UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-11911

STEINWAY MUSICAL INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		35-1910745
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

800 South Street, Suite 305
Waltham, Massachusetts		02453
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number including area code: (781) 894-9770

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements during the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of Common Stock issued and outstanding as of May 2, 2013: 12,458,614

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PART I FINANCIAL STATEMENTS

ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In Thousands Except Share and Per Share Amounts)

	Three Months Ended March 31,
	2013			2012
Net sales	$	76,803		$	77,953
Cost of sales	51,453			54,806

Gross profit	25,350			23,147

Operating expenses:
Sales and marketing	11,280			11,985
General and administrative	8,470			8,961
Other operating expenses	19			38
Total operating expenses	19,769			20,984

Income from operations	5,581			2,163

Other expense, net	401			354
Interest income	(282		)	(358		)
Interest expense	1,199			1,208
Total non-operating expenses	1,318			1,204

Income before income taxes	4,263			959

Income tax provision	1,573			369

Net income	$	2,690		$	590

Earnings per share:
Basic	$	0.22		$	0.05
Diluted	$	0.21		$	0.05

Weighted average shares:
Basic	12,458,614			12,367,914
Diluted	12,539,872			12,505,869

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(In Thousands)

	March 31,			December 31,
	2013			2012
Assets
Current assets:
Cash	$	61,724		$	73,406
Accounts, notes, and other receivables, net of allowances of $8,342 and $7,972 in 2013 and 2012, respectively	40,282			43,536
Inventories	130,434			125,081
Prepaid expenses and other current assets	35,634			9,079
Deferred tax assets	5,046			5,230
Total current assets	$	273,120		$	256,332

Property, plant and equipment, net of accumulated depreciation of $106,731 and $117,558 in 2013 and 2012, respectively	67,225			91,485
Trademarks	13,299			13,420
Goodwill	22,532			22,916
Other intangibles, net	1,076			1,328
Other assets	15,361			15,801
Long-term deferred tax assets	24,245			24,385

Total assets	$	416,858		$	425,667

Liabilities and stockholders’ equity
Current liabilities:
Debt	$	67,978		$	576
Accounts payable	11,856			12,867
Other current liabilities	35,605			40,175
Total current liabilities	115,439			53,618

Long-term debt	—			67,431
Deferred tax liabilities	470			560
Pension and other postretirement benefit liabilities	53,157			54,501
Other non-current liabilities	5,725			7,712
Total liabilities	174,791			183,822

Commitments and contingent liabilities

Stockholders’ equity:
Common stock	14			14
Additional paid-in capital	162,675			162,579
Retained earnings	151,624			148,934
Accumulated other comprehensive loss	(28,173		)	(25,609		)
Treasury stock, at cost	(44,073		)	(44,073		)
Total stockholders’ equity	242,067			241,845

Total liabilities and stockholders’ equity	$	416,858		$	425,667

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In Thousands)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	2,690		$	590
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	2,338			2,263
Stock-based compensation expense	96			111
Excess tax benefit from stock-based awards	—			(16		)
Tax benefit from stock option exercises	—			18
Deferred tax expense (benefit)	97			(76		)
Provision for doubtful accounts	246			688
Other	152			(199		)
Changes in operating assets and liabilities:
Accounts, notes and other receivables	2,578			(78		)
Inventories	(7,414		)	(6,204		)
Prepaid expenses and other assets	(3,317		)	(1,292		)
Accounts payable	(950		)	1,233
Other liabilities	(6,387		)	(4,758		)
Cash flows from operating activities	(9,871		)	(7,720		)

Cash flows from investing activities:
Capital expenditures	(987		)	(1,906		)
Other	29			46
Cash flows from investing activities	(958		)	(1,860		)

Cash flows from financing activities:
Borrowings under lines of credit	—			3,000
Repayments under lines of credit	—			—
Proceeds from issuance of common stock	—			102
Excess tax benefit from stock-based awards	—			16
Cash flows from financing activities	—			3,118
Effect of foreign exchange rate changes on cash	(853		)	242
Decrease in cash	(11,682		)	(6,220		)
Cash, beginning of period	73,406			49,888
Cash, end of period	$	61,724		$	43,668

Supplemental Cash Flow Information:
Interest paid	$	2,378		$	2,364
Income taxes paid	$	2,514		$	2,988

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Unaudited

(In Thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
Balance, January 1, 2013	$	14	$	162,579	$	148,934	$	(25,609	)	$	(44,073	)	$	241,845
Comprehensive income					2,690		(2,564		)				126
Stock-based compensation			96										96
Balance, March 31, 2013	$	14	$	162,675	$	151,624	$	(28,173	)	$	(44,073	)	$	242,067

See notes to condensed consolidated financial statements.

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STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

MARCH 31, 2013

Unaudited

(Tabular Amounts In Thousands Except Share, Per Share, Option, and Per Option Data)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements of Steinway Musical Instruments, Inc. and subsidiaries (the “Company”) for the three months ended March 31, 2013 and 2012 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2012, and include all adjustments which are of a normal and recurring nature, necessary for the fair presentation of financial position, results of operations and cash flows for the interim periods. We encourage you to read the condensed consolidated financial statements in conjunction with the risk factors, consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Throughout this report “we,” “us,” and “our” refer to Steinway Musical Instruments, Inc. and subsidiaries taken as a whole.

(2) Summary of Significant Accounting Policies

Our significant accounting policies were described in Note 2 to our audited Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for the fiscal year ended December 31, 2012. There have been no significant changes in our accounting policies during 2013.

