Steinway Provides Preliminary Information for 2005

Steinway Provides Preliminary Information for 2005

WALTHAM, Mass., Feb. 10 /PRNewswire-FirstCall/ -- Steinway Musical Instruments, Inc. (NYSE:LVB), one of the world's leading manufacturers of musical instruments, today announced certain information that management will be providing to investors in connection with the Company's proposed private placement of $175.0 million of new senior notes.

The offering of new senior notes has not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent a registration under the Securities Act of 1933, as amended, or an applicable exemption from such registration requirements.

The Company is in the process of closing its financial records for the year ended December 31, 2005. Based on preliminary unaudited financial information available at this time, Steinway expects to report net sales of approximately $387.1 million and Adjusted EBITDA of $49.1 million for the period. Although management believes these preliminary financial results are reasonable estimates based on current information, Steinway cannot guarantee that actual results will not differ materially from these estimates.

In December 2005, the Company purchased $8.2 million of its existing notes at 105%. As a result of this debt extinguishment and elimination of related deferred financing costs, Steinway recognized a loss of $0.5 million in December 2005.

In February 2006, the Company repaid one of its term loans which had a principal balance of $16.6 million at the time of repayment. As a result of the repayment, Steinway will recognize a loss of approximately $1.1 million for the quarter ending March 31, 2006 due to elimination of the related deferred financing costs.

The tables below set forth additional information which may be of interest to investors.

Revenue and Gross Profit Estimates for 2005

Total Revenue $387.1 million Total Gross Profit $111.5 million

Steinway Steinway
grand pianos 34% grand pianos 48%
Other Products & Other Products &
Services 19% Services 19%
Total Piano Revenue 53% Total Piano Gross Profit 67%
Total Band Revenue 47% Total Band Gross Profit 33%

Open Band Orders Outstanding at Period End (in millions)
Q1 Q2 Q3 Q4
2004 $30.7 $24.0 $18.5 $24.5
2005 $30.0 $30.6 $25.4 $38.9

Change in Recorded Band Orders at Period End (Year over Year)
Q1 Q2 Q3 Q4
2004 (28%) (14%) (5%) (8%)
2005 12% 8% 5% 10%

Band Division Margin (Year over Year)
Change in Adjusted margin (1), 2004 to 2005
Q1 Q2 Q3 Q4E
(3.8%) 0.5% 1.1% 3.1%

(1) Adjusted for non-recurring, infrequent or unusual charges. See Reconciliations of Band Division GAAP Gross Margins to Adjusted Gross Margins.

Order rates and preliminary sales and gross margins for the month of January were favorable for the Company's band division. Management is very optimistic that its band division's results for 2006 will show a substantial improvement over the prior year.

Sources/(Uses) of Cash, 2001 to 2005E (in millions)

Cash ($35.0)
Debt Paydown ($51.2)
Acquisition ($36.8)
Stock Issuance $8.5
Net Cap Ex ($25.5)
Other ($5.4)

Work-in-Process Inventory (1) (2) (Dollars in millions)
2002 2003 2004 2005E
Inventory $43.0 $37.3 $32.5 $27.7
% Change (13.3%) (12.9%) (14.8%)

(1) Band Division and Steinway NY Only
(2) For comparative purposes, excludes inventory resulting from the
Company's 2004 acquisition of Leblanc

Asset Base (Dollars in millions)
9/30/05 Market Value(1) Market Value(1)
Cash $21.0 100% $21.0
A/R 93.4 90% 84.1
Inventory 174.0 100% 174.0
Other 21.4 10% 2.1
Total Current Assets $309.8 $281.2

West 57th Street 26.0 Estimated Value 100.0
Steinway Factory - NY 3.4 Estimated Value 200.0
Other PP&E, Net 68.1 90% 61.3
Trademarks 13.3 Appraised Value 90.5
Other 48.4 10% 4.8
Total Assets $469.0 $737.8

(1) Adjustments based on management estimates

Reconciliations of Band Division GAAP Gross Margins to Adjusted Gross Margins (Dollars in Millions)

Sales GM GM% Adjustments Adjusted GM Adjusted GM%
Q1 2004 $44,344 $10,028 22.6% $1,412 (1) $11,440 25.8%
Q2 2004 38,755 8,911 23.0% 32 (1) 8,943 23.1%
Q3 2004 47,052 8,596 18.3% 932 (2) 9,528 20.2%
Q4 2004 41,195 6,032 14.6% 242 (2) 6,274 15.2%

Q1 2005 47,567 9,753 20.5% 703 (2) 10,456 22.0%
Q2 2005 43,368 9,659 22.3% 567 (2) 10,226 23.6%
Q3 2005 46,943 9,712 20.7% 274 (2) 9,986 21.3%
Q4 2005E 45,748 8,334 18.2% 29 (1) 8,363 18.3%

(1) Reflects employee severance costs associated with plant closures.
(2) Reflects charges relating to the step-up of acquired inventory.

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 data

Regulation G, "Conditions for Use of Non-GAAP (generally accepted accounting principles) Financial Measures," and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. We provide "Adjusted EBITDA," which is a non-GAAP financial measure, which we calculate as earnings before net interest expense, income taxes, depreciation and amortization, excluding non-recurring, infrequent or unusual charges. We believe that "Adjusted EBITDA" provides important supplemental information to investors.

In our calculation of Adjusted EBITDA, we eliminate the impact of items we do not consider indicative of our ongoing operations. For the reasons indicated herein, you are encouraged to evaluate each adjustment and whether you consider it appropriate. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the items that we have excluded in the presentation of Adjusted EBITDA as non-recurring, infrequent or unusual. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by non- recurring, infrequent or unusual items.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

> it does not reflect our cash used for capital expenditures or
contractual commitments;
> it does not reflect changes in, or cash requirements for, our working
capital requirements;
> it does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments on our
indebtedness;
> although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect cash requirements for such
replacements;
> Adjusted EBITDA does not reflect the impact of, or charges resulting
from, matters we consider not to be indicative of our ongoing operations
because we feel they are non-recurring, infrequent or unusual; and
> other companies, including other companies in our industry, may
calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.

We believe that, in addition to cash flow from operations and net income, Adjusted EBITDA is a useful financial measure for assessing operating performance and liquidity, as it provides investors with an additional basis to evaluate our performance and our ability to incur and service debt and to fund capital expenditures. Our management also uses Adjusted EBITDA as a measure of performance for our operating segments. However, Adjusted EBITDA is not a recognized measurement under GAAP, and Adjusted EBITDA should not be construed as an alternative to net income, as determined in accordance with GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating, investing and financing activities, all as determined in accordance with GAAP, as a measure of liquidity or our ability to meet cash needs and service debt. For information about our financial results as reported in accordance with GAAP, see the Company's filings with the Securities and Exchange Commission ("SEC").

"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; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new band instrument product and distribution strategies; ability of suppliers to meet demand; 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 SEC.

Contact:
Julie A. Theriault
Telephone: 781-894-9770
E-mail: ir@steinwaymusical.com

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Source: Steinway Musical Instruments, Inc.

CONTACT: Julie A. Theriault of Steinway, +1-781-894-9770,
ir@steinwaymusical.com

Web site: http://www.steinwaymusical.com/

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