SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
_______________________
For the fiscal year ended Commission File Number
December 31, 1995 0-14903
Baldwin Piano & Organ Company
(Exact name of registrant as specified in its charter)
Delaware 31-1091812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Wards Corner Road
Loveland, Ohio 45140-8390
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-4500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all documents and 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 for the past 90 days. Yes X No .
--- ---
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements or any amendment to this Form 10-K. {X}
The aggregate market value of the voting stock held by non-
affiliates of the registrant is $43,832,470 based upon the $14.50
per share price at which the Common Stock was last sold as reported
on the Nasdaq National Market through March 15, 1996.
The number of outstanding shares of Common Stock of Baldwin
Piano & Organ Company ("Company"), as of March 15, 1996, is
3,415,196.
DOCUMENTS INCORPORATED BY REFERENCE
Part of the information required by Item 1 of Part I and all
of the information required by Items 5-8 of Part II of this Form
10-K is incorporated by reference from the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1995 ("1995
Annual Report to Shareholders"). The information required by Items
10-13 of Part III of this Form 10-K is incorporated in whole or in
part by reference from the Company's definitive Proxy Statement to
be filed with the Securities and Exchange Commission on or about
April 5, 1996 relating to the Company's 1996 Annual Meeting of
Shareholders ("1996 Proxy Statement").
<PAGE>
TABLE OF CONTENTS
PART I.
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
Executive Officers of the Registrant
PART II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
As used herein, the term "Company" refers to Baldwin Piano &
Organ Company and its subsidiaries and the Company's predecessors
unless the context otherwise indicates.
As a leader in the U.S. keyboard market, the Company manufac-
tures and markets a full range of quality keyboard instruments
featuring the Baldwin, Wurlitzer and Chickering trademarks. From
artist-accepted concert grand pianos to innovative digital
keyboards, renowned Baldwin instruments are found in homes,
churches, academic institutions and concert halls across the
nation.
Baldwin expands on its core business by providing in-house
installment financing of musical products. With an emphasis on
superior service, Keyboard Acceptance Corporation, a wholly-owned
Baldwin subsidiary, continues to grow. Baldwin is the only U.S.
musical products manufacturer to offer consumer financing of its
instruments.
Through its Special Products Division, Baldwin offers
electronic and electromechanical design and manufacturing services
for Original Equipment Manufacturers. With quality services and
on-time delivery, Baldwin is expanding its business in this
industry.
Sales of the Company's products are set forth by category in
the following table:
(dollars in thousands)
Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Musical Products ........... $ 79,942 $ 85,840 $ 87,009
Electronic Contracting ..... 30,612 28,361 28,908
Other ...................... 12,080 8,146 4,741
-------- -------- --------
Total ............ $122,634 $122,347 $120,658
======== ======== ========
_______________
The information regarding segment financial data of the
Company as required by Item 101 of Regulation S-K is incorporated
herein by reference from page 23 of the Company's 1995 Annual
Report to Shareholders appearing under the note caption "Segment
Information".
<PAGE>
MUSICAL PRODUCTS
Since 1862, Baldwin musical products have been recognized
for their high quality, value and performance by professional
musicians, educators and consumers. Today, Baldwin musical
products represent a broad range of acoustic and electronic
instruments aimed at an equally broad consumer base, consistent
with the Company heritage. Baldwin musical products are sold
through Company-owned retail stores, domestic wholesale dealers,
factory direct sales and an international dealer network.
ACOUSTIC PIANOS
The Company's premier product is the Baldwin concert
grand piano. The Company is one of only two domestic manufacturers
of pianos generally accepted for concert performances and the only
such manufacturer also producing a full line of vertical pianos.
The Company has successfully incorporated a number of enhancements
into its vertical piano lines designed for home and institutional
use. The Company believes that the quality and durability of the
Baldwin concert grand pianos enhance the reputation, marketability
and profit margins of its entire product line.
In 1995, the Company's product lines were repositioned to
eliminate product overlap and make Baldwin acoustic offerings
clearer to consumers. Baldwin now offers the three American
brands, Baldwin, Chickering and Wurlitzer, that have represented
nearly 50% of domestic new piano purchases over the past four
decades. In addition, separate Baldwin and Wurlitzer dealer and
sales organizations were consolidated into a single, more efficient
distribution network.
To develop this strong brand lineup and take advantage of
market opportunities, Baldwin introduced a significant number of
product enhancements and new models in 1995. The most important
was the introduction of the American-made Chickering grand piano.
Targeted to fill the niche for mid-priced grands, orders have begun
to increase in the fourth quarter of 1995. Also, Baldwin's
flagship Artist Series grand piano line was expanded with the
introduction of the Louis XVI furniture model.
Baldwin Classic Series vertical pianos, marketed to
compete in the highest volume segment of the category, were greatly
enhanced with new touch response and tonal performance features.
The Baldwin Acrosonic, originally introduced in 1936, continues to
be one of America's best-selling pianos. These upper-end vertical
pianos were refined with three new decorative stylings.
The Company's product line offers over 60 different
styles and finishes of pianos in all classes ranging from 9-foot
concert grands to 37-inch spinets.
DIGITAL KEYBOARDS
Baldwin distributes a broad range of electronic keyboard
instruments from small portables to large church organs.
In 1995, industry wide unit sales in the U.S. digital
keyboard category grew to almost 60% of the size of the U.S.
acoustic piano industry unit sales. An increasing number of
Baldwin piano dealers now report that a significant percentage of
their business comes from digital keyboard sales. To gain a
greater share of this growing segment, Baldwin introduced a new
digital piano product line in September 1995. Called Baldwin
Pianovelle, these instruments employ Dimensional Acoustic Synthesis
to recreate the classic sound of an acoustic piano.
Pianovelle products are manufactured in Italy by General-
music, Europe's largest digital keyboard manufacturer.
Baldwin is working closely with this manufacturer to pioneer new
technologies, which are resulting in exciting new products for
consumers.
<PAGE>
Church Organ Systems (COS) is a Baldwin business unit
which focuses on the changing musical needs of churches. The
Company's current series of church organs offer significant value
at a competitive price.
In 1995 COS achieved its highest sales since its
formation in 1992. To further strengthen its leadership in the
market for smaller church organs, COS recently introduced six new
organ models in this niche.
PRODUCT DEVELOPMENT
The Company's research staff in conjunction with outside
consulting and design services engage in ongoing efforts to refine
existing products and develop new products. The Company believes
that it maintains the only significant ongoing acoustic piano
engineering research effort among domestic manufacturers. The
research department works closely with highly trained technical
manufacturing personnel.
In the digital keyboard market, the Company uses outside
sources for the development and production of its products.
Outsourcing has enabled the Company to reduce overall operating
costs while benefiting from other companies' expertise in advanced
electronic technology and new material development. The Company is
also marketing a music reproduction system that transforms standard
acoustic pianos into modern electronic reproducing player instru-
ments. The system provides the capability of playing back an
original piano performance and has the flexibility of full musical
accompaniment. Commercial musical "Libraries" are available which
can be operated by remote control.
During 1995, 1994 and 1993, the Company's research and
development expenses were $500,592, $524,241 and $597,353,
respectively.
MARKETING AND DISTRIBUTION
The Company distributes its keyboard musical instruments
in North America through approximately 425 independent dealers and
11 Company owned stores operating in five major metropolitan areas.
During 1995, separate Baldwin and Wurlitzer dealer
organizations were consolidated into a single, more efficient
distribution network. In 1995, no single dealer accounted for more
than 4% of the Company's keyboard musical instrument sales and the
ten largest dealers accounted for approximately 16% of such sales.
The Company's domestic sales leadership is attributable,
in part, to its excellent dealer network. The Company believes
that it has been able to attract and maintain its dealers by
offering a superior product line and numerous programs and services
designed to assist dealers, including:
<PAGE>
- An industry wide effort to demonstrate that piano lessons
can be a powerful tool in improving overall learning ability
and to communicate these significant benefits to the parents
of young children throughout North America.
- An inventory financing program in which the Company
finances the musical instruments on the dealer's showroom
floor, thus permitting the dealer to carry a broader product
line.
- An installment finance program offering retail customers
a source of credit and assurance of the Company's continued
interest in product performance.
- An artist endorsement program in which over 375 well-
known pianists, composers, conductors, vocalists and
music organizations endorse Baldwin grand pianos, providing
dealers with extensive national and local product publicity
and a method of product differentiation.
- A dealer support program, providing training, promotional
assistance, and incentives.
- Sponsorship of educational activities, including piano
competitions, recitals and music fellowships.
The Company operates 11 Company owned retail outlets in
Atlanta, Cincinnati, Indianapolis and Louisville and Lexington,
Kentucky. These Company owned retail outlets, which sell the
Company's product lines, are generally located in areas where they
do not compete directly with the Company's independent dealers.
The Company believes that the existence of this potential competi-
tion has not adversely affected the Company's relationship with its
independent dealers.
In addition to accounting for approximately 10% of the
Company's total keyboard sales in 1995, Baldwin's retail stores
provide the Company with new retailing concepts, a better under-
standing of dealer problems and a source of management talent.
Baldwin introduced the Factory Direct Sales Program in
1994 to access customers outside the geographic reach of Company's
independent dealer network. This program accounted for approxi-
mately 8% of the Company's total keyboard sales in 1995.
The Company's products are distributed in Canada through
approximately 40 independent dealers representing approximately 5%
of the Company's keyboard sales. The Company markets products
through a number of distributors in other areas of the world,
accounting for approximately 2% of the Company's keyboard sales in
1995.
<PAGE>
MARKETS AND COMPETITION
The principal markets for the Company's acoustic and
electronic pianos are families with children of ages 6 to 12, young
adults and educational institutions. The principal markets for the
Company's organs are religious and educational institutions.
The domestic keyboard musical instrument market has
contracted in recent years. Industry wide annual unit sales of
acoustic pianos in the United States have declined 10% since 1993.
The Company competes with a number of domestic and foreign
manufacturers based on prices relative to tone qualities, perfor-
mance characteristics and appearance.
The Company's market share for acoustic pianos has
averaged approximately 24% since 1993, and approximates 24% in
1995. In 1995, Baldwin stabilized its share for the first time
after a five-year decline. The Company believes that no single
manufacturer has a domestic market share larger than the Company's.
Based on industry statistics, foreign piano manufacturers'
combined market share for acoustic pianos has averaged approximately
51% since 1993. By 1995, imports' share of the market had increased
to 61%. Foreign competition in the piano market is most heavily
concentrated in the market for small grand pianos and, to a lesser
extent, in the market for large vertical pianos.
Electronic digital pianos, with annual industry sales of
approximately 54,000 units, are approaching acoustic pianos in
popularity. In 1995, industry unit sales decreased by 3%. These
units offer full sized touch sensitive dynamic keyboards which are
considered by some potential customers as a viable substitute for
a new or used acoustic piano. To gain a greater share of this
segment, Baldwin introduced a new digital piano product line in
September 1995. Called Baldwin Pianovelle, these instruments
employ Dimensional Acoustic Synthesis to recreate the classic
sound of an acoustic piano. The Company continues to maintain its
digital market share of approximately 4% and intends to continue to
aggressively pursue a higher market share in this area.
The Company believes several factors will favorably
influence the markets for its pianos. Demographics indicate that
the number of children between the ages of 6 and 12 will be
increasing through the year 2010. For the past five years, the
Company, individually and in conjunction with other manufacturers,
continued sponsoring advertisements and promotions designed to
increase consumer awareness of the positive effects of keyboard
instruction on the physical and mental development of children. In
addition, the Company continued its advertising efforts not only to
reach dealers, schools, other institutional buyers and music
instructors, but also to directly attract individual customers.
The institutional organ market, comprised mainly of sales
to religious and civic organizations, has remained stable over the
last five years. The Company no longer sells conventional home
organs. Market statistics regarding organ sales are not main-
tained, and therefore the Company's market share of organ sales
cannot be reliably determined.
<PAGE>
The Company sells church organs through a separate
division, Church Organ Systems, dedicated exclusively to selling
church organs. The collection of instruments is one of the
broadest product lines in the church organ market. This division
continues to build its own organization of dealers selected for
their qualifications in the highly specialized area of church organ
sales, installation and service.
Sales of the Company's keyboard products are affected by
the market for used keyboard instruments, although the Company is
unaware of any reliable data evaluating the impact of sales of used
instruments on the sale of new products. Information regarding the
Company's market share contained herein is based solely on unit
sales of new instruments. Information regarding dollar sales by
the Company includes sales of new and used instruments.
The Company's retail stores and most of its independent
dealers sell used keyboard products in addition to new instruments.
The availability of used pianos and organs attracts potential
purchasers who sometimes ultimately purchase new instruments.
Owners of pianos and organs will also often trade in their existing
instruments on larger or more expensive instruments. Digital piano
products, because of their price and improved sound and touch, are
becoming good alternatives for those buyers shopping for used
pianos.
CONTRACT ELECTRONICS
In 1984, the Company began manufacturing printed circuit board
assemblies for manufacturers outside the music industry. Current-
ly, the Baldwin Special Products Division provides electronic and
electromechanical products and services to a broad range of
Original Equipment Manufacturers. Final applications include
commercial and industrial power controls, medical diagnostic and
monitoring equipment, heating and air conditioning systems,
semiconductor fabrication equipment, vending machines and home
audio systems.
Through increased resource investment, improved work systems
and expanded customer/supplier partnerships, the Baldwin Special
Products Division continues to increase business with current
customers. In addition, it is developing opportunities with new
customers in existing market segments and entering segments where
Baldwin does not currently compete.
The Baldwin Special Products Division is one of the few full-
service contract suppliers offering a complete line of engineer-
ing,design, testing, repair and rework services, and assembly of
electronic and electromechanical products. Baldwin engineering and
operations personnel work closely with customers to take a concept
or design, develop it, test it and turn it into a manufactured
circuit board assembly or finished product component.
<PAGE>
The Baldwin Special Products Division has significantly
increased its investment in high technology capital and systems
improvements at its production facility. Technological and process
improvements include state-of-the-art equipment in surface mount
production technology (the fastest growing segment in the electron-
ic contracting market), parts insertion, product testing and
assembly coating. The Baldwin Special Products Division is also
strengthening internal process effectiveness through enhancing
partnerships with its own suppliers, personnel training and
continuous improvement of quality systems.
The Company sells electronic assemblies to manufacturers
through Company representatives and electronics manufacturers'
representatives with territories covering 29 states. There are
many manufacturers of contract electronic assemblies and the
Company does not have a significant share of the market of such
products. Although foreign manufacturers account for a significant
portion of the printed circuit board industry, the Company has
found numerous opportunities to compete effectively based on
consistency of quality and on-time delivery.
MANUFACTURING
The Company manufactures its acoustic pianos in what it
believes to be one of the most highly automated domestic facilities
in the industry. The Company's fully integrated acoustic piano
manufacturing process begins with the treatment of raw lumber,
proceeds through the fabrication and finishing of the cabinetry and
assembly of the inner workings, and culminates in the creation of
a completed musical instrument. Through the combination of
automated manufacturing techniques and a skilled work force, the
Company has earned a reputation as a high quality, cost effective
manufacturer of pianos, organs and cabinetry. The Company utilizes
specialized, computer-controlled production and testing equipment
to manufacture printed circuit boards and electromechanical
assemblies for its contract electronics manufacturing products.