Recent Accounting Pronouncements — We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

The changes, net of income tax, in our other comprehensive income (loss) for the three months ended March 31, 2013 consist of the following:

				Foreign
	Pension and Other			Currency
	Postretirement			Translation
	Benefit Plans			Adjustments			Total
Balance, January 1, 2013 (net of tax of $18,998)	$	(30,385	)	$	4,776		$	(25,609	)
Other comprehensive income (loss) before reclassifications	—			(3,047		)	(3,047		)
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service credit (net of tax of $10)	(12		)	—			(12		)
Amortization of actuarial losses (net of tax of $267)	495			—			495
Net current period other comprehensive income (loss)	483			(3,047		)	(2,564		)
Balance, March 31, 2013 (net of tax of $18,741)	$	(29,902	)	$	1,729		$	(28,173	)

Amounts reclassified from accumulated other comprehensive income (loss) associated with pensions are included in the computation of net periodic pension costs discussed in Note 13. Amounts related to our Postretirement Benefit Plan are not material to the condensed consolidated financial statements.

(3) Earnings per Common Share

We compute earnings per share using the weighted-average number of common shares outstanding during each period. Diluted earnings per common share reflects the dilutive impact of shares subscribed under the Employee Stock Purchase Plan (“Purchase Plan”) and effect of our outstanding options and restricted stock using the treasury stock method, except when such items would be antidilutive.

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The following table presents the calculation of basic and diluted earnings per share:

	Three Months Ended March 31,
	2013		2012
Numerator:
Net income:	$	2,690	$	590

Denominator:
Weighted-average common shares outstanding - basic	12,458,614		12,367,914
Dilutive effect of stock-based compensation plans	81,258		137,955
Weighted-average common shares outstanding - diluted	12,539,872		12,505,869

Net income per share - basic	$	0.22	$	0.05
Net income per share - diluted	$	0.21	$	0.05

We did not include 427,800 or 372,000 of the outstanding options to purchase shares of common stock in the computation of diluted earnings per share for the three months ended March 31, 2013 and 2012, respectively, because generally their exercise prices were more than the average market price of our common shares, and therefore antidilutive.

(4) Inventories

	March 31,		December 31,
	2013		2012
Raw materials	$	18,053	$	18,582
Work-in-process	36,274		34,923
Finished goods	76,107		71,576
Total inventory	$	130,434	$	125,081

(5) Prepaid Expenses and Other Current Assets

On March 25, 2013 we entered into an agreement to sell our building on West 57th Street in New York City for $46.0 million, subject to a potential increase based on post-closing conditions. We have reclassified the building and its related assets, which consist primarily of prepaid real estate taxes and other expenses, as current since we expect the transaction to close during the second quarter of 2013. The building had a net book value of $22.8 million as of March 31, 2013. The building and related assets are reported as part of our piano segment. Our Prepaid Expenses and Other Current Assets consist of the following:

	March 31, 2013		December 31, 2012
Assets held for sale	$	27,152	$	47
Foreign currency contracts	708		315
Prepaid assets	7,774		8,717
Total	$	35,634	$	9,079

(6) Goodwill, Trademarks, and Other Intangible Assets

Intangible assets other than goodwill and indefinite-lived trademarks are amortized on a straight-line basis over their estimated useful lives. Deferred financing costs are amortized over the repayment periods of the underlying debt. Goodwill and indefinite-lived trademarks are not amortized but are subject to impairment testing. We conduct our annual impairment test on July 31st each year, and also when events and circumstances indicate that the fair value of any of our reporting units may be below the unit’s carrying value. We consider our band division, piano division, and our online music business to be separate reporting units.

Our annual impairment testing date of July 31st was selected to coincide with the timing of our fall budgeting and planning process, which provides multi-year cash flows that are used to conduct our annual impairment testing. No other events or circumstances occurred subsequent to our 2012 annual impairment test which would have indicated that our assets may be impaired.

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The changes in carrying amounts of goodwill and trademarks are as follows:

	Piano			Band		Total
Goodwill:
Balance, January 1, 2013	$	22,916		$	—	$	22,916
Foreign currency translation impact	(384		)	—		(384		)
Balance, March 31, 2013	$	22,532		$	—	$	22,532

Trademarks:
Balance, January 1, 2013	$	8,846		$	4,574	$	13,420
Foreign currency translation impact	(121		)	—		(121		)
Balance, March 31, 2013	$	8,725		$	4,574	$	13,299

Our cumulative impairment losses are $8.8 million associated with band division goodwill, $1.3 million related to band division trademarks, $2.7 million attributable to online music business goodwill, and $1.2 million associated with online music business trademarks.

We also carry certain intangible assets that are amortized. Once fully amortized, these assets are removed from both the gross and accumulated amortization balances. These assets consist of the following:

	March 31, 2013			December 31, 2012
Gross deferred financing costs	$	3,932		$	3,932
Accumulated amortization	(3,231		)	(3,130		)
Deferred financing costs, net	$	701		$	802

Gross non-compete agreements	$	250		$	250
Accumulated amortization	(244		)	(231		)
Non-compete agreements, net	$	6		$	19

Gross customer relationships	$	854		$	843
Accumulated amortization	(546		)	(506		)
Customer relationships, net	$	308		$	337

Gross website and developed technology	$	2,176		$	2,176
Accumulated amortization	(2,115		)	(2,006		)
Website and developed technology, net	$	61		$	170

