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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended Commission File Number
December 31, 1996 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
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 ____.
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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 incorporated by reference in Part
III of this Form 10-K 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 $30,418,206 based upon the $14.00 per share price at which
the Common Stock was last sold as reported on the Nasdaq National Market
through March 21, 1997.
The number of outstanding shares of Common Stock of Baldwin Piano &
Organ Company ("Company"), as of March 21, 1997, is 3,425,396.
DOCUMENTS INCORPORATED BY REFERENCE
All of the information required by Items 6-8 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, 1996 ("1996 Annual Report
to Shareholders"). All of the information required by Items 10-13 of Part III
of this Form 10-K is incorporated by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
about April 25, 1997 relating to the Company's 1997 Annual Meeting of
Shareholders ("1997 Proxy Statement").
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Page
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
PART II.
Item 5. Market for Registrant's Common Equity 14
and Related Stockholder Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of 15
Financial Condition and Results of Operation
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants 15
on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the 15
Registrant
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial 16
Owners and Management
Item 13. Certain Relationships and Related 16
Transactions
</TABLE>
(i)
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<TABLE>
<S> <C> <C>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, 17
and Reports on Form 8-K
SIGNATURES 25
</TABLE>
(ii)
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PART I
ITEM 1. BUSINESS
As used herein, the terms "Company" or "Baldwin" refer 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's core business,
Baldwin manufactures and markets a full range of high quality keyboard
instruments featuring the Baldwin(R), Wurlitzer(R) and Chickering(TM)
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 consumer
installment financing of musical products through its wholly-owned subsidiary
Keyboard Acceptance Corporation ("Finance"). With an emphasis on superior
service, revenues generated by Finance continue to grow significantly,
increasing 20% in 1996. Baldwin is the only U.S. musical products manufacturer
to offer direct consumer financing of its instruments.
Through its Special Products Division, Baldwin offers electronic and
electromechanical design and manufacturing services for original equipment
manufacturers.
Sales of the Company's products and other revenue are set forth by
industry segment in the following table:
<TABLE>
<CAPTION>
(dollars in thousands)
Year Ended December 31,
------------------------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Musical Products and other:
Musical Products....................... $ 82,941 $ 85,085 $ 91,421
Contract Furniture and
Music................................. 4,455 10,565 6,706
-------- -------- --------
Total Segment.................. 87,396 95,650 98,127
Electronic Contracting ................. 30,894 30,687 28,361
Finance................................. 7,363 6,159 5,904
-------- -------- --------
Total ................ $125,653 $132,496 $132,392
======== ======== ========
</TABLE>
Financial information regarding industry segments is shown in this Form 10-K in
Note 14 to the Consolidated Financial Statements of the Company on page 95,
attached hereto as Exhibit 13.1.
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STRATEGIC PLAN
Baldwin is in the second year of a strategic plan designed to improve
the Company's competitiveness and enhance shareholder value. While the
short-term cost increases and revenue decreases associated with these strategic
initiatives adversely affected 1996 results, the Company expects to begin
realizing benefits from its efforts during 1997.
In February 1997, Baldwin announced that it retained the
internationally known investment banking firm of Lehman Brothers to advise and
assist it in the continuing execution of its strategic plan. In particular,
Lehman Brothers has been specifically directed to: (a) assess the value of
Baldwin's non-core businesses and review strategies for such businesses; (b)
develop appropriate financial and capital structure targets and ratios,
including evaluating potential sources of additional liquidity; (c) review
current sources and potential uses of Baldwin's cash flow; and (d) review
strategic opportunities available to Baldwin, including acquisitions, mergers
or strategic alliances.
The key elements of Baldwin's strategic plan include:
1. Improve manufacturing efficiency and gross margins in acoustic piano
business.
Baldwin is the leading U.S. manufacturer, retailer and
financing source of acoustic keyboard instruments. In 1996, the Company began
the implementation of its strategic initiative to modernize and simplify its
piano manufacturing operations. Utilizing synchronous manufacturing techniques,
the Company is gaining greater process efficiencies, reducing manufacturing
costs and inventories, and producing consistently high quality pianos for its
dealer network and consumers.
Synchronous manufacturing principles have been refined and
proven by advanced Japanese, U.S. and European manufacturers in many
industries. For Baldwin, this approach enables greater efficiency in its
one-at-a-time piano assembly line. It replaces the older batch production
method and its inherent problems, such as less process control and higher
work-in-process and finished product inventories.
First tested in the second half of 1996 at the Company's
Juarez, Mexico components plant, Baldwin's synchronous manufacturing program is
resulting in dramatic reductions in cycle time, reduced inventories and faster
response to customer needs. In the piano keys department in Juarez, for
example, work-in-process inventory shows an 89% reduction; the plant floor area
required to assemble keys was reduced by 72%; and the start-to-completion time
to assemble a keyboard shows a 94% improvement. It
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is also positively impacting many aspects of Baldwin production, from the
physical layout of manufacturing areas to the flow of information and the
development of closer relationships with suppliers.
Based on positive test results, Baldwin is expanding its
synchronous manufacturing program to all its piano production facilities in
1997.
2. Focus on core business, customers and consumers.
In 1996, Baldwin exited two non-strategic, lower margin
businesses, allowing the Company to focus its efforts in its three core
businesses: pianos, retail financing, and electronic contracting. Exit from the
contract music and furniture businesses represented the single largest
contributor to both sales and profit decline in 1996. This business was
originally conceived to absorb plant overhead. The Company's synchronous
manufacturing initiative is intended to address the overhead cost pressures
created by the exit from these businesses.
In addition, Baldwin decided to exit the church organ
business consummating an agreement for sale in early 1997. While church organs
represented a small business for Baldwin, it added inefficient complexity
because of its separate dealer base, customer base (churches), and need for a
separate selling organization.
Baldwin believes it must focus on its core businesses, which
have each demonstrated the potential to generate profitable returns on
investment.
3. Drive product innovation.
Baldwin believes that in its core businesses, innovation is
key to continued success, profitability and growth. During 1996, Baldwin
completed the introduction of its new line of digital pianos, named Baldwin
Pianovelle(TM), with the introduction of three new models in the third quarter.
In addition, the Company developed its innovative and unique automated player
system, named Baldwin ConcertMaster(TM), which was introduced to the Company's
dealer network in January 1997.
Baldwin incurred higher interest expense in 1996, in part,
because of inventory required to support these new product launches. Because
many Baldwin dealers purchase products from the Company on a consignment basis,
Baldwin financed the new digital piano inventory necessary to supply its
approximately 400 dealers.
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4. Improve asset utilization.
In 1996, the Company completed its consolidation of the
Baldwin and Wurlitzer product lines and dealer networks. The Company also
streamlined its workforce with the reduction of 50 salaried employees.
The consolidation of the Baldwin and Wurlitzer lines and
dealer network resulted in depressed musical product sales during the first
half of 1996. The decrease is primarily attributable to fewer store fronts and
the change in accounting for Wurlitzer piano sales compared to 1995 to an "as
sold" basis versus "as shipped". The reduction in the workforce contributed to
lower fourth quarter 1996 earnings due to the one-time costs associated with
severance and outplacement. With its product and dealer consolidation complete
and streamlined workforce, Baldwin believes that it is better positioned to
compete effectively in the future.
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's heritage. Baldwin musical products are sold through domestic
wholesale dealers (77%), Company-owned retail stores (10%), factory direct
sales (7%) and an international dealer network (6%).
ACOUSTIC PIANOS
The Company's premier product is the Baldwin(R) concert grand
piano, which is widely accepted for concert performances. Baldwin is
the only domestic manufacturer of concert grand pianos which also
produces a full line of vertical pianos. The Company has successfully
incorporated a number of enhancements and construction techniques,
originally designed for Baldwin grand pianos, into its vertical piano
lines designed for home and institutional use. Such enhancements
include plate and string mounting methods and soundboard construction.
The Company believes that the quality and durability of the Baldwin
concert grand pianos enhance the reputation, marketability and profit
margins of its entire line of acoustic keyboard instruments.
In 1995, the Company's product lines were repositioned to
eliminate product overlap and make Baldwin's acoustic offerings
clearer to consumers. Baldwin now offers the three American brands,
Baldwin(R), Chickering(TM) and Wurlitzer(R), that have represented
nearly 50% of all domestic new piano
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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.
The Company's product line offering is broad in both styles
and finishes of pianos in all classes ranging from 9-foot concert
grand pianos to 37-inch vertical pianos (spinets).
DIGITAL KEYBOARDS
Baldwin distributes a broad range of electronic keyboard
instruments. Baldwin's products compete in the digital keyboard market
segments that represent over 90% of the market for keyboard digital
product 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 new digital piano products in September
1995. The line was completed in August 1996 with seven models overall.
Pianovelle(TM) products are manufactured to Baldwin's
specifications in Italy by GeneralMusic, Europe's largest digital
keyboard manufacturer. Baldwin is working with GeneralMusic in
designing a second generation product line based on superior piano
tone and touch. Baldwin plans to introduce new products approximately
every two years to capitalize on advances in electronic technology and
address changing consumer needs.
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.
In electronic-based products, the Company uses outside
sources for the development and production of its products.
Outsourcing has enabled the Company to keep overall operating costs
down while benefiting from other companies' expertise in advanced
electronic technology and new material development.
In 1996, the Company completed development of a unique
digital player system. This system, called Baldwin ConcertMaster(TM),
was introduced in January 1997. It employs multi-media storage of
music and recording capabilities and is available for factory or field
installation only on Company brand acoustic products.
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During 1996, 1995 and 1994, the Company's research and
development expenditures were $475,000, $472,000 and $556,000,
respectively.
MARKETING AND DISTRIBUTION
The Company distributes its keyboard musical instruments in
North America through approximately 400 independent dealers. The
Company also operates 11 Company-owned stores in five large
metropolitan areas.
In 1996, no single dealer accounted for more than 5% of the
Company's keyboard musical instrument sales. The ten largest dealers
accounted for approximately 20% 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 and promote the Company's products, including:
o 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.
o A dealer support program, providing training, promotional
assistance, and incentives.
o Sponsorship of educational activities, including piano
competitions, recitals and music fellowships.
o An installment finance program offering retail customers a
source of credit and assurance of the Company's continued
interest in product performance.
The 11 Company-owned retail outlets are located in Atlanta,
Georgia; Cincinnati, Ohio; Indianapolis, Indiana; and Louisville and
Lexington, Kentucky. These Company-owned retail outlets, which sell
the Company's product lines, are generally situated in areas where
they do not compete directly with the Company's independent dealers.
The Company believes that the existence of Company-owned stores has
not adversely affected the Company's relationship with its independent
dealers.
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In addition to accounting for approximately 10% of the
Company's total keyboard sales in 1996, Baldwin's retail stores
provide the Company with the opportunity to test new retailing
concepts and dealer promotional ideas. Baldwin's retail stores also
provide a better understanding 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 the Company's
independent dealer network and Company-owned retail outlets and also
to cooperatively increase sales within those areas. This program
accounted for approximately 7% of the Company's total keyboard sales
in 1996.
The Company's products are distributed in Canada through
approximately 30 independent dealers representing approximately 3% of
the Company's total keyboard sales. The Company markets products
through a number of international distributors in markets such as
Mexico, France, Taiwan, Japan and England. These account for
approximately 3% of the Company's keyboard sales in 1996.
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 domestic keyboard musical instrument market has
contracted in recent years. Industry-wide annual unit sales of
acoustic pianos in the United States have declined 9% since 1995. The
Company competes with a number of domestic and foreign manufacturers
based on price relative to tone quality, performance characteristics,
styling and finish options.
The Company's domestic market share for new acoustic pianos
was approximately 25% in 1995 and 26% in 1996. In 1996, Baldwin showed
its second consecutive year of unit share growth after several years
of share 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 in the domestic market has
averaged approximately 51% over the last three years. 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.
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Electronic digital pianos, with annual industry sales in the
U.S. of approximately 55,000 units, are approaching acoustic pianos in
popularity. In 1996, industry unit sales increased by 2%. 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 digital segment, Baldwin
introduced additional models in August 1996. Called Baldwin
Pianovelle(TM), these instruments employ Dimensional Acoustic
Synthesis(TM) to recreate the classic sound of an acoustic piano.
These pianos also use cutting edge technology which has resulted in a
number of industry firsts. The upper-end pianos are the only digitals
which can display score, chords and lyrics in a large built-in
display. The Company increased its digital market share from
approximately 3% in 1995 to approximately 4% in 1996 and intends to
continue to aggressively pursue a higher market share in this area.
The domestic piano market continued its 15+ year decline in
unit volume in 1996. While this market decline has been a challenge to
Baldwin and its competitors in the domestic market, the Company
believes there are reasons to conclude that the market decline may
slow in the coming years. First, demographics indicate that the number
of children between the ages of 6 and 12, whose families are a key
market segment for Baldwin musical products, will be increasing
through the year 2010. Second, 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. These positive effects
on child development have been quantified in recently released
research data. Finally, 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.
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
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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 for larger or more expensive instruments.
CHURCH ORGANS
In early 1997, the Company reached agreement to sell its
church organ business, pending approval by the Company's lender. The
church organ business is considered a non-core business because of its
unique dealer and customer base. Exit from the church organ business
is consistent with the Company's focus on its core piano business.
FINANCING OPERATIONS
The Company's installment financing subsidiary, Finance, provides
point-of-sale consumer financing through keyboard product dealers located
throughout the United States. Baldwin is the only keyboard manufacturer that
also provides its own consumer financing for its musical instruments and has
been doing so for nearly a century. The Company believes that this long-term,
strongly focused attention to the music industry provides Baldwin with a
distinct competitive advantage.
Over the last few years Finance has expanded its focus. In addition to
financing Baldwin products, Finance now makes its consumer financing available
through music dealers that do not carry the Company's musical products. During
1996, many new dealers were added to the Finance client base as a result of
this strategy.
Finance 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, Finance both originates and cooperates
in special promotional programs with dealers.
Finance maintains agreements with an independent entity to sell
substantially all of its installment receivable contracts up to a maximum
outstanding principal amount of $100 million. Certain installment receivables
are not eligible for sale and are retained by Finance. Finance continues to
service all installment receivables sold.