RAW MATERIALS
Raw materials required for the Company's manufacturing
operations are primarily purchased in the United States. The
Company does not depend on any single source of supply for any of
its basic raw materials. The Company has not experienced, and does
not anticipate, significant difficulties in obtaining adequate
supplies of raw materials. Electronic components are purchased
from major semi-conductor manufacturers and distributors. To
minimize costs and facilitate availability of major components, the
Company designs its products to employ standard rather than custom
micro-circuit components.
<PAGE>
FINANCING OPERATIONS
The Company's installment financing subsidiary, Keyboard
Acceptance Corporation (KAC), provides point-of-sale consumer
financing through keyboard product dealers located throughout the
United States. This makes Baldwin the only keyboard manufacturer
that also provides its own consumer financing for its instruments
and has been doing so for nearly a century. This long-term,
strongly focused attention to the music industry provides Baldwin
with a competitive advantage.
Recently KAC expanded its focus from that of a captive finance
company to one that also makes its consumer financing available
through music dealers who do not carry the Company's musical
products. During 1995 many new dealers were added to the KAC
client base as a result of this strategy.
KAC offers music dealers consumer financing programs which
include competitive interest rates, rent-to-own options and prompt
credit approval. In addition to these continuing services, KAC
both originates and cooperates in special promotional programs with
dealers.
KAC maintains agreements with an independent entity to sell
substantially all of its installment receivable contracts up to a
maximum outstanding principal amount of $86 million. Certain
installment receivables are not eligible for sale and are retained
by KAC. KAC continues to service all installment receivables sold.
At the time of each installment receivable sale, KAC receives
cash equal to the unpaid principal balance of the contracts, less
a holdback of 10% of the principal balance of the contracts sold.
The buyer of the installment receivables earns interest on the
outstanding principal balance of the contracts based upon a floating
interest rate provision. Over the lives of the contracts, the
difference between the actual yield on the installment contracts
sold, using the interest method, and the amount retained by the
buyer under the floating interest rate provision is remitted to
Finance as a service fee.
Under the sale agreements, Finance is required to repurchase
accounts that become more than 120 days past due or accounts that
are deemed uncollectible. The repurchase price is equal to the
remaining unpaid principal balance of the contract on the date
repurchased, less the related 10% holdback. At December 31, 1995,
Finance remains contingently liable on approximately $76 million of
installment receivables. KAC is responsible for all credit losses
associated with the sold receivables.
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal in nature with the
fourth quarter generally showing the strongest sales. In 1995, the
fourth quarter accounted for approximately 29% of net sales. The
fourth quarter of the three previous years averaged approximately
31% of net sales.
BACKLOG
The Company consigns inventory to its keyboard dealers and,
accordingly, there is no backlog of sales. The firm sales orders
for the electronic, furniture and musical products contracting
businesses aggregated approximately $22 million at December 31,
1995 and $21 million at December 31, 1994. The Company anticipates
that all such 1995 orders will be filled during 1996.
WORKING CAPITAL
The Company and its wholly-owned finance subsidiary (KAC)
require significant working capital to support their operations.
Working capital requirements fluctuate throughout the year.
The Company finances its working capital needs under a $40
million revolving line of credit from General Electric Capital
Corporation. Amounts outstanding under the revolving line of
credit are due one year after demand. However, the lender retains
absolute discretion regarding further advances, even if no event of
default then exists. Under the revolving line of credit, the
lender will make available a line of credit based on certain
percentages of the value of the Company's inventories and trade
accounts receivable. KAC has agreements with an independent entity
to sell substantially all of its installment receivable contracts
up to a maximum outstanding principal amount of $86 million.
ENVIRONMENTAL
The operations of the Company and its predecessors are subject
to federal, state and local laws and regulations related to the
protection of the environment. The Company has determined that an
area of soil at its Fayetteville, Arkansas facility contains some
contamination resulting from waste disposal practices of the
Company's predecessor that were discontinued in the early 1970's.
The Company has notified the Arkansas Department of Pollution
Control and Ecology of such matter, and that agency has indicated
a preference that the Company voluntarily remediate any existing
problem. The Company is currently reviewing the potential costs of
undertaking appropriate remedial measures.
The Company believes that its present operations are in
material compliance with all environmental laws and that its
existing real properties are not materially contaminated, except as
discussed above relating to its Fayetteville, Arkansas facility.
The Company does not anticipate that any environmental matters
currently known to the Company will result in any material capital
expenditures in 1996 or 1997.
<PAGE>
EMPLOYEES
The Company has approximately 1,500 full-time employees, of
which approximately 223 hourly workers at the Company's Greenwood,
Mississippi facility are represented by the International Chemical
Workers Union, Local Union No. 800. The other employees are not
represented by collective bargaining units. The Company considers
its employee relations to be very good.
ITEM 2. PROPERTIES
----------
The Company operates the following facilities, all of which
are owned.
Location Size Principal Products
-------- ---- ------------------
Greenwood, Mississippi 572,500 sq. ft. Piano Cases,
Furniture Contracting
Conway, Arkansas 169,375 sq. ft. Grand Pianos
Fayetteville, Arkansas 260,000 sq. ft. Electronic Contracting
Trumann, Arkansas 297,100 sq. ft. Pianos/Piano
Components
Juarez, Mexico 111,900 sq. ft. Piano components
The Company's corporate offices and a retail showroom are
located in a 50,000 square foot leased facility in a suburban
office park in the greater Cincinnati, Ohio metropolitan area.
Generally, properties are utilized at normal capacity levels
on a single shift basis. During recent years, certain facilities
were not utilized at historical capacity levels as a result of
lower sales volumes of certain musical products.
The Company maintains and services its facilities to ensure
their suitability for operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in litigation arising in its normal
course of business. The Company does not believe that any existing
claim or suit will have a material adverse effect on the business
or financial condition of the Company.
The operations of the Company and its predecessors are subject
to federal, state and local laws regulating the discharge of
pollutants into the environment. Generally, the Company's environ-
mental concerns relate to the past operations of the Company's
predecessors and the disposal of their waste materials at facili-
ties owned and operated by third parties. Although on several
occasions the Company has been the subject of inquiries from
government agencies and/or persons who may be held responsible for
environmental liabilities relating to the facilities in question,
the Company has been made a party to actual proceedings on only one
occasion to date. In that proceeding, the Company was one of
approximately 30 potentially responsible parties and to date the
Company's share of the actual liability has not been material nor
is it reasonably expected to become material in the future.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company submitted no matters to a vote of its shareholders
during the fourth quarter of the Company's 1995 fiscal year.
==========================
Executive Officers of the Registrant
------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the
following list is included as an unnumbered Item in Part I of this
Report in lieu of being included in the Company's 1996 Proxy
Statement.
The executive officers and key employees of the Company are:
Name Age Position With The Company
---- --- -------------------------
R. S. Harrison ........ 64 Chairman of the Board
Karen L. Hendricks .... 48 Chief Executive Officer
and President
Stephen P. Brock ...... 41 Senior Vice President/
Sales and Marketing
George C. Huebner ..... 53 Vice President/Keyboard
Acceptance Corporation
Larry D. Thompson ..... 33 Vice President/General Manager -
Special Products Division
Larry E. Mustard ...... 40 Vice President/Finance/
Treasurer
Charles R. Juengling .. 48 Vice President/Controller/
Secretary
Kathryn E. Mowris ..... 38 Vice President/Manufacturing -
Trumann and Greenwood
Salvador Ortiz ........ 50 Vice President/
Manufacturing - Juarez, Mexico
Kenen M. Edgington .... 50 Vice President/
Sales Administration
Frank E. Seta ......... 39 Vice President/Acoustic Pianos
Kenneth J. Clark ...... 45 Vice President/Digital Pianos
Duane A. Kuhn ......... 54 Vice President/Church Organ
Systems
John H. Tolleson ...... 58 Vice President/Sales - New
Program Development
<PAGE>
All current officers of the Company hold office until the
annual meeting of shareholders and until their successors are
elected and qualified. Officers of the Company are elected by the
Board of Directors and serve at the discretion of the Board. For
purposes of the following descriptions of the backgrounds of the
Company's Executive Officers and Key Employees, the term "Company"
refers to both the existing Baldwin Piano & Organ Company which was
formed in November 1983 and to its predecessor, the old Baldwin
Piano & Organ Company ("Old BP&O") which sold all of its music
related assets to the new company in June 1984.
R. S. HARRISON, age 64, is the Company's Chairman of the
Board. Prior to December 1994, Mr. Harrison served continuously as
the Company's Chief Executive Officer from its inception in
November 1983. He also previously served as the Company's Chairman
of the Board from its formation until August 1993, when he assumed
the responsibilities as the Company's President. Prior to November
1983, Mr. Harrison served the Company's predecessor (Old BP&O) as
a Director since June 1983, as its chief executive officer and
president since 1974 and in other capacities since 1955.
KAREN L. HENDRICKS, age 48, joined the Company as Chief
Executive Officer, President and Director in 1994. Prior to
joining the Company, Ms. Hendricks served as the Executive Vice
President and General Manager, Skin Care Division of the Dial Corp
since 1992, where she had full responsibility for Dial's United
States bar and liquid soap business. Ms. Hendricks previously was
employed for over twenty years by The Procter & Gamble Company in
various executive positions in product development and was promoted
to General Manager of its Vidal Sassoon Hair Care Company in 1987.
STEPHEN P. BROCK, age 41, joined the Company as Senior Vice
President/Sales and Marketing in July 1995. Prior to joining the
Company, Mr. Brock most recently served as Marketing Director,
Worldwide Strategic Planning-Laundry Products for The Procter &
Gamble Company since 1993. From 1984 to 1993, he served in various
Brand Manager and Assistant Brand Manager positions for The Procter
& Gamble Company. From 1979 to 1984, he was employed by the
Cincinnati Opera Association in a variety of roles, including
Administrative Manager.
GEORGE C. HUEBNER, age 53, joined the Company in 1960 as
Assistant Credit Manager. In 1979, he was promoted to Director of
International Operations; and from 1987 to December 1989, he was
Administrative Services Manager. In January 1990, he became
National Credit Manager of the Consumer Finance Subsidiary; and in
May 1991, was promoted to Divisional Vice President/Keyboard
Acceptance Corporation. In 1993, he was promoted to Vice Presi-
dent/Keyboard Acceptance Corporation.
LARRY D. THOMPSON, age 33, joined the Company as Director of
Finance in May 1995. Prior to joining the Company, Mr. Thompson
most recently served as Controller for the Soap & Personal Care
Division of Dial Corp since 1993. Prior to that, he was employed
for seven years by Procter & Gamble Company in a variety of
financial roles, including Category Finance Manager of the Food and
Beverage sector. In December 1995, he was appointed Vice Presi-
dent/General Manager, Special Products Division.
<PAGE>
LARRY E. MUSTARD, age 40, joined the Company as Controller in
January 1994. In March 1995, he was appointed Vice President and
Controller and in 1996 he became Vice President/Finance/Treasurer.
Prior to 1994, he was employed for five years as Automotive Group
Controller for Eagle-Picher Industries, Inc.
CHARLES R. JUENGLING, age 48, joined the Company in 1984 as
Divisional Vice President/Financial. In 1989, he was appointed
Vice President and Chief Financial Officer; in March 1995, he
became Vice President/Treasurer/Secretary; and in 1996 he became
Vice President/Controller/Secretary.
KATHRYN E. MOWRIS, age 38, joined the Company as Vice
President/Manufacturing, Trumann, Arkansas and Greenwood, Missis-
sippi in May 1995. Prior to joining the Company, Ms. Mowris had
been employed by Dial Corp since 1991, serving most recently as
Plant Manager of their Omaha, Nebraska plant. Prior to 1991, she
was employed for two years as Production Manager for Product
Development for Lever Bros., U.S. Subsidiary of Unilever Corp.
SALVADOR ORTIZ, age 50, has been employed by the Company since
1967. From 1967 until 1995, except for a one year absence from the
Company in 1985, he was Plant Manager - Juarez, Mexico. In 1995,
he was appointed Vice President/Manufacturing - Juarez, Mexico.
KENEN M. EDGINGTON, age 50, has been employed by the Company
since 1971. From 1977 until November 1983, he was Piano Product
Manager; from 1983 to November 1988, he was Vice President/Domestic
Wholesale Sales; in 1988, he became Vice President/Keyboard Sales;
in 1991, he became Executive Vice President; and in 1995, he became
Vice President/Sales Administration.
FRANK E. SETA, age 39, joined the Company in 1979 in the
Dealer Services Division. In 1982, he was promoted to District
Sales Manager and in 1985 became a retail store manager until 1990.
In 1990, he was Director of Market Development; and in June 1991,
became Divisional Vice President/Western Sales. In 1994, he became
Divisional Vice President/Acoustic Pianos; and in 1996, he became
Vice President/Acoustic Pianos.
KENNETH J. CLARK, age 45, has been employed by the Company
since 1974, serving as a retail store manager from 1978 to 1985.
In 1985, he was appointed Divisional Vice President/Retail Sales
and in 1989 he became Vice President/Retail Sales. In 1994, he was
appointed Vice President/Marketing and in 1995, he became Vice
President/Digital Pianos.
DUANE A. KUHN, age 54, joined the Company in 1966. In 1979,
he assumed the position of Marketing Manager of Classical Organs;
in 1983, he was appointed Divisional Vice President/Eastern Sales;
in 1988, he became Senior Vice President/Wurlitzer; and in 1991, he
became Vice President/Church Organ Systems.
<PAGE>
JOHN H. TOLLESON, age 58, joined the Company in 1962. He
became Market Development Manager in January 1981 and Division
Sales Manager in September 1982. In December 1983, he was
appointed Divisional Vice President/Western Sales; and in June
1991, he became Vice President/Domestic Wholesale Sales. In 1994,
he was appointed Vice President/Special Markets; and in 1996, he
became Vice President/New Program Development.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The information regarding market for registrant's common
equity and related stockholder matters as required by Item 201 of
Regulation S-K is incorporated herein by reference from page 29 of
the Company's 1995 Annual Report to Shareholders appearing under
the caption "Market and Dividend Information".
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information regarding selected financial data of the
Company as required by Item 301 of Regulation S-K is incorporated
herein by reference from page 25 of the Company's 1995 Annual
Report to Shareholders appearing under the caption "Five-Year
Summary".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The information regarding management's discussion and analysis
of the Company's financial condition and results of operations as
required by Item 303 of Regulation S-K is incorporated herein by
reference from pages 26 through 28 of the Company's 1995 Annual
Report to Shareholders appearing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
----------------------
The Company's financial statements are incorporated herein by
reference from pages 10 through 24 of the Company's 1995 Annual
Report to Shareholders. The supplementary quarterly financial
information regarding the Company as required by Item 302 of
Regulation S-K is incorporated herein by reference from page 24 of
the Company's 1995 Annual Report to Shareholders appearing under
the Note caption "Quarterly Financial Data".