Total gross other intangibles	$	7,212		$	7,201
Accumulated amortization	(6,136		)	(5,873		)
Total other intangibles, net	$	1,076		$	1,328

The weighted-average amortization period for deferred financing costs is six years, and the weighted-average amortization period for all other amortizable intangibles is approximately five years. The remaining weighted-average amortization period for deferred financing costs is approximately two years and the remaining weighted-average amortization period for all other amortizable intangibles is approximately one year. Total amortization expense, which includes amortization of deferred financing costs, is as follows:

	Three Months Ended March 31,
	2013		2012
Amortization expense	$	263	$	262

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The following table shows the total estimated amortization expense for the remainder of 2013 and beyond:

Remainder of 2013	$	446
2014	323
2015	239
2016	51
2017	13
Thereafter	4
Total	$	1,076

(7) Other Current Liabilities

Our other current liabilities consist of the following:

	March 31, 2013		December 31, 2012
Accrued payroll and related benefits	$	13,569	$	15,748
Current portion of pension and other postretirement benefit liabilities	1,352		1,389
Accrued warranty expense	1,414		1,327
Accrued interest	382		1,563
Deferred income	10,016		10,834
Income and other taxes payable	357		202
Liabilities related to assets held for sale	2,245		—
Other accrued expenses	6,270		9,112
Total	$	35,605	$	40,175

Liabilities related to assets held for sale consist primarily of deferred rent credits associated with our West 57th Street land lease and tenant security deposits. These liabilities are considered part of the disposal group and will be removed from the balance sheet when we complete the sale of the building during the second quarter of 2013.

Accrued warranty expense is recorded at the time of sale for instruments that have a warranty period ranging from one to ten years. The accrued expense recorded is generally calculated on a ratio of warranty costs to sales based on our warranty history and is adjusted periodically following an analysis of actual warranty claims. The accrued warranty expense activity for the three months ended March 31, 2013 and 2012, and the year ended December 31, 2012 is as follows:

	March 31, 2013			March 31, 2012			December 31, 2012
Beginning balance	$	1,327		$	1,242		$	1,242
Additions	282			321			1,099
Claims and reversals	(170		)	(177		)	(1,031		)
Foreign currency translation impact	(25		)	22			17
Ending balance	$	1,414		$	1,408		$	1,327

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(8) Debt

Our outstanding debt consists of the following:

	March 31, 2013			December 31, 2012
7.00% Senior Notes	$	67,506		$	67,506
Unamortized bond discount	(59		)	(75		)
Domestic line of credit	—			—
Overseas lines of credit	531			576
Total	67,978			68,007
Less: current portion	67,978			576
Long-term debt	$	—		$	67,431

Scheduled repayments of outstanding debt as of March 31, 2013 are as follows:

Remainder of 2013	$	531
2014	67,506
Total	$	68,037

(9) Fair Values of Financial Instruments

Our financial instruments, which are recorded at fair value, consist primarily of foreign currency contracts and marketable equity securities. We assess the inputs used to measure fair value using the following three-tier hierarchy, which indicates the extent to which inputs used are observable in the market.

Level 1 Valuation is based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 Valuation is based upon quoted prices for identical or similar instruments such as interest rates, foreign currency exchange rates, commodity rates and yield curves, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We value our foreign currency contracts using internal and third-party models with observable inputs, including currency forward and spot prices, volatility factors, and net present value factors. Estimated fair value has been determined as the difference between the current forward or option rate and the contract rate, multiplied by the notional amount of the contract, or upon the estimated fair value of purchased option contracts.

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 and the fair value hierarchy of the valuation techniques we utilized. We classify these assets and liabilities as either short term or long term based on maturity or anticipated realization dates.

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	March 31, 2013		December 31, 2012
Financial assets:
Trading securities - Level 1	$	2,277	$	1,952
Foreign currency contracts - Level 2	1,323		779
	$	3,600	$	2,731

Financial liabilities:
Foreign currency contracts - Level 2	$	6	$	122

Our trading securities pertain to the Supplemental Executive Retirement Plan (“SERP”) and are held in a Rabbi Trust. We record a corresponding liability for the same amount in our financial statements, which represents our obligation to SERP participants. Our foreign currency contracts pertain to obligations or potential obligations to purchase or sell euros, pounds, U.S. dollars, and yen under various forward and option contracts.

We base the estimated fair value of our debt on institutional quotes currently available to us. The cost-based net carrying value and estimated fair value are as follows:

	March 31, 2013				December 31, 2012
	Net Carrying Value		Estimated Fair Value		Net Carrying Value		Estimated Fair Value
Financial liabilities:
Debt	$	67,978	$	69,137	$	68,007	$	68,631

The carrying values of accounts, notes and other receivables, and accounts payable approximate fair value. Certain assets, including long-lived assets held and used, trademarks associated with our online music business, and assets held for sale, with the exception of our building on West 57th Street in New York City, are measured at fair value on a non-recurring basis. There were no fair value measurement losses recognized for such assets in the first quarter of 2013.

(10) Stockholders’ Equity and Stock-based Compensation Arrangements

We have a Stockholder Rights Plan, an Employee Stock Purchase Plan, and Stock Plans, all of which are discussed fully in our Annual Report on Form 10-K for the period ended December 31, 2012.

The compensation cost and the income tax benefit recognized for these plans are as follows:

	Three Months Ended March 31,
	2013		2012
Compensation cost included in:
Basic income per share	$	0.01	$	0.01
Diluted income per share	$	0.01	$	0.01
Stock-based compensation expense	96		111
Income tax benefit	21		26

We measure the fair value of options on their grant date, including the valuation of the option feature implicit in our Purchase Plan, using the Black-Scholes option-pricing model. The risk-free interest rate is based on the weighted-average of U.S. Treasury rates over the expected life of the stock option or the contractual life of the option feature in the Purchase Plan.