Under the present arrangement 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
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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, and the amount retained by the buyer under the floating interest rate
provision, is remitted to Finance as a service fee.
Under the present sale agreement with the independent entity, 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, 1996, Finance remains
contingently liable on approximately $85 million of installment receivables.
Historically, credit losses have not been significant. The Company believes an
adequate allowance has been provided for any uncollectible receivables.
ELECTRONIC CONTRACTING
In 1984, the Company began manufacturing printed circuit board
assemblies for manufacturers outside the music industry. Currently, 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, heating
and air conditioning systems, vending machines, mail handling systems, exercise
equipment and semiconductor fabrication equipment.
The Baldwin Special Products Division has increased resource
investment, improved its work systems and expanded the customer/supplier
partnerships. In 1996, this Division entered into strategic partnerships with
two of its top five customers. In one strategic partnership, Baldwin enjoys
preferred supplier status increasing the likelihood for preferential access to
new business being outsourced by this customer. In the other, Baldwin has
entered into long term supply arrangements that give the Company preferred
supplier status for new business.
The Baldwin Special Products Division is a full-service contract
supplier offering a complete line of engineering, 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.
During 1996, the Baldwin Special Products Division increased its
investment in high technology capital and systems improvements
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three fold compared to the average of the two previous years. This division is
also strengthening internal process effectiveness through enhancing strategic
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 28 states. There are many contract manufacturers of
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 the consistency of
the quality of its products and its reputation for on-time delivery.
MANUFACTURING
The Company has fully integrated acoustic piano manufacturing
capability beginning with the treatment of raw lumber; proceeding through the
fabrication and finishing of the cabinetry and assembly of the inner workings;
and culminating in the creation of a completed musical instrument. During
1996, the Company began implementing an aggressive initiative to modernize and
simplify its piano manufacturing operations. Utilizing synchronous
manufacturing techniques, the Company is gaining greater process efficiencies,
reducing manufacturing costs and inventories, and producing consistently
high-quality pianos for its dealer network and consumers.
Synchronous manufacturing principles have been refined and proven by
advanced Japanese, U.S. and European manufacturers in many industries. For
Baldwin, this approach enables greater efficiency in its one-at-a-time piano
assembly line. It replaces the older batch production method and its inherent
problems, such as less process control and higher work-in-process and finished
product inventories. Baldwin is expanding its synchronous manufacturing program
to all its piano production facilities in 1997.
The Company's contract electronics manufacturing facility utilizes
specialized, computer-controlled production and testing equipment to
manufacture printed circuit boards and electromechanical assemblies for its
contract electronics manufacturing products.
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RAW MATERIALS
Raw materials required for the Company's acoustic piano manufacturing
operations are primarily purchased in the United States. Due to the Company's
unique products, a limited number of vendors are available for certain
specialized parts needed for keyboard instruments. Despite such limitations,
the Company has not experienced significant difficulties in obtaining adequate
supplies of raw materials. However, the failure of one or more such vendors to
continue to supply its products could cause delays in the Company's
manufacturing process until suitable alternate sources could be obtained.
In electronic contracting, 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 components.
SEASONALITY
The Company's business is somewhat seasonal in nature with fourth
quarter musical products sales generally increasing during the holiday season.
In 1996, the fourth quarter accounted for approximately 31% of net sales,
consistent with fourth quarter results in the previous three years.
BACKLOG
Because Baldwin consigns the majority of its musical products to its
dealer network, the Company has no significant backlog of sales of musical
products. The firm sales orders for electronic contracting and contract
furniture and music aggregated approximately $25 million and $22 million at
December 31, 1996 and 1995, respectively. The Company anticipates that all such
1996 orders will be filled during 1997.
WORKING CAPITAL
The Company requires significant working capital to support its
operations. The Company builds inventory levels during the year to support its
high fourth quarter seasonal sales demand.
The Company finances its working capital needs under a $50 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 each advance, even if
no event of default then exists. Under the revolving line of credit, the
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lender will make available a line of credit based on certain percentages of the
carrying value of the Company's inventories and trade accounts receivable.
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 $100 million, subject to certain repurchase
provisions described above under the caption "Financing Operations".
For more information about the Company's credit facilities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" attached hereto as Exhibit 13.1.
EMPLOYEES
As of December 31, 1996, the Company had approximately 1,530 full-time
employees. Approximately 245 hourly workers at the Company's Greenwood,
Mississippi facility are represented by the International Chemical Workers
Union, Local Union No. 800 and approximately 255 hourly workers at Fabricantes
Tecnicos, S.A. (wholly-owned subsidiary of the Company) Juarez, Mexico facility
are represented by the National Labor Union of Workers of Electronic Products.
All other employees are not represented by collective bargaining units. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company operates the following manufacturing facilities, all of
which are owned. These properties are pledged as collateral under the Company's
various credit facilities.
<TABLE>
<CAPTION>
Location Industry Segment Principal Products
-------- ---------------- ------------------
<S> <C> <C>
Greenwood, Mississippi Musical products Piano Cases/Piano
and other Components
Conway, Arkansas Musical products Grand Pianos
and other
Fayetteville, Arkansas Electronic Circuit Boards
Contracting
Trumann, Arkansas Musical products Pianos/Piano
and other Components
Juarez, Mexico Musical products Piano components
and other
</TABLE>
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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, and the decision to exit the contract furniture and contract
music businesses.
The Company maintains and services its facilities to ensure their
suitability for operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings 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. The Company does not anticipate that any environmental matters
currently known to the Company will result in proceedings against the Company
or in any material liability.
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 1996 fiscal year.
----------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not listed on any national securities
exchange and its principal United States trading market is through the Nasdaq
Stock Market's National Market. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Year 1996 Year 1995
Common Stock Bid Range Common Stock Bid Range
- ---------------------------- ----------------------------
Quarter High Low Quarter High Low
- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
First $14 1/2 $12 1/4 First $12 1/2 $10 1/4
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Second $15 1/2 $12 3/4 Second $15 1/4 $11 1/4
Third $16 1/2 $14 1/2 Third $14 1/8 $12
Fourth $16 1/4 $11 Fourth $13 1/4 $12
</TABLE>
As of March 21, 1997, the number of outstanding shares of the
Company's common stock was 3,425,396. The approximate number of record holders
of such shares was 121.
The Company has paid no dividends since its inception and intends to
continue its policy of retaining earnings to finance future growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" on page 101, and Note 6 of Notes
to Consolidated Financial Statements of the Company on page 88 regarding
limitations on payment of dividends, attached hereto as Exhibit 13.1.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to Baldwin's 1996 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to Baldwin's 1996 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to Baldwin's 1996 Annual Report to
Shareholders.
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, 1996 consolidated financial statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to Baldwin's Proxy Statement for the 1997
Annual Meeting of Shareholders.
15
<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to Baldwin's Proxy Statement for the 1997
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to Baldwin's Proxy Statement for the 1997
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to Baldwin's Proxy Statement for the 1997
Annual Meeting of Shareholders.
16
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
1.1 The following Consolidated Financial Statements of Baldwin Piano & Organ
Company and Subsidiaries are incorporated by reference to Baldwin's 1996
Annual Report to Shareholders.
Independent Auditors' Report.
Consolidated Statements of Earnings, years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1996, 1995 and 1994.
Consolidated Balance Sheets, as of December 31, 1996 and
1995.
Consolidated Statements of Cash Flows, years ended December
31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements, years ended
December 31, 1996, 1995 and 1994.
2.1 Consolidated Financial Statement Schedules of Baldwin Piano & Organ
Company and Subsidiaries:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report on Schedule 26
Schedule for the years ended
December 31, 1996, 1995 and 1994. 27
</TABLE>
VIII. Valuation and Qualifying Accounts.
All other schedules are omitted, as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Amended and Restated Bylaws of Baldwin Piano & Organ Company dated as of
February 10, 1997. (20)
17
<PAGE> 22
4.1 Rights Agreement between the Company and The Provident Bank dated as of
September 4, 1996. (21)
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 Form of Indemnification Agreements between the Company and the Company's
Officers and Directors dated June 30, 1986 and accompanying schedule. (1)
10.5 Consulting Agreement between the Company and Harold S. Smith dated as of
April 14, 1993. (8)
10.6 Baldwin Piano & Organ Company Deferred Directors Fee Plan. (9)
10.7 Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Plan.
(9)
10.8 Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Rabbi
Trust Agreement as amended and restated as of October 4, 1993. (9)
10.9 Baldwin Piano & Organ Company 1994 Incentive Stock Option Plan. (11)
10.10 Baldwin Piano & Organ Company 1994 Management Incentive Plan. (12)
10.11 Baldwin Piano & Organ Company 1994 Long Term Incentive Plan. (12)
10.12 Agreement of Employment between Baldwin Piano & Organ Company and
Karen L. Hendricks dated as of November 18, 1994. (13)
10.13 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)
18
<PAGE> 23
10.14 Change in Control Agreement between Baldwin Piano & Organ Company and
Karen L. Hendricks dated June 26, 1996. (17)
10.15 Change in Control Agreement between Baldwin Piano & Organ Company and
Stephen P. Brock dated June 11, 1996. (17)(18).
10.16 Agreement of Employment between Baldwin Piano & Organ Company and Perry
H. Schwartz dated as of November 5, 1996, as amended on November 11,
1996.
----------------
10.17 Office Space Lease Agreement between Wards Corner Associates Limited
Partnership and the Company dated as of June 16, 1986. (1)
10.18 Guaranty dated February 23, 1988 in favor of General Electric Capital
Corporation made by TWCA Corp (now known as `The Wurlitzer Company'). (2)
10.19 Security Agreement dated February 23, 1988 in favor of General Electric
Capital Corporation made by TWCA Corp. (2)
10.20 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)
10.21 Amended and Restated Revolving Credit and Security Agreement between the
Company and General Electric Capital Corporation dated October 25, 1990.
(5)
10.22 Pledge Agreement by the Company in favor of General Electric Capital
Corporation dated October 25, 1990. (5)
10.23 Security Agreement by BPO Finance Corporation in favor of General
Electric Capital Corporation dated October 25, 1990. (5)
10.24 Guaranty by BPO Finance Corporation in favor of General Electric Capital
Corporation dated October 25, 1990. (5)
10.25 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. (5)
10.26 Guaranty Agreement among the Company, BPO Finance Corporation, Retailer
Funding Corporation and General Electric Capital Corporation dated as of
October 1, 1990. (5)
19
<PAGE> 24
10.27 Indemnification Agreement among BPO Finance Corporation, General Electric
Capital Corporation and Kidder Peabody & Co. Incorporated as of October
1, 1990. (5)
10.28 Retail Accounts Receivable Purchase Agreement among the Company, BPO
Finance Corporation and The Wurlitzer Company dated as of October 1,
1990. (5)
10.29 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. (10)
10.30 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. (10)
10.31 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. (10)
10.32 Amended and Restated General Loan and Security Agreement dated as of
February 24, 1994 between the Company and The Fifth Third Bank. (10)
10.33 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. (10)
10.34 Letter of Credit Reimbursement Agreement dated as of August 13, 1993
between the Company and The Fifth Third Bank. (10)
10.35 Amendment to Office Space Lease Agreement between Baldwin Piano & Organ
Company and Nooney Management Company dated as of June 11, 1991. (7)
10.36 Second Amendment dated as of December 1, 1994 to Purchase and
Administration Agreement dated as of October 1, 1990 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 Corporation). (13)
20
<PAGE> 25
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. (16)
10.43 Amendment to Office Space Lease Agreement between Baldwin Piano & Organ
Company and Nooney Krombach Company dated as of February 16, 1996. (16)
10.44 Amendment #6 dated as of August 9, 1996 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. (19)
10.45 Land Lease Agreement between Fabricantes Tecnicos, S.A. DE C.V. and
Delphi Automotive Systems, S.A. DE C.V. dated as of December 13, 1996.
10.46 Amendment #7 dated as of November 20, 1996 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.
10.47 Third Amendment dated as of December 1, 1995 to Purchase and
Administration Agreement dated as of October 1, 1990 as amended among
Retailer Funding Corporation, Keyboard
21
<PAGE> 26
Acceptance Corporation and General Electric Capital Corporation as a
consenting party.
10.48 Fourth Amendment dated as of November 1, 1996 to Purchase and
Administrative Agreement dated as of October 1, 1990 among Retailer
Funding Corporation, Keyboard Acceptance Corporation and General Electric
Capital Corporation as a consenting party.
10.49 Amended and Restated Amendment and Supplemental Agreement between Baldwin
Piano & Organ Company and GeneralMusic S.p.A. dated as of January 1,
1997.
11.1 Statement regarding computation of per share earnings.
13.1 Information incorporated by reference to Baldwin's 1996 Annual Report to
Shareholders for the year ended December 31, 1996: "Independent Auditors'
Report", "Financial Statements" (including Notes thereto), "Five Year
Summary" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation".
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 December 5, 1996.
99.5 Press Release dated January 14, 1997.
(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-K for the period
ended December 31, 1989.
22
<PAGE> 27
(5) Incorporated by reference from the Company's Form 8-K dated October 25,
1990 as filed with the Commission on November 9, 1990.
(6) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1990.
(7) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1991.
(8) Incorporated by reference from the Company's Form S-3 Registration
Statement as declared effective by the Commission on May 19, 1993.
(9) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1993.
(10) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1993.
(11) Incorporated by reference from the Company's proxy statement relating to
its May 10, 1994 Annual Meeting of Shareholders.
(12) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1994.
(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.
(16) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1995.
(17) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1996.
(18) Substantially identical documents were entered into by Baldwin Piano &
Organ Company with George C. Huebner, Larry D. Thompson and Perry
Schwartz dated June 18, 1996, June 27, 1996 and November 12, 1996,
respectively.
(19) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1996.
23
<PAGE> 28
(20) Incorporated by reference from the Company's Form 8-K dated February 10,
1997 as filed with the Commission on February 27, 1997.
(21) Incorporated by reference from the Company's Form 8-K dated September 3,
1996 as filed with the Commission on September 13, 1996.
Index to Exhibits - page 28
REPORTS ON FORM 8-K
During the fourth quarter of 1996, the Company filed no reports on
Form 8-K. During the first quarter of 1997, the Company filed one report on
Form 8-K on February 27, 1997.