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
No change in the Company's auditors has taken place within the
twenty-four months prior to, or in any period subsequent to, the
Company's December 31, 1995 financial statements.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information regarding the Company's directors and
executive officers as required by Items 401 and 405 of Regulation
S-K is incorporated herein by reference from the Company's 1996
Proxy Statement from the information appearing under the captions
"Election of Directors" and "Security Ownership of Certain
Beneficial Owners and Management - Beneficial Ownership of
Management and Nominees." Certain information regarding the
Company's executive officers and key employees is set forth under
the caption "Executive Officers of the Registrant" appearing at the
end of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information regarding compensation of the Company's
directors and executive officers as required by Item 402 of
Regulation S-K is incorporated herein by reference from the
Company's 1996 Proxy Statement from the information appearing under
the caption "Executive Compensation", except that the information
required by Items 402(k) and (l) of Regulation S-K which appears
within such caption under the sub-headings "Report of Compensation
Committee on Executive Compensation" and "Common Stock Performance"
is specifically not incorporated by reference into this Form 10-K
or into any other filing by the Company under the Securities Act of
1933 or the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
--------------
The information regarding ownership of the Company's common
stock by the Company's management and by the beneficial owners of
more than 5% of the outstanding common stock as required by Item
403 of Regulation S-K is incorporated herein by reference from the
Company's 1996 Proxy Statement from the information appearing under
the caption "Security Ownership of Certain Beneficial Owners and
Management."
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information regarding certain relationships and related
transactions as required by Item 404 of Regulation S-K is incorpo-
rated herein by reference from the Company's 1996 Proxy Statement
from the information appearing under the caption "Certain Transac-
tions and Proceedings".
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
-----------------------
1.1 The following consolidated financial statements of the
Company included in the Company's 1995 Annual Report to Sharehold-
ers are incorporated herein by reference from pages 10 through 24
of the annual report. Reference is also made to Item 8.
Independent Auditors' Report.
Consolidated Statements of Earnings, years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity,
years ended December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets, as of
December 31, 1995 and 1994.
Consolidated Statements of Cash Flows, years
ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements,
years ended December 31, 1995, 1994 and 1993.
2.1 Consolidated Financial Statement Schedules of
Baldwin Piano & Organ Company and Subsidiaries:
Independent Auditors' Report on Schedule.
Schedule for the years ended
December 31, 1995, 1994 and 1993.
VIII. Valuation and Qualifying Accounts.
All other schedules are omitted, as the required informa-
tion is inapplicable or the information is presented in
the consolidated financial statements or related notes.
<PAGE>
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Bylaws of the Company. (1)
Management Contracts, Compensatory Plans and Arrangements
=========================================================
10.1 Baldwin Piano & Organ Company 1986 Incentive Stock Option
Plan adopted on June 30, 1986. (1)
10.2 Baldwin Piano & Organ Company Retirement Plan for Salaried
Employees, as amended. (1)
10.3 Baldwin Piano & Organ Company Retirement Trust for Salaried
Employees dated September 28, 1984. (1)
10.4 Amended and Restated Agreement of Employment and Retirement
Plan for Selected Key Employee between Baldwin Piano & Organ
Company and R. S. Harrison dated as of May 9, 1989. (4)
10.5 Form of Indemnification Agreements between the Company and
the Company's Officers and Directors dated June 30, 1986 and
accompanying schedule. (1)
10.6 Consulting Agreement between the Company and Harold S. Smith
dated as of April 14, 1993. (10)
10.7 Baldwin Piano & Organ Company Deferred Directors Fee
Plan. (11)
10.8 Baldwin Piano & Organ Company Non-Qualified Deferred
Compensation Plan. (11)
10.9 Baldwin Piano & Organ Company Non-Qualified Deferred
Compensation Rabbi Trust Agreement as amended and restated
as of October 4, 1993. (11)
10.10 Agreement of Employment between Baldwin Piano & Organ
Company and Karen L. Hendricks dated as of November 18, 1994. (13)
10.11 Second Amended and Restated Agreement of Employment and
Retirement Plan for Selected Key Employee between Baldwin Piano &
Organ Company and R. S. Harrison dated as of December 9, 1994.
(13)
===============================
10.12 Office Space Lease Agreement between Wards Corner Associates
Limited Partnership and the Company dated as of June 16, 1986. (1)
10.13 Guaranty dated February 23, 1988 in favor of General
Electric Capital Corporation made by TWCA Corp (now known as
`The Wurlitzer Company'). (2)
10.14 Security Agreement dated February 23, 1988 in favor of
General Electric Capital Corporation made by TWCA Corp. (2)
<PAGE>
10.15 Stock Pledge Agreement dated February 23, 1988 by and
between Baldwin Piano & Organ Company and General Electric Capital
Corporation relating to the Company's shares of TWCA Corp. (2)
10.16 Amended and Restated Revolving Credit and Security Agreement
between the Company and General Electric Capital Corporation dated
October 25, 1990. (6)
10.17 Pledge Agreement by the Company in favor of General Electric
Capital Corporation dated October 25, 1990. (6)
10.18 Security Agreement by BPO Finance Corporation in favor of
General Electric Capital Corporation dated October 25, 1990. (6)
10.19 Guaranty by BPO Finance Corporation in favor of General
Electric Capital Corporation dated October 25, 1990. (6)
10.20 Purchase and Administration Agreement among the Company, BPO
Finance Corporation, Retailer Funding Corporation and General
Electric Capital Corporation, as a consenting party, dated as of
October 1, 1990. (6)
10.21 Guaranty Agreement among the Company, BPO Finance Corpora-
tion, Retailer Funding Corporation and General Electric
Capital Corporation dated as of October 1, 1990. (6)
10.22 Indemnification Agreement among BPO Finance Corporation,
General Electric Capital Corporation and Kidder Peabody & Co.
Incorporated as of October 1, 1990. (6)
10.23 Retail Accounts Receivable Purchase Agreement among the
Company, BPO Finance Corporation and The Wurlitzer Company dated as
of October 1, 1990. (6)
10.24 Amendment dated as of February 15, 1994 to the October 25,
1990 Amended and Restated Revolving Credit Agreement between the
Company and General Electric Capital Corporation. (12)
10.25 Amendment dated as of February 15, 1994 to the October 1,
1990 Purchase and Administration Agreement among the Company,
Keyboard Acceptance Corporation (formerly known as BPO Finance
Corporation), Retailer Funding Corporation and General Electric
Capital Corporation as a consenting party. (12)
10.26 Amendment dated as of February 15, 1994 to the October 1,
1990 Guaranty Agreement among the Company, Keyboard Acceptance
Corporation, Retailer Funding Corporation and General Electric
Capital Corporation. (12)
10.27 Amended and Restated General Loan and Security Agreement
dated as of February 24, 1994 between the Company and The Fifth
Third Bank. (12)
10.28 Irrevocable Standby Letter of Credit issued August 13, 1993
by The Fifth Third Bank on behalf of the Company in favor of Harold
S. Smith. (12)
<PAGE>
10.29 Letter of Credit Reimbursement Agreement dated as of August
13, 1993 between the Company and The Fifth Third Bank. (12)
10.30 Amendment to Office Space Lease Agreement between Baldwin
Piano & Organ Company and Nooney Management Company dated as of
June 11, 1991. (8)
10.31 Agreement dated as of September 30, 1992 to be effective
January 1, 1993 through March 31, 1996 between Baldwin Piano &
Organ Company and International Chemical Workers Union and Local
Union No. 800. (9)
10.32 Lease Agreement between Baldwin Piano & Organ Company and
XL/Datacomp, Inc. dated as of October 14, 1992. (9)
10.33 Memorandum Agreement between Nippon Columbia Co., LTD. and
The Wurlitzer Company dated as of November 15, 1992. (9)
10.34 Development Agreement between the Company and ENSONIQ Corp.
dated as of April 15, 1993. (12)
10.35 Distribution Agreement between The Wurlitzer Company and
GeneralMusic S.p.A. dated as of March 9, 1994. (12)
10.36 Second Amendment dated as of December 1, 1994 to Purchase
and Administration Agreement dated as of October 1, 1990 as amended
by a First Amendment dated as of February 15, 1994 among Retailer
Funding Corporation, Keyboard Acceptance Corporation (formerly BPO
Finance Corporation) and General Electric Capital Corporation as a
consenting party. (13)
10.37 Indemnification agreement dated as of December 1, 1994 among
General Electric Capital Corporation, Lehman Commercial Paper, Inc.
and Keyboard Acceptance Corporation (formerly BPO Finance Corpora-
tion). (13)
10.38 Amendment #4 dated as of September 30, 1994 to that certain
Revolving Credit and Security Agreement, dated as of June 15, 1984
and Restated as of October 15, 1990 between Baldwin Piano & Organ
Company and General Electric Capital Corporation. (13)
10.39 Amendment #5 dated as of March 28, 1995 to that certain
Revolving Credit and Security Agreement, dated as of June 15, 1984
and Restated as of October 15, 1990 between Baldwin Piano & Organ
Company and General Electric Capital Corporation. (14)
10.40 Amendment No. 1 dated as of April 3, 1995 to that certain
Amended and Restated General Loan and Security Agreement dated as
of February 24, 1994 between the Company and The Fifth Third Bank.
(14)
10.41 Distribution Agreement between Baldwin Piano & Organ Company
and GeneralMusic S.p.A. dated as of July 1, 1995. (15)
10.42 Amendment No. 2 dated as of October 1, 1995 to that certain
Amended and Restated General Loan and Security Agreement dated as
of February 24, 1994 between the Company and The Fifth Third Bank.
<PAGE>
10.43 Amendment to Office Space Lease Agreement between Baldwin
Piano & Organ Company and Nooney Krombach Company dated as of
February 16, 1996.
11.1 Statement regarding computation of per share earnings.
13.1 Information incorporated by reference from the Company's
1995 Annual Report to Shareholders for the year ended December 31,
1995: "Independent Auditors' Report", "Financial Statements"
(including Notes thereto), "Five Year Summary", "Management's
Discussion and Analysis of Financial Condition", and "Market and
Dividend Information".
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
99.1 Baldwin Stock Repurchase Plan. (3)
99.2 Amendment No. 1 to Baldwin Stock Repurchase Plan. (5)
99.3 Amendment No. 2 to Baldwin Stock Repurchase Plan. (7)
99.4 Press Release dated February 22, 1996.
(1) Incorporated by reference from the Company's Form S-1 Regis-
tration Statement as declared effective by the Commission on
October 8, 1986.
(2) Incorporated by reference from the Company's Form 8-K dated
February 23, 1988 as filed with the Commission on March 9, 1988.
(3) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1987.
(4) Incorporated by reference from the Company's Form 10-Q for
the period ended June 30, 1989.
(5) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1989.
(6) Incorporated by reference from the Company's Form 8-K dated
October 25, 1990 as filed with the Commission on November 9, 1990.
(7) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1990.
(8) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1991.
(9) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1992.
(10) Incorporated by reference from the Company's Form S-3
Registration Statement as declared effective by the Commission on
May 19, 1993.
<PAGE>
(11) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1993.
(12) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1993.
(13) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1994.
(14) Incorporated by reference from the Company's Form 10-Q for
the period ended March 31, 1995.
(15) Incorporated by reference from the Company's form 10-Q for
the period ended September 30, 1995.
Index to Exhibits - pages 30 - 35
REPORTS ON FORM 8-K
-------------------
During the fourth quarter of 1995, the Company filed no
reports on Form 8-K.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BALDWIN PIANO & ORGAN COMPANY
By: KAREN L. HENDRICKS
-------------------------------------
Karen L. Hendricks, Chief Executive
Officer and President.
Date: March 25, 1996
------------------------------------
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Principal Executive Officer:
Date: March 25, 1996 KAREN L. HENDRICKS
-------------- -------------------------------------
Karen L. Hendricks, Chief Executive
Officer, President and Director
Date: March 25, 1996 R. S. HARRISON
-------------------------------------
R. S. Harrison, Chairman of the
Board and Director
Date: March 25, 1996 GEORGE E. CASTRUCCI
-------------- -------------------------------------
George E. Castrucci, Director
Date: March 25, 1996 WILLIAM B. CONNELL
-------------- -------------------------------------
William B. Connell, Director
Date: March 25, 1996 JOSEPH H. HEAD, JR.
-------------- -------------------------------------
Joseph H. Head, Jr., Director
Date: March 25, 1996 ROGER L. HOWE
-------------- -------------------------------------
Roger L. Howe, Director
Principal Financial and Accounting Officer:
Date: March 25, 1996 CHARLES R. JUENGLING
-------------- -------------------------------------
Charles R. Juengling, Vice President/
Controller/Secretary
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
----------------------------------------
The Board of Directors
Baldwin Piano & Organ Company:
Under date of February 23, 1996, we reported on the
consolidated balance sheets of Baldwin Piano & Organ Company
and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1995, as contained in the 1995
annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year
1995. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed
in the index under Part IV, item 14 (2.1) of this Form 10-K.
This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Cincinnati, Ohio
February 23, 1996
<PAGE>
<TABLE>
Schedule VIII
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
_______________
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
<CAPTION>
Additions
---------
Charged Charged Balance at
Balance at to cost to other Deductions end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
- -------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995 $4,299,567 $ 845,288 $ - $1,140,663(1) $4,004,192
========== ========== ====== ========== ==========
Year ended
December 31, 1994 $4,110,040 $1,183,876 $ - $ 994,349(1) $4,299,567
========== ========== ====== ========== ==========
Year ended
December 31, 1993 $3,377,353 $1,432,234 $ - $ 699,547(1) $4,110,040
========== ========== ====== ========== ==========
RESERVE FOR INSTALLMENT RECEIVABLES
SOLD WITH RECOURSE:
------------------
Year ended
December 31, 1995 $2,296,000 $ 120,000 $ - $ 906,000(2) $1,510,000
========== ========== ====== ========== ==========
Year ended
December 31, 1994 $2,706,000 $ 120,000 $ - $ 530,000(2) $2,296,000
========== ========== ====== ========== ==========
Year ended
December 31, 1993 $2,734,000 $ 270,000 $ - $ 298,000(2) $2,706,000
========== ========== ====== ========== ==========
_______________________
<FN1>
(1) Represents accounts charged off, less recoveries.
</FN1>
<FN2>
(2) Represents reserve related to accounts repurchased.
