders in a timely manner; and
fluctuations in effective tax rates resulting from shifts in sources of
income. Further information on factors that could affect the Company's
financial results is provided in documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), including the Company's recent
filings on Form10-Q and Form10-K.

Notice to Investors
This press release is neither an offer to purchase nor a solicitation of an
offer to sell any securities. The solicitation and the offer to buy shares of
the Company common stock have been made pursuant to a tender offer statement
on Schedule TO, containing an offer to purchase and related tender offer
documents, filed by Kohlberg and certain of its affiliates with the SEC on
July 15, 2013. The Company filed a solicitation/recommendation statement on
Schedule 14D-9 with respect to the tender offer with the SEC on July 15, 2013.
The tender offer statement (including an offer to purchase, a related letter
of transmittal and other tender offer documents) and the
solicitation/recommendation statement, and any amendments thereto, contain
important information that should be read carefully before any decision is
made with respect to the tender offer. These materials are available to the
Company's stockholders at no expense to them and may also be obtained by
contacting the Company's Investor Relations Department at 800 South Street,
Suite 305, Waltham, Massachusetts 02453, telephone number (781) 894-9770 or
ir@steinwaymusical.com. All of these materials (and all other tender offer
documents filed with the SEC) are available at no charge at the SEC's website
(www.sec.gov).

Company Contact:
Julie A. Theriault
Steinway Musical Instruments, Inc.
(781) 894-9770
ir@steinwaymusical.com

Investor Relations Contact:
Harriet Fried / Jody Burfening
LHA
(212) 838-3777
hfried@lhai.com



STEINWAY MUSICAL INSTRUMENTS, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
                       Three Months Ended          Six Months Ended
                       6/30/2013     6/30/2012     6/30/2013     6/30/2012
Net sales              $   92,353  $   85,704  $  169,156   $  163,657
Cost of sales          61,063        58,339        112,516       113,145
Gross profit           31,290        27,365        56,640        50,512
                       33.9%         31.9%         33.5%         30.9%
Operating expenses:
Sales and marketing    10,969        11,072        22,249        23,057
General and            11,266        10,144        19,736        19,105
administrative
Other                  454           178           473           216
Total operating        22,689        21,394        42,458        42,378
expenses
Income from operations 8,601         5,971         14,182        8,134
Other (income)         (21,707)      1,277         (21,306)      1,631
expense, net
Interest expense, net  939           942           1,856         1,792
Income before income   29,369        3,752         33,632        4,711
taxes
Income tax provision   9,214         1,355         10,787        1,724
Net income           $   20,155  $          $   22,845  $    2,987
                                     2,397
Earnings per share -   $         $         $         $    
basic                  1.62          0.19          1.83          0.24
Earnings per share -   $         $         $         $    
diluted                1.60          0.19          1.82          0.24
Weighted average       12,463        12,378        12,461        12,373
common shares - basic
Weighted average
common shares -        12,571        12,507        12,558        12,508
diluted
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
                                     6/30/2013     6/30/2012     12/31/2012
Cash                                 $  106,500   $   40,461  $   73,406
Receivables, net                     49,211        47,392        43,536
Inventories, net                     133,974       137,210       125,081
Other current assets                 15,820        24,900        14,309
Total current assets                 305,505       249,963       256,332
Property, plant and                  67,936        88,743        91,485
equipment, net
Other assets                         78,551        71,854        77,850
Total assets                         $  451,992   $  410,560   $  425,667
Debt                                 $   67,968  $         $    
                                                   626          576
Other current                        61,976        47,159        53,042
liabilities
Total current                        129,944       47,785        53,618
liabilities
Long-term debt                       -             70,899        67,431
Other liabilities                    59,569        56,821        62,773
Stockholders' equity                 262,479       235,055       241,845
Total liabilities and                $  451,992   $  410,560   $  425,667
stockholders' equity



STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
                      Three Months Ended 6/30/13
                      GAAP             Adjustments             Adjusted
Band sales            $         $              $       
                      35,596             -                35,596
Piano sales           56,757           -                       56,757
 Total sales         92,353           -                       92,353
Band gross profit     10,284           -                       10,284
Piano gross profit    21,006           -                       21,006
 Total gross profit  31,290           -                       31,290
Band GM %             28.9%                                    28.9%
Piano GM %            37.0%                                    37.0%
 Total GM %          33.9%                                    33.9%
Operating expenses    22,689           (500)               (1) 22,189
 Income from       8,601            500                     9,101
operations
Other (income)        (21,707)         22,725              (2) 1,018
expense, net
Interest expense, net 939              -                       939
 Income before     29,369           (22,225)                7,144
income taxes
Income tax provision  9,214            (6,521)             (3) 2,693
 Net income        $         $                $       
                      20,155          (15,704)                 4,451
Earnings per share -  $                                 $       
basic                   1.62                                  0.36
Earnings per share -  $                                 $       
diluted                 1.60                                  0.35
Weighted average      12,463                                   12,463
common shares - basic
Weighted average
common shares -       12,571                                   12,571
diluted
                      Three Months Ended 6/30/12
                      GAAP             Adjustments             Adjusted
Band sales            $         $              $       
                      35,340             -                35,340
Piano sales           50,364           -                       50,364
 Total sales         85,704           -                       85,704
Band gross profit     9,130            -                       9,130
Piano gross profit    18,235           -                       18,235
 Total gross profit  27,365           -                       27,365
Band GM %             25.8%                                    25.8%
Piano GM %            36.2%                                    36.2%
 Total GM %          31.9%                                    31.9%
Operating expenses    21,394           (166)               (4) 21,228
 Income from       5,971            166                     6,137
operations
Other (income)        1,277            -                       1,277
expense, net
Interest expense, net 942              -                       942
 Income before     3,752            166                     3,918
income taxes
Income tax provision  1,355            62                  (3) 1,417
 Net income        $         $              $       
                       2,397          104                    2,501
Earnings per share -  $                                 $       
basic                   0.19                                  0.20
Earnings per share -  $                                 $       
diluted                 0.19                                  0.20
Weighted average      12,378                                   12,378
common shares - basic
Weighted average
common shares -       12,507                                   12,507
diluted
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
 (1) Reflects impairment charges for online music business intangible assets.
 (2) Reflects net gain on sale of West 57th Street office building.
 (3) Reflects the tax effect of Adjustments.
 (4) Reflects asset impairment charges related to a closed plant.



STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
                      Six Months Ended 6/30/13
                      GAAP             Adjustments             Adjusted
Band sales            $         $              $       
                      66,985             -                66,985
Piano sales           102,171          -                       102,171
 Total sales         169,156          -                       169,156
Band gross profit     19,542           -                       19,542
Piano gross profit    37,098           -                       37,098
 Total gross profit  56,640           -                       56,640
Band GM %             29.2%                                    29.2%
Piano GM %           36.3%                                    36.3%
 Total GM %          33.5%                                    33.5%
Operating expenses    42,458           (500)               (1) 41,958
 Income from       14,182           500                     14,682
operations
Other (income)        (21,306)         22,725              (2) 1,419
expense, net
Interest expense, net 1,856            -                       1,856
 Income before     33,632           (22,225)                11,407
income taxes
Income tax provision  10,787           (6,521)             (3) 4,266
 Net income        $         $                $       
                      22,845          (15,704)                 7,141
Earnings per share -  $                                 $       
basic                   1.83                                  0.57
Earnings per share -  $                                 $       
diluted                 1.82                                  0.57
Weighted average      12,461                                   12,461
common shares - basic
Weighted average
common shares -       12,558                                   12,558
diluted
                      Six Months Ended 6/30/12
                      GAAP             Adjustments             Adjusted
Band sales            $         $              $       
                      69,150             -                69,150
Piano sales           94,507           -                       94,507
 Total sales         163,657          -                       163,657
Band gross profit     17,086           -                       17,086
Piano gross profit    33,426           -                       33,426
 Total gross profit  50,512           -                       50,512
Band GM %             24.7%                                    24.7%
Piano GM %            35.4%                                    35.4%
 Total GM %          30.9%                                    30.9%
Operating expenses    42,378           (166)               (4) 42,212
 Income from       8,134            166                     8,300
operations
Other (income)        1,631            -                       1,631
expense, net
Interest expense, net 1,792            -                       1,792
 Income before     4,711            166                     4,877
income taxes
Income tax provision  1,724            62                  (3) 1,786
 Net income        $         $              $       
                       2,987          104                    3,091
Earnings per share -  $                                 $       
basic                   0.24                                  0.25
Earnings per share -  $                                 $       
diluted                 0.24                                  0.25
Weighted average      12,373                                   12,373
common shares - basic
Weighted average
common shares -       12,508                                   12,508
diluted
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
 (1) Reflects impairment charges for online music business intangible assets.
 (2) Reflects net gain on sale of West 57th Street office building.
 (3) Reflects the tax effect of Adjustments.
 (4) Reflects asset impairment charges related to a closed plant.



STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
                                 Three Months Ended       Six Months Ended
                                 6/30/2013    6/30/2012   6/30/2013  6/30/2012
Cash flows from operating        $         $         $        $  
activities                       4,784       (1,932)    (5,087)   (9,652)
Changes in operating             (6,598)      7,089       8,892      18,188
assets and liabilities
Stock-based compensation         (92)         (100)       (188)      (211)
expense
Income tax provision, net        11,375       1,390       12,851     1,835
of deferreds
Net interest expense             939          942         1,856      1,792
Recovery of (provision           7            (227)       (239)      (915)
for) doubtful accounts
Other                            22,356       (99)        22,204     98
Non-recurring, infrequent        (22,725)     -           (22,725)   -
or unusual cash charges
Adjusted EBITDA                  $          $        $        $  
                                 10,046      7,063      17,564    11,135
Reconciliation from Net Income to Adjusted EBITDA
                                 Three Months Ended       Six Months Ended
                                 6/30/2013    6/30/2012   6/30/2013  6/30/2012
Net income                      $          $        $        $   
                                 20,155      2,397      22,845    2,987
Income tax provision             9,214        1,355       10,787     1,724
Net interest expense             939          942         1,856      1,792
Depreciation                     1,763        1,942       3,838      3,943
Amortization                     200          261         463        523
Non-recurring, infrequent        (22,225)     166         (22,225)   166
or unusual items
Adjusted EBITDA                  $          $        $        $  
                                 10,046      7,063      17,564    11,135



SOURCE Steinway Musical Instruments, Inc.

Website: http://www.steinwaymusical.com