24
<PAGE> 29
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: /s/ KAREN L. HENDRICKS
-------------------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and President
Date: March 27, 1997
-------------------------------------
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:
<TABLE>
<S> <C> <C>
Date: March 27, 1997 /s/ KAREN L. HENDRICKS
--------------- -----------------------
Karen L. Hendricks, Chairman, Chief
Executive Officer, President
and Director
Date: March 27, 1997 /s/ GEORGE E. CASTRUCCI
--------------- ------------------------
George E. Castrucci, Director
Date: March 27, 1997 /s/ WILLIAM B. CONNELL
--------------- -----------------------
William B. Connell, Director
Date: March 27, 1997 /s/ JOSEPH H. HEAD, JR.
--------------- ------------------------
Joseph H. Head, Jr., Director
Date: March 27, 1997 /s/ ROGER L. HOWE
--------------- ------------------
Roger L. Howe, Director
Principal Financial and Accounting
Officer:
Date: March 27, 1997 /s/ PERRY H. SCHWARTZ
--------------- ----------------------
Perry H. Schwartz, Executive Vice
President and Chief Financial Officer
</TABLE>
25
<PAGE> 30
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Baldwin Piano & Organ Company:
Under date of February 25, 1997, except as to Note 16, which is as of
March 11, 1997, we reported on the consolidated balance sheets of Baldwin Piano
& Organ Company and subsidiaries as of December 31, 1996 and 1995, 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, 1996,
as contained in the 1996 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 1996. 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 25, 1997
26
<PAGE> 31
SCHEDULE VIII
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
--------
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
---------
Charged Charged
Balance at to cost to other Balance at
beginning and accounts Deductions end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended
December 31, 1996 $4,004,192 $ 549,867 $ - $1,015,936(1) $3,538,123
========== ========== ======== ========== ==========
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
========== ========== ======== ========== ==========
RESERVE FOR INSTALLMENT RECEIVABLES
SOLD WITH RECOURSE:
Year ended
December 31, 1996 $1,510,000 $ 700,000 $ - $ 803,000(2) $1,407,000
========== ========== ======== ========== ==========
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
========== ========== ======== ========== ==========
</TABLE>
- --------------------
(1) Represents accounts charged off, less recoveries.
(2) Represents reserve related to accounts repurchased.
27
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, *
as amended. (1)
3.2 Amended and Restated Bylaws of Baldwin *
Piano & Organ Company dated as of February
10,1997. (20)
4.1 Rights Agreement between the Company and *
The Provident Bank dated as of September
4, 1996. (21)
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 Form of Indemnification Agreements between *
the Company and the Company's Officers and
Directors dated June 30, 1986 and accompany-
ing schedule. (1)
10.5 Consulting Agreement between the Company *
and Harold S. Smith dated as of April 14,
1993. (8)
10.6 Baldwin Piano & Organ Company Deferred *
Directors Fee Plan. (9)
10.7 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Plan. (9)
10.8 Baldwin Piano & Organ Company Non-Qualified *
Deferred Compensation Rabbi Trust Agreement
as amended and restated as of October 4,
1993. (9)
</TABLE>
28
<PAGE> 33
<TABLE>
<S> <C> <C>
10.9 Baldwin Piano & Organ Company 1994 Incentive *
Stock Option Plan. (11)
10.10 Baldwin Piano & Organ Company 1994 Management *
Incentive Plan. (12)
10.11 Baldwin Piano & Organ Company 1994 Long Term *
Incentive Plan. (12)
10.12 Agreement of Employment between Baldwin Piano *
& Organ Company and Karen L. Hendricks dated
as of November 18, 1994. (13)
10.13 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)
10.14 Change in Control Agreement between Baldwin *
Piano & Organ Company and Karen L. Hendricks
dated June 26, 1996. (17)
10.15 Change in Control Agreement between Baldwin *
Piano & Organ Company and Stephen P. Brock
dated June 11, 1996. (17)(18)
10.16 Agreement of Employment between Baldwin Piano 36
& Organ Company and Perry H. Schwartz dated as
of November 5, 1996, as amended on November
11, 1996.
10.17 Office Space Lease Agreement between Wards *
Corner Associates Limited Partnership and the
Company dated as of June 16, 1986. (1)
10.18 Guaranty dated February 23, 1988 in favor *
of General Electric Capital Corporation
made by TWCA Corp (now known as `The
Wurlitzer Company'). (2)
10.19 Security Agreement dated February 23, 1988 *
in favor of General Electric Capital Corpo-
ration made by TWCA Corp. (2)
10.20 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)
</TABLE>
29
<PAGE> 34
<TABLE>
<S> <C> <C>
10.21 Amended and Restated Revolving Credit and *
Security Agreement between the Company and
General Electric Capital Corporation dated
October 25, 1990. (5)
10.22 Pledge Agreement by the Company in favor of *
General Electric Capital Corporation dated
October 25, 1990. (5)
10.23 Security Agreement by BPO Finance Corporation *
in favor of General Electric Capital Corpora-
tion dated October 25, 1990. (5)
10.24 Guaranty by BPO Finance Corporation in favor *
of General Electric Capital Corporation dated
October 25, 1990. (5)
10.25 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. (5)
10.26 Guaranty Agreement among the Company, *
BPO Finance Corporation, Retailer Funding
Corporation and General Electric Capital
Corporation dated as of October 1, 1990. (5)
10.27 Indemnification Agreement among BPO Finance *
Corporation, General Electric Capital Corpo-
ration and Kidder Peabody & Co. Incorporated
as of October 1, 1990. (5)
10.28 Retail Accounts Receivable Purchase Agreement *
among the Company, BPO Finance Corporation
and The Wurlitzer Company dated as of October
1, 1990. (5)
10.29 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. (10)
10.30 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. (10)
</TABLE>
30
<PAGE> 35
<TABLE>
<S> <C> <C>
10.31 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. (10)
10.32 Amended and Restated General Loan and Security *
Agreement dated as of February 24, 1994 between
the Company and The Fifth Third Bank. (10)
10.33 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. (10)
10.34 Letter of Credit Reimbursement Agreement *
dated as of August 13, 1993 between the
Company and The Fifth Third Bank. (10)
10.35 Amendment to Office Space Lease Agreement *
between Baldwin Piano & Organ Company and
Nooney Management Company dated as of
June 11, 1991. (7)
10.36 Second Amendment dated as of December 1, 1994 to *
Purchase and Administration Agreement dated as of October 1,
1990 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 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)
</TABLE>
31
<PAGE> 36
<PAGE> 37
<TABLE>
<S> <C> <C>
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. (16)
10.43 Amendment to Office Space Lease Agreement *
between Baldwin Piano & Organ Company and
Nooney Krombach Company dated as of
February 16, 1996. (16)
10.44 Amendment #6 dated as of August 9, 1996 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. (19)
10.45 Land Lease Agreement between Fabricantes 41
Tecnicos, S.A. DE C.V. and Delphi Automotive
Systems, S.A. DE C.V. dated as of December
13, 1996.
10.46 Amendment #7 dated as of November 20, 1996 50
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.
10.47 Third Amendment dated as of December 1, 1995 62
to Purchase and Administration Agreement dated
as of October 1, 1990 as amended among Retailer
Funding Corporation, Keyboard Acceptance
Corporation and General Electric Capital
Corporation as a consenting party.
</TABLE>
32
<PAGE> 38
<TABLE>
<S> <C> <C>
10.48 Fourth Amendment dated as of November 1, 1996 65
to Purchase and Administrative Agreement dated
as of October 1, 1990 among Retailer Funding
Corporation, Keyboard Acceptance Corporation
and General Electric Capital Corporation as a
consenting party.
10.49 Amended and Restated Amendment and Supplemental 72
Agreement between Baldwin Piano & Organ Company
and GeneralMusic S.p.A. dated as of January
1, 1997.
11.1 Statement regarding computation of per share 76
earnings.
13.1 Information incorporated by reference to 77
Baldwin's 1996 Annual Report to Shareholders for the year
ended December 31, 1996: "Independent Auditors' Report",
"Financial Statements" (including Notes thereto), "Five Year
Summary", and "Management's Discussion and Analysis of
Financial Condition and Results of Operation".
21.1 Subsidiaries of the Company. 103
23.1 Consent of Independent Accountants. 104
27.1 Financial Data Schedule. 105
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 December 5, 1996. 106
99.5 Press Release dated January 14, 1997. 107
</TABLE>
* 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.
33
<PAGE> 39
(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-K for the period
ended December 31, 1989.
(5) Incorporated by reference from the Company's Form 8-K dated October 25,
1990 as filed with the Commission on November 9, 1990.
(6) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1990.
(7) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1991.
(8) Incorporated by reference from the Company's Form S-3 Registration
Statement as declared effective by the Commission on May 19, 1993.
(9) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1993.
(10) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1993.
(11) Incorporated by reference from the Company's proxy statement relating to
its May 10, 1994 Annual Meeting of Shareholders.
(12) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1994.
(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.
(16) Incorporated by reference from the Company's Form 10-K for the period
ended December 31, 1995.
(17) Incorporated by reference from the Company's Form 10-Q for the period
ended June 30, 1996.
34
<PAGE> 40
(18) Substantially identical documents were entered into by Baldwin Piano &
Organ Company with George C. Huebner, Larry D. Thompson and Perry
Schwartz dated June 18, 1996, June 27, 1996 and November 12, 1996,
respectively.
(19) Incorporated by reference from the Company's Form 10-Q for the period
ended September 30, 1996.
(20) Incorporated by reference from the Company's Form 8-K dated February 10,
1997 as filed with the Commission on February 27, 1997.
(21) Incorporated by reference from the Company's Form 8-K dated September 3,
1996 as filed with the Commission on September 13, 1996.
35
<PAGE> 1
EXHIBIT 10.16
November 5, 1996
Perry Schwartz
220 Walker Lane
Edgewood, KY 41017
Dear Perry:
This letter is to formally outline our offer of employment as Executive Vice
President and Chief Financial Officer, for Baldwin Piano and Organ Company,
based at our Corporate Offices in Loveland, Ohio.
The following is more specific information about the offer. Of course, all of
these items are subject to the details of the specific plan documents. If you
have any questions or want more detailed information, please feel free to
contact Cindy Moeller at 576-4652.
ANNUAL AND LONG-TERM COMPENSATION
Base Salary Your starting annual base salary will be
$180,000 (less withholdings and deductions),
which will be paid monthly on the 25th of
the month. The Company will review your
salary annually.
Annual Incentive You will participate in Baldwin's
Management Incentive Plan, which provides
opportunity for an annual cash bonus. You
will be eligible for an annual incentive of
24%, 30%, or 45% of your salary, subject to
the level of the performance of the
Company. The plan runs on a fiscal year
basis, and your participation will begin in
1997.
Annual Incentive Stock Options In 1997 you will be eligible for an annual
incentive stock option grant, determined by
the CEO, based on your individual
contribution.
Special Stock Option Grant On your first day of employment the Company
will grant you a qualified option to
acquire 10,000 shares of the Company's
common stock. The per share exercise price
will equal the closing share price of the
Company's common stock on the NASDAQ Market
on your commencement date. Your right to
exercise 20% of these options will vest
immediately on your commencement date, and
an additional 20% of the options will vest
on each anniversary of your commencement
date. These options will expire on the
earlier of the following: ten years from
the date of the grant or three months
following the termination of your
employment.
<PAGE> 2
Long-Term Incentive Plan You will be eligible to participate in
Baldwin's Long-Term Incentive Plan, which
covers a three-year period and which pays
out at the end of the third year. The
current Long-Term Incentive Plan covers
1994-1996. Under this plan awards are based
on Company performance over the three-year
period. At your level you would be eligible
for an award of 0%, 40%, 60%, or 80% of
your third-year base salary. The awards may
be paid in restricted stock, cash, or a
combination. You will be eligible for an
award under this plan, pro-rated for your
length of employment during the period
covered by the plan. A new Long-Term
Incentive Plan will be adopted for
1997-1999. We are currently investigating
alternatives to this long-term incentive
plan.
BENEFITS
Medical and Dental Benefits You will be eligible to participate in the
medical and dental plan ninety days after
your commencement date. The current medical
plan is a point-of-service plan, and you
will select a primary care physician, who
will direct your medical care. Your share
of the monthly premium for 1996 would be
$120.00 for family coverage or $45.00 for
single coverage. The maximum annual dental
benefit is $1,000 for each family member.
Co-pay for doctors' visits in the network
is $12. There is a prescription card with a
co-pay of $7 for generic drugs and $12 for
branded drugs. Also there is a mail order
prescription provision with a $7 co-pay for
a three-month supply of maintenance drugs.
Flexible Spending Plan You will be eligible for the Flexible
Spending Plan, which allows you to make a
salary deferral to pay certain items with
pre-tax dollars. You may defer up to $2,000
annually to the Medical Reimbursement
Account and up to $5,000 to the Dependent
Care Reimbursement Account.
Retirement Plan Baldwin has a 401(k) plan, which has two
parts. First, after you have been employed
for 30 days, you will be eligible to make
salary deferral contributions to the Plan
(up to a certain limit). Second, after you
have been employed for one year, the
Company will contribute on an annual basis
to your account an amount equal to 3% of
your salary, plus match your salary
deferral contributions at the rate of 50%
(up to a certain overall limit).
In addition, Baldwin has a Non-Qualified
Deferred Compensation Plan, to which you
also will be able to make salary deferral
contributions (up to a certain limit) after
30 days of employment. After one year of
employment, your deferrals to this Plan
will be matched at the rate of 50% (again,
up to a certain overall limit).
You will choose from the options available
in each plan how to direct the investment
of these funds.
You will be 100% vested in all Company
contributions after five years.
<PAGE> 3
Vacation You will be entitled to four weeks of paid
vacation annually beginning in 1997. You
will receive pro rata vacation for 1996.
Long-Term Disability You will be offered long-term disability at
group rates.
Life Insurance The Company provides life insurance in an
amount equal to 1-1/2 times your annual W-2
earnings. This amount is adjusted annually.
Educational Assistance You will be eligible for educational
assistance after one year of employment.