</FN2>
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
3.1 Certificate of Incorporation of the Company, *
as amended. (1)
3.2 Bylaws of the Company. (1) *
10.1 Baldwin Piano & Organ Company 1986 Incentive *
Stock Option Plan adopted on June 30, 1986. (1)
10.2 Baldwin Piano & Organ Company Retirement Plan *
for Salaried Employees, as amended. (1)
10.3 Baldwin Piano & Organ Company Retirement Trust *
for Salaried Employees dated September 28,
1984. (1)
10.4 Amended and Restated Agreement of Employment *
and Retirement Plan for Selected Key Employee
between Baldwin Piano & Organ Company and
R. S. Harrison dated as of May 9, 1989. (4)
10.5 Form of Indemnification Agreements between *
the Company and the Company's Officers and
Directors dated June 30, 1986 and accompany-
ing schedule. (1)
10.6 Consulting Agreement between the Company *
and Harold S. Smith dated as of April 14,
1993. (10)
10.7 Baldwin Piano & Organ Company Deferred *
Directors Fee Plan. (11)
10.8 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Plan. (11)
10.9 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Rabbi Trust Agreement
as amended and restated as of October 4,
1993. (11)
10.10 Agreement of Employment between Baldwin Piano *
& Organ Company and Karen L. Hendricks dated
as of November 18, 1994. (13)
10.11 Second Amended and Restated Agreement of *
Employment and Retirement Plan for Selected
Key Employee between Baldwin Piano & Organ
Company and R. S. Harrison dated as of
December 9, 1994. (13)
<PAGE>
10.12 Office Space Lease Agreement between Wards *
Corner Associates Limited Partnership and the
Company dated as of June 16, 1986. (1)
10.13 Guaranty dated February 23, 1988 in favor *
of General Electric Capital Corporation
made by TWCA Corp (now known as `The
Wurlitzer Company'). (2)
10.14 Security Agreement dated February 23, 1988 *
in favor of General Electric Capital Corpo-
ration made by TWCA Corp. (2)
10.15 Stock Pledge Agreement dated February 23, 1988 *
by and between Baldwin Piano & Organ Company
and General Electric Capital Corporation
relating to the Company's shares of TWCA
Corp. (2)
10.16 Amended and Restated Revolving Credit and *
Security Agreement between the Company and
General Electric Capital Corporation dated
October 25, 1990. (6)
10.17 Pledge Agreement by the Company in favor of *
General Electric Capital Corporation dated
October 25, 1990. (6)
10.18 Security Agreement by BPO Finance Corporation *
in favor of General Electric Capital Corpora-
tion dated October 25, 1990. (6)
10.19 Guaranty by BPO Finance Corporation in favor *
of General Electric Capital Corporation dated
October 25, 1990. (6)
10.20 Purchase and Administration Agreement among *
the Company, BPO Finance Corporation,
Retailer Funding Corporation and General
Electric Capital Corporation, as a consenting
party, dated as of October 1, 1990. (6)
10.21 Guaranty Agreement among the Company, *
BPO Finance Corporation, Retailer Funding
Corporation and General Electric Capital
Corporation dated as of October 1, 1990. (6)
10.22 Indemnification Agreement among BPO Finance *
Corporation, General Electric Capital Corpo-
ration and Kidder Peabody & Co. Incorporated
as of October 1, 1990. (6)
10.23 Retail Accounts Receivable Purchase Agreement *
among the Company, BPO Finance Corporation
and The Wurlitzer Company dated as of October
1, 1990. (6)
<PAGE>
10.24 Amendment dated as of February 15, 1994 to *
the October 25, 1990 Amended and Restated
Revolving Credit Agreement between the
Company and General Electric Capital
Corporation. (12)
10.25 Amendment dated as of February 15, 1994 to *
the October 1, 1990 Purchase and Adminis-
tration Agreement among the Company, Keyboard
Acceptance Corporation (formerly known as
BPO Finance Corporation), Retailer Funding
Corporation and General Electric Capital
Corporation as a consenting party. (12)
10.26 Amendment dated as of February 15, 1994 to *
the October 1, 1990 Guaranty Agreement among
the Company, Keyboard Acceptance Corporation,
Retailer Funding Corporation and General
Electric Capital Corporation. (12)
10.27 Amended and Restated General Loan and Security *
Agreement dated as of February 24, 1994 between
the Company and The Fifth Third Bank. (12)
10.28 Irrevocable Standby Letter of Credit issued *
August 13, 1993 by The Fifth Third Bank on
behalf of the Company in favor of Harold
S. Smith. (12)
10.29 Letter of Credit Reimbursement Agreement *
dated as of August 13, 1993 between the
Company and The Fifth Third Bank. (12)
10.30 Amendment to Office Space Lease Agreement *
between Baldwin Piano & Organ Company and
Nooney Management Company dated as of
June 11, 1991. (8)
10.31 Agreement dated as of September 30, 1992 *
to be effective January 1, 1993 through
March 31, 1996 between Baldwin Piano &
Organ Company and International Chemical
Workers Union and Local Union No. 800. (9)
10.32 Lease Agreement between Baldwin Piano & *
Organ Company and XL/Datacomp, Inc. dated
as of October 14, 1992. (9)
10.33 Memorandum Agreement between Nippon Columbia *
Co., LTD. and The Wurlitzer Company dated as
of November 15, 1992. (9)
10.34 Development Agreement between the Company *
and ENSONIQ Corp. dated as of April 15, 1993.
(12)
<PAGE>
10.35 Distribution Agreement between The Wurlitzer *
Company and GeneralMusic S.p.A. dated as of
March 9, 1994. (12)
10.36 Second Amendment dated as of December 1, 1994 *
Purchase and Administration Agreement dated
as of October 1, 1990 as amended by a First
Amendment dated as of February 15, 1994 among
Retailer Funding Corporation, Keyboard Accept-
ance Corporation (formerly BPO Finance Corpo-
ration) and General Electric Capital Corporation
as a consenting party. (13)
10.37 Indemnification Agreement dated as of Decem- *
ber 1, 1994 among General Electric Capital
Corporation, Lehman Commercial Paper, Inc.
and Keyboard Acceptance Corporation (formerly
BPO Finance Corporation). (13)
10.38 Amendment #4 dated as of September 30, 1994 to *
that certain Revolving Credit and Security
Agreement, dated as of June 15, 1984 and
Restated as of October 15, 1990 between
Baldwin Piano & Organ Company and General
Electric Capital Corporation. (13)
10.39 Amendment #5 dated as of March 28, 1995 to *
that certain Revolving Credit and Security
Agreement, dated as of June 15, 1984 and
Restated as of October 15, 1990 between
Baldwin Piano & Organ Company and General
Electric Capital Corporation. (14)
10.40 Amendment No. 1 dated as of April 3, 1995 *
to that certain Amended and Restated General
Loan and Security Agreement dated as of
February 24, 1994 between the Company and
The Fifth Third Bank. (14)
10.41 Distribution Agreement between Baldwin Piano *
& Organ Company and GeneralMusic S.p.A.
dated as of July 1, 1995. (15)
10.42 Amendment No. 2 dated as of October 1, 1995
to that certain Amended and Restated General
Loan and Security Agreement dated as of
February 24, 1994 between the Company and
The Fifth Third Bank.
10.43 Amendment to Office Space Lease Agreement
between Baldwin Piano & Organ Company and
Nooney Krombach Company dated as of
February 16, 1996.
<PAGE>
11.1 Statement regarding computation of per share
earnings.
13.1 Information incorporated by reference from the
Company's 1995 Annual Report to Shareholders
for the year ended December 31, 1995: "Inde-
pendent Auditors' Report", "Financial State-
ments" (including Notes thereto), "Five Year
Summary", "Management's Discussion and Analysis
of Financial Condition", and "Market and
Dividend Information".
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
99.1 Baldwin Stock Repurchase Plan. (3) *
99.2 Amendment No. 1 to Baldwin Stock Repurchase *
Plan. (5)
99.3 Amendment No. 2 to Baldwin Stock Repurchase *
Plan. (7)
99.4 Press Release dated February 22, 1996.
* Incorporated by reference as indicated in the applicable
footnote.
(1) Incorporated by reference from the Company's Form S-1
Registration Statement as declared effective by the Commission on
October 8, 1986.
(2) Incorporated by reference from the Company's Form 8-K dated
February 23, 1988 as filed with the Commission on March 9, 1988.
(3) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1987.
(4) Incorporated by reference from the Company's Form 10-Q for
the period ended June 30, 1989.
(5) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1989.
(6) Incorporated by reference from the Company's Form 8-K dated
October 25, 1990 as filed with the Commission on November 9, 1990.
(7) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1990.
(8) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1991.
<PAGE>
(9) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1992.
(10) Incorporated by reference from the Company's Form S-3
Registration Statement as declared effective by the Commission on May
19, 1993.
(11) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1993.
(12) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1993.
(13) Incorporated by reference from the Company's Form 10-K for
the period ended December 31, 1994.
(14) Incorporated by reference from the Company's Form 10-Q for
the period ended March 31, 1995.
(15) Incorporated by reference from the Company's Form 10-Q for
the period ended September 30, 1995.
<PAGE>
Exhibit 11.1
STATEMENT REGARDING COMPUTATIONS OF EARNINGS PER SHARE
Year ended December 31, 1995:
- ----------------------------
Net earnings ...................... $3,960,181
==========
Average number of
common shares outstanding ....... 3,415,196
=========
Net earnings per share ............ $1.16
=====
Year ended December 31, 1994:
- ----------------------------
Net earnings ...................... $ 344,708
==========
Average number of
common shares outstanding ....... 3,415,262
=========
Net earnings per share ............ $ .10
=====
Year ended December 31, 1993:
- ----------------------------
Earnings before cumulative
effects of changes in
accounting principles ........... $6,164,949
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits ..... (1,604,000)
----------
Net earnings ...................... $4,560,949
==========
Average number of
common shares outstanding ....... 3,408,604
=========
Earnings per share:
Before cumulative effects
of changes in accounting
principles....................... $1.81
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits ..... (.47)
-----
Net earnings per share .......... $1.34
=====
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Name Incorporation
---- -------------
Keyboard Acceptance Corporation Delaware
The Wurlitzer Company Delaware
The Baldwin Piano Company Canada
(Canada) Limited
Fabricantes Tecnicos, S.A. Mexico
Korean American Musical Instrument Korea
Corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Baldwin Piano & Organ Company:
We consent to the incorporation by reference in the registration
statement (File No. 33-53809) on Form S-8 of Baldwin Piano & Organ
Company of our report dated February 23, 1996 relating to the
consolidated balance sheets of Baldwin Piano & Organ Company and
subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended December
31, 1995 and related schedule, which is incorporated by reference in
the annual report on Form 10-K of Baldwin Piano & Organ Company.
KPMG Peat Marwick LLP
Cincinnati, Ohio
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 428,621
<SECURITIES> 0
<RECEIVABLES> 10,654,489
<ALLOWANCES> 3,611,820
<INVENTORY> 46,039,357
<CURRENT-ASSETS> 69,596,576
<PP&E> 29,145,625
<DEPRECIATION> 14,212,004
<TOTAL-ASSETS> 101,428,688
<CURRENT-LIABILITIES> 34,894,097
<BONDS> 5,000,000
0
0
<COMMON> 41,649
<OTHER-SE> 54,072,596
<TOTAL-LIABILITY-AND-EQUITY> 101,428,688
<SALES> 122,634,450
<TOTAL-REVENUES> 131,759,929
<CGS> 97,123,066
<TOTAL-COSTS> 97,123,066
<OTHER-EXPENSES> 25,263,686
<LOSS-PROVISION> 965,288
<INTEREST-EXPENSE> 2,086,708
<INCOME-PRETAX> 6,321,181
<INCOME-TAX> 2,361,000
<INCOME-CONTINUING> 3,960,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,960,181
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
Exhibit 10.42
AMENDMENT NO. 2 TO AMENDED AND RESTATED
GENERAL LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 ("Amendment") dated as of October 1, 1995
to that certain Amended and Restated General Loan and Security
Agreement by and between BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation ("Debtor"), and THE FIFTH THIRD BANK ("Lender"), dated
as of June 15, 1989, restated as of February 24, 1994 and amended
by Amendment No. 1 dated as of April 3, 1995 (the "Agreement").
WHEREAS, Debtor and Lender have agreed to amend the Agreement
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, intending to be legally bound the parties
hereto agree as follows:
A. Capitalized terms used and not otherwise defined herein
are used with the meaning set forth in the Agreement.
B. Section 5.24 of the Agreement is hereby amended and
restated in its entirety, effective as of October 1, 1995, to read
as follows:
5.24 Capital Expenditure. Neither Debtor nor
-------------------
any Subsidiary will, during any period of twelve (12)
consecutive months, make any Capital Expenditure if,
after giving effect to such Capital Expenditure, the
aggregate amount of all such Capital Expenditures made
during such twelve (12) month period by Debtor and all
Subsidiaries shall exceed $4,500,000, except for
industrial development or revenue bond financing
consented to by Lender, in writing.
C. Section 6.1(d) of the Agreement is hereby amended and
restated in its entirety, effective as of October 1, 1995, to read
as follows:
(d) Projections - Within 15 days prior
to the beginning of each fiscal year, on a
consolidated and consolidating basis:
(i) projected balance sheets for
the forthcoming 12 fiscal months, month by
month;
(ii) a projected cash flow
statement, including reasonable details of
cash disbursements and collateral
availability, for the forthcoming 12 fiscal
months, month by month; and
<PAGE>
(iii) a projected income statement
for the forthcoming 12 months, month by month,
together with appropriate supporting details
as requested by Lender.
D. Except as expressly modified hereby, the Agreement
remains unaltered and in full force and effect. Debtor
acknowledges that Lender has made no oral representations to Debtor
with respect to the Agreement and this Amendment thereto and that
all prior understandings between the parties are merged into the
Agreement as amended by this writing.
E. This Amendment shall be considered an integral part of
the Agreement, and all references to the Agreement in the Agreement
itself or any document referring thereto shall, on and after the
date of execution of this Amendment, be deemed to be references to
the agreement as amended by this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed as of the date first above written.
BALDWIN PIANO & ORGAN COMPANY
By: C. R. JUENGLING
Its: Vice President
THE FIFTH THIRD BANK
By: ROBERT C. RIES
Its: Vice President
Exhibit 10.43
AMENDMENT TO LEASE
------------------
THIS THIRD AMENDMENT TO LEASE, made and entered into this 16th
day of February 1996, by and between Nooney Krombach Company, a
Missouri corporation (hereinafter referred to as "Lessor") and
Baldwin Piano & Organ Company, a Delaware corporation (hereinafter
referred to as "Lessee");
WITNESSETH:
WHEREAS, Wards Corner Associates Limited Partnership, an Ohio
limited partnership (hereinafter referred to as "Wards Corner
Associates") and Lessee entered into that certain Office Space
Lease Agreement (hereinafter referred to as "Lease"), dated June
16, 1986, for certain space containing approximately 50,000 square
feet of space (hereinafter referred to as the "Premises"), and
located at 422 Wards Corner Road, Loveland, Ohio; and
WHEREAS, the primary term of said Lease commenced on June 15,
1986, and expired on December 31, 1991; and
WHEREAS, Wards Corner Associates and Lessee entered into that
First Amendment to Office Space Lease Agreement, dated December 1,
1986, wherein Lessor agreed to perform certain interior finish
work; and
WHEREAS, Landlord (f/k/a Nooney Management Company) became the
successor in interest to Wards Corner Associates; and
WHEREAS, Landlord and Lessee entered into that certain Second
Amendment to Lease, dated June 11, 1991, wherein the term of said
Lease was extended an additional five (5) years, that is from
January 1, 1992 through and including December 31, 1996; and
WHEREAS, both Lessor and Lessee are desirous of further
amending said Lease;
NOW THEREFORE, for and in consideration of the foregoing, and
the mutual covenants set forth below, it is agreed that said Lease
is hereby modified and amended as follows:
1. The term of said Lease is hereby extended for a period of
two (2) years, that is from January 1, 1997 through and including
December 31, 1998, upon the same terms and conditions as said
Lease, except as set forth below.
