Steinway Economic Report Positive

[Billbrpt@AOL.COM]

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Steinway Reports Third Quarter Results; Revenue up 9%; EPS $0.28

  
WALTHAM, Mass.--(BUSINESS WIRE)--Nov. 1, 2001--Steinway Musical Instruments, 
Inc. (NYSE: <A HREF="aol://4785:LVB">LVB</A>), one of the world's leading manufacturers of musical 
instruments, today announced results for the third quarter ended September 
29, 2001. Net sales totaled $82.9 million, an increase of 9% over the 
year-ago quarter. EBITDA increased 12%, to $12.1 million from $10.8 million. 
Pretax earnings increased 18%, to $4.3 million from $3.6 million in 2000. EPS 
was $0.28 compared to $0.31 in the prior year quarter. 

For the first nine months of 2001, sales totaled $268.1 million, an increase 
of 11% over 2000. EBITDA increased 7%, to $42.7 million from $40.0 million in 
the prior year. Earnings per share before extraordinary items for the 
nine-month period were $1.28 compared to $1.40 in 2000. 

Dana Messina, Chief Executive Officer, commented, "We are satisfied with the 
third quarter results, particularly in light of the economic conditions under 
which we operated. Our acquisition of United Musical Instruments has provided 
both the growth we anticipated and greater profit stability by expanding the 
less economically sensitive band segment of our business." 

"The piano business in the U.S. has been challenging," Mr. Messina said. "The 
September terrorist attacks accelerated the economic slowdown we already had 
been experiencing. This caused our domestic piano shipments to decrease from 
the prior year period. Domestic gross margins dropped as a result of planned 
reductions to our production schedule in the third quarter. However, demand 
for our pianos in overseas markets remained healthy. In addition, foreign 
gross margins improved as the sales mix shifted toward higher margin concert 
grands." 

Turning to band operations, Mr. Messina noted, "Band dealers continued with 
their "wait-and-see" approach during the third quarter, taking advantage of 
manufacturers with plenty of inventory. In addition, rather than purchase new 
product, this year retailers chose to recondition older instruments in their 
rental pools. Yet, dealers reported business as usual for fall student 
rentals, indicating that participation in school band remains healthy." 

Band Operations 

Sales of band and orchestral instruments reached $45.2 million for the third 
quarter, an increase of 31% over the prior year. With the addition of UMI, 
overall unit shipments increased 25%. The company gained market share in many 
professional brass instrument categories as it shifted its production mix 
toward these instruments. This shift toward higher margin instruments 
improved gross margins to 26.5% from 25.8% in the third quarter of 2000. 

Band instrument inventories decreased $3.2 million since midyear. 
Year-to-date, sales were up 31% over the prior period. Gross margins improved 
to 27.2% from 26.9%. 

Piano Operations 

Piano sales decreased 9% from the third quarter of 2000, to $37.7 million, on 
a unit shortfall of 12%. Soft demand in the mid-priced market continued to 
impact the Company's results. Worldwide, Boston unit shipments declined 22% 
over the year-ago quarter. In addition, domestic unit shipments of Steinway & 
Sons grand pianos decreased 18% as retail demand declined. A strengthening of 
demand for Steinway & Sons grand pianos in overseas markets resulted in a 17% 
rise in shipments during the quarter. However, the reduced production 
schedule at our New York factory negatively impacted overall piano gross 
margins, which dropped to 32.7% from 35.3% in the third quarter of 2000. 

On a year-to-date basis, piano sales were down 6%, to $121.2 million on unit 
decreases of 8%. Gross margins rose to 35.6% from 34.7% in the prior period 
as the mix of sales shifted toward higher margin Steinway models. 

Outlook 

Looking ahead to the balance of the year, Mr. Messina commented, "While our 
international business remained strong through September, we expect market 
conditions in the U.S. to remain difficult and to negatively affect consumer 
confidence in our overseas markets. Our current estimates are for the 
Company's worldwide piano sales to be off 15 - 20% in the fourth quarter." 

"In order to maintain appropriate inventory levels, we will be further 
reducing domestic piano production," Mr. Messina explained. "Output will be 
cut back primarily through periodic plant shutdowns at our New York factory 
so that we can maintain our loyal and highly trained workforce. As a result, 
overall piano inventory levels will decrease significantly by year-end. 
Although less efficient utilization of piano manufacturing capacity will 
reduce our gross margins in the fourth quarter, we believe this is the right 
approach for the long-term health of the Company." 

Messina continued, "The Company has been through many economic cycles in its 
nearly 150 years. We have a workforce and management team well prepared for 
this downturn. These cycles are never pleasant but Steinway has always 
emerged an even stronger competitor. 

I am confident that we will successfully manage our way through the current 
challenge." 

"We expect the band instrument business to be relatively unaffected by the 
economy and to remain even with the prior year's fourth quarter," Mr. Messina 
said. "The consistency of our band operations, which was enhanced with our 
UMI acquisition, will lessen the impact of the slowdown in the piano 
division. We anticipate EBITDA to remain equal to last year, with EPS between 
$1.50 and $1.65 for the full year." 

Conference Call 

Steinway will be discussing its third quarter results, along with its outlook 
for the remainder of 2001, on a conference call today, beginning at 5:30 p.m. 
ET. A webcast of the call will be available to all interested parties at 
www.steinwaymusical.com. Following the live webcast, an archived version will 
be available on the Company's web site. 


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