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  • Steinway Musical Instruments, Inc.Management Presentation

    CJS Securities New Ideas ConferenceThursday, January 11, 2007

    Presented by:Dana D. Messina, CEO

  • 2

    Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

    Todays presentation contains forward-looking statements which represent the Companys 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 today.

    These risk factors include: 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 instrument product and distribution strategies ability of suppliers to meet demand concentration of credit risk fluctuations in effective tax rates resulting from shifts in sources of income the ability to successfully integrate and operate acquired businesses.

    Further information on these risk factors is included in the Companys filings with the Securities and Exchange Commission.

    Today's presentation will include EBITDA as well as other adjusted financial measurements, all which are considered to be non-GAAP terms. These measures present operating results on a basis excluding certain non-comparable items. Reconciliations of these measures to the most comparable GAAP terms are available on the Company's website at www.steinwaymusical.com.

  • 3

    Company OverviewCompany Overview

    Worlds leading manufacturer of musical instruments Produces the highest quality piano in the world Leading U.S. manufacturer of band & orchestral instruments Most widely-recognized and prestigious brands Worldwide distribution capabilities through a network of

    dealers Serves professional, amateur and student musicians as well as

    orchestras and educational institutions

    Geographic diversification of sales complemented by wide range of products offered

  • 4For 12 months ended 9/30/06

    Steinway Musical Instruments$388 million revenue

    $0

    $100

    $200

    $300

    $207$181

    Band Division Piano Division

    (reve

    nue

    in m

    illion

    s)

  • 5

    Business Strategy

    Maintain worldwide industry leadership position Pursue piano opportunities in Asia while

    maintaining U.S./Europe market share Continue to improve band division margins Reduce working capital requirements Pursue continuous improvement in all areas of the

    business

  • 6

    2006 Accomplishments

    Successful bond refinancing Essex piano re-launch Continued band turnaround1

    Achieved broader piano distribution in China Improved product / channel strategy including

    the introduction of many new instruments Streamlined manufacturing at all facilities

    1 before impact of strike

  • 7

    $43.0

    $37.3 $32.5$27.7

    $0

    $8

    $16

    $24

    $32

    $40

    2002 2003 2004 2005

    Conn-Selmer & Steinway NY only

    1 Excludes Leblanc in 2004 and 2005 for comparative purposes

    (in m

    illio

    ns)

    (13.3%)

    (12.9%)

    (14.8%)

    WIP Inventory Reduction1

    Conn-Selmer & Steinway NY only

  • 8

    YTD 9/30/06 Charges

    Lost profit due to strike $ 4.0 Piano plant shutdown $ 1.3 Customer bankruptcy $ 4.3 Inventory reserve adjustment $ 2.4

    Total atypical charges $12.0 million

  • Band Division

  • 10

    Band Instrument Market

    Unit sales tied to demographic trends Key demographic: 11-year olds

    Approximately 1 in 10 plays a musical instrument

    10% will eventually purchase a step-upmusical instrument

    5% will eventually purchase a professional instrument

  • 11

    Band Division Strategy

    #1 or #2 market position in every product category

    Capitalize on strong brand names Acquisitions to fill in product categories where

    we do not have #1 or #2 position Global manufacturing strategy combining

    domestic manufacturing and foreign sourcing Consolidate to the highest quality, lowest cost

    domestic facility

  • Piano Division

  • 13

    Steinway & Sons

    Founded in 1853 Worlds premier piano Extraordinary

    worldwide brand recognition Unparalleled Concert & Artist Program 98% of soloists performing with major

    symphony orchestras choose Steinway pianos

    Most successful dealers in the industry

  • 14

    Clockwise from upper-left: Grove Park Piano

    from the Art Case Collection,Chippendale Grand

    from the Crown Jewel Collection,Boston Model GP-156,

    Steinway & Sons Concert Grand Model D, and Essex Model EGP-155C.