2. Effective January 1, 1997, Lessee shall pay to Lessor, as
Base Rent for the Premises, an amount equal to Three Hundred
Eighty-five Thousand, Eight Hundred Forty-eight and 00/100 Dollars
($385,848.00), per year, payable in equal monthly installments of
Thirty-two Thousand, One Hundred Fifty-four and 00/100
($32,154.00). Payment shall be made in the time, manner and place
as set forth in said Lease.
<PAGE>
3. Paragraph 2 of the Second Amendment to Lease and Section
2.3 of said Lease are hereby deleted in their entirety.
4. Lessee shall have the right and option to extend the term
of this Lease for one (1) renewal period of five (5) years upon the
following additional terms and conditions:
(a) Lessee shall not have received a notice of default
from Lessor which has not been cured by Lessee or waived by Lessor
at the time Lessee exercises its option or at the time the primary
term expires.
(b) Lessee shall give Lessor written notice exercising
Lessee's option to extend the term of said Lease not later than
June 30, 1998.
(c) During the renewal term, the Base Rent payable by
Tenant shall be increased according to the following:
MONTHLY ANNUAL
PERIOD BASE RENT BASE RENT
------ --------- ---------
Year 1 $39,959.00 $479,508.00
Year 2 $41,158.00 $493,896.00
Year 3 $42,393.00 $508,716.00
Year 4 $43,665.00 $523,980.00
Year 5 $44,975.00 $539,700.00
(d) All other terms and conditions of said Lease shall
be binding upon Lessor and Lessee and in full force and effect, as
if such terms and conditions were again fully recited herein.
(e) In the event Lessee does not exercise its option to
extend said Lease as herein provided, Lessor shall have the right,
during the six (6) months prior to the end of the term, to show the
Premises during normal business hours to other prospective lessees.
5. Provided said Lease is in full force and effect and
Lessee is not in default thereunder, Lessee shall have the right
and option to terminate said Lease to take effect at any time after
December 31, 1997. In order to exercise such option, Lessee must
give Lessor written notice at least six (6) months prior to the
effective date of termination. In the event Lessee elects to
terminate this Lease as aforesaid, Lessee shall pay to Lessor an
amount equal to all rents and other charges due Lessor through the
effective date of termination; and in the event any such amounts
are unknown at that time, an amount reasonably estimated by Lessor
to reflect Lessee's obligation under said Lease. Notwithstanding
the aforesaid, this Section, and Tenant's right herein to terminate
said Lease, shall automatically be null and void in the event
Tenant exercises its option to extend the term of this Lease
pursuant to Section 4, or said Lease is otherwise extended.
<PAGE>
6. Section 19.8 of said Lease is hereby amended such that
any notice, consent of waiver required or permitted to be given or
served by Lessee to Lessor shall be mailed by certified mail,
return receipt requested, addressed as follows: Nooney Krombach
Company, 7701 Forsyth Boulevard, St. Louis, Missouri 63105.
7. Lessor and Lessee each warrant that, they have dealt with
no broker or other person claiming a commission for or in
connection with this Third Amendment to Lease, other than Nooney
Krombach Company and Cincinnati Commercial Realtors; and each party
shall hold the other party harmless for any breach of such
warranty. Lessor shall be liable for any commissions payable to
the aforesaid broker.
8. Lessee acknowledges that, to the extent of Lessee's
present knowledge and without investigation, Lessor has complied
with all alterations, additions, and replacements under said Lease
with respect to the Premises, and that the Premises are not in need
of repair or maintenance; and Lessee hereby ratifies acceptance of
the Premises in its present "AS IS" condition. This provision
shall not diminish, limit or void Lessor's obligations under
Section 7 of said Lease.
Except as hereby amended, all other terms and conditions of
said Lease as previously amended shall remain unchanged, and shall
be in full force and effect as if again recited herein.
WHEREFORE, the parties have executed this Third Amendment to
Lease the day and year first above written.
WITNESS/ATTEST: LESSEE:
BALDWIN PIANO & ORGAN COMPANY,
a Delaware corporation
WAYNE F. HACH
D. L. GIRKIN By: KAREN L. HENDRICKS
Print Name: Karen L. Hendricks
Title: CEO & President
WITNESS/ATTEST: LESSOR:
NOONEY KROMBACH COMPANY,
Agent for the Owner
GLENDA F. WHITE
TRACY M. GROSS By: PATRICIA A. NOONEY
Print Name: Patricia A. Nooney
Title: Senior Vice President
& CFO
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Baldwin Piano & Organ Company:
We have audited the accompanying consolidated balance sheets of Baldwin Piano
& Organ Company and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Baldwin
Piano & Organ Company and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 12, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" in 1993.
KPMG Peat Marwick LLP
Cincinnati, Ohio
February 23, 1996
<PAGE>
<TABLE>
Baldwin Piano & Organ Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1995, 1994 and 1993
(In thousands, except earnings per share)
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 122,634 $ 122,347 $ 120,658
Cost of goods sold 97,123 97,029 89,971
Gross profit 25,511 25,318 30,687
Income on the sale of installment receivables 5,134 4,987 5,746
Interest income on installment receivables 693 564 443
Other operating income, net 3,299 3,341 3,531
------------- ------------- -------------
34,637 34,210 40,407
Operating expenses:
Selling, general and administrative 25,264 30,246 26,188
Provision for doubtful accounts 965 1,304 1,702
------------- ------------- -------------
Operating profit 8,408 2,660 12,517
Interest expense 2,087 2,101 2,232
------------- ------------- -------------
Earnings before income taxes and cumulative
effects of changes in accounting principles 6,321 559 10,285
Income taxes 2,361 214 4,120
------------- ------------- -------------
Earnings before cumulative effects of changes
in accounting principles 3,960 345 6,165
Cumulative effect of changes in accounting for
postretirement and postemployment benefits - - (1,604)
------------- ------------- -------------
Net earnings $ 3,960 $ 345 $ 4,561
============= ============= =============
Earnings per share:
Before cumulative effects of changes in
accounting principles $ 1.16 $ .10 $ 1.81
Cumulative effect of changes in accounting for
postretirement and postemployment benefits - - (.47)
------------- ------------- -------------
Net earnings per share $ 1.16 $ .10 $ 1.34
============= ============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993 (In thousands)
<CAPTION>
ADDITIONAL COST OF
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS SHARES TOTAL
---------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 42 $ 11,900 $ 39,412 $ (6,191) $ 45,163
Proceeds from exercise of stock options - 168 - - 168
Net earnings - - 4,561 - 4,561
--------- ----------- --------- ------------ ---------
Balance, December 31, 1993 42 12,068 43,973 (6,191) 49,892
Proceeds from exercise of stock options - 9 - - 9
Purchase for treasury - - - (16) (16)
Redemption of stock options - (76) - - (76)
Net earnings - - 345 - 345
--------- ----------- --------- ------------ ---------
Balance, December 31, 1994 42 12,001 44,318 (6,207) 50,154
Net earnings - - 3,960 - 3,960
--------- ----------- --------- ------------ ---------
Balance, December 31, 1995 $ 42 $ 12,001 $48,278 $ (6,207) $ 54,114
========= =========== ========= =========== =========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Baldwin Piano & Organ Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994 (In thousands, except share data)
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 429 $ 344
Receivables, net 14,338 12,860
Inventories 46,039 46,354
Deferred income taxes 4,072 5,095
Other current assets 4,719 3,462
------------- -------------
Total current assets 69,597 68,115
------------- -------------
Installment receivables, less current portion 11,215 8,621
Property, plant and equipment, net 14,934 13,855
Deferred income taxes 457 1,194
Other assets 5,226 5,675
------------- -------------
Total assets $ 101,429 $ 97,460
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 17,646 $ 16,746
Accounts payable 10,227 7,218
Income taxes payable 622 1,521
Accrued liabilities 6,399 6,871
------------- -------------
Total current liabilities 34,894 32,356
------------- -------------
Long-term debt, less current portion 4,250 5,000
Other liabilities 8,171 9,950
------------- -------------
Total liabilities 47,315 47,306
------------- -------------
Shareholders' equity:
Common stock (Issued 4,164,944 shares) 42 42
Additional paid-in capital 12,001 12,001
Retained earnings 48,278 44,318
------------- -------------
60,321 56,361
Less cost of 749,748 treasury shares (6,207) (6,207)
------------- -------------
Total shareholders' equity 54,114 50,154
------------- -------------
Total liabilities and shareholders' equity $ 101,429 $ 97,460
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Baldwin Piano & Organ Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993 (In thousands)
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net earnings $ 3,960 $ 345 $ 4,561
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities:
Cumulative effect of accounting changes - - 1,604
Depreciation and amortization 2,656 2,553 2,677
Gain on sale of assets (266) (420) -
Provision for doubtful accounts 965 1,304 1,702
Deferred income taxes 1,760 (1,294) 314
Change in assets and liabilities:
Trade receivables (956) (3,191) (2,779)
Inventories 315 (1,277) 2,866
Other current assets (1,257) (1,181) 222
Other assets 75 (350) 206
Accounts payable, accrued
liabilities and other liabilities 758 2,199 991
Income taxes payable (899) (992) (1,261)
------------- ------------- -------------
Net cash provided by (used in)
operating activities 7,111 (2,304) 11,103
------------- ------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (3,934) (2,503) (2,090)
Proceeds from sale of assets 839 479 -
------------- ------------- -------------
Net cash used in investing
activities (3,095) (2,024) (2,090)
------------- ------------- -------------
Cash flows from financing activities:
Installment receivables written (69,555) (59,859) (48,589)
Installment receivables liquidated 4,839 3,751 4,284
Proceeds from sale of installment receivables 60,635 53,597 43,574
Purchase of shares for treasury - (16) -
Redemption of stock options - (76) -
Net borrowing (principal payments) on long-term debt 150 6,063 (8,284)
Proceeds from exercise of stock options - 9 168
------------- ------------- -------------
Net cash provided by (used in)
financing activities (3,931) 3,469 (8,847)
------------- ------------- -------------
Net increase (decrease) in cash 85 (859) 166
Cash at beginning of year 344 1,203 1,037
------------- ------------- -------------
Cash at end of year $ 429 $ 344 $ 1,203
============= ============= =============
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1995 1994 1993
------------- ------------- -------------
Cash paid during the year for:
Interest $ 2,161 $ 1,943 $ 2,042
Income taxes $ 1,584 $ 2,556 $ 5,093
============= ============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
Baldwin Piano & Organ Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Baldwin Piano & Organ Company (Company) and all of its subsidiaries. All
material intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
The Company ships keyboard instruments to its dealer network on a consignment
basis. Accordingly, revenue is recognized at the time the dealer sells the
instrument to a third party. In 1995 the Company consolidated the Baldwin and
Wurlitzer dealer networks in order to allow dealers to offer both Baldwin and
Wurlitzer products. Previously, revenue related to the sale of Wurlitzer
instruments was recognized and title transferred at the time of shipment to
the Wurlitzer dealers. With the consolidation of the Baldwin and Wurlitzer
dealer networks, revenue related to the sale of Wurlitzer instruments is now
recognized at the time the dealer sells the instrument to a third party.
The company produces electronic, furniture and musical components on behalf
of other manufacturers. These contract businesses transfer title and
recognize revenue at the time of shipment to their customers.
The Company charges a monthly display fee on all consigned inventory held by
dealers longer than ninety days. This display fee, on an annual basis, ranges
from 10.5% to 15.5% of the selling price of such inventory to the dealer.
Display fee income comprises the majority of the amount reported in the
Consolidated Statements of Earnings as "Other operating income, net."
INSTALLMENT RECEIVABLES
Installment receivables are recorded at the principal amount of the
contracts. Interest on the contracts is recorded as income using the
interest method.
<PAGE>
The Company's wholly-owned finance subsidiary (Finance) has entered into
agreements with an independent entity to sell substantially all of its
installment receivable contracts up to a maximum outstanding principal
amount of $86 million. The buyer of the installment receivables earns
interest on the outstanding principal balance of the contracts based upon
a floating interest rate provision. Finance continues to service all
installment receivables sold. Over the lives of the contracts, the difference
between the actual yield on the installment contracts sold, using the
interest method, and the amount retained by the buyer under the floating
interest rate provision is remitted to Finance as a service fee. This amount
is recorded in the Consolidated Statements of Earnings as "Income on the sale
of installment receivables."
ALLOWANCE FOR DOUBTFUL ACCOUNTS
An allowance for losses on receivables is provided through a charge to
operations based on estimates of possible losses. Accounts deemed to be
uncollectible are charged and recoveries credited to the allowance for
doubtful accounts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in first-out (LIFO) method for a substantial portion of
inventories. Cost for the remaining portion is determined using the first-in
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the related
property. The estimated useful lives are principally as follows:
DESCRIPTION YEARS
Buildings 25 - 35
Building equipment 5
Machinery and equipment 3 - 10
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life of the asset. The cost of maintenance, repairs, minor
renewals and betterments of property, plant and equipment is charged to
expense in the year incurred. Major expenditures for renewals and betterments
are capitalized and depreciated over their estimated useful lives.
OTHER ASSETS
Other assets consists primarily of goodwill and display inventory. Goodwill,
which represents the excess of purchase price over the fair value of the net
assets acquired, is amortized on a straight line basis over the expected
periods to be benefited, generally 40 years.
<PAGE>
INCOME TAXES
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in earnings in the
period that includes the enactment date.
RETIREMENT PLANS
Defined contribution and defined benefit plans cover substantially all hourly
and salaried employees located in the United States. The Company also
maintains a deferred compensation plan for certain key employees. The
Company's cost of providing these retirement plans is recognized as a charge
to income in the year the cost is incurred.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company implemented the provisions of
Statements of Financial Accounting Standards No. 106 (SFAS 106), "Employers'
Accounting for Postretirement Benefits Other than Pensions" and No. 112
(SFAS 112), "Employers' Accounting for Postemployment Benefits." These
standards require the Company to charge the expected cost of retiree health
and certain postemployment benefits to expense during the years employees
render service. In prior years, the Company recognized these benefits on a
pay-as-you-go basis.
REMEASUREMENT OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries are remeasured into U.S.
dollars at the current exchange rates except inventories, sales, cost of
goods sold and expenses which are remeasured at average exchange rates
during each reporting period. Adjustments resulting from the remeasurement
of financial statements are recorded in the results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
Premiums paid for the purchased interest rate cap agreements are amortized
to interest expense over the term of the caps. Unamortized premiums are
included in other assets on the balance sheet. Amounts receivable under cap
and swap agreements are accounted for as a reduction of interest expense.
Amounts payable under swap agreements are accounted for as an increase in
interest expense.