The expected life of a stock option is based on historical data of similar option holders. We have segregated our employees into two groups based on historical exercise and termination behavior. The expected life of the option feature in the Purchase Plan is the same as its contractual life. Expected volatility is based on historical volatility of our stock over the expected life of the option, as our options are not readily tradable.

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There were no options granted during the three months ended March 31, 2013 or 2012. The following table sets forth information regarding the Stock Plans:

	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	641,050	$	22.12
Outstanding, March 31, 2013	641,050	$	22.12	4.8	$	2,799

Exercisable, March 31, 2013	589,050	$	22.76	4.7	$	2,291

There was no option activity during the three month period ended March 31, 2013. The total intrinsic value of the options exercised during the three month period ended March 31, 2012 was $0.1 million. As of March 31, 2013, there was $0.2 million of unrecognized compensation cost related to nonvested share-based compensation arrangements. This compensation is expected to be recognized over a weighted-average period of approximately one year. Cash received from option exercises under the Stock Plans for the three month period ended March 31, 2012 was $0.1 million.

The following tables set forth information regarding the Purchase Plan:

	Three Months Ended March 31,
	2013	2012
Risk-free interest rate	0.2%	0.2%
Weighted-average expected life of option feature (in years)	1.0	1.0
Expected volatility of underlying stock	28.7%	28.6%
Expected dividends	n/a	n/a
Weighted-average fair value of option feature	$5.98	$7.19

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	12,641		$	20.56
Shares subscribed	7,389		20.56
Exercised	—		—
Forfeited	(664	)	20.56
Outstanding, March 31, 2013	19,366		$	20.56	0.3	$	65

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(11) Other Expense, Net

	Three Months Ended March 31,
	2013			2012
West 57th Street building income	$	(456	)	$	(555	)
West 57th Street building expense	1,850			1,805
Foreign exchange gain, net	(716		)	(619		)
Miscellaneous, net	(277		)	(277		)
Other expense, net	$	401		$	354

Our building on West 57th Street in New York City is managed by an outside company. West 57th Street building income includes all rent and other income attributable to the property; West 57th Street building expense includes the land lease, real estate taxes, depreciation, and other building costs. Since we utilize a portion of the leasable space for our own retail store, we have allocated a ratable portion of the building expenses to sales and marketing expenses.

(12) Commitments and Contingent Liabilities

We are involved in certain legal proceedings regarding environmental matters, which were previously disclosed in our 2012 Annual Report on Form 10-K. Further, in the ordinary course of business, we are party to various legal actions that we believe are routine in nature and incidental to the operation of our business. While the outcome of such actions cannot be predicted with certainty, we believe that, based on our experience in dealing with these matters, their ultimate resolution will not have a material adverse impact on our business, financial condition, results of operations or prospects.

Certain environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances, which liability is broadly construed. Under CERCLA and other laws, we may have liability for investigation and cleanup costs and other damages relating to our current or former properties, or third-party sites to which we sent wastes for disposal. Our potential liability at any of these sites is affected by many factors including, but not limited to, the method of remediation, our portion of the hazardous substances at the site relative to that of other parties, the number of responsible parties, the financial capabilities of other parties, and contractual rights and obligations.

Based on our past experience and currently available information, these matters and our other liabilities and compliance costs arising under environmental laws are not expected to have a material impact on our capital expenditures, earnings or financial position in an individual year. However, some risk of environmental liability is inherent in the nature of our current and former businesses and we may, in the future, incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws.

(13) Retirement Plans

We have defined benefit pension plans covering many of our employees, including certain employees in Germany and the U.K. The components of net periodic pension cost for these plans are as follows:

	Domestic Plan						Foreign Plans
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013			2012
Service cost	$	12		$	4		$	142		$	113
Interest cost	770			850			374			405
Expected return on plan assets	(1,138		)	(1,046		)	(144		)	(118		)
Amortization of prior service credit	—			—			(13		)	(13		)
Amortization of net loss	365			313			136			12
Net periodic pension cost	$	9		$	121		$	495		$	399

Based on our domestic plan’s current funded status, we anticipate making contributions of $2.3 million to our domestic plan in 2013 as required by federal laws and regulations. As of March 31, 2013, we have contributed $0.2 million to this plan. Our anticipated contributions to the pension plan of our U.K. subsidiary approximate $0.7 million for the current year.

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As of March 31, 2013, we have made contributions of $0.2 million to this plan. The pension plans of our German entities hold insurance contracts which relate to a single participant. These entities use operating cash to pay participant benefits as they become due. Expected 2013 benefit payments under these plans are $1.3 million, of which $0.3 million was paid through March 31, 2013.

We provide postretirement life insurance benefits to a limited number of certain eligible hourly retirees and their dependents. The activity in this plan is not material to the condensed consolidated financial statements.

(14) Segment Information

We have identified two reportable segments: the piano segment and the band & orchestral instrument segment. We consider these two segments reportable as they are managed separately and the operating results of each segment are separately reviewed and evaluated by our senior management on a regular basis. We have included the results of our online music division within the “U.S. Piano Segment” as we believe its results are not material and its products and customer base are most correlated with piano operations. Management and the chief operating decision maker use income from operations as a meaningful measurement of profit or loss for the segments. Income from operations for the reportable segments includes certain corporate costs allocated to the segments based primarily on revenue, as well as intercompany profit. Amounts reported as “Other & Elim” contain corporate costs that were not allocated to the reportable segments, and the remaining intercompany profit elimination.