  • 15

    Piano Division Overview

    Successful business model Differentiated programs and products Unique, exclusive, profitable distribution system Favorable demographics

    Typical customer between 40 and 50 years old with household income over $300K

    69 All-Steinway Schools worldwide Stable segment of the business that reduces

    cyclicality

  • 16Essex Grands and Verticals

    Boston Grands and Verticals

    Steinway Ebony Grands and Verticals

    Crown Jewels

    Limited Edition

    Art Case

    Legendary

    Heirloom Collection

    Steinway Products

  • 17

    Steinway & Sons, Bosendorfer, Fazioli, Grotrian Steinweg

    Boston, Yamaha, Kawai, Schimmel, Seiler, Sauter, Bechstein, Baldwin, Mason & Hamlin, Chas Walter

    Essex, Young Chang (Korea),Samick (Korea), Petrof

    Source: Managements industry estimates

    PremiumUS $55,000

    Upper MiddleUS $22,000

    LowUS $9,000

    9%69,400Total Market

    28,300

    9%3,800

    7%33,700

    89%3,600

    Steinway Market Share

    Samick and Yamaha (Indonesia),Story & Clark, Young Chang,Pearl River & Others (China), Eastern Europe, Estonia

    Lower MiddleUS $13,000

    Steinways Competitive Position

    Grand Piano Units

  • Business Outlook & Financials

  • 19

    $0

    $100

    $200

    $300

    $400

    2002 2003 2004 2005 9/30/05 9/30/06

    (in m

    illion

    s)

    Piano Band

    332 337375

    384

    12 months ended

    387 388

    Net Sales

  • 20

    $0

    $20

    $40

    $60

    2002 2003 2004 2005 9/30/2005 9/30/2006

    (in m

    illion

    s)

    Piano Band

    5046 46

    51

    12 months ended

    38

    49

    Adjusted EBITDA

  • 21

    $14.73$13.09$12.45

    $11.01$9.90$8.09

    $7.20

    $18.34

    $16.96$18.13

    $0

    $5

    $10

    $15

    $20

    Dec'96

    Dec'97

    Dec'98

    Dec'99

    Dec'00

    Dec'01

    Dec'02

    Dec'03

    Dec'04

    Dec'05

    CAGR Dec-05 = 11%Book Value Per Share

  • 22

    2007 Band Operations

    Order rates look strong Increased production of professional instruments

    key to success Margin improvement from higher production

    levels, manufacturing improvements and sourcing

    Production/sourcing better aligned with demand

  • 23

    The Woodwind & The Brasswind

    Very successful e-commerce business $136M sales in 2005 Atypical charges Chapter 11 Growing & profitable until mid-2005 Undervalued asset

    Strategy: Use distribution expertise to assist existing school music dealers

    Auction January 24th

  • 24

    2007 Piano Operations

    Challenging environment in U.S. and Western Europe

    Opportunity for growth in Eastern Europe and China Expand distribution in China

  • 25

    2007 Corporate Actions

    Potential acquisitions Potential asset sales Balance sheet leverage Excess cash flow

  • 26The Company defines Adjusted EBITDA as earnings before net interest expense, income taxes, depreciation and amortization, adjusted to exclude non-recurring, infrequent or unusual items. Adjusted EBITDA should not be construed as a substitute for operating income or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.

    2003 2004 2005 9/30/05 9/30/06Cash flows from operating activities $30.9 $23.9 $31.4 $34.0 $30.3Changes in operating assets and liabilities -8.3 1.3 -6.3 -9.4 -10.0Stock-based compensation expense -0.9Income taxes, net of deferred tax benefit 7.3 10.6 8.9 10.5 8.4

    Net interest expense 11.9 13.4 13.6 13.6 11.8Provision for doubtful accounts -0.2 -0.5 -0.4 -0.4 -5.1

    Other -0.1 -0.1 0.2 0.6 1.3Non-recurring, infrequent or unusual cash charges 4.8 2.2 1.6 1.5 2.2Adjusted EBITDA $46.3 $50.8 $49.0 $50.4 $38.0

    12 months ended

    Reconciliation of Cash Flows to Adjusted EBITDA

    ($ in millions)

  • Steinway Musical Instruments, Inc.Management Presentation

    CJS Securities New Ideas ConferenceThursday, January 11, 2007

    Presented by:Dana D. Messina, CEO