OTHER
Change of Control Agreement Attached to this letter is the Change of
Control Agreement that had been approved by
the Board of Directors for a few select,
critical senior executives. This Change of
Control Agreement will supersede this
compensation package in the event of change
of control. This will give you assurance of
financial protection for a period of time
if Baldwin has a change of control and your
employment is terminated either directly or
constructively as a result.
Separation Agreement If your employment is terminated
involuntarily by Baldwin within the first
twelve months of your employment and not
for cause, you will be entitled to
severance of $15,000 per month (less
withholdings and deductions) for 6 months
from the termination date. If on that date
you are not employed elsewhere and have
made good faith attempts to seek
employment, you will be entitled to the
same monthly pay per month until employed
up to an additional three months. In
addition, we will provide reasonable
outplacement services.
Employment at Will If employed, your employment with the
Company is at-will.
Drug Screen/Background Check This offer is contingent upon successful
completion of a pre-employment drug screen
and a background check.
Commencement Date To comply with Federal law, we will need
you to provide us with proof of identity
(passport, driver's license, or
military/school identification) and a
document that establishes employment
eligibility (Social Security card, birth
certificate, or employment "green card").
Perry, I am certainly looking forward to having you join us at Baldwin.
Sincerely,
Karen L. Hendricks
<PAGE> 4
November 11, 1996
Mr. Perry H. Schwartz
220 Walker Lane
Edgewood, KY 41017-2600
Dear Perry:
This letter is in response to your letter of November 7, 1998, accepting
employment as Executive Vice President and Chief Financial Officer of Baldwin
Piano & Organ Company, with the following modifications and supplemental
points:
1. The provisions set forth in Section V of the Change of Control Agreement
submitted to you will become a part of your employment arrangement from
the outset, including as an inducement of your acceptance, Baldwin's
Indemnification Agreement attached, whether or not the Change of Control
Agreement ever becomes operative.
2. Your job responsibilities are outlined in Schedule A attached, subject to
the reasonable assignment by the President and CEO of additional or
different duties, so long as the nature of same shall be consistent with
and appropriate to an executive position of no lesser level than that of
other executives reporting directly to Baldwin's President and CEO.
3. You shall be afforded resources and authorities which are approved by
Baldwin's President and CEO and which are reasonably sufficient to
successfully perform your assigned duties, including reasonably suitable
office space in Baldwin's Loveland, Ohio headquarters facility and
secretarial assistance.
4. The provisions regarding "separation" shall be restated as follows: "If
your employment is terminated by Baldwin within the first twenty-four (24)
months of your employment without Cause, as "Cause" is defined below, you
will be entitled to severance of $15 thousand per month from the
termination date, for 12 months. Under all circumstances of termination by
Baldwin, except for Cause, we will provide reasonable outplacement
services and the opportunity under law to elect COBRA benefits.
For this purpose, "terminated" shall be deemed to include "constructive
termination" as defined in Section IV, 1 of the Change of Control
Agreement, and "Cause" shall be defined as: (i) willful failure to perform
the duties of the job; (ii) gross neglect in carrying out the duties of
the job; (iii) willful misconduct which is demonstrable and materially
injurious to Baldwin; (iv) conviction of a felony after one promptly filed
unsuccessful appeal; or (v) a material breach by you of any of the terms
of the employment arrangement between Baldwin and you."
Sincerely, ACCEPTED AND AGREED
Karen L. Hendricks _______________________________________
Perry H. Schwartz Date
<PAGE> 5
SCHEDULE A (AS REVISED 11/8/96)
CFO RESPONSIBILITIES/AUTHORITIES
BALDWIN PIANO AND ORGAN
Organizational:
- - Corporate Secretary
- - Controller
- - Treasury
- - Financial Analyses
- - Information Systems
- - Risk Management
Functional:
- - Analyses
- - Business Planning
- - Create/Implement Financial Controls
- - Information Systems
- - Taxes
- - Shareholder Relations - via active support to CEO's Program
- - Organizational/Cultural Change Essential to Strategic Growth/Profitability
- via active support to CEO and HR Director
- - Protection of Assets
Tasks (Performance Criteria for CFO):
- - Lead the financial contribution to formal strategic planning and to the
analysis and rationalization of organizational change and manufacturing
operations.
- - Develop Company financial policies which enhance/establish systems of
Internal control as well as accounting policies and procedures to properly
record the Company's business transactions and to provide the Company's
asset accountability.
- - Lead the Company's efforts in managing its banking relationships to
evaluate debt financing and lines of credit and secure alternate sources if
best for the Company.
- - Provide and analyze financial information that will facilitate effective
evaluation of and decision-making about growth opportunities, including
joint ventures, acquisitions, and make-or-buy decisions.
- - Actively support the CEO's efforts to develop and maintain effective
Investor relations.
- - Analyze financial results to determine the business performance in
comparison to the current operating plan and highlight opportunities to
take action.
- - Lead, analyze, and make comprehensive recommendations that will optimize
the manufacturing costs systems and related information systems.
- - Ensure that the Companies contracts for appropriate and high-quality
auditing services for the purpose of SEC/public accounting and manage the
relationship with that firm.
- - Coordinate data processing activities for the Company to ensure that
up-to-date, relevant, statistical data concerning sales, orders,
production, Inventories, actual manufacturing costs, accounts receivable,
and operations results are available on a timely basis.
<PAGE> 1
Exhibit 10.45
LEASE CONTRACT ENTERED INTO BY FABRICANTES TECNICOS, S.A. DE C.V., REPRESENTED
HEREIN BY MR. RANDY MARKS, IN HIS CAPACITY AS ATTORNEY-IN-FACT OF THE COMPANY,
HEREINAFTER REFERRED TO AS THE "LESSOR" AND, DELPHI AUTOMOTIVE SYSTEMS, S.A. DE
C.V., REPRESENTED HEREIN BY MR. JAMES P. FLANAGAN, IN HIS CAPACITY AS SECRETARY
OF THE CORPORATION, HEREINAFTER REFERRED TO AS "LESSEE", IN ACCORDANCE WITH THE
FOLLOWING RECITALS AND CLAUSES:
RECITALS
I. LESSOR states that, it is the owner of a tract of land which is located at
1620 Plutarco Elias Calles in Ciudad Juarez, Chihuahua, with an approximate
land surface area of 22,862.45 square meters (equivalent to 246,000 square
feet), said plat of land is shown on Exhibit "A" herein, and that it does
not have any legal impediments of any kind to enter into this LEASE
CONTRACT.
II. LESSEE states that it is a stock Corporation legally incorporated in
accordance to Mexican Law that it knows the LEASED PROPERTY, as defined
below, its present conditions and that pursuant to its operating needs, it
wishes to lease the LEASED PROPERTY referred to by the LESSOR under recital
first herein.
In consideration of the above recitals, the LESSOR and the LESSEE have decided
to enter into this LEASE CONTRACT pursuant to the following:
CLAUSES
FIRST.- THE LEASED PROPERTY.-
Under the terms of this LEASE CONTRACT, the LESSOR hereby agrees to deliver in
lease to the LESSEE as of the beginning of its term, the use and temporary
possession of a plot of land, to which reference has been made on Recital I
herein.
Said plot of land, is shown on Exhibit "A" herein, hereinafter referred to as
the "LEASED PROPERTY".
SECOND.- OWNERSHIP OF THE LEASED PROPERTY.-
LESSOR states that it has the clear and complete ownership rights of the LEASED
PROPERTY
<PAGE> 2
and that the LESSEE shall have the quiet enjoyment of same. Similarly LESSOR
and LESSEE agree that as provided under Article 2308 of the Civil Code for the
State of Chihuahua, this LEASE CONTRACT will survive any foreclosure of any
lien or mortgage, and any default in payment of any such lien or mortgage shall
no way prejudice the terms and conditions of this LEASE CONTRACT or any
extension thereof, and that any amendments to such mortgages or any new
mortgages on the LEASED PROPERTY shall contain a provision acknowledging the
existence and duration of this LEASE CONTRACT.
THIRD.- DELIVERY OF THE LEASED PROPERTY.-
LESSOR will deliver the LEASED PROPERTY to the LESSEE ready to be occupied
precisely on the dates stipulated for the initiation of the term herein agreed
to.
FOURTH.- USE OF THE LEASED PROPERTY.-
The LESSEE shall use the LEASED PROPERTY only for parking lot and sports
facility in support of the expansion of its office center located on a separate
parcel adjacent to the LEASED PROPERTY.
FIFTH.- ASSIGNMENT AND SUBLETTING.-
LESSEE may not sublet or assign or otherwise transfer the rights and
obligations derived from this LEASE CONTRACT without the prior written consent
of LESSOR, which may be withheld for any reason, unless the assignment or
subletting is in favor of another corporation subsidiary of LESSEE or its
parent company, case in which LESSOR's consent is not required.
In the event this LEASE CONTRACT is assigned or sublet, LESSEE, in its capacity
as guarantor (fiador), shall be jointly liable with the sublessee or assignee
for the full payment of the lease rentals and all other obligations assumed
hereunder and irrevocably shall waive the benefits of order and excuse (orden y
excusion) and of prior judgment, levy and execution provided in Articles 2708,
2709, 2710, 2173 and 2717 of the Civil Code for the State of Chihuahua.
SIXTH.- LEASE PRICE.-
During the total term of the LEASE CONTRACT, the LESSEE shall pay as rent for
the LEASED PROPERTY the amount of U.S.$305,000.00 (THREE HUNDRED AND FIVE
THOUSAND DOLLARS 00/100) U.S. Currency, per year, plus I.V.A. Tax and payable
in monthly payments of $25,416.67 (TWENTY FIVE THOUSAND FOUR HUNDRED AND
SIXTEEN DOLLARS 67/100) U.S. Currency, in advance, on the first day of each
month during the term herein contemplated at the LESSOR's address which is
indicated in Clause Nineteenth unless LESSOR notifies LESSEE in writing that
the rental payments should be paid to any other person or be paid in a
different place within or outside the Republic of Mexico.
<PAGE> 3
In the event LESSOR does not receive the rent within six days after it is due,
LESSEE shall pay LESSOR a penalty equal to five percent of the payment due.
Should the lease term begin on a day other than the first day of a calendar
month, the LESSEE shall pay on the first day of the term, the prorate net rent
for the period intervening between the day of the beginning of the term and the
first day of the first calendar month following.
LESSOR and LESSEE agree that the base value of the LEASED PROPERTY is
$3,050,000.00 (THREE MILLION AND FIFTY THOUSAND DOLLARS) U.S. Currency.
SEVENTH.- TAXES AND UTILITIES.-
The LESSEE, during the terms hereof, shall pay all taxes assessed on the LEASED
PROPERTY, the LEASE CONTRACT or any combination of both, with the only
exception for the 2% Assets Tax and the Income Tax assessed by the Federal
Government upon the LESSOR. In order that the LESSEE is able to comply with the
obligation indicated on this Clause, the LESSOR agrees to timely provide those
documents or notices to LESSEE to enable the LESSEE to carry out such
obligations.
The LESSEE or LESSOR may bring appropriate proceedings in the name of the
LESSOR, the LESSEE or both, for contesting the validity of any assessment on
the LEASED PROPERTY or amount of taxes imposed thereon, or to recover payments
of same. Each one of the parties will cooperate with the other in respect to
the proceedings. The net amount recuperated of any tax, after paying all the
expenses, will be returned to the LESSEE or to the LESSOR depending on his
interest.
The LESSEE is also responsible for the procurement, obtainment, contracting and
hook-up of all utilities, such as gas, water, sewage, electricity, and
telephone lines, as well as for the payment of such utilities. LESSOR
represents that these services are available at the boundary of the LEASED
PROPERTY.
EIGHTH.- MAINTENANCE.-
LESSEE shall, at all times during the whole LEASE CONTRACT term, maintain at
its own cost and expense the LEASED PROPERTY.
NINTH.- ALTERATIONS/MODIFICATIONS.-
LESSEE may not make any alterations or modifications to the LEASED PROPERTY or
existing improvements without the prior written consent of LESSOR. LESSEE's
design of the LEASED PROPERTY and all structures must be approved by LESSOR in
advance and in writing. LESSEE shall be responsible to confirm that all
alterations and modifications are in compliance with all applicable laws and
regulations. No mature trees shall be removed from the LEASED PROPERTY, without
the prior written consent of LESSOR.
<PAGE> 4
LESSOR shall have 30 days to approve or disapprove the design of any additional
improvement that LESSEE may wish to carry out on the LEASED PROPERTY, and such
term shall be counted as of the date the design is submitted to LESSOR's
approval.
All demolition of existing structures and reshaping of landscaping, as well as
all improvements carried out on the LEASED PROPERTY by LESSEE shall be at the
sole cost and expense of the LESSEE.
Upon termination of the LEASE CONTRACT, LESSEE shall be responsible for and
bear all costs and expenses resulting from the removal or demolishing of the
alterations or improvements carried out on the LEASED PROPERTY, unless LESSEE
receives the written confirmation from LESSOR that said alterations or
improvements made on the LEASED PROPERTY may remain therein, at no cost to
LESSOR; therefore, LESSEE shall waive its rights set down in Article 2322 of
the Civil Code for the State of Chihuahua.
TENTH.- LIABILITIES OF THE PARTIES.-
In accordance with applicable law, the LESSOR guarantees to the LESSEE the use
and peaceful enjoyment of the LEASED PROPERTY during the full term of the LEASE
CONTRACT and the LESSEE covenants and agrees to use the LEASED PROPERTY only
for the purpose herein stipulated and in accordance with the nature and
intended usage of the LEASED PROPERTY.
ELEVENTH.- INSURANCE.-
During the term of this LEASE CONTRACT and any extension thereof, LESSEE shall,
at its own cost and expense, maintain, provide and keep in force by advance
payment of premiums, general public liability insurance coverage for the
benefit and protection of LESSEE and LESSOR, as their interests may appear, in
an amount not less than $100,000.00 Dollars combined single limit for personal
injury, and property damage, or in such greater amounts of insurance coverage
as LESSOR may from time to time reasonably require, insuring against any
liability of LESSEE, its agents, servants, employees and representatives
arising out of or in connection with the use or occupancy of the LEASED
PROPERTY by LESSEE, it agents, servants, employees, representatives,
contractors, licensees, invitees or guests. Such insurance policy shall be with
a company or companies reasonably acceptable to LESSOR and authorized to do
business in the State of Chihuahua, and shall be maintained by LESSEE in full
force and effect during the entire term of this LEASE CONTRACT. LESSEE shall
provide LESSOR with a copy of the policy and with annual certificates
indicating such policy is in full force and effect and providing for 30 days
written notice to LESSOR prior to cancellation or material change in the
policy. Should LESSEE fail to carry such insurance or to provide LESSOR with
the required insurance certificate after notification from LESSOR to do so,
LESSOR, as LESSEE's agent, shall have the right to obtain such insurance or
certificates and LESSEE shall pay the cost thereof to LESSOR upon demand.