The following tables present information about our operating segments for the three months ended March 31, 2013 and 2012:

	Piano Segment								Band Segment						Other &			Consol
Three Months Ended 2013	U.S.		Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	24,255	$	10,579	$	10,580	$	45,414	$	30,543	$	846	$	31,389	$	—		$	76,803
Income (loss) from operations	1,423		621		1,310		3,354		3,093		83		3,176		(949		)	5,581

	Piano Segment									Band Segment						Other &			Consol
Three Months Ended 2012	U.S.			Germany		Other		Total		U.S.		Europe		Total		Elim			Total
Net sales to external customers	$	20,412		$	12,591	$	11,140	$	44,143	$	32,898	$	912	$	33,810	$	—		$	77,953
Income (loss) from operations	(273		)	1,877		1,394		2,998		1,063		70		1,133		(1,968		)	2,163

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ITEM 2		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
		(Tabular Amounts in Thousands Except Percentages, Share and Per Share Data)

Introduction

We are a world leader in the design, manufacture, marketing, and distribution of high quality musical instruments. Our piano division concentrates on the high-end grand piano segment of the industry, handcrafting Steinway pianos in New York and Germany. We also offer Steinway upright pianos and two mid-priced lines of pianos under the Boston and Essex brand names. We are also an online retailer of classical music recordings. Through our band division, we are the largest domestic producer of band and orchestral instruments and offer a complete line of brass, woodwind, percussion and string instruments and related accessories with well-known brand names such as Bach, Selmer, C.G. Conn, Leblanc, King, and Ludwig. We sell our products through dealers and distributors worldwide. Our piano customer base consists of professional artists, amateur pianists, and institutions such as concert halls, universities, and music schools. Our band and orchestral instrument customer base consists primarily of middle school and high school students, but also includes adult amateur and professional musicians.

Critical Accounting Policies and Estimates

The Securities and Exchange Commission (“SEC”) has issued disclosure guidance for “critical accounting policies and estimates.” The SEC defines “critical accounting policies and estimates” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Management is required to make certain estimates and assumptions during the preparation of the condensed consolidated financial statements. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.

The significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in the Company’s 2012 Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management considers the following to be critical accounting policies and estimates based on the definition above.

Accounts Receivable

We establish allowances for accounts receivable and notes receivable. We review overall collectibility trends and customer characteristics such as debt leverage, solvency, and outstanding balances in order to develop our reserve estimates. Historically, a large portion of our sales at both our piano and band divisions has been generated by our top fifteen customers. As a result, we experience some inherent concentration of credit risk in our accounts receivable due to its composition and the relative proportion of large customer receivables to the total. This is especially true at our band division, which characteristically has a majority of our consolidated accounts receivable balance. We consider the credit health and solvency of our customers when developing our receivable allowance estimates.

Inventory

We adjust our inventory carrying values for items such as lower-of-cost-or-market and obsolescence. We review inventory levels on a detailed basis, concentrating on the age and amounts of raw materials, work-in-process, and finished goods, as well as recent usage and sales dates and quantities to help develop our estimates. Ongoing changes in our business strategy, coupled with increased offshore sourcing, could affect our ability to realize the current cost of our inventory, and are considered by management when developing our estimates. We also establish reserves for anticipated book-to-physical adjustments based upon our historical level of adjustments from our annual physical inventories. We account for our inventory using standard costs. Accordingly, variances between actual and standard costs that are not abnormal in nature are capitalized into inventory and released based on calculated inventory turns. Abnormal costs are expensed in the period in which they occur.

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Workers’ Compensation and Self-Insured Health Claims

We establish self-insured workers’ compensation and health claims reserves based on our trend analysis of data provided by third-party administrators regarding historical claims and anticipated future claims.

Long-lived Assets

We review long-lived assets, such as property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. We measure recoverability by comparing the carrying amount of the asset or asset group to the estimated future cash flows the asset or asset group is expected to generate.

We record long-lived intangible assets based on estimated acquisition-date fair values, and amortize finite-lived intangibles over their estimated useful lives. We test our goodwill and indefinite-lived trademark assets for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset may have decreased below its carrying value. We determine our reporting units by first identifying our operating segments, and then assess whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within a reporting unit that have similar economic characteristics.

Our assessment is based on a comparison of net book value to estimated fair values primarily using an income approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our discounted cash flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in our analysis and reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market participant weighted-average costs of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows, adjusted for the risks and uncertainty inherent in our industry generally and in our internally developed forecasts. We also use a market approach against which we benchmark the results of our income approach to ensure that the results are appropriate.

Our assessment of indefinite-lived trademarks compares the present value of the future estimated after tax royalty payments, discounted at a risk-adjusted rate of return, to the carrying value of the trademark. This relief-from-royalty method estimates the savings in royalties a company would otherwise have had to pay if it did not own the trademarks and had to license them from a third party.

Pensions and Other Postretirement Benefit Costs

We make certain assumptions when calculating our benefit obligations and expenses. We base our selection of assumptions, such as discount rates and long-term rates of return, on information provided by our actuaries, investment advisors, investment committee, current rate trends, and historical trends for our pension asset portfolio. Our benefit obligations and expenses can fluctuate significantly based on the assumptions management selects.

