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Company Profile of Steinway & Sons

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Company Profile of Steinway & Sons
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Pratik Kukreja
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Company Profile of Steinway & Sons - May 13th, 2011

Steinway & Sons, also known as Steinway (i /ˈstaɪnweɪ/), is an American and German manufacturer of handmade pianos, founded in 1853 in New York City, by German immigrant Heinrich Engelhard Steinweg (later Henry E. Steinway). The company's growth led to the opening of a factory and employee village in what is now Astoria, Queens in New York City, followed by a second factory in Hamburg, Germany, in 1880. Its early success has been credited both to the quality of its instruments and its effective marketing, including the company's introduction of Steinway Halls (in German: Steinway-Huser).
Heinrich Engelhard Steinweg's dedication was: "To build the best piano possible". He established at his company three basic principles: "Build to a standard, not a price", "Make no compromise in quality", and "Strive always to improve the instrument". Research and inventions by the company have earned it so far around 130 patents, a greater number than any other piano company.
After merging with the Selmer Company in 1995, Steinway's current affiliates include the Boston and Essex lines of pianos. The Selmer Company, today named Conn-Selmer, is a subsidiary of Steinway.
Steinway holds 12 Royal Warrants, including one from HM Queen Elizabeth II of the United Kingdom.

With a particular concentration on the production of concert grand pianos, Steinway Musical Properties, Inc. draws on a heritage of over 145 years in the painstaking business of piano manufacturing. Known for more than a century as Steinway & Sons, the company was founded by a family of German immigrants in the mid-19th century. Its innovations were key to the development of the modern acoustic piano, bringing the founding family prestige and prosperity. Factories in New York City and Hamburg, Germany, continue to create pianos in a highly labor-intensive process that remains largely unchanged since the early 20th century.
However, along with the rest of America's piano makers, Steinway endured a long, relentless, and painful decline in demand from the 1920s to the present. In 1963, the largely family-owned business was acquired by Columbia Broadcasting System, Inc. (now CBS, Inc.). Steinway traded hands again in 1985, when it was sold to a private group of investors. A third change in ownership came in 1996, when the venerable piano maker was sold to a Los Angeles investment group: The Selmer Company, Inc. operated Steinway as an independent interest with over $100 million in sales.

Steinway Musical Instruments, Inc., incorporated in 1993, through its wholly owned subsidiaries, is engaged in the design, manufacture, marketing and distribution of musical instruments. The Company operates in two segments: pianos, and band & orchestral instruments. The Company, through its piano (Steinway) and band (Conn-Selmer) divisions, manufactures and distributes products within the musical instrument industry. Steinway produces the piano. Conn-Selmer is a domestic manufacturer of band and orchestral instruments and related accessories, including a range of brass, woodwind, percussion and string instruments. Its offerings include Selmer Paris saxophones, Bach Stradivarius trumpets, C.G. Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums. In February 2009, the Company acquired a retail store in Dusseldorf, Germany.
Piano Segment
The family of Steinway-Designed Pianos consists of its three brands: Steinway & Sons, Boston and Essex. The Company also offers Steinway & Sons upright pianos, as well as two mid-priced lines of pianos under the Boston and Essex brand names. It offers two product lines under the Steinway & Sons brand: grand pianos and upright pianos. The Company offers seven sizes of the grand piano. The smaller grands are sold to both individual and institutional customers, while the concert grands are sold primarily to institutions. Steinway & Sons also offers art case pianos designed by either Steinway master craftsmen or renowned artisans. During the year ended December 31, 2009, the Company sold 1,752 grand pianos, of which 916 units were shipped from its New York facility to dealers in the Americas. The remaining 836 units were shipped from its German facility primarily to Europe and Asia.
Band Segment
The Company is a producer of band and orchestral instruments. It offers a range of brass, woodwind, percussion and string instruments. In 2009, sales of sourced products accounted for approximately 38% of its band division revenue. It also imports other products, such as saxophones, outfit drums and accessories. The Company manufactures piccolos, flutes, clarinets, oboes, bassoons, trumpets, French horns, tubas, and trombones in its manufacturing facilities in Indiana and Ohio. In addition, it also manufactures intermediate and professional level woodwind and brass instruments. Sales of woodwind and brass instruments accounted for 64% of its band division revenue in 2009.
The Company sells its woodwind and brass products under the brand names Bach, Selmer, Selmer Paris, C.G. Conn, Leblanc, King, Armstrong, Holton, Yanagisawa, Vito, Emerson, Avanti, Noblet, Artley and Benge. The Company is the United States distributor for Yanagisawa saxophones and Selmer Paris saxophones, clarinets and trumpets. The Company manufactures, sources and distributes acoustical and tuned percussion instruments, including outfit drums, marching drums, concert drums, marimbas, xylophones, vibraphones, orchestra bells and chimes. It manufactures percussion products in North Carolina and Illinois under the Ludwig and Musser brand names.
The Company distributes violins, violas, cellos and basses. Products are sold under the brand names Glaesel, Scherl & Roth, and William Lewis & Son. The Company manufactures mouthpieces and distributes accessories, such as music stands, batons, mallets, straps, mutes, reeds, pads, chin rests, strings, bows, cases and instrument care products. Sales of accessories accounted for 19% of its band division revenue in 2009.
The Company competes with Bosendorfer, Fazioli, Bechstein, Schimmel, Kawai and Yamaha.