EARNINGS PER SHARE
Net earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the year
(3,415,196 shares for 1995, 3,415,262 shares for 1994 and 3,408,604 shares
for 1993). No effect has been given to options outstanding under the
Company's stock option plans as no material dilutive effect would result
from the issuance of these shares.
<PAGE>
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year financial statement presentation.
(2) RECEIVABLES
Receivables consist of the following (In thousands):
1995 1994
---------- ----------
Trade $ 10,654 $ 10,690
Installment - owned 9,613 6,653
Holdback on accounts sold 8,753 7,848
Other 537 590
---------- ----------
29,557 25,781
Less allowance for
doubtful accounts 4,004 4,300
---------- ----------
Net receivables 25,553 21,481
Less noncurrent portion 11,215 8,621
---------- ----------
Net current receivables $ 14,338 $ 12,860
========== ==========
Installment receivables owned by Finance are net of unearned interest charges
of $1.3 million and $.9 million at December 31, 1995 and 1994, respectively.
See Note 5 for additional information on installment receivables and Note 6
for information regarding the use of receivables to secure borrowings.
(3) INVENTORIES
Inventories consist of the following (In thousands):
1995 1994
---------- ----------
FIFO cost:
Raw materials $ 14,875 $ 11,790
Work-in-process 7,490 7,465
Finished goods 35,611 37,643
---------- ----------
57,976 56,898
Excess of FIFO cost over
LIFO inventory value (11,937) (10,544)
---------- ----------
$ 46,039 $ 46,354
<PAGE>
At December 31, 1995, approximately 77% of the Company's inventories were
valued on the LIFO method. Net earnings for 1995, 1994 and 1993 are
approximately $.8 million ($.24 per share), $1.5 million ($.43 per share)
and $.8 million ($.22 per share), respectively, less than would have been
reported had the FIFO method been used.
During the past three years, certain inventories were reduced, resulting in
the liquidation of LIFO inventory layers carried at lower costs prevailing
in prior years as compared with the current cost of inventories. The effect
of these inventory liquidations was to increase net earnings for 1995, 1994
and 1993 by approximately $.1 million ($.02 per share), $.2 million ($.05
per share) and $.7 million ($.20 per share), respectively.
See Note 6 for information regarding the use of inventories to secure
borrowings.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (In thousands):
1995 1994
---------- ----------
Land $ 414 $ 414
Buildings and building
equipment 8,914 8,211
Machinery and equipment 19,274 19,154
Leasehold improvements 544 676
---------- ----------
29,146 28,455
Less accumulated
depreciation and
amortization 14,212 14,600
---------- ----------
$ 14,934 $ 13,855
========== ==========
See Note 6 for information regarding the use of property, plant and equipment
to secure borrowings.
(5) DISCLOSURE REGARDING FINANCE SUBSIDIARY
The Company sells certain of its musical products to customers on the
installment method. The Company has a continuing agreement to sell all of
its installment receivables to Finance. Also, Finance purchases installment
receivables for musical products from independent retail dealers.
In 1995, Finance amended its agreements with an independent entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $86 million. Certain installment receivables
are not eligible for sale and are retained by Finance. Finance continues to
service all installment receivables sold.
<PAGE>
At the time of each installment receivable sale, Finance receives cash equal
to the unpaid principal balance of the contracts, less a holdback of 10% of
the principal balance of the contracts sold.
The buyer of the installment receivables earns interest on the outstanding
principal balance of the contracts based upon a floating interest rate
provision. Over the lives of the contracts, the difference between the actual
yield on the installment contracts sold, using the interest method, and the
amount retained by the buyer under the floating interest rate provision is
remitted to Finance as a service fee. This amount is recorded in the
Consolidated Statements of Earnings as "Income on the sale of installment
receivables."
The installment contracts are written generally at fixed rates ranging from
12% to 16% with terms extending over three to five years. The interest
retained by the buyer for 1995, 1994 and 1993 represented an average interest
rate of 7.1%, 5.9% and 4.3%, respectively.
Under the sale agreements, Finance is required to repurchase accounts that
become more than 120 days past due or accounts that are deemed uncollectible.
The repurchase price is equal to the remaining unpaid principal balance of
the contract on the date repurchased, less the related 10% holdback. Finance
is responsible for all credit losses associated with the sold receivables.
At December 31, 1995, the balance of installment receivables on which Finance
remains contingently liable, is as follows (In thousands):
Principal balance of
installment receivables sold $ 84,784
Less related holdback (8,753)
--------------
$ 76,031
==============
The fair value of the principal balance of installment receivables sold
before related holdback is $87.8 million at December 31, 1995. The fair
value is determined as the present value of expected future cash flows
discounted at a rate the Company believes a purchaser would require as a
rate of return, approximately 12%. The carrying amount of the holdback on
accounts sold is included in Note 2 under the indicated caption.
Installment receivables are secured by the musical products. These r
eceivables, other than those originated by the Company's retail stores, are
accepted with recourse to the Company's dealers if the related instrument is
repossessed. Management believes an adequate allowance has been provided for
any uncollectible receivables.
Finance has guaranteed the Company's revolving line of credit. Also, under
the covenants of the Company's debt agreements, Finance can only pay
dividends or repurchase its own stock to the extent its net worth exceeds
$4.0 million. During 1995, Finance declared and paid a dividend of $4.0
million to the Company.
<PAGE>
Condensed balance sheets of Finance are as follows (In thousands):
ASSETS 1995 1994
---------- ----------
Installment receivables owned $ 9,613 $ 6,653
Holdback on accounts sold 8,753 7,848
Allowance for doubtful
accounts (392) (488)
---------- ----------
Installment receivables, net 17,974 14,013
Deferred income taxes 677 1,007
Other assets 4,181 2,823
---------- ----------
Total assets $ 22,832 $ 17,843
========== ==========
LIABILITIES AND
SHAREHOLDER'S EQUITY
Other liabilities $ 3,955 $ 4,570
Due to parent 14,357 6,916
Shareholder's equity 4,520 6,357
Total liabilities and ---------- ----------
shareholder's equity $ 22,832 $ 17,843
Condensed statements of earnings of Finance are as follows (In thousands):
1995 1994 1993
Income on installment ---------- ---------- ----------
receivables:
Sold $ 5,134 $ 4,987 $ 5,746
Owned 693 564 443
Other operating income 332 353 544
---------- ---------- ----------
Total revenue 6,159 5,904 6,733
Expenses:
General and
administrative 2,431 2,510 2,196
Provisions for
doubtful accounts 120 120 270
Interest 3 64 44
---------- ---------- ----------
Earnings before
income taxes 3,605 3,210 4,223
Income taxes 1,442 1,201 1,701
---------- ---------- ----------
Net earnings $ 2,163 $ 2,009 $ 2,522
========== ========== ==========
See Note 7 for information regarding derivative financial instruments.
<PAGE>
(6) LONG-TERM DEBT
Long-term debt consists of the following (In thousands):
1995 1994
---------- ----------
Revolving line of credit $ 16,896 $ 16,746
Term loan 5,000 5,000
---------- ----------
21,896 21,746
Less current portion 17,646 16,746
---------- ----------
Long-term debt, less
current portion $ 4,250 $ 5,000
========== ==========
The Company has a revolving line of credit (Revolver) of $40 million with an
initial due date of February 15, 1999. The Revolver is renewable for three
consecutive one-year periods beyond February 15, 1999. Amounts outstanding
under the Revolver are due one year after demand. However, the lender retains
absolute discretion regarding further advances, even if no event of default
then exists. Accordingly, the Revolver has been classified as current portion
of long-term debt.
Under the Revolver, the lender will make available a line of credit based
upon certain percentages of the value of the Company's inventories and trade
accounts receivable. At December 31, 1995, the Company had approximately
$22.3 million of additional borrowing available under this line of credit.
The annual rate of interest under the Revolver is 150 basis points plus the
greater of the LIBOR on three month deposits or the rate on 60 day high grade
commercial paper. The rate under the Revolver was 7.2% and 8.0% at December
31, 1995 and 1994, respectively.
The Company has secured a term loan for $5.0 million payable in monthly
principal installments of $75,000 beginning March 1, 1996 with a final
payment of $2.3 million on February 28, 1999. The annual rate of interest
under the term loan is a fixed rate of 7.1%.
Substantially all of the assets of the Company and its subsidiaries are
pledged as collateral under the various debt agreements.
The Company's debt agreements contain covenants that restrict, among other
things, the payment of dividends, the repurchase of the Company's common
stock and the Company's ability to incur new indebtedness and to enter new
businesses. Such agreements permit the payment of dividends or repurchase of
the Company's common stock equal to the lesser of (i) 50% of the Company's
cumulative net earnings since January 1, 1986 or (ii) the amount of unused
borrowing available under the Company's Revolver, reduced by the unpaid
portion of the term loan. Accordingly, at December 31, 1995, approximately
$17.3 million is available for the payment of dividends or the repurchase of
the Company's common stock. The Company's debt agreements contain provisions
by which a default under one agreement constitutes a default under the other
agreements. The Company is in compliance with these covenants.
See Note 7 for information regarding derivative financial instruments.
<PAGE>
(7) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate risks.
In February 1994, Finance entered into a five year interest rate swap
agreement in order to reduce the potential impact of an increase in interest
rates on $20 million of installment contracts. The agreement entitles
Finance to receive from a counterparty, on a monthly basis, interest income
to the extent the floating rate retained by the buyer of installment
receivables exceeds 6% or requires Finance to pay interest expense to the
extent the floating rate is less than 6%. Under the swap agreement, Finance
received $14,000 in 1995 and paid $217,000 in 1994.
The fair value of Finance's interest rate swap agreement at December 31, 1995
approximates its carrying value of zero. The fair value is estimated by
comparing the above interest rate to a rate that would be applicable if the
Company entered into a similar agreement for the remaining term of the swap.
In November 1995 and December 1994, the Company entered into two year
interest rate cap agreements in order to reduce the potential impact of
increases in interest rates on $20 million and $40 million respectively, of
floating-rate long-term debt. The agreements entitle the Company to receive
from the counterparty, on a monthly basis, interest income to the extent the
one-month commercial paper rate exceeds 12%. As the commercial paper rate
did not exceed 12% in 1995 and 1994, the Company did not receive interest
income for those years.
Due to the short maturity of the interest rate cap agreements, fair market
value approximates carrying value. The carrying amount of the unamortized
premiums was $16,000 and $25,000 at December 31, 1995 and 1994, respectively.
The Company and Finance are exposed to credit losses in the event of
nonperformance by the counterparties to its interest rate swap and cap
agreements but have no off-balance sheet credit risk of accounting loss.
The Company and Finance anticipate, however, that the counterparties will
be able to fully satisfy their obligations under the contracts. The Company
and Finance do not obtain collateral or other security to support financial
instruments subject to credit risk but monitor the credit standing of the
counterparties.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has only limited involvement with financial instruments and does
not use them for trading purposes.
<PAGE>
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995. Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
(In thousands)
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Installment receivables
owned $ 9,613 $ 9,272
Term loan $ 5,000 $ 4,932
========== ==========
The carrying amounts shown in the table above are included in Notes 2 and 6
under the indicated captions.
The fair value of installment receivables owned is determined as the present
value of expected future cash flows discounted at a rate the Company believes
a purchaser would require as a rate of return, approximately 12%. The fair
value of the term loan is estimated by discounting the future cash flows at
rates currently offered for similar debt instruments of comparable
maturities.
The fair value of the "Revolving line of credit" equals carrying value as a
result of the variable nature of the interest rate. Note 5 presents the
estimated fair value of installment receivables on which Finance remains
contingently liable as well as the related holdback. Note 7 presents the
estimated fair values of derivative financial instruments.
For all financial instruments other than those noted above, fair value
approximates carrying value primarily due to the short maturity of those
instruments.
<PAGE>
(9) INCOME TAXES
The components of income tax expense (benefit) from operations are as
follows (In thousands):
1995 1994 1993
---------- ---------- ----------
Current:
Federal $ 544 $ 1,594 $ 2,386
State 91 158 743
Foreign 232 204 261
---------- ---------- ----------
867 1,956 3,390
---------- ---------- ----------
Deferred:
Federal 1,295 (1,548) 540
State 199 (194) 190
---------- ---------- ----------
1,494 (1,742) 730
---------- ---------- ----------
$ 2,361 $ 214 $ 4,120
========== ========== ==========
Earnings before income taxes and cumulative effects of changes in accounting
principles aggregated $5.7 million, $.2 million and $9.7 million for domestic
operations and $.6 million, $.4 million and $.6 million for foreign
operations in 1995, 1994 and 1993, respectively.
The difference between the taxes provided from operations in the
accompanying consolidated statements of earnings and the amount which would
be computed by applying the U.S. Federal income tax rate to earnings before
income taxes and cumulative effects of changes in accounting principles is
as follows (In thousands):
1995 1994 1993
---------- ---------- ----------
Computed expected tax $ 2,149 $ 190 $ 3,497
State income taxes
(benefits), net of
Federal tax benefit 191 (24) 602
Other 21 48 21
---------- ---------- ----------
$ 2,361 $ 214 $ 4,120
========== ========== ==========
<PAGE>
The significant components of deferred income tax expense (benefit)
attributable to income from operations are as follows (In thousands):
1995 1994 1993
---------- ---------- ----------
Writedown of inventories $ 234 $ (515) $ 394
Allowance for doubtful
accounts 432 80 371
Nondeductible accruals 557 (997) 131
Other 271 (310) (166)
Deferred tax expense
(benefit) $ 1,494 $ (1,742) $ 730
Components of deferred tax balances as of December 31, 1995 and 1994 are as
follows (In thousands):
1995 1994
---------- ----------
Deferred tax assets:
Accounts receivable,
principally due to allowance
for doubtful accounts $ 2,026 $ 2,460
Nondeductible accruals,
principally due to accrual for
financial reporting purposes 3,415 3,804
Inventories, principally due to
nondeductible reserves 848 1,394
Other 123 288
---------- ----------
Total gross deferred tax assets 6,412 7,946
---------- ----------
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation (1,279) (1,030)
Investments in affiliated
companies, principally due
to undistributed income of
affiliated companies (263) (262)
State income taxes (341) (365)
---------- ----------
Total gross deferred tax
liabilities (1,883) (1,657)
---------- ----------
Net deferred tax assets $ 4,529 $ 6,289
========== ==========
In the opinion of management, no valuation allowance related to deferred tax
assets was required at December 31, 1995. Based on the Company's historical
and current pre-tax earnings, management believes it is more likely than not
that the Company will realize the benefit of recorded deferred tax assets.
There can be no assurance, however, that the Company will generate any
earnings or any specific level of continued earnings.