Income Taxes

When appropriate, we record valuation allowances for certain deferred tax assets related to foreign tax credit carryforwards and net operating loss carryforwards. When assessing the realizability of deferred tax assets, we consider whether it is more likely than not that the deferred tax assets will be fully realized. The ultimate realization of these assets is dependent upon many factors, including the ratio of foreign source income to overall income and generation of sufficient future taxable income in the jurisdictions for which we have loss carryforwards. When establishing or adjusting valuation allowances, we consider these factors, as well as anticipated trends in foreign source income and tax planning strategies which may impact future realizability of these assets.

When appropriate, a liability has been recorded for uncertain tax positions. When analyzing these positions, we consider the probability of various outcomes which could result from examination, negotiation, or settlement with various taxing authorities. The final outcome on these positions could differ significantly from our original estimates due to the following: expiring statutes of limitations; availability of detailed historical data; results of audits or examinations conducted by taxing authorities or agents that vary from management’s anticipated results; identification of new tax

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Results of Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

	Three Months Ended March 31,						Change
	2013			2012			$		%
Net sales
Band	$	31,389		$	33,810		(2,421	)	(7.2	)
Piano	45,414			44,143			1,271		2.9
Total sales	76,803			77,953			(1,150	)	(1.5	)

Cost of sales
Band	22,131			25,854			(3,723	)	(14.4	)
Piano	29,322			28,952			370		1.3
Total cost of sales	51,453			54,806			(3,353	)	(6.1	)

Gross profit
Band	9,258		29.5%	7,956		23.5%	1,302		16.4
Piano	16,092		35.4%	15,191		34.4%	901		5.9
Total gross profit	25,350			23,147			2,203		9.5
	33.0%			29.7%

Operating expenses	19,769			20,984			(1,215	)	(5.8	)
Income from operations	5,581			2,163			3,418		158.0

Other expense, net	401			354			47		13.3
Net interest expense	917			850			67		7.9
Non-operating expenses	1,318			1,204			114		9.5

Income before income taxes	4,263			959			3,304		344.5

Income tax provision	1,573		36.9%	369		38.5%	1,204		326.3

Net income	$	2,690		$	590		2,100		355.9

Overview — Piano division revenue improved due to price increases, stronger demand for Steinway grand pianos in the Americas, and improved shipments of Boston and Essex pianos in the Americas and Asia-Pacific regions. Piano gross margins benefited from price increases and a favorable shift in mix to more profitable piano models. Band division revenues decreased due to lower shipments of most product categories. Band gross margin improved significantly due to price increases and shifts in mix of products sold.

Net Sales — Revenue generated by our Americas region of $24.3 million increased 19% over the year-ago period. Wholesale revenue increased $3.1 million and retail revenue increased $0.9 million, driven by a 13% increase in Steinway grand unit shipments and a 32% increase in Boston and Essex unit shipments. Standard price increases of 3.5% on Steinway grand pianos also contributed to the revenue improvement. Sales in Europe were $3.0 million lower than the year-ago period due to a 35% decrease in Steinway grand unit shipments and a 23% decrease in Boston and Essex unit shipments. Backlogs on certain models and softer demand were the primary causes of the decrease in revenue, which occurred despite standard price increases of nearly 5%. Sales in the Asia-Pacific region increased $0.5 million notwithstanding a 13% decrease in Steinway grand unit shipments, as shipments of Boston and Essex pianos rose 53%.

Band division revenue decreased $2.4 million during the period. An average price increase of 3% and shifts in mix towards higher margin sourced products and professional brass instruments helped mitigate the impact on an 18% decrease in overall unit shipments.

Cost of Sales — Cost of sales increased $2.0 million at our domestic piano division primarily due to the revenue improvement. Cost of sales overseas decreased $1.6 million, correlating to the revenue reduction.

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Band division cost of sales was $3.7 million less than the year-ago period. This resulted from lower costs due to shifts in production and the mix of products sold, coupled with approximately $1.7 million resulting from the decrease in revenue.

Gross Profit — Gross profit was $2.2 million higher due to improved sales at our piano division and better margins generated by the band division. Gross margins in the Americas rose from 31.7% to 34.3% in the current period. There was little manufacturing cost increase, so the implemented price increases on Steinway grands directly benefited gross profit. Also, we experienced a shift in mix towards larger model Steinway grands, which typically generate higher margins. Gross margins on sales made in the Europe and Asia-Pacific regions were consistent with the year-ago period at 36.7%. Although factory inefficiencies resulting from training of additional workers at our manufacturing facility in Germany adversely impacted gross profit by $0.4 million, this was offset by standard price increases and a beneficial impact of shifts in mix of pianos sold. Overall piano division gross profit also benefited from a favorable exchange rate impact on Boston pianos.

Gross margin generated by the band division increased from 23.5% to 29.5% in the current period due primarily to shifts in mix towards higher margin sourced and professional instruments. Since manufacturing costs improved slightly, implemented price increases directly benefited gross profit.

Operating Expenses — Operating expenses decreased $1.2 million during the period. Sales and marketing costs were $0.7 million lower due in part to a decrease in bad debt expense of $0.4 million as well as timing of promotional activities. General and administrative costs decreased $0.5 due to the absence of $0.7 million of legal and consulting costs which were incurred in the year-ago period in pursuit of strategic alternatives.

Non-operating Expenses — Non-operating expenses were $0.1 million greater than the year-ago period. Higher foreign exchange gains of $0.1 million offset an increase in net expenses associated with our West 57th Street building of a comparable amount. Interest income was $0.1 million less due to lower financed receivables at our band division.

