Steinway Musical Instruments Inc. Ordina Reports Operating Results (10-Q)
Steinway Musical Instrum. through its Steinway and Selmer subsidiaries is one of the world\'s leading manufacturers of musical instruments. Steinway produces high quality pianos and has one of the most widely recognized and prestigious brand names. Selmer is one of the leading domestic manufacturers of band and orchestral instruments and related accessories including a complete line of brasswind woodwind percussion and stringed instruments. Steinway Musical Instruments Inc. Ordina has a market cap of $93.8 million; its shares were traded at around $10.98 with a P/E ratio of 8.7 and P/S ratio of 0.2. Steinway Musical Instruments Inc. Ordina had an annual average earning growth of 1.3% over the past 5 years. Highlight of Business Operations: Domestically, $1.0 million in incremental online music sales helped offset lower piano division revenues, which dropped $7.5 million. Domestic Steinway grand unit shipments decreased 46% while overall unit shipments decreased 27%, as our mid-priced piano lines fared better during the period. Both domestic wholesale and retail sales deteriorated, although the retail sales decline was mitigated by an improvement in institutional sales. Overseas, piano division revenues decreased $7.6 million, of which $2.5 million is attributable to foreign currency translation. Overseas Steinway grand unit shipments decreased 29%, while mid-priced piano line shipments decreased only 4%, due to improved availability of various Essex models as well as institutional sales.
The band divisions gross margin fell from 21.8% to 21.0% during the period. Pension costs increased $0.9 million but were partially offset by the absence of severance costs associated with our facility rationalization project, which were $0.6 million in the year-ago period. Production was lower, resulting in unabsorbed overhead, but this was mitigated by a shift in mix to higher margin brass instruments.
Operating Expenses - Operating expenses decreased $4.8 million, or 22%, due to several factors. Sales and marketing expenses decreased $2.1 million due to lower salaries, commissions, and bonuses, as well as decreased spending for trade shows and advertising. General and administrative costs were lowered $1.6 million through reductions in headcount, wages, benefits, and outside services. Lastly, there were no fixed asset impairment charges associated with our facility rationalization project, whereas these charges totaled $1.1 million a year ago.
Non-operating Expenses On a net basis, non-operating expenses were consistent with the prior period. Higher net interest expense, which resulted from lower interest income on band division financed receivables, was partially offset by an increase in income from our West 57th Street property of $0.2 million. The increase in foreign exchange losses of $0.2 million was offset by gains on our Supplemental Executive Retirement Plan (SERP) assets.
Income Taxes Due to the current period loss, we recorded an income tax benefit of $0.2 million, reflecting our anticipated rate of 22% associated with current year income, which is discussed further below. Offsetting this are expenses of $0.1 million relating primarily to assessments from taxing authorities and uncertain tax positions. The combination of these items resulted in an effective tax rate of 18% for the period.
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