<PAGE>
(10) ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (In thousands):
1995 1994
---------- ----------
Accrued liabilities:
Reserve for installment
receivables sold with recourse $ 1,510 $ 2,296
Compensation 1,667 1,211
Other 3,222 3,364
---------- ----------
$ 6,399 $ 6,871
Other liabilities: ========== ==========
Postretirement and
postemployment $ 2,790 $ 4,022
Deferred compensation 2,277 2,414
Other 3,104 3,514
---------- ----------
$ 8,171 $ 9,950
========== ==========
(11) RETIREMENT PLANS
The Company maintains retirement plans under Section 401(k) of the Internal
Revenue Code. Under these plans, the Company makes an annual contribution up
to 3% of compensation paid to all covered employees. To the extent employees
contribute up to 6% of their compensation, the Company will match a portion
of each dollar contributed. The Company also maintains a deferred
compensation plan for certain key employees and a defined benefit plan for
certain hourly employees. The actuarial present value of the unfunded
liability for the defined benefit plan is not materiel to the Company's
financial condition. The cost of providing these retirement benefits is
as follows (In thousands):
1995 1994 1993
---------- ---------- ----------
Defined contribution 401(k) $ 744 $ 801 $ 732
Deferred compensation - 255 232
Defined benefit 231 226 206
---------- ---------- ----------
$ 975 $ 1,282 $ 1,170
========== ========== ==========
<PAGE>
(12) POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company is contractually obligated to make health care benefits
available to a certain group of retired employees. Also, the Company
sponsors several postemployment plans for various groups of employees.
These plans' provisions include severance benefits in which the employees'
rights either vest or accumulate for each additional year of service
performed. The Company funds these postretirement and postemployment
benefits primarily on a pay-as-you-go basis.
In the fourth quarter of 1993, the Company adopted the provisions of SFAS
106 and 112. The Company elected to recognize the combined benefit
obligations of $2.7 million retroactive to January 1, 1993 as accounting
changes. On an after-tax basis, this charge was $1.6 million or $.47 per
share. The adoption of these standards had no impact on consolidated cash
flows.
(13) SHAREHOLDERS' EQUITY
At December 31, 1995 and 1994 the Company had 14,000,000 shares of $.01 per
value common stock authorized and 4,164,944 shares issued. As of those dates
the Company held 749,748 shares in treasury.
The Company maintains two qualified incentive stock option plans. Under these
plans, options for 450,000 shares of common stock may be granted to key
managerial personnel of the Company. The Company has also granted non-
qualified stock options to a key employee and to each non-employee director.
In all cases, the option price shall not be less than the fair market value
of the common stock at the date of grant.
A summary of the activity of these plans follows (In thousands, except per
share data):
SHARES AVERAGE
SUBJECT PER SHARE
TO OPTION OPTION PRICE
---------- ----------
Balance, December 31, 1993 150 $ 11.61
Options granted 148 13.64
Options exercised (13) 10.60
Options expired (9) 15.57
---------- ----------
Balance, December 31, 1994 276 $ 12.62
Options granted 75 12.17
Options expired (65) 12.37
---------- ----------
Balance, December 31, 1995 286 $ 12.56
========== ==========
Exercisable at December 31, 1995 153 $ 12.29
========== ==========
<PAGE>
(14) OTHER INCOME (EXPENSE)
In March 1993, the contents of one of the Company's finished goods warehouses
were damaged by exposure to smoke from a fire adjacent to the warehouse. The
Company received insurance proceeds equal to the wholesale value of the
inventory destroyed. Accordingly, a gain of approximately $1.4 million on
the insurance settlement is included in the 1993 Consolidated Statements of
Earnings as "Other operating income, net."
On January 27, 1993, the Company entered into an agreement in principle
whereby Peridot Associates, Inc. (Peridot) would acquire all outstanding
shares of the Company's common stock at a per share price of $18.25, subject
to certain contingencies. The agreement expired on May 16, 1993. Under the
agreement, the Company was obligated to reimburse Peridot $.8 million for
certain expenses incurred by Peridot. Additionally, the Company incurred
other expenses of approximately $.3 million related to the proposed
acquisition. These combined expenses are included in the 1993 Consolidated
Statements of Earnings as "Other operating income, net."
(15) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation arising in its normal course of
business. The Company does not believe that any existing claim or suit will
have a material adverse effect on the business or financial condition of the
Company.
The operations of the Company and its predecessors are subject to federal,
state and local laws regulating the discharge of materials into the
environment. Although on several occasions the Company has been the subject
of inquiries from government agencies and/or persons who may be held
responsible for environmental liabilities relating to the sites in question,
the Company has been made a party to actual proceedings on only one occasion
to date. The Company's actual liability in such matter was not material.
The Company does not anticipate that any environmental matters currently
known to the Company will result in additional proceedings against the
Company or in any material liability.
At December 31, 1995, the Company was obligated under non-cancellable
operating leases for real and personal property which are subject to certain
renewal and purchase options. Minimum rental payments for each of the five
years ending December 31, 2000, are approximately $1.7 million, $1.2 million,
$1.0 million, $.9 million and $.9 million, respectively. Minimum rental
payments due after 2000 are $.8 million. Rent expense under operating leases
amounted to $1.3 million , $1.0 million and $1.2 million for 1995, 1994 and
1993, respectively.
Certain former Wurlitzer dealers finance their inventory with floor plan
loans from an independent bank. The dealers are required to pay the bank
monthly interest payments and pay principal balance after inventory is sold
or held longer than twelve months. The bank may request Wurlitzer to
repurchase notes due from delinquent dealers. If Wurlitzer does not
repurchase such notes, the bank can terminate the floor plan agreement with
the dealers and require Wurlitzer to repurchase up to $2.9 million of the
outstanding dealer notes. The Company believes the financial statements
contain adequate provisions for any loss that may be incurred as a result of
this commitment.
<PAGE>
(16) SEGMENT INFORMATION
A summary of operations by major segment follows (In thousands):
1995 1994 1993
---------- ---------- ----------
Sales and other revenue:
Musical products
and other $ 94,799 $ 96,974 $ 94,737
Electronic contracting 30,802 28,361 28,908
Finance 6,159 5,904 6,733
---------- ---------- ----------
$ 131,760 $ 131,239 130,378
========== ========== ==========
Operating profit (loss):
Musical products
and other $ 6,674 $ 3,176 $ 8,810
Electronic contracting 1,690 2,860 4,282
Finance 3,608 3,279 3,553
Unallocated corporate (3,564) (6,655) (4,128)
---------- ---------- ----------
$ 8,408 $ 2,660 $ 12,517
========== ========== ==========
Identifiable assets:
Musical products
and other $ 62,988 $ 66,498 $ 63,736
Electronic contracting 15,609 13,119 11,459
Finance 22,832 17,843 14,733
---------- ---------- ----------
$ 101,429 $ 97,460 $ 89,928
========== ========== ==========
Depreciation:
Musical products
and other $ 1,948 $ 1,980 $ 2,056
Electronic contracting 334 273 261
---------- ---------- ----------
$ 2,282 $ 2,253 $ 2,317
========== ========== ==========
Capital additions:
Musical products
and other $ 3,770 $ 1,655 $ 1,638
Electronic contracting 164 848 452
---------- ---------- ----------
$ 3,934 $ 2,503 $ 2,090
========== ========== ==========
The amounts reflected as "Sales and other revenue" in the above table are
included in the "Net sales", "Income on the sale of installment receivables",
"Interest income on installment receivables" and "Other operating income,
net" captions of the Consolidated Statements of Earnings.
<PAGE>
The musical products and other segment includes a broad range of acoustic
and electronic instruments serving a broad consumer base. Musical products
are sold through Company-owned retail stores, domestic wholesale dealers,
factory direct sales and an international dealer network. In addition, this
segment includes furniture and musical components produced on behalf of
other manufacturers.
The electronic contracting segment assembles printed circuit boards and
electromechanical devices for original equipment manufacturers outside the
music industry.
The finance segment provides point-of-sale consumer financing through
keyboard product dealers located throughout the United States.
The 1994 operating profit of the musical products and other segment was
lower due to the $2.8 million write-down of certain inventory. The 1995 and
1994 operating profit of the electronic contracting segment was lower due to
lower margins on a changing mix of sales. The 1994 operating profit on the
financing services segment was lower due to higher interest cost. In
addition, the 1994 operating profit of the unallocated corporate segment
was lower due to expenses of $2.2 million associated with the transition of
senior management.
The Company uses the LIFO method of valuing musical products inventory and
the FIFO method for electronic contracting inventory.
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1995 and 1994 are
as follows (In thousands, except per share data):
1995 FIRST SECOND THIRD FOURTH YEAR
- ---- -------- -------- -------- -------- ---------
Net sales $ 29,760 30,688 26,519 $ 35,667 $ 122,634
-------- -------- -------- -------- ---------
Gross profit 6,239 6,618 5,310 7,344 25,511
-------- -------- -------- -------- ---------
Net earnings 815 831 671 1,643 3,960
-------- -------- -------- -------- ---------
Net earnings per share .24 .24 .20 .48 1.16
======== ======== ======== ======== =========
1994
- ----
Net sales $ 25,572 $ 28,076 $ 30,570 $ 38,129 $ 122,347
-------- -------- -------- -------- ---------
Gross profit 6,235 6,689 6,539 5,855 25,318
-------- -------- -------- -------- ---------
Net earnings (loss) 705 673 672 (1,705) 345
-------- -------- -------- -------- ---------
Net earnings (loss)
per share .21 .20 .20 (.50) .10
======== ======== ======== ======== =========
Fourth quarter 1994 adjustments include after-tax charges of $3.0 million
($.88 per share), primarily from inventory write-downs related to decisions
to upgrade technology on certain musical instruments and expenses associated
with the transition of senior management.
<PAGE>
<TABLE>
Baldwin Piano & Organ Company and Subsidiaries
FIVE-YEAR SUMMARY
(In thousands, except per share data)
<CAPTION>
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 122,634 $ 122,347 $ 120,658 $ 110,077 $ 103,230
Cost of goods sold 97,123 97,029 89,971 79,637 74,038
------------- ------------- ------------- ------------- -------------
Gross profit 25,511 25,318 30,687 30,440 29,192
Income on the sale of
installment receivables 5,134 4,987 5,746 5,257 4,023
Interest income on
installment receivables 693 564 443 308 350
Other operating income, net 3,299 3,341 3,531 3,803 3,769
------------- ------------- ------------- ------------- -------------
34,637 34,210 40,407 39,808 37,334
Operating expenses:
Selling, general
and administrative 25,264 30,246 26,188 25,119 23,970
Provision for doubtful accounts 965 1,304 1,702 2,053 2,132
------------- ------------- ------------- ------------- -------------
Operating profit 8,408 2,660 12,517 12,636 11,232
Interest expense 2,087 2,101 2,232 2,610 3,933
------------- ------------- ------------- ------------- -------------
Earnings before income taxes and
cumulative effects of changes
in accounting principles 6,321 559 10,285 10,026 7,299
Income taxes 2,361 214 4,120 4,090 2,884
------------- ------------- ------------- ------------- -------------
Earnings before cumulative
effects of changes in
accounting principles 3,960 345 6,165 5,936 4,415
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits - - (1,604) - -
------------- ------------- ------------- ------------- -------------
Net earnings $ 3,960 $ 345 $ 4,561 $ 5,936 $ 4,415
============= ============= ============= ============= =============
Earnings per share:
Before cumulative effects of
changes in accounting
principles $ 1.16 $ .10 $ 1.81 $ 1.75 $ 1.30
Cumulative effect of changes in
accounting for
postretirement and
postemployment benefits - - (.47) - -
------------- ------------- ------------- ------------- -------------
Net earnings per share $ 1.16 $ .10 $ 1.34 $ 1.75 $ 1.30
============= ============= ============= ============= =============
<PAGE>
BALANCE SHEET DATA (AT DECEMBER 31):
Working capital $ 34,703 $ 35,759 $ 35,941 $ 29,998 $ 26,783
------------- ------------- ------------- ------------- -------------
Total assets 101,429 97,460 89,928 91,665 86,860
------------- ------------- ------------- ------------- -------------
Current portion of long-term
debt 17,646 16,746 11,299 18,622 24,550
------------- ------------- ------------- ------------- -------------
Long-term debt, less current
portion 4,250 5,000 4,384 5,346 7,167
------------- ------------- ------------- ------------- -------------
Shareholders' equity 54,114 50,154 49,892 45,163 39,227
------------- ------------- ------------- ------------- -------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Net earnings were $4.0 million compared to $.3 million for 1994. Previous
year net earnings were adversely affected by inventory write-downs related
to decisions to upgrade technology on certain musical instruments ($1.7
million after tax) and expenses associated with the transition of senior
management ($1.3 million after tax). 1995 net earnings were favorably
affected by reductions in selling, general and administrative expenses.
Net sales for 1995 totaled $122.6 million compared to $122.3 million for
1994. In 1995 the Company consolidated the Baldwin and Wurlitzer dealer
networks in order to allow dealers to offer both Baldwin and Wurlitzer
products. As of June 1, 1995, discontinued dealers were notified that they
had ninety days to complete their termination with Baldwin. During this
time, fewer units were sold to these discontinued dealers while newly
assigned dealers were prohibited contractually from selling Wurlitzer
products. Beginning September 1, 1995, Baldwin began shipping all Wurlitzer
products under its existing consignment program. Under this program, sales
are reported when the Company receives payment from a dealer rather than, as
Wurlitzer did previously, when the instruments were shipped to a dealer.
As a result of the consolidation of the dealer networks, net sales from the
piano business were lower than the previous year by approximately $6.0
million. Approximately 50% of this reduction relates to dealer transition
with the remainder due to the treatment of revenue recognition under the
consignment program. The decline in musical products sales was offset by an
increase in the contracting businesses sales. However, 1995 included $6.5
million of furniture and music contracting sales not expected to repeat in
1996.
Gross profit for 1995 remained even with 1994. Prior year gross profit was
adversely affected by inventory write-downs of $2.8 million. Excluding this
adjustment, 1995 gross profit decreased by $2.6 million as a result of higher
production costs in the keyboard instrument and electronic contracting
businesses and an increased percentage of sales coming from furniture and
music contracting businesses which carry a lower margin.
<PAGE>
The Company values a substantial portion of its inventory on the last-in,
first-out (LIFO) method. The 1995 gross profit is $1.4 million less than
the amount that would have been reported had the first-in, first-out (FIFO)
method been used.
Income on the sale of installment receivables remained even with 1994.
This is primarily the result of a growth in the dollar value of contracts
sold and higher interest rates charged on new installment contracts offset
by higher interest costs under the floating interest rate provision of the
sale agreement. See "Liquidity and Capital Resources."
Selling, general and administrative expenses decreased by $5.0 million from
1994. Previous year expenses include $2.2 million associated with the
transition of senior management. The remaining reductions in 1995 relate
primarily to closing Baldwin's retail locations in Chicago and the
consolidation of the Baldwin and Wurlitzer dealer networks.
The provision for doubtful accounts has declined due to continued reductions
in losses experienced.
1994 COMPARED TO 1993
Net earnings were $.3 million compared to $4.6 million for 1993. Net earnings
for 1994 were adversely impacted by the inventory write-downs relating to
decisions to upgrade technology on certain musical instruments ($1.7 million
after tax) and expenses associated with the transition of senior management
($1.3 million after tax) as well as lower operating margins on a changing
mix of sales in both music products and electronic contracting businesses.
Previous year net earnings were favorably affected by these items: a
successful piano promotion, a large one-time order in the electronic
contracting business and a LIFO inventory adjustment.