Income Taxes — We recorded income tax expense of $1.6 million, reflecting our anticipated annual effective income tax rate of 37.0% associated with current year income and a nominal impact of uncertain tax positions and other discrete items. The rate of 38.5% in the year-ago period reflected an anticipated annual effective income tax rate of 36.6% as well as uncertain tax positions and other discrete items.

Liquidity and Capital Resources

We have relied primarily upon cash provided by operations, supplemented as necessary by seasonal borrowings under our working capital line, to finance our operations, repay long-term indebtedness and fund capital expenditures.

Our statements of cash flows for the three months ended March 31, 2013 and 2012 are summarized as follows:

	2013			2012			Change
Net income:	$	2,690		$	590		$	2,100
Changes in operating assets and liabilities	(15,490		)	(11,099		)	(4,391		)
Other adjustments to reconcile net income to cash from operating activities	2,929			2,789			140
Cash flows from operating activities	(9,871		)	(7,720		)	(2,151		)

Cash flows from investing activities	(958		)	(1,860		)	902

Cash flows from financing activities	—			3,118			(3,118		)

Cash used by operating activities increased $2.2 million from the year-ago period. Cash provided by accounts receivable increased $2.7 million largely due to collection of piano division receivables recorded at the end of 2012. Due to its revenue cycle, our band division typically uses cash for receivables until the fourth quarter. Cash used for inventory was $1.2 million higher since production outpaced shipments, particularly at our band division factories and our piano manufacturing facility in Germany. We used $2.0 million more for prepaids and other assets due to the timing of insurance and tax payments, as well as $0.6 million used for a workers’ compensation insurance deposit. Lastly, we used $3.8 million more for accounts payable and accrued liabilities due to higher vendor, bonus, and benefit payments.

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Cash used for investing activities was $0.9 million lower than the year-ago period since we expended less on capital projects in the current period. In 2013, we expect capital expenditures for the full year to be in the range of $8.0 to $10.0 million.

Cash provided by financing activities decreased $3.1 million since we had no financing activity in the current period. In the year-ago period, we borrowed $3.0 million on our domestic line of credit to fund domestic piano operations.

Borrowing Activities and Availability — We have a domestic credit facility with a syndicate of lenders (the “Credit Facility”) with a potential borrowing capacity of $100.0 million in revolving credit loans, which expires on October 5, 2015. It provides for periodic borrowings at either London Interbank Offering Rate (“LIBOR”) plus a range from 1.75% to 2.25%, or as-needed borrowings at an alternate base rate, plus a range from 0.75% to 1.25%; both ranges depend upon borrowing availability at the time of borrowing. The Credit Facility is collateralized by our domestic accounts receivable, inventory, and certain property, plant and equipment. As of March 31, 2013 we had nothing outstanding on this Credit Facility and $82.4 million of availability, net of borrowing restrictions.

Our non-domestic credit facilities originating from two German banks provide for borrowings by foreign subsidiaries of up to €15.3 million ($19.5 million at the March 31, 2013 exchange rate), net of borrowing restrictions of €0.3 million ($0.4 million at the March 31, 2013 exchange rate) and are payable on December 31, 2013 or February 28, 2014. These borrowings are collateralized by most of the assets of the borrowing subsidiaries. A portion of the loans can be converted into a maximum of £0.9 million ($1.3 million at the March 31, 2013 exchange rate) for use by our U.K. branch and ¥300 million ($3.2 million at the March 31, 2013 exchange rate) for use by our Japanese subsidiary. Our Chinese subsidiary also has the ability to convert the equivalent of up to €2.5 million into U.S. dollars or Chinese yuan ($3.2 million at the March 31, 2013 exchange rate). Euro loans bear interest at rates of Euro Interbank Offered Rate (“EURIBOR”) plus a margin determined at the time of borrowing. Margins fluctuate based on the loan amount and the borrower’s bank rating. The remaining demand borrowings bear interest at rates of the Bank of England base rate plus a fluctuating percentage for British pound loans, a base rate contingent upon currency borrowed plus 1.0% for loans of our Chinese subsidiary, and Tokyo Interbank Offered Rate (“TIBOR”) plus 2.1% for Japanese yen loans. We had nothing outstanding as of March 31, 2013 on these credit facilities.

Our Japanese subsidiary also maintains a separate revolving loan agreement that provides additional borrowing capacity of up to ¥300 million ($3.2 million at the March 31, 2013 exchange rate) based on eligible inventory balances. The revolving loan agreement bears interest at an average 30-day TIBOR rate plus 0.9% (outstanding borrowings at 1.0 % at March 31, 2013) and expires on June 30, 2013. As of March 31, 2013 we had $0.5 million outstanding on this revolving loan agreement.

At March 31, 2013, our total outstanding indebtedness amounted to $68.0 million, consisting of $67.5 million of our 7.00% Senior Notes due March 1, 2014 and $0.5 million of notes payable to foreign banks.

All of our debt agreements contain covenants that place certain restrictions on us, including our ability to incur additional indebtedness, to repurchase 7.00% Senior Notes, to make investments in other entities, and limitations on cash dividend payments. We were in compliance with all such covenants as of March 31, 2013 and do not anticipate any compliance issues in the future. Our bond indenture contains limitations, based on net income (among other things), on the amount of discretionary repurchases we may make of our common stock. Our intent and ability to repurchase additional common stock either directly from shareholders or on the open market is directly affected by this limitation. In May 2008 we announced a share repurchase program, which permits us to make discretionary purchases of up to $25.0 million of our common stock. To date, we have repurchased 102,127 shares and approximately $22.5 million remains authorized for repurchases under this program. We did not make any repurchases during the three months ended March 31, 2013, but may make repurchases during the remainder of 2013.