The new leader quickly recognized Steinway's immediate problems--a lack of skilled labor and an aging physical plant--and set out to rectify them. He sold off Steinway Hall and other parcels of real estate in order to raise funds for production, which he consolidated at a single plant. The new leader made considerable headway during his tenure, chalking up production increases of over ten percent in 1959 and 1960 and increasing Steinway & Sons' share of grand piano sales to 28 percent by 1963.
However, the 1960s brought new threats to the piano industry overall and Steinway in particular. Foremost among these was the penetration of imports into the domestic market. Led by Japan's Yamaha, imports of grand pianos grew from nil in 1960 to nearly 50 percent in 1969. Furthermore, the industry faced a continued population decline, which eroded its chief market, school age children. Budget cuts at schools and rising interest rates only exacerbated the problem.
Henry Z. sold the family firm via an exchange of shares to CBS, Inc. in 1972. Although the stock was never listed, it had started trading in the 1920s. Outside investors as well as some family factions had been clamoring for a sale for some time, and the company had in fact entertained more than 24 offers between 1955 and 1968. At the time, the broadcast television company seemed a logical parent for the piano maker. CBS CEO William Paley had already acquired several musical instrument companies and appeared dedicated to their care, but corporate ownership brought its own ills: bureaucracy, repeated reorganizations, and high management turnover. Moreover, Steinway was merely a tiny fraction of its overall operations. After Henry Z. was "promoted" to chairman--an empty title, in this case--in 1977, the company operated under three more presidents in less than a decade. Production declined from over 5,400 in 1976 to less than 4,400 by 1982.
A Second Corporate Parent Adopts Steinway in Mid-1980s
In 1985, CBS sold Steinway to a Boston investment group that included brothers Robert and John Birmingham. The new owners approached the enterprise as strictly a manufacturing business, sometimes even slandering the storied past upon which Steinway's reputation was based. This new attitude raised fears, sometimes well founded, that the venerable piano and its quality would be corrupted. Writing for the New Republic in 1989, Edward Rothstein called their strategy "a philosophy entirely alien to a century of piano invention and craft," but in fact, with the support of a new marketing program, Steinway sold more grand pianos in North America from 1986 to 1991 than it had in the previous fifty years. In the early 1990s, the company supplemented its revenues with a reconditioning division. By this time, the number of Steinways that were rebuilt nationwide far surpassed the number of new Steinways produced.
An early 1990s recession diminished sales from $98.8 million in 1991 to $89.2 million in 1992, and the company suffered back-to-back losses totaling over $13 million in 1992 and 1993. Revenues increased over $100 million in 1994, when the pianomaker earned a $3.1 million profit.
Steinway Joins Selmer Musical Family in 1995
In 1995, an investment group owned by Kyle Kirkland and Dana Messina commenced acquisition of Steinway Musical Properties for over $100 million and merged it with The Selmer Company, Inc., a manufacturer of wind and percussion instruments that they had acquired two years earlier. In 1996, they sold 16 percent of the new holding company, Steinway Musical Instruments, Inc. to the public. They planned to use the estimated $60 million proceeds for debt reduction and capacity increases. Although the two subsidiaries were very similar in that they employed highly labor-intensive production methods and operated in a mature market, they were operated as distinct entities. The new owners hoped to increase Steinway's domestic market share via institutional sales, boost overseas sales via the German subsidiary, and improve manufacturing efficiency.
With combined total sales of over $230 million, Steinway and Selmer constituted the musical instrument industry's largest company.

Beta: 1.47
Market Cap (Mil.): $297.41
Shares Outstanding (Mil.): 12.10
Annual Dividend: --
Yield (%): --
LVB Industry Sector
P/E (TTM): 36.31 17.25 21.07
EPS (TTM): 20.75 -- --
ROI: 1.89 4.04 1.78
ROE: 3.72 4.53 2.74

Wholly Owned Subsidiary of Steinway Musical Instruments, Inc.
Founded: 1853 as Steinway & Sons
Employees: 1,000
Sales: $189.8 million (1995)
SICs: 3931 Musical Instruments

Name Age Since Current Position
Kyle Kirkland 48 1996 Chairman of the Board
Dana Messina 49 1996 Chief Executive Officer and Director
Dennis Hanson 56 Chief Financial Officer, Senior Executive Vice President, General Counsel, Assistant Secretary
Thomas Kurrer 62 2008 President of Steinway & Sons Worldwide; Director
John Stoner 58 2002 President of Conn-Selmer, Inc.; Director
Ronald Losby 56 2008 President of Steinway & Sons Americas
David Lockwood 51 2008 Director
Jong Kim 63 2009 Director
Michael Sweeney 53 2011 Independent Director
Edward Kim 70 2011 Independent Director
Don Kwon 37 2011 Independent Director

800 South Street
Waltham, Massachusetts 02154-1439

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