Net sales aggregated $122.3 million which were comparable to $120.7 million
in sales for 1993. Net sales from the piano and organ business were lower
than the previous year due to lower unit volume in 1994, reflective of a
successful piano promotion in 1993 as well as a continuing decline in home
organ unit sales. The Company's sales of non-portable home organs declined
steadily during the last decade, reflecting a general decline in this market.
Electronic contracting sales were comparable with 1993 as a result of a
large one-time order in 1993 of $4.7 million partially offset by a 23%
increase in sales to the top fifteen electronic contracting customers.
Furniture contracting sales, which commenced in the fourth quarter of 1993,
grew to approximately $2.5 million in 1994 due primarily to sales to two
customers.
Gross profit for 1994 declined from 1993 as a result of lower margins on a
changing mix of sales in both the music products and electronic contracting
businesses as well as the $2.8 million write-down of certain inventories.
The Company values a substantial portion of its inventory on the last-in,
first-out (LIFO) method. The 1994 gross profit is $2.5 million less than the
amount that would have been presented had the first-in, first-out (FIFO)
method been used.
<PAGE>
Income on the sale of installment receivables generated by the Company's
financing operation for 1994 decreased $.8 million from 1993. This decrease
is primarily the result of higher interest costs under both the floating
interest rate provision of the sale agreement and a $20 million interest
rate swap agreement. See "Liquidity and Capital Resources."
Other operating income decreased due primarily to a non-recurring favorable
insurance settlement during 1993 partially offset by expenses related to a
proposed acquisition of Baldwin in that same year.
Selling, general and administrative expenses increased $4.1 million from
1993 chiefly as a result of a new sales program aimed at accessing customers
in locations not serviced by existing Baldwin or Wurlitzer dealers as well
as $2.2 million of expenses associated with the transition of senior
management, including recruiting, relocation and severance costs.
The provision for doubtful accounts has declined due to continued reductions
in losses experienced.
In the fourth quarter of 1993, the Company adopted the provisions of
Statements of Financial Accounting Standards No. 106 (SFAS 106), "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and No. 112
(SFAS 112), "Employers' Accounting for Postemployment Benefits." The Company
elected to recognize the combined benefit obligations of $2.7 million
retroactive to January 1, 1993 as accounting changes. On an after-tax basis,
this charge amounted to $1.6 million or $.47 per share.
INFLATION, OPERATIONS AND INTEREST RATES
The impact of inflation on manufacturing and operating costs can affect the
Company's results. However, the Company has generally been able to offset
the effects of inflation by price increases and operating efficiencies.
The operations of the Company and its predecessors are subject to federal,
state and local laws regulating the discharge of materials into the
environment. Although on several occasions the Company has been the subject
of inquiries from government agencies and/or persons who may be held
responsible for environmental liabilities relating to the sites in question,
the Company has been made a party to actual proceedings on only one
occasion to date. The Company's actual liability in such matter was not
material. The Company does not anticipate that any environmental matters
currently known to the Company will result in additional proceedings against
the Company or in any material liability.
The Company's and its subsidiaries' operating results are sensitive to
changes in interest rates primarily because of fixed interest rates on
installment receivables and floating interest rates on a substantial
portion of indebtedness. Additionally, the buyer of the installment
receivables earns interest on the outstanding principal balance of the
contracts based upon a floating interest rate provision.
<PAGE>
The Company can partially offset the effect of interest rate changes by
adjusting display fees on its consigned inventory and interest rates on
its new installment receivable contracts. In November 1995 and December
1994, the Company entered into two year interest rate cap agreements in
order to reduce the potential impact of increases in interest rates on $20
million and $40 million respectively, of floating-rate long-term debt. The
agreements entitle the Company to receive from the counterparty, on a
monthly basis, interest income to the extent the one-month commercial paper
rate exceeds 12%. The Company is exposed to credit losses in the event of
nonperformance by the counterparty to its interest rate caps, but has no
off-balance sheet credit risk of accounting loss. The Company anticipates,
however, that the counterparty will be able to fully satisfy their
obligations under the contracts. The Company does not obtain collateral or
other security to support financial instruments subject to credit risk but
monitors the credit standing of the counterparty.
The annual rate of interest under the revolving line of credit (Revolver)
is 150 basis points plus the greater of the LIBOR on three month deposits or
the rate on 60 day high grade commercial paper.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its wholly-owned finance subsidiary (Finance) require
significant working capital to support their operations. Working capital
requirements fluctuate throughout the year.
The Company ships musical instruments to its dealer network on a consignment
basis. Management believes the consignment program creates a competitive
advantage for its dealers. Dealers are able to display a larger and more
comprehensive product line than they may otherwise be able to without the
Company's financial support. Also the consignment program is advantageous
to the Company for income tax purposes, and management believes the
consignment method minimizes losses from dealers.
Because the Company finances inventory on consignment to its dealers, the
Company's borrowing is higher than comparable companies not operating on the
consignment basis. Management believes the advantages of the consignment
program are greater than the risks associated with the higher leverage.
The Company has a revolving line of credit (Revolver) of $40 million with
an initial due date of February 15, 1999. The Revolver is renewable for three
consecutive one-year periods beyond February 15, 1999. Amounts outstanding
under the Revolver are due one year after demand. However, the lender retains
absolute discretion regarding further advances, even if no event of default
then exists.
Under the Revolver, the lender will make available a line of credit based
upon certain percentages of the value of the Company's inventories and trade
accounts receivable. At December 31, 1995, the Company had approximately
$22.3 million of additional borrowing available under this line of credit.
<PAGE>
The Company's debt agreements contain covenants that restrict, among other
things, the payment of dividends, the repurchase of the Company's common
stock and the Company's ability to incur new indebtedness and to enter new
businesses. Such agreements permit the payment of dividends or repurchase
of the Company's common stock equal to the lesser of (i) 50% of the Company's
cumulative net earnings since January 1, 1986 or (ii) the amount of unused
borrowing available under the Company's Revolver, reduced by the unpaid
portion of the term loan. Accordingly, at December 31, 1995, approximately
$17.3 million is available for the payment of dividends or the repurchase of
the Company's common stock. Also, under the covenants of the Company's debt
agreements, Finance can only pay dividends or repurchase its own stock to
the extent its net worth exceeds $4.0 million. The Company's debt agreements
contain provisions by which a default under one agreement constitutes a
default under the other agreements. The Company is in compliance with these
covenants.
In 1995, Finance amended its agreements with an independent entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $86 million. Certain installment receivables
are not eligible for sale and are retained by Finance. Finance continues
to service all installment receivables sold.
At the time of each installment receivable sale, Finance receives cash
equal to the unpaid principal balance of the contracts, less a holdback
of 10% of the principal balance of the contracts sold.
The buyer of the installment receivables earns interest on the outstanding
principal balance of the contracts based upon a floating interest rate
provision. Over the lives of the contracts, the difference between the
actual yield on the installment contracts sold, using the interest method,
and the amount retained by the buyer under the floating interest rate
provision is remitted to Finance as a service fee. In February 1994,
Finance entered into a five year interest rate swap agreement in order to
reduce the potential impact of increases in interest rates on $20 million
of installment contracts. The agreement entitles Finance to receive from
the counterparty, on a monthly basis, interest income to the extent the
floating rate retained by the buyer exceeds 6% or requires Finance to pay
interest expense to the extent the floating rate is less than 6%.
Finance is exposed to credit losses in the event of nonperformance by
the counterparty to its interest rate swap, but has no off-balance sheet
credit risk of accounting loss. Finance anticipates, however, that the
counterparty will be able to fully satisfy their obligations under the
contract. Finance does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit
standing of the counterparty.
Proceeds from sale of installment receivables amounted to $60.6 million for
1995, $53.6 million for 1994 and $43.6 million for 1993. The increase in
1995 compared to 1994 and 1993 is largely the result of an increase in the
volume of new installment contracts written at traditional keyboard dealers
and at Company sponsored "event sales".
<PAGE>
Under the sale agreements, Finance is required to repurchase accounts that
become more than 120 days past due or accounts that are deemed uncollectible.
The repurchase price is equal to the remaining unpaid principal balance of
the contract on the date repurchased, less the related 10% holdback.
Finance is responsible for all credit losses associated with the sold
receivables. Finance remains contingently liable on approximately $76.0
million of installment receivables. Management believes an adequate allowance
has been provided for any uncollectible receivables.
Certain former Wurlitzer dealers finance their inventory with floor plan
loans from an independent bank. The dealers are required to pay the bank
monthly interest payments and pay principal balance after inventory is sold
or held longer than twelve months. The bank may request Wurlitzer to
repurchase notes due from delinquent dealers. If Wurlitzer does not
repurchase such notes, the bank can terminate the floor plan agreement
with the dealers and require Wurlitzer to repurchase up to $2.9 million
of the outstanding dealer notes. The Company believes the financial
statements contain adequate provisions for any loss that may be incurred
as a result of this commitment.
Baldwin's Stock Repurchase Plan permits the Company to purchase an amount
of the Company's common stock not to exceed the lesser of 1,033,000 shares
or $12.4 million in dollar value. From the date the plan was adopted in
November 1987 through December 31, 1995, the Company has repurchased 701,300
shares of its common stock at an aggregate purchase price of $5.7 million
under the plan.
Capital expenditures amounted to $3.9 million in 1995, $2.5 million in 1994
and $2.1 million in 1993. At December 31, 1995, the Company had no material
outstanding capital commitments.
SHAREHOLDER INFORMATION
Home Office
422 Wards Corner Rd., Loveland, OH 45140-8390
(513) 576-4500
Manufacturing Locations
Conway, Fayetteville and Trumann, Arkansas;
Greenwood, Mississippi; Juarez, Mexico
Retail Locations
Company Owned Outlets:
Atlanta, Georgia; Cincinnati, Ohio; Indianapolis, Indiana; Louisville
and Lexington, Kentucky
Independent Keyboard Dealers (450)
REGISTRAR AND TRANSFER AGENT
The Provident Bank, One East Fourth St.
Cincinnati, Ohio 45202
AUDITORS
KPMG Peat Marwick LLP
Cincinnati, Ohio
<PAGE>
SECURITIES MARKET
The Nasdaq National Market; Symbol: BPAO
ANNUAL MEETING
The Annual Meeting of Baldwin shareholders will be held on May 14, 1996,
beginning at 11:00 a.m. at the Company's headquarters located at 422 Wards
Corner Rd., Loveland, Ohio.
FORM 10-K
A copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission is available to shareholders by writing to Mr. Charles R.
Juengling, Vice President/Controller/Secretary, Baldwin Piano & Organ
Company, 422 Wards Corner Rd., Loveland, OH 45140.
MARKET AND DIVIDENT INFORMATION
The Company's common stock is listed on the Nasdaq National Market. As of
March 15, 1996, the number of outstanding shares of the Company's common
stock was 3,415,196 and the approximate number of record holders of such
shares was 135.
In connection with the Company's annual meetings of shareholders, the
Company routinely polls the Depository Trust Company's participants to
determine the number of sets of proxy materials required by each
participant. The results of such polls, plus the shareholders of record,
indicate the Company had approximately 800 beneficial shareholders
including those held in "street name" by CEDE and Co., as of its last
annual meeting. This number is consistent with the last three year average
of proxy materials sent to the Company's shareholders.
The Company has paid no dividends since its inception and intends to
continue its policy of retaining earnings to finance future growth.
See Note 6 of Notes to Consolidated Financial Statements regarding
limitations on the payment of dividends.
YEAR 1995 COMMON STOCK PRICE RANGE
Quarter High Low
---------------------------------------
First $12 1/2 $10 1/4
Second $15 1/4 $11 1/4
Third $14 1/8 $12
Fourth $13 1/4 $12
YEAR 1994 COMMON STOCK PRICE RANGE
Quarter High Low
---------------------------------------
First $18 1/2 $15
Second $16 1/2 $13
Third $14 1/2 $11 3/4
Fourth $14 1/2 $10 1/4
BALDWIN
BALDWIN PIANO & ORGAN COMPANY
422 Wards Corner Road
Loveland, Ohio 45140-8390
(513) 576-4500
FOR IMMEDIATE RELEASE
- ---------------------
LOVELAND, OHIO, February 22, 1996 - Baldwin Piano & Organ Company
net earnings for the fourth quarter increased 27% to $1.6 million
($.48 per share) from $1.3 million ($.38 per share) in 1994, before
an after-tax charge of $3.0 million in 1994. Net sales were down
6% for the quarter compared to last year, $35.7 million from $38.1
million. Despite lower sales, Baldwin achieved fourth quarter
earnings growth, primarily as a result of reductions in selling,
general and administrative expenses.
The majority of the sales decline in the fourth quarter of 1995 is
a result of the consolidation of Baldwin and Wurlitzer dealer
networks. Beginning September 1, 1995, Baldwin began shipping all
Wurlitzer products under its consignment program. Under this
program, sales are reported when the Company receives payment from
a dealer rather than, as Wurlitzer did, when the instruments were
shipped to a dealer. The result is a reduction in the sales
reported in the fourth quarter compared to the same quarter last
year.
Net earnings for the full year 1995 increased 18% to $4.0 million
($1.16 per share) from $3.3 million ($.98 per share) in 1994,
before the 1994 after-tax charge mentioned above. Net sales for
1995 of $122.6 million remained even with 1994. The increase in
net earnings for 1995 is a result of reductions in selling, general
and administrative expenses, partially offset by higher production
costs in the keyboard instrument business and an increased
percentage of sales coming from furniture and music contracting
businesses which carry a lower margin.
...Continued
<PAGE>
Page 2
THREE MONTHS ENDED TWELVE MONTHS ENDED
(in thousands, except DECEMBER 31, DECEMBER 31,
net earnings per share) 1995 1994 1995 1994
---- ---- ---- ----
Net sales $35,667 $38,129 $122,634 $122,347
Cost of goods sold 28,323 32,274 97,123 97,029
------- ------- -------- --------
Gross profit 7,344 5,855 25,511 25,318
Income on the sale of
installment receivables 1,382 1,160 5,134 4,987
Interest income on
installment receivables 234 177 693 564
Other operating income 1,077 1,077 3,299 3,341
Selling, general and
administrative expenses (6,789) (10,370) (26,229) (31,550)
Interest expense (597) (659) (2,087) (2,101)
------- ------- -------- --------
Earnings (loss)
before income taxes 2,651 (2,760) 6,321 559
Income taxes 1,008 (1,055) 2,361 214
------- ------- -------- --------
Net earnings (loss) $ 1,643 $(1,705 $ 3,960 $ 345
======= ======= ======== ========
Net earnings
(loss) per share $.48 $(.50) $1.16 $.10
==== ===== ===== ====
Average number of
shares outstanding 3,415 3,415 3,415 3,415
===== ===== ===== =====
Baldwin Piano & Organ Company has manufactured and marketed keyboard musical
products over 130 years. The market leader of acoustic pianos in the United
States, Baldwin also manufactures electronic and electro-mechanical
components for Original Equipment Manufacturers.
###
CONTACT: Charles Juengling (513) 576-4522