TWELFTH.- TERM.-
The terms of this LEASE CONTRACT shall be for a period of 120 (one hundred and
twenty)
<PAGE> 5
months, commencing as of the date of execution hereof and terminating on the
month of January 2006.
Notwithstanding the contents of the previous paragraph, the parties hereby
agree that LESSEE shall have the right to renew the LEASE CONTRACT for an
additional and consecutive sixty month period by giving LESSOR at least six
months advance written notice of its intention to do so. The option to renew
the LEASE CONTRACT term, can not be exercised if the parties do not agree on
the rental consideration for this additional LEASE CONTRACT term.
If the parties agree on the rental consideration all other terms and conditions
of the LEASE CONTRACT shall remain in full force and effect during such
additional term, except that the option to purchase contained in the Thirteenth
Clause, would no longer be available to LESSEE.
THIRTEENTH.- OPTION TO PURCHASE THE LEASED PROPERTY.-
As long as LESSEE is not in default under this LEASE CONTRACT, LESSOR hereby
grant to LESSEE the exclusive formal and binding option to purchase the LEASED
PROPERTY at any time from the commencement date of the LEASE CONTRACT until
November lst of the tenth year of the LEASE CONTRACT. The purchase price will
be the sum of a) the present value of the remaining rent due under the LEASE
CONTRACT discounted at a rate of seven percent (7%) plus b) the then present
value of $3,050,000.00 (THREE MILLION FIFTY THOUSAND DOLLARS) U. S. Currency,
as receivable at the end of year ten (10) of the LEASE CONTRACT discounted at a
rate of seven percent (7%) ("Option Price"). The LEASED PROPERTY shall be
delivered free of all claims, liens, encumbrance and limitation of ownership,
and current in the payment of the property taxes. All taxes, rights fees and
expenses derived from the execution of the final purchase and sale deed shall
be paid by the LESSEE with the exception of the income tax resulting from this
transaction which will be paid by the LESSOR.
LESSEE shall notify LESSOR in writing of its intention to exercise its option
no later than the first business day of November of the year prior to the
intended purchase year (for purchasing years 1 through 10). The purchase of the
LEASED PROPERTY must be closed and the Purchase Price delivered to LESSOR
within the first calendar month of the intended purchase year. Notwithstanding
the foregoing, LESSEE may notify LESSOR of its intention to exercise its
option, at any time during the tenth year of the Lease (until November 1st) and
the purchase must be closed no later than January 1st of the eleventh year. In
the event the ten year lease term has expired prior to the date of Closing on
the LEASED PROPERTY, the LEASE CONTRACT shall be extended until the date of
Closing on the same terms and conditions as set forth in the LEASE CONTRACT,
except that there shall be no further option to purchase associated therewith.
LESSEE shall be responsible for all costs and expenses associated with the
transfer of the LEASED PROPERTY from LESSOR to LESSEE, including but not
limited to the following charges: duties, registration and notarial fees,
transfer taxes, but specifically excluding income taxes, legal fees incurred by
LESSOR and real estate broker's commissions incurred by LESSOR. LESSOR shall
transfer the LEASED PROPERTY free of all liens and encumbrances.
<PAGE> 6
FOURTEENTH.- SURRENDER.-
Upon termination of the LEASE CONTRACT and in the event LESSEE has not
exercised its option to purchase the LEASED PROPERTY, then the LEASED PROPERTY
and all improvements thereon shall be returned to the LESSOR in its improved
state, and in a condition of good repair, free, clear and unencumbered, unless
LESSEE receives the written confirmation from LESSOR that said alterations or
improvements made on the LEASED PROPERTY may remain therein, at no cost to
LESSOR; therefore, LESSEE shall waive its rights set down in Article 2322 of
the Civil Code for the State of Chihuahua.
If upon termination of the LEASE CONTRACT or any extension thereof, LESSEE does
not vacate and deliver the LEASED PROPERTY to LESSOR pursuant to this Clause,
LESSEE shall pay as new rent, an amount equal to 135% of the rent currently
paid at such time. The acceptance of said payment by LESSOR, does not imply in
any manner whatsoever, LESSOR's waiver of any right to recover the LEASED
PROPERTY.
LESSEE must surrender and deliver the LEASED PROPERTY into the possession and
use of the LESSOR without delay, in good order, condition and repair, except
for normal wear and tear due to normal use and the passage of time. All signs,
inscriptions and installations of like nature made by LESSEE shall be removed
at or prior to the expiration of the term of this LEASE CONTRACT or its
extensions. All furniture, trade fixtures and business equipment installed by
LESSEE shall remain the property of the LESSEE and shall be removed by LESSEE
at any time during or at the end of the term unless LESSOR has agreed in
writing to accept same and the LESSEE shall, at its own expense, repair all
damages resulting from the installation or removal hereof.
FIFTEENTH.- ENVIRONMENTAL CLAUSE.-
LESSEE represents, warrants and guarantees that during the lease term, the
LEASED PROPERTY shall be free of any spill, accident of ecological nature,
storage or final disposal or recycling of any material or waste that is deemed
hazardous or dangerous under the terms of the General Law of Ecological
Equilibrium and Environmental Protection, its regulations or the Applicable
Mexican Norms, and agrees to save, indemnify, defend and hold LESSOR harmless
against any and all liabilities, including penalties, fines and surcharges
which LESSOR is required to pay due to any act, omission or misrepresentation
of LESSEE, which directly or indirectly results in such liability penalty,
including all costs and expense incurred in the cleaning up of the LEASED
PROPERTY to meet and comply with the requirements set by the Environmental
Authorities and the Mexican Regulations pertaining thereto.
LESSEE acknowledges that the LEASED PROPERTY is hereby delivered by LESSOR in
no violation to the Mexican Environmental Regulations.
SIXTEENTH.- SUBROGATION.-
LESSEE agrees, at the request of LESSOR, to subordinate this LEASE CONTRACT to
any mortgage placed upon the LEASED PROPERTY, provided that the holder agrees
to recognize
<PAGE> 7
the LESSEE's rights under this LEASE CONTRACT and not to disturb the possession
and other rights of LESSEE under this LEASE CONTRACT so long as LESSEE
continues to perform its obligations hereunder, and in the event of acquisition
of title by said holder through foreclosure proceedings or otherwise, to accept
LESSEE as tenants of the LEASE CONTRACT and to perform LESSOR's obligations
hereunder and LESSEE agrees to recognize such holder or any other person
acquiring title to the LEASED PROPERTY as LESSOR. LESSEE and LESSOR agree to
execute and deliver any appropriate instruments necessary to carry out the
agreements contained herein.
SEVENTEENTH.- MODIFICATIONS TO CONTRACTUAL DOCUMENTS.-
No modification, release or discharge of this LEASE CONTRACT or waiver of any
of the provisions thereof, shall be of any force or effect except by an
agreement in writing executed by LESSOR and LESSEE.
EIGHTEENTH.- APPLICABLE LAW AND JURISDICTION.-
This LEASE CONTRACT shall be bound and subject to the provisions of the Civil
Code for the State of Chihuahua and both parties hereto expressly submit to the
jurisdiction of the proper Courts of the City of Juarez, State of Chihuahua,
Mexico, waiving any other jurisdiction that they may have a right to, because
of their address or any other reason.
NINETEENTH.- NOTICES.-
All notices, demands and request required under this LEASE CONTRACT shall be in
writing. All such notices, demands and requests shall be deemed to have been
properly given if served personally or if sent by registered or certified mail,
return receipt requested, addressed to LESSOR or LESSEE as the case may be, at
its respective address last designated by notice to the other party for that
purpose. Until LESSOR and LESSEE designates other addresses shall be as
follows:
LESSOR: FABRICANTES TECNICOS, S.A. DE C.V.
Plutarco E. Calles #1620
Cd. Juarez, Chih.
Attn: General Manager
CC: Carlos Enriquez T., Esq.
Enriquez, Gonzalez, Aguirre y Ochoa, S.C.
Boulevard Gomez Morin #7045-1
32509 Cd. Juarez, Chih.
CC: Monica Donath Kohnen, Esq.
Graydon, Head & Ritchey
1900 Fifth Third Center
511 Walnut Street
Cincinnati, OH 45202
<PAGE> 8
LESSEE: DELPHI AUTOMOTIVE SYSTEMS, S.A. DE C.V.
Av. Plutarco E. Calles #1210
Cd. Juarez, Chih.
Attn: Administrator Unico y/o Secretario
CC: Baker & McKenzie Abogados, S.C.
Paseo Triunfo de la Republica #3304-2
Cd. Juarez, Chih.
Attn.: Lic. Raul Jaquez Madrid.
TWENTIETH.- TRANSLATION.-
This LEASE CONTRACT is executed in two counterparts. One in the English
language and the other in the Spanish language. In case of any discrepancies
between the two texts, the Spanish version shall prevail.
TWENTY-FIRST.- ZONING.-
In the event LESSOR permits LESSEE to change the zoning of the LEASED PROPERTY
from industrial to commercial, LESSEE shall, at its cost and expense, be
responsible for obtaining the necessary authorization from the Mexican
authorities to return the LEASED PROPERTY to industrial zoning acceptable to
LESSOR, at least three months prior to the termination of the LEASE CONTRACT.
TWENTY-SECOND.- EMINENT DOMAIN.-
If the whole of the LEASED PROPERTY is taken for any public use under any
statute or by right of eminent domain, then, when possession is taken
thereunder of the LEASED PROPERTY, the term of this LEASE CONTRACT and all
rights of the LESSEE hereunder shall immediately terminate and the rent shall
be adjusted as of the time of such termination and any rent paid for a period
thereafter shall be refunded.
If a part of the LEASED PROPERTY shall be taken for any public use, under any
statute or by right of eminent domain then, this LEASE CONTRACT shall remain in
effect as to the remainder of the LEASED PROPERTY not taken by such public
authority, provided that said remainder is usable at LESSEE's discretion and,
the rent shall be reduced in the proportion the area of the LEASED PROPERTY
taken, bears to the total area leased hereunder.
In any event, LESSEE shall not receive any portion of the award of damages
granted for any total or parcel taking.
TWENTY-THIRD.- TRANSFER OF THE LEASE CONTRACT.-
LESSEE hereby acknowledges that LESSOR is in the process of conducting a
split-off (escision) and, thus, the LEASED PROPERTY shall be transferred to the
new Mexican company resulting
<PAGE> 9
from such split-off, therefore, the holder of this LEASE CONTRACT shall be this
latter corporation.
This LEASE CONTRACT is executed by both parties before two witnesses on the
13th day of the month of December of 1996.
"LESSOR"
FABRICANTES TECNICOS, S.A. DE C.V.
/s/ RANDY R. MARKS
-------------------
BY: MR. RANDY MARKS
ATTORNEY-IN-FACT
"LESSEE"
DELPHI AUTOMOTIVE SYSTEMS, S.A. DE C.V
/s/ JAMES P. FLANAGAN
-------------------------
BY: MR. JAMES P. FLANAGAN
SECRETARY OF THE CORPORATION
<PAGE> 1
Exhibit 10.46
AMENDMENT #7 TO REVOLVING CREDIT AND SECURITY AGREEMENT
AMENDMENT #7, dated as of November 20, 1996, to that certain Revolving
Credit and Security Agreement, dated as of June 15, 1984 and Restated as of
October 25, 1990, between Baldwin Piano & Organ Company and General Electric
Capital Corporation (as heretofore amended by Amendment #1 dated as of August
27, 1992, Amendment #2 dated as of May, 1993, Amendment #3 dated as of February
15, 1994, Amendment #4 dated as of September 30, 1994, Amendment #5 dated as of
March 28, 1995 and Amendment #6 dated as of August 9, 1996, the 'Agreement;"
terms not defined herein being used herein as therein defined).
WITNESSETH:
WHEREAS, Borrower and Lender wish to amend the terms of the Agreement
as set forth herein;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows;
SECTION 1. Amendments.
(a) The definition of "Termination Date" in Section 1 of the Agreement
is hereby amended by deleting the date, "February 15, 1999" in clause (i)
therein and substituting in lieu thereof, "October 31, 2001".
(b) The definition of "Borrowing Base" in Section 1 of the Agreement
is hereby amended by adding at the end of clause (iii) thereof the following:
", excluding Raw Materials used in connection with the electronics
contracting business of the Borrower and its Subsidiaries."
(c) Section 1 of the Agreement is hereby amended by adding the
following new defined terms in the proper alphabetical order:
"Baldwin Trading" shall mean Baldwin Trading Company, an Ohio
corporation.
"EBITDA" shall mean, for any period, the consolidated net income (or
net loss) of the Borrower and its Subsidiaries for such period as
determined in accordance with GAAP, plus the sum of the following amounts
of the Borrower and its Subsidiaries for such period to the extent
included in the determination of such net income (or net loss), (i)
depreciation expense, (ii) amortization expense, (iii) interest expense,
and (iv) income tax expense.
<PAGE> 2
"Funded Debt" shall mean the sum of (i) amounts outstanding under the
Agreement, (ii) amounts outstanding under the Term Loan Agreement, and
(iii) commercial paper and loans associated with the RFC Documents.
"Interest" shall mean, for any Person, determined on a consolidated
basis in accordance with GAAP, for any period, the net interest expense
for such period, plus (a) interest expense capitalized for such period to
the extent deducted in the determination of such net interest expense,
less (b) the sum of the following amounts with respect to such Person to
the extent included in such net interest expense of such Person for such
period: (A) the amount of amortized debt discount, (B) charges relating to
write-ups or write-downs in the book or carrying value of existing
indebtedness, and (C) any increase in pay-in-kind interest payable less
any decrease in pay-in-kind interest payable.