We experience long production and inventory turnover cycles, which we constantly monitor since fluctuations in demand can have a significant impact on these cycles. In normal economic conditions, we are able to effectively utilize cash flow from operations to fund our debt and capital requirements and pay off borrowings on our domestic line of credit. We intend to manage accounts receivable and credit risk, and control inventory levels by monitoring purchases and production schedules. Our intention is to manage cash outflow and maintain sufficient operating cash on hand to meet short-term requirements.

At March 31, 2013, our operations in foreign tax jurisdictions held $27.7 million in cash, comprised of $18.3 million in renminbi, $4.1 million in yen, $3.1 million in euro, and $2.2 million in pounds. We indefinitely reinvest earnings of our operations in foreign tax jurisdictions, with the exception of our operations in China. Accordingly, we have fully provided for any associated domestic tax liability relating to these earnings. The amount of funds we will be able to repatriate from China to the United States is contingent upon approval of applicable taxing authorities, but we expect to repatriate approximately

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$15.0 million in 2013. We continue to reinvest the earnings of our other operations in foreign tax jurisdictions. We believe that domestic cash flow from operations, coupled with our domestic borrowing availability is sufficient to fund domestic operation and debt service activity in the next twelve months, including the repayment of our Senior Notes, which mature in less than one year. Similarly, cash flows from overseas operations coupled with our overseas borrowing availability is sufficient to fund overseas operating activity for the next twelve months.

Other than those described above, we do not have any current plans or intentions that will have a material adverse impact on our liquidity in 2013, although we may consider acquisitions that may require funding from operations or from our credit facilities. We expect to complete the sale of our building on West 57th Street in New York City during the second quarter of 2013 and to receive cash proceeds, net of transaction costs, of at least $40.0 million. Other than those described, we are not aware of any trends, demands, commitments, or costs of resources that are expected to materially impact our liquidity or capital resources. Accordingly, we believe that cash on hand, together with cash flows anticipated from operations, transactions, and available borrowings under the Credit Facility, will be adequate to meet our debt service requirements, fund regular capital requirements and satisfy our working capital and general corporate needs for the next twelve months.

Contractual Obligations - The following table provides a summary of our contractual obligations at March 31, 2013.

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt(1)	$	72,370	$	72,370	$	—	$	—	$	—
Capital leases	5		4		1		—		—
Operating leases(2)	250,104		6,421		10,324		8,615		224,744
Purchase obligations(3)	22,576		22,576		—		—		—
Other long-term liabilities(4)	61,621		3,990		1,935		1,831		53,865
Total	$	406,676	$	105,361	$	12,260	$	10,446	$	278,609

Notes to Contractual Obligations:

(1) Long-term debt represents long-term debt obligations, the fixed interest on our Notes, and the variable interest on our other loans. We estimated the future variable interest obligation using the applicable March 31, 2013 rates. The nature of our long-term debt obligations, including changes to our long-term debt structure, is described more fully in the “Borrowing Activities and Availability” section of “Liquidity and Capital Resources.”

(2) Approximately $237.1 million of our operating lease obligations are attributable to the land lease associated with Steinway Hall, which has eighty-five years remaining. We will no longer have this liability once we sell Steinway Hall. The rest of the obligation is attributable to the leasing of other facilities and equipment.

(3) Purchase obligations consist of firm purchase commitments for raw materials, finished goods, and service agreements.

(4) Our other long-term liabilities consist primarily of the long-term portion of our pension obligations, which are described in Note 13 in the Notes to Condensed Consolidated Financial Statements included within this filing and obligations under employee and consultant agreements. We have not included $0.1 million of liabilities relating to uncertain tax positions within this schedule due to the uncertainty of the payment date, if any.

Recent Accounting Pronouncements

We adopted certain amendments to Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” effective January 1, 2013. These amendments relate only to financial statement presentation of other comprehensive income and, accordingly, the adoption did not have a material impact on our condensed consolidated financial statements.

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PART II		OTHER INFORMATION

ITEM 6		EXHIBITS

31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

PART I	FINANCIAL STATEMENTS

Item 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Statements of Operations Three months ended March 31, 2013 and 2012	3

	Condensed Consolidated Statements of Comprehensive Income Three months ended March 31, 2013 and 2012	4

	Condensed Consolidated Balance Sheets March 31, 2013 and December 31, 2012	5

	Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2013 and 2012	6

	Condensed Consolidated Statement of Stockholders’ Equity Three months ended March 31, 2013	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION

Item 6.	Exhibits	25

	Signatures	26

	Three Months Ended March 31,
	2013			2012

Net income	$	2,690		$	590
Other comprehensive income (expense) items:
Foreign currency translation adjustments	(3,047		)	924
Amortization of defined benefit pension and postretirement benefit plans
Prior service credit	(22		)	—
Actuarial losses	762			—
Effect of income taxes	(257		)	—
Total comprehensive income	$	126		$	1,514

	STEINWAY MUSICAL INSTRUMENTS, INC.

	/s/ Michael T. Sweeney
	Michael T. Sweeney
	President and Chief Executive Officer

	/s/ Dennis M. Hanson
	Dennis M. Hanson
	Senior Executive Vice President and
	Chief Financial Officer


Date: May 8, 2013