"Tangible Net Worth" shall mean of any Person, at any date, determined
on a consolidated basis in accordance with GAAP, the total assets of such
Person (which shall be valued at cost less normal depreciation) less:
(a) all items which are treated as intangibles in accordance with
GAAP, including, without limitation, (i) excess cost over book value of
businesses acquired: (ii) patents and patent rights, (iii) trademarks and
trade names; (iv) copyrights; (v) goodwill; (vi) organization costs; (vii)
government licenses; (viii) franchises; (ix) mailing lists; (x)
exploration permits; (xi) import and export permits; and (xii) bond or
debenture discounts; and
(b) Total Liabilities."
"Total Liabilities" of any Person means, at any date, the total
liabilities of such Person and its Subsidiaries at such date determined on
a consolidated basis in accordance with GAAP."
(d) Sections 2.1(a), 2.2(a) and 2.2(b) of the Agreement are hereby
amended by deleting the amount, $41,500,000 set forth therein, and substituting
in lieu thereof the following:
"the lesser of (i) $50,000,000 or (ii) $150,000,000 less the amount of
the Commitment (as defined in the RFC Documents)."
(e) Section 2.6 of the Agreement is hereby amended as follows:
2
<PAGE> 3
(i) The paragraph set forth therein is hereby amended by designating
such paragraph as paragraph "(a)" and, adding immediately after such
designation, "Subject to Sections 2.6(b) and (c) below,"
(ii) Section 2.6 is hereby amended by adding at the end thereof the
following:
"(b) From and after January 1, 1997, the Borrower shall pay interest
to Lender monthly on the tenth day of each calendar month, or sooner on
demand, on the unpaid principal amount of the Revolving Credit Loan during
the previous GECC Fiscal Month at a fluctuating interest rate (computed
daily on the basis of a year of 360 days and the actual number of days
elapsed) equal to the Index Rate plus an Interest Rate Addition based on
the table set forth below. Lender shall determine the applicable interest
rate following the end of each fiscal quarter based on financial
statements delivered by the Borrower to Lender pursuant to Section 6.1
(a) hereof, and such interest rate shall become effective on the first day
of the following fiscal quarter. For purposes of this Section 2.6(b),
EBITDA shall be calculated based on a rolling four-quarter period and
Funded Debt will be determined based on the consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of the most recent fiscal
quarter.
<TABLE>
<CAPTION>
Funded Debt/EBITDA Interest
Ratio Rate Addition
----- -------------
<S> <C>
Less than 10.0 : 1 1.50%
10.0 : 1 but less than 11.0 : 1 1.75%
11.0 : 1 but less than 13.0 : 1 2.00%
13.0 : 1 but less than 14.0 : 1 2.25%
14.0 : 1 and greater 2.50%
</TABLE>
(c) Notwithstanding Section 2.6(b), if Borrower meets the following
financial targets as of December 31, 1996, the interest rates specified in
Section 2.6(b) above shall become effective on April 1, 1997 rather than
January 1, 1997:
(i) EBITDA for the Fiscal Year ending December 31, 1996, shall be
greater than $10,000,000;
(ii) the book value of Inventory shall be less than $60,400,000; and
3
<PAGE> 4
(iii) according to Lender's records, the outstanding amount of the
Revolving Credit Loan (minus available funds deposited in Lender's
depository banks) shall be less than $37,000,000.
(f) Section 2.7 of the Agreement is hereby amended by adding at the
end thereof the following new section (c):
"(c) Borrower agrees to pay to Lender on October 31, 1997 a fee equal
to $250,000 if the aggregate amount of the Revolving Credit Loan according
to the Lender is not equal to or lower than $30,000,000 for 45 consecutive
days during the third quarter of the Fiscal Year ending on December 31,
1997."
(g) Section 6.1(a) of the Agreement is hereby amended by deleting the
number "35" set forth on the first line thereof and substituting in lieu
thereof, the number "25".
(h) Section 7.3 of the Agreement shall be amended by deleting clauses
(a), (b) and (c) therein and substituting in lieu thereof the following:
(a) A minimum Tangible Net Worth of $40,000,000;
(b) An EBITDA (excluding any expenses in connection with the closing
of any factory of the Borrower) to Interest ratio of at least 2.0:1,
with EBITDA and Interest calculated monthly based on a rolling
twelve-month period; and
(c) A Total Liabilities to Tangible Net Worth ratio of no more than
2.5:1.
(i) Article 7 of the Agreement is hereby amended by adding a new
Section 7.18 at the end thereof:
"Section 7.18: Semi-Annual Meetings. "The Chairman of the Board of
Borrower, or any other senior executive of the Borrower, designated by
Lender, shall meet semi-annually with representatives of the Lender at
times and places to be agreed on between Borrower and Lender to
discuss, among other things, results of operations of Borrower and its
Subsidiaries."
(j) Section 8.3 of the Agreement is hereby amended by (i) deleting the
words, "Wurlitzer or Finance" in lines two and three thereof and substituting
in lieu
4
<PAGE> 5
thereof the words, "any of its Subsidiaries" and (ii) adding the following
clauses (ix) and (x) at the end thereof:
"(ix) letters of credit of Baldwin Trading in connection with the
purchase by Baldwin Trading of foreign goods and services on behalf of
Borrower in an aggregate amount outstanding at any one time not to exceed
$5,000,000; and
(x) Guarantees by Borrower expressly permitted by Section 8.9(ix)
hereof."
(k) Section 8.4 of the Agreement is hereby amended by deleting the
word "Wurlitzer" in line two thereof and substituting in lieu thereof the
words, "any of its Subsidiaries."
(l) Section 8.9 of the Agreement is hereby amended by adding the
following clause (ix) at the end thereof:
"(ix) Guarantees by Borrower in favor of Fifth Third Bank of letters
of credit of Baldwin Trading in connection with the purchase by Baldwin
Trading of foreign goods and services, on behalf of Borrower; provided,
however, in no event shall any Guarantees by Borrower with respect to such
letters of credit exceed $5,000,000."
(m) Section 8.10 of the Agreement is hereby amended by deleting the
first three lines thereof and substituting in lieu thereof the following:
"Borrower shall not, and shall not permit any of its Subsidiaries to, create or
permit any Lien on any of their respective assets or properties except:"
(n) Section 8.1(e) of the Agreement is hereby amended by deleting the
word "Wurlitzer" in the third line thereof and substituting in lieu thereof,
"any of its Subsidiaries."
(o) Section 8.11 of the Agreement is hereby amended by deleting the
number "$3,500,000" therein and substituting the number."$4,500,000."
(p) Section 8 of the Agreement is hereby amended by adding the
following Sections 8.25 and 8.26 at the end thereof:
"8.25 Wurlitzer Business and Management Agreement. Wurlitzer shall not
engage in any business other than managing the businesses of Borrower and
its Subsidiaries, and Wurlitzer shall not amend its Certificate
5
<PAGE> 6
of Incorporation without Lender's consent. The management agreement to be
entered into between Borrower and Wurlitzer with respect to certain assets
of Borrower to be transferred to Wurlitzer shall be reasonably
satisfactory to Lender and shall not be amended in any material respect
without Lender's consent.
8.26 Baldwin Trading Business. Baldwin Trading shall not enter into
any new business other than the business of purchasing foreign goods and
services on behalf of Borrower and obtaining letters of credit in
connection with such purchases, and Baldwin Trading shall not amend its
Articles of Incorporation without Lender's consent."
(q) Section 13.11 of the Agreement is hereby amended by deleting
subsection (a) thereof in its entirety and substituting in lieu thereof the
following:
"(a) If to Lender, at
General Electric Capital Corporation
14131 Midway Road, 10th floor
Dallas, Texas 75244
Attention: Manager of Asset Management
With a copy to
General Electric Capital Corporation
1600 Summer Street
Stamford, Connecticut 06905
Attention: Associate General Counsel
Retailer Financial Services"
SECTION 2. Consent. Lender hereby consents to the transfer by Borrower
to The Wurlitzer Company, a Delaware corporation and a wholly-owned Subsidiary
of the Borrower ("Wurlitzer"), of the assets listed on Schedule A hereto (the
"Transferred Assets"); provided, that Borrower has entered into a management
agreement with Wurlitzer with respect to the Transferred Assets, which is
reasonably satisfactory to Lender and provided, further, that the provisions of
Section 8.12 shall continue to apply to the Collateral (other than the
Transferred Assets). Effective upon such transfer in accordance with the terms
hereof, Lender releases and terminates all liens on and security interests in
the Transferred Assets and agrees to execute any documents reasonably requested
by Borrower to further effectuate such release.
6
<PAGE> 7
SECTION 3. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, Lender shall have received: (a) a copy of an
amendment to the Pledge Agreement executed by Borrower and satisfactory to
Lender, pursuant to which Borrower pledges all of the outstanding shares of
stock of Baldwin Trading; (b) a copy of a consent, duly executed by each of
Wurlitzer and Baldwin Trading, pursuant to which Wurlitzer and Baldwin Trading
consent to this Amendment; (c) a favorable opinion of Graydon, Head & Ritchey,
counsel to Borrower, as to matters requested by Lender; and (d) a copy of this
Amendment executed by each of the parties hereto.
SECTION 4. Representations and Warranties. Borrower represents and
warrants to Lender as follows:
(a) All of the representations and warranties of Borrower contained in
the Agreement and in each of the other Loan Documents are true and correct on
the date hereof, except to the extent any such representation or warranty
expressly relates to an earlier date. No Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary or proper corporate action
and do not require the consent or approval of any Person which has not been
obtained.
(c) This Amendment has been duly executed and delivered by Borrower
and each of this Amendment and the Agreement as amended hereby constitutes a
legal, valid and binding obligation of Borrower, enforceable against Borrower
in accordance with its terms.
SECTION 5. Reference to the Effect on the Loan Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein," or words of like import, and each reference in the other
Loan Documents to the Agreement shall mean and be a reference to the Agreement
as amended hereby.
(b) Except as specifically amended herein, the Agreement and all other
Loan Documents shall remain in full force and effect and are hereby ratified
and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power and
7
<PAGE> 8
remedy of Lender under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents.
SECTION 6. Costs and Expenses. Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for Lender with respect thereto.
SECTION 7. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original and each of which taken together shall constitute but one and
the same instrument.
SECTION 8. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and performed in New York, without regard to the principals
thereof regarding conflict of laws.
SECTION 9. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ HAROLD GOEHL
------------------------
Name: Harold Goehl
Title: Attorney-in-Fact
BALDWIN PIANO & ORGAN COMPANY
By: /s/ CARL SIMMS
------------------------
Name: Carl Simms
Title: Vice President
9
<PAGE> 10
CONSENT OF WURLITZER
The undersigned, a party to a Guaranty, dated as of February 23, 1988,
hereby consents to the terms of Amendment #7 to the Restated Credit Agreement
(to which this Consent is annexed) and confirms that such Guaranty remains in
full force and effect and continues to secure the obligations pursuant to the
terms thereof, and further agrees to comply with the provisions of Sections
8.10 and 8.25 of the Restated Credit Agreement as amended by Amendment #7 as
applicable to it.
Dated as of November 20, 1996
THE WURLITZER COMPANY
By: /s/ C. R. JUENGLING
--------------------------
Name: Charles R. Juengling
Title: Vice President
10
<PAGE> 11
CONSENT OF BALDWIN TRADING
The undersigned hereby agrees to comply with the provisions of
Sections 8.10 and 8.26 of the Restated Credit Agreement as amended by Amendment
#7 thereto (to which this Consent is annexed) as applicable to it.
Dated as of November 20, 1996
BALDWIN TRADING COMPANY
By: /s/ C. R. JUENGLING
--------------------------
Name: Charles R. Juengling
Title: Secretary
11
<PAGE> 1
Exhibit 10.47
THIRD AMENDMENT
THIRD AMENDMENT (the "Third Amendment") dated as of December 1, 1995
to Purchase and Administration Agreement dated as of October 1, 1990, as
amended by a First Amendment dated as of February 15, 1994 and a Second
Amendment dated as of December 1, 1994 (as amended, the "Purchase and
Administration Agreement") among Retailer Funding Corporation (the "Company"),
Keyboard Acceptance Corporation (formerly BPO Finance Corporation) (the
"Seller") and Baldwin Piano & Organ Company (the "Parent") to which General
Electric Capital Corporation (GECC) has joined as a consenting party. Except as
otherwise defined herein, capitalized terms used herein and defined in the
Purchase and Administration Agreement shall be used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Company, the Seller and the Parent have entered into the
Purchase and Administration Agreement and now desire to amend certain of the
provisions thereof:
NOW, THEREFORE, it is agreed:
1. The definition of "Wind-Down Date" in Section 101 of the Purchase
and Administration Agreement is hereby amended by deleting clause (iv) thereof
and substituting in place therefor the following:
"(iv) [Reserved],"
2. The Seller hereby confirms its obligation pursuant to Section 712
of the Purchase and Administration Agreement to pay all reasonable costs and
expenses incurred by the Company or GECC in connection with the preparation,
execution and delivery of this Third Amendment, including but not limited to
the reasonable fees and expenses of counsel to the Company and GECC and any
rating agency charges in connection with this Third Amendment.
3. This Third Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Purchase and Administration Agreement.
<PAGE> 2
4. This Third Amendment shall become effective (the "Amendment
Effective Date") on the date on which the Company, the Seller, the Parent and
GECC shall have each executed and delivered to the other a counterpart of this
Third Amendment.
5. From and after the Amendment Effective Date, all references to the
Purchase and Administration Agreement in the Purchase and Administration
Agreement, each of the other company Documents and each of the Seller Documents
shall be deemed to be references to the Purchase and Administration Agreement
as amended hereby.
6. This Third Amendment may be executed on separate counterparts by
the parties hereto, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
7. This Third Amendment and the rights and obligations hereunder shall
be construed in accordance with and governed by the laws of the State of New
York.
-2-
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Third Amendment to be duly executed and delivered as of the
date first above written.
RETAILER FUNDING CORPORATION
By: /s/ R. DOUGLAS DONALDSON
------------------------------
Title: R. Douglas Donaldson
Treasurer
KEYBOARD ACCEPTANCE CORPORATION
(formerly BPO Finance Corporation)
By: /s/ C. R. JUENGLING
-------------------------------
Title: Vice President
BALDWIN PIANO & ORGAN COMPANY
By: /s/ C. R. JUENGLING
------------------------------
Title: Vice President
Consented and agreed to:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Collateral Agent
By: /s/ HAROLD GOEHL
-----------------------
Title: Attorney-in-Fact
-3-
<PAGE> 1
Exhibit 10.48
FOURTH AMENDMENT
FOURTH AMENDMENT (the "Fourth Amendment") dated as of November 1, 1996
to Purchase and Administration Agreement dated as of October 1, 1990, as
amended by a First Amendment dated as of February 15, 1994, a Second Amendment
dated as of December 1, 1994 and a Third Amendment dated as of December 1, 1995
(as amended, the "Purchase and Administration Agreement") among Retailer
Funding Corporation (the "Company"), Keyboard Acceptance Corporation (formerly
BPO Finance Corporation) (the "Seller") and Baldwin Piano & Organ Company (the
"Parent") to which General Electric Capital Corporation ("GECC") has joined as
a consenting party. Except as otherwise defined herein, capitalized terms used
herein and defined in the Purchase and Administration Agreement shall be used
herein as so defined.
W I T N E S S E T H :
WHEREAS, the Company, the Seller and the Parent have entered into the
Purchase and Administration Agreement and now desire to amend certain of the
provisions thereof:
NOW, THEREFORE, it is agreed:
1. Section 101 of the Purchase and Administration Agreement is hereby
amended by deleting the definition of "Applicable Program Fee Percentage" set
forth therein and substituting in place therefor the following:
"Applicable Program Fee Percentage" shall mean, with respect to any
Settlement Period, (a) if Consolidated Book Net Worth is $35,000,000 or
less, 1.75%, (b) if Consolidated Book Net Worth is greater than
$35,000,000 and less than or equal to $40,000,000, 1.50%, (c) if
Consolidated Book Net Worth is greater than $40,000,000 and less than or
equal to $50,000,000, 1.25%, or (d) if Consolidated Book Net Worth is
greater than $50,000,000, 1.00%.
2. Section 101 of the Purchase and Administration Agreement is hereby
amended by deleting the definition of "Commitment" set forth therein and
substituting in place therefor the following:
<PAGE> 2
"Commitment" shall mean the obligation of GECC to make Loans to the
Company with respect to the Seller in a maximum outstanding principal
amount equal to $100,000,000 (or such higher amount not in excess of
$120,000,000 as shall be specified to the Company in writing from time to
time by GECC and the Collateral Agent), as such amount may be terminated
or reduced from time to time pursuant to Section 4.02 of the Liquidity
Agreement.
3. The definition of "Eligible Receivable" in Section 101 of the
Purchase and Administration Agreement is hereby amended by deleting clause (k)
thereof and inserting in place thereof the following:
(k) which bears interest on the principal balance thereof or provides
for the payment of finance charges in respect of the amount financed at a
rate per annum of not less than 9.9% (or such lower rate as shall be
approved from time to time by the Collateral Agent in a particular case or
generally, with the Collateral Agent hereby approving a rate of not less
than 6.9% per annum with respect to Receivables constituting not more than
10% of the Outstanding Principal Receivables) and is in substantially the
form of one of the form contracts set forth as Annex F hereto with such
changes therein as may be necessary or desirable from time to time in
light of local statutes or regulations."
4. Section 101 of the Purchase and Administration Agreement is hereby
further amended by adding the following definitions in the appropriate
alphabetical order:
"Effective Yield" shall mean the ratio (expressed as a percentage)
computed as of the last day of each Settlement Period by dividing (a) the
product of (x) 2 and (y) the sum of (1) the aggregate amount of all
interest and finance charges (and excluding in any event any late fees,
prepayment fees or other similar charges) accruing in respect of all
Eligible Receivables during the period of six consecutive Settlement
Periods then ended and (2) the amount, if any, by which (i) the variable
interest component, if any, receivable by the Company on the notional
principal amount of all SWAPs outstanding at any time during the period of
six consecutive Settlement Periods then ended accrued from the first day
through the last day of such six-month period whether or not such variable
interest component is due and owing during such six-month period exceeds
-2-
<PAGE> 3
(ii) the fixed interest component, if any, payable by the Company on the
notional principal amount of SWAPs outstanding at any time during such
six-month period accrued from the first day through the last day of such
six-month period whether or not such fixed interest component is due and
owing during such six-month period by (b) the average Unpaid Balance of
all Eligible Receivables as of the first day of each of the seven
consecutive Settlement Periods commencing with the first Settlement Period
occurring during such six-month period.
"Effective Yield Adjuster" shall mean, with respect to any Settlement
Period, an amount (but not less than zero) equal to the product of (a) 1.5
and (b) the amount, if any, by which (x) 13.37% exceeds (y) the Effective
Yield as of the last day of the preceding Settlement Period.
5. The Purchase and Administration Agreement is hereby amended by
deleting Annex C thereto and substituting in place thereof Annex C attached
hereto.
6. The Seller hereby confirms its obligation pursuant to Section 712
of the Purchase and Administration Agreement to pay all reasonable costs and
expenses incurred by the Company or GECC in connection with the preparation,
execution and delivery of this Fourth Amendment, including but not limited to
the reasonable fees and expenses of counsel to the Company and GECC and any
rating agency charges in connection with this Fourth Amendment.
7. This Fourth Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Purchase and Administration Agreement.
8. This Fourth Amendment shall become effective (the "Amendment
Effective Date") on the date on which the Company, the Seller, the Parent and
GECC shall have each executed and delivered to the other a counterpart of this
Fourth Amendment.
9. From and after the Amendment Effective Date, all references to the
Purchase and Administration Agreement in the Purchase and Administration
Agreement, each of the other Company Documents and each of the Seller Documents
shall be deemed to be references to the Purchase and Administration Agreement
as amended hereby.
-3-
<PAGE> 4
10. This Fourth Amendment may be executed on separate counterparts by
the parties hereto, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
11. This Fourth Amendment and the rights and obligations hereunder
shall be construed in accordance with and governed by the laws of the State of
New York.
-4-
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Fourth Amendment to be duly executed and delivered as of
the date first above written.
RETAILER FUNDING CORPORATION
By /s/ Tiffany Percival
------------------------------
Title:
KEYBOARD ACCEPTANCE CORPORATION
(formerly BPO Finance Corporation)
By /s/ C. R. Juengling
------------------------------
Title: Vice President
BALDWIN PIANO & ORGAN COMPANY
By /s/ Carl Sims
------------------------------
Title: Vice President
Consented and agreed to:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Collateral Agent
By /s/ Harold Goehl
-----------------------
Title: Attorney-in-Fact
-5-
<PAGE> 6
ANNEX C
PURCHASE DISCOUNT ADJUSTMENT CRITERIA
Each of (1) the Purchase Discount, (2) the Cash Percentage and (3) the
ratio specified in clause (vii) of the definition of "Wind-Down Date", in each
case as specified in the Purchase and Administration Agreement dated as of
October 1, 1990 among Retailer Funding Corporation (the "Company"), BPO Finance
Corporation (the "Seller") and Baldwin Piano & Organ Company, as amended (the
"Agreement", to which Agreement reference is hereby made for the meanings of
all capitalized terms used herein and not otherwise defined herein), is subject
to modification from time to time as follows:
1. The amount of over-collateralization shall be determined on the
basis of the loss experience and the Effective Yield of the Seller's
portfolio and shall be maintained at the sum of (1) the higher of (i) 10%
and (ii) three times the Seller's "Loss Experience" plus (2) the Effective
Yield Adjuster. "Loss Experience" with respect to the Seller means the
higher of (x) the 12 month rolling gross average loss experience for the
Seller's portfolio (historically or on a going forward basis) and (y) four
times the loss experience of the Seller's portfolio during the three
consecutive month period with the highest gross loss experience during the
most recent three year period.
2. If the Loss Experience of the Seller's portfolio and/or the
Effective Yield Adjuster increases, the amount of over-collateralization
will be adjusted upward by means of (i) an increase in the Purchase
Discount used in calculating the purchase price of Additional Receivables
for such number of Settlement Periods following the occurrence of such
increase in Loss Experience and/or the Effective Yield Adjuster as is
necessary to cause the aggregate over-collateralization for the portfolio
as a whole to be equal to the over-collateralization percentage specified
in paragraph 1 above, (ii) an adjustment in the Purchase Discount as it is
used for all other purposes to an amount equal to the sum of (1) the
higher of 10% and three times the Seller's Loss Experience plus (2) the
Effective Yield Adjuster and (iii) corresponding changes
<PAGE> 7
in the Cash Percentage and the ratio set forth in clause (vii) of the
definition of "Wind-Down Date".
3. If the Loss Experience of the Seller's portfolio and/or the
Effective Yield Adjuster decreases, the amount of over-collateralization
will be adjusted downward (but not lower than the higher of 10% and three
times the Seller's Loss Experience) by means of (i) a decrease in the
Purchase Discount used in calculating the purchase price of Additional
Receivables for such number of Settlement Periods following the
occurrence of such decrease as is necessary to cause the aggregate
over-collateralization for the portfolio as a whole to be equal to the
over-collateralization percentage specified in paragraph 1 above, (ii) an
adjustment in the Purchase Discount as it is used for all other purposes
to an amount equal to the sum of (1) the higher of 10% and three times the
Seller's Loss Experience plus (2) the Effective Yield Adjuster and (iii)
corresponding changes in the Cash Percentage and the ratio set forth in
clause (vii) of the definition of "Wind-Down Date".
<PAGE> 1
EXHIBIT 10.49
AMENDED AND RESTATED
AMENDMENT AND SUPPLEMENTAL AGREEMENT
This Amended and Restated Amendment and Supplemental Agreement dated
as of January 1, 1997 is entered into between Baldwin Piano & Organ Company
("Baldwin"), with its principal office at 422 Wards Corner Road, Loveland, Ohio
45140-8390, and GeneralMusic S.p.A., with its principal office at Via Delle
Rose 12, 47048 S. Giovanni in Marignano (FO) Italy ("GM"), and supersedes and
replaces in its entirety that Amendment and Supplemental Agreement dated as of
December 31, 1996 between Baldwin and GM.
W I T N E S S E T H
WHEREAS, Baldwin and GM are party to that certain Distribution
Agreement effective as of July 1, 1995 (the "Distribution Agreement"), pursuant
to which Baldwin became the exclusive distributor in the Territory of certain
electronic musical instruments and products manufactured by GM; and
WHEREAS, Baldwin and GM mutually desire to continue and expand their
business relationship as established under the Distribution Agreement and to
clarify and modify certain aspects of that relationship as set forth in this
Amended and Restated Amendment and Supplemental Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and for other good and valuable consideration, Baldwin and GM agree as
follows
1. Definitions. All capitalized terms used herein and not expressly
defined herein have the meaning ascribed to such terms in the Distribution
Agreement.
2. Inventory Repurchase. GM acknowledges that Baldwin has purchased
quantities of certain Products in excess of the amounts that Baldwin reasonably
expects to sell on a current basis. Baldwin and GM have reviewed such
inventories and agree that no later than January 6, 1997 Baldwin shall provide
GM with a written list of the exact quantities of Products that constitute
excess inventory (the "Excess Inventory"), which list shall contain the serial
numbers, models and the standard cost value purchase price that Baldwin paid GM
for each such item. In order to facilitate Baldwin's capacity to purchase
quantities of other Products for which there is greater current customer
demand, GM hereby agrees to purchase from Baldwin effective as of December 31,
1996 the Excess Inventory at the same purchase price that Baldwin paid GM for
such Products, not to exceed $2.20 million in the aggregate. The amount due to
Baldwin for such Excess Inventory shall be payable pursuant to the terms of a
promissory note (in the form of Exhibit A hereto) issued by GM in favor of
Baldwin having a principal amount equal to the purchase price of the Excess
1
<PAGE> 2
Inventory (the "Inventory Note"). The Inventory Note shall have a term of 12
months and shall be non-interest bearing. Upon any repurchases by Baldwin of
Products constituting Excess Inventory, the amount of the Inventory Note
immediately shall be reduced by the purchase price of such Products. No less
frequently than monthly (or on such other periodic basis as GM may reasonably
request), Baldwin shall provide GM with a reconciliation statement reflecting
all items of Excess Inventory repurchased by Baldwin and the items of Excess
Inventory remaining to be repurchased. Baldwin agrees to use its good faith
best efforts to repurchase the Products constituting Excess Inventory prior to
the maturity of the Inventory Note and to repurchase such Products prior to
ordering additional Products of the same model pursuant to any new purchase
orders issued by Baldwin to GM. Any amount remaining outstanding under the
Inventory Note as of its maturity date shall, at GM's option, (a) be paid in
cash ($U.S. dollars) by GM to Baldwin, (b) be satisfied by the return to
Baldwin of all items constituting Excess Inventory which have not previously
been repurchased by Baldwin, or (c) be satisfied through a combination of the
payment methods specified in the foregoing clauses (a) and (b) in such
respective amounts as mutually agreed upon by Baldwin and GM.
3. 1996 Year-End Purchases. Baldwin and GM agree that for all
purchases of Products by Baldwin from GM made during the period September 1,
1996 through December 31, 1996, Baldwin shall pay the purchase price within 180
days of the date of purchase (i.e. the date on which the Products were shipped
from Italy), with interest payable at the rate of 7% per annum commencing on
the thirtieth day after the purchase. Such payment shall be secured by an
irrevocable letter of credit in such amount issued by a financial institution
reasonably acceptable to GM on the date that Baldwin makes such purchases. The
letter of credit shall be in full force and effect for a period of at least 190
days from its issuance and shall provide that GM may draw upon it on and after
any date that Baldwin does not timely make a required payment of purchase
price.
4. Consignment. Baldwin and GM agree that beginning January 1, 1997,
GM shall ship all Products ordered by Baldwin after January 1, 1997 to Baldwin
on a consignment basis. Such Products shall be shipped directly from GM to
Baldwin and GM shall invoice its importer, GeneralMusic Chicago ("GM Chicago").
GM Chicago shall in turn invoice Baldwin for such Products, collect the
payments made by Baldwin (at the times required by and on the terms set forth
in this Section 4) and then remit such payments to GM. In addition, all
Products constituting Excess Inventory shall be held by Baldwin on consignment.
For all Products held by Baldwin on consignment (except for the Excess
Inventory), Baldwin shall pay GM an inventory service fee of 8% per annum. Such
fee shall be calculated on a monthly basis (0.67% per month) based on the
purchase price of consigned Products held by Baldwin on the first business day
of each month and shall be payable to GM ten days thereafter. Baldwin shall
conduct a physical inventory of all consigned Products on the first business
day of each month and up to two designated representatives of GM may
participate, if GM so desires. Based upon such physical inventory, Baldwin
shall be deemed to have purchased all Products that have been removed from
inventory since the previous month's physical inventory and Baldwin shall be
required to pay GM the purchase price for such Products. Furthermore, Baldwin
agrees to purchase from GM any Products that have been consigned to Baldwin and
remain in consignment inventory in excess of twelve months. All such
2
<PAGE> 3
purchases shall be at the agreed upon purchase price pursuant to the prices in
effect pursuant to the Distribution Agreement at the time of shipment of such
Products to Baldwin. Each payment of purchase price that becomes payable
pursuant to this Section 4 shall be payable within 30 days of the monthly
physical inventory to which it relates.
5. Consignment Letter of Credit. At all times that Baldwin holds
Products on consignment from GM, Baldwin shall maintain an irrevocable letter
of credit issued by a financial institution reasonably acceptable to GM. The
amount of such letter of credit shall equal the purchase price of all consigned
Products (except for the Excess Inventory), adjusted on a monthly basis
reflecting the results of the most recent physical inventory of consigned
Products. The letter of credit shall provide that either GM or GM Chicago may
execute and draw upon it on and after any date that Baldwin does not timely
make a required payment of purchase price to the extent of any such unpaid
purchase price.
6. Warehouse Space; Storage and Signage for Consigned Inventory.
Baldwin shall hold all consigned Products in Baldwin's warehouse facilities in
Greenwood, Mississippi or other mutually agreed upon facilities at no cost or
risk to GM. Baldwin shall maintain insurance on all such Products consistent
with the amount and type of insurance that Baldwin maintains on its
non-consigned inventories of Baldwin products. In no event shall the amount of
such insurance be less than the purchase price of the consigned Products and
Baldwin shall designate GM as an additional insured and loss payee on such
insurance. Baldwin shall be responsible for all warehouse management and
handling of consigned Products, at Baldwin's expense. Baldwin shall warehouse
all consigned Products separate from any and all other Products purchased by
Baldwin from GM and not consigned to Baldwin, and separate from any and all
other instruments and items either manufactured by Baldwin or sold to Baldwin
by any third party. Baldwin shall further place appropriate signage in all such
segregated areas in its warehouse where consigned Products may be located,
which signage shall clearly indicate that the Products in those areas are held
by Baldwin on consignment from GM. From time to time, designated GM
representatives shall have the right to inspect such warehouse facilities,
procedures and the consigned Products themselves during normal business hours
upon reasonable advance notice to Baldwin. All Products shall be shipped F.O.B.
Baldwin warehouse.
7. Effective Date. This Amended and Restated Amendment and
Supplemental Agreement shall be effective as of December 31, 1996 upon the
execution hereof by both Baldwin and GM.
8. Continuing Agreement. Other than as set forth in this Amended and
Restated Amendment and Supplemental Agreement, the terms and conditions of the
Distribution Agreement shall remain in full force and effect. To the extent
that any ambiguity or conflict arises in the interpretation of the Distribution
Agreement and this Amended and Restated Amendment and Supplemental Agreement,
the terms and conditions of this Amended and Restated Amendment and
Supplemental Agreement shall control.
3
<PAGE> 4
9. Governing Law. The validity, construction and performance of this
Amended and Restated Amendment and Supplemental Agreement shall be governed by
and interpreted in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Amendment and Supplemental Agreement as of the date set forth above.
BALDWIN PIANO & ORGAN COMPANY
/s/ STEPHEN P. BROCK
BY: Stephen P. Brock
-----------------------------
TITLE: Senior Vice President
--------------------------
GENERALMUSIC S.p.A.
/s/ M. GALANTI
BY: M. Galanti
-----------------------------
TITLE: Managing Director
--------------------------
4
<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<S> <C> <C>
Year ended December 31, 1996:
Net earnings ...................... $2,055,929
==========
Average number of
common shares outstanding ....... 3,420,852
=========
Net earnings per share $ .60
==========
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
=====
</TABLE>
<PAGE> 1
EXHIBIT 13.1
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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
February 25, 1997, except as to Note 16,
which is as of March 11, 1997
<PAGE> 2
Baldwin Piano & Organ Company and Subsidiaries
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994 (In thousands,
except earnings per share)
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 115,070 $ 122,634 $ 122,347
Cost of goods sold 92,495 96,333 96,559
- --------------------------------------------------------------------------------------------------
Gross profit 22,575 26,301 25,788
Income on the sale of installment receivables 5,811 4,946 4,828
Interest income on installment receivables 1,296 906 735
Other operating income, net 3,476 4,010 4,482
- --------------------------------------------------------------------------------------------------
33,158 36,163 35,833
Operating expenses:
Selling, general and administrative 25,936 26,790 31,869
Provision for doubtful accounts 1,250 965 1,304
- --------------------------------------------------------------------------------------------------
Operating profit 5,972 8,408 2,660
Interest expense 2,868 2,087 2,101
- --------------------------------------------------------------------------------------------------
Earnings before income taxes 3,104 6,321 559
Income taxes 1,048 2,361 214
- --------------------------------------------------------------------------------------------------
Net earnings $ 2,056 $ 3,960 $ 345
- --------------------------------------------------------------------------------------------------
Net earnings per share $ .60 $ 1.16 $ .10
==================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994 (In thousands)
<TABLE>
<CAPTION>
Additional Cost of
Common paid-in Retained treasury
stock capital earnings shares Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Proceeds from exercise of stock options -- 105 -- -- 105
Net earnings -- -- 2,056 -- 2,056
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 42 $ 12,106 $ 50,334 $ (6,207) $ 56,275
==================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Baldwin Piano & Organ Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995 (In thousands, except share data)
<TABLE>
<CAPTION>
Assets 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 774 $ 429
Receivables, net 13,933 14,338
Inventories 56,555 46,039
Deferred income taxes 3,533 4,072
Other current assets 4,496 4,719
- -------------------------------------------------------------------------------------
Total current assets 79,291 69,597
- -------------------------------------------------------------------------------------
Installment receivables, less current portion 11,435 11,215
Property, plant and equipment, net 16,479 14,934
Deferred income taxes -- 457
Other assets 4,859 5,226
- -------------------------------------------------------------------------------------
Total assets $ 112,064 $ 101,429
=====================================================================================
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 30,901 $ 17,646
Accounts payable 8,915 10,227
Income taxes payable 154 622
Accrued liabilities 5,757 6,399
- -------------------------------------------------------------------------------------
Total current liabilities 45,727 34,894
- -------------------------------------------------------------------------------------
Long-term debt, less current portion 3,350 4,250
Deferred income taxes 73 --
Other liabilities 6,639 8,171
- -------------------------------------------------------------------------------------
Total liabilities 55,789 47,315
- -------------------------------------------------------------------------------------
Shareholders' equity:
Common stock (Issued 4,175,144 shares in
1996 and 4,164,944 shares in 1995) 42 42
Additional paid-in capital 12,106 12,001
Retained earnings 50,334 48,278
- -------------------------------------------------------------------------------------
62,482 60,321
Less cost of 749,748 treasury shares (6,207) (6,207)
- -------------------------------------------------------------------------------------
Total shareholders' equity 56,275 54,114
- -------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 112,064 $ 101,429
=====================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
Baldwin Piano & Organ Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 (In thousands)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,056 $ 3,960 $ 345
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,204 2,656 2,553
Gain on sale of assets -- (266) (420)
Provision for doubtful accounts 1,250 965 1,304
Deferred income taxes 1,069 1,760 (1,294)
Change in assets and liabilities:
Trade receivables 161 (956) (3,191)
Inventories (10,516) 315 (1,277)
Other current assets 223 (1,257) (1,181)
Other assets 220 75 (350)
Accounts payable, accrued liabilities
and other liabilities (3,486) 758 2,199
Income taxes payable (468) (899) (992)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (7,287) 7,111 (2,304)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (3,602) (3,934) (2,503)
Proceeds from sale of assets -- 839 479
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,602) (3,095) (2,024)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Installment receivables written (74,244) (69,555) (59,859)
Installment receivables liquidated 6,495 4,839 3,751
Proceeds from sale of installment receivables 66,523 60,635 53,597
Purchase of shares for treasury -- -- (16)
Redemption of stock options -- -- (76)
Net borrowing on long-term debt 12,355 150 6,063
Proceeds from exercise of stock options 105 -- 9
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 11,234 (3,931) 3,469
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 345 85 (859)
Cash at beginning of year 429 344 1,203
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 774 $ 429 $ 344
====================================================================================================================================
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 2,781 $ 2,161 $ 1,943
Income taxes $ 595 $ 1,584 $ 2,556
===================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Baldwin Piano & Organ Company and Subsidiaries
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Baldwin Piano & Organ Company and all of its subsidiaries (Company). All
material intercompany balances and transactions have been eliminated.
Revenue Recognition
The Company ships keyboard instruments to a majority of its dealer network on a
consignment basis. Accordingly, the related 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 generally 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.
The Company's wholly-owned finance subsidiary (Finance) maintains agreements
with an independent entity to sell substantially all of its installment
receivable contracts up to a maximum outstanding principal amount of $100
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 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."
6
<PAGE> 7
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:
<TABLE>
<CAPTION>
Description Years
- -------------------------------------------------------
<S> <C>
Buildings 25 - 35
Building equipment 5
Machinery and equipment 3 - 10
</TABLE>
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.
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.
Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of the grant.
Alternatively, SFAS 123 also allows entities to continue to apply the
provisions of APB 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS
7
<PAGE> 8
123 had been applied. The Company has elected to continue to apply the
provisions of APB 25 and provide the pro forma disclosure provisions of
SFAS 123.
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
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 follows 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". Under SFAS 106 and SFAS 112, the Company charges
the expected cost of retiree health and certain postemployment benefits to
expense during the years employees render service. The Company funds these
postretirement and postemployment benefits primarily 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 in the Consolidated Balance Sheets. 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 (3,420,852
shares for 1996, 3,415,196 shares for 1995 and 3,415,262 shares for 1994). 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.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 125
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Management of
the Company does not believe that the adoption of SFAS 125 will have a material
impact on the Company's financial position, results of operations, or
liquidity.
8
<PAGE> 9
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. 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):
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Trade $ 9,693 $ 10,654
Installment - owned 8,814 9,613
Holdback on accounts sold 9,841 8,753
Other 558 537
- ----------------------------------------------------------------------
28,906 29,557
Less allowance for
doubtful accounts 3,538 4,004
- ----------------------------------------------------------------------
Net receivables 25,368 25,553
Less noncurrent portion 11,435 11,215
- ----------------------------------------------------------------------
Net current receivables $ 13,933 $ 14,338
======================================================================
</TABLE>
In the normal course of business, the Company extends credit to various dealers
where certain concentrations of credit risk exist. These concentrations of
credit risk may be similarly affected by changes in economic or other
conditions and may, accordingly, impact the Company's overall credit risk.
However, management believes that consolidated trade accounts receivable are
well diversified, thereby reducing potential material credit risk, and that the
allowance for doubtful accounts is adequate to absorb estimated probable losses
as of December 31, 1996 and 1995.
Installment receivables owned by Finance are net of unearned interest charges
of $1.3 million at both December 31, 1996 and 1995. See Note 5 for additional
information on installment receivables and Note 6 for information regarding the
use of receivables to secure borrowings.
9
<PAGE> 10
(3) Inventories
Inventories consist of the following (In thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials $ 15,540 $ 14,875
Work-in-process 8,257 7,490
Finished goods 45,725 35,611
- -------------------------------------------------------------------
69,522 57,976
Excess of FIFO cost over
LIFO inventory value (12,967) (11,937)
- -------------------------------------------------------------------
$ 56,555 $ 46,039
===================================================================
</TABLE>
At December 31, 1996 and 1995, approximately 76% and 77%, respectively, of the
Company's inventories were valued on the LIFO method. Net earnings for 1996,
1995 and 1994 are approximately $.6 million ($.18 per share), $.8 million ($.24
per share) and $1.5 million ($.43 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 1996, 1995 and 1994 by
approximately $.1 million ($.03 per share), $.1 million ($.02 per share) and
$.2 million ($.05 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):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 414 $ 414
Buildings and building equipment 13,013 8,914
Machinery and equipment 18,552 19,274
Leasehold improvements 544 544
- -------------------------------------------------------------------------
32,523 29,146
Less accumulated
depreciation and
amortization 16,044 14,212
- -------------------------------------------------------------------------
$ 16,479 $ 14,934
=========================================================================
</TABLE>
See Note 6 for information regarding the use of property, plant and equipment
to secure borrowings.
10
<PAGE> 11
(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 1996, 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 $100 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 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 1996, 1995 and 1994 represented an average interest rate of 6.8%,
7.1% and 5.9%, 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, 1996 and 1995, the balance of installment receivables on which
Finance remains contingently liable, is as follows (In thousands):
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Principal balance of installment receivables sold $ 94,777 $ 84,784
Less related holdback (9,841) (8,753)
- ----------------------------------------------------------------------------------------
$ 84,936 $ 76,031
========================================================================================
</TABLE>
The fair value of the principal balance of installment receivables sold before
related holdback is $97.8 million and $87.8 million at December 31, 1996 and
1995, respectively. 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 receivables,
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.
11
<PAGE> 12
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 1996 and 1995, Finance declared and paid dividends of $2.0 million and
$4.0 million, respectively, to the Company.
Condensed balance sheets of Finance are as follows (In thousands):
<TABLE>
<CAPTION>
Assets 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Installment receivables owned $ 8,814 $ 9,613
Holdback on accounts sold 9,841 8,753
Allowance for doubtful accounts (310) (392)
- -----------------------------------------------------------------------
Installment receivables, net 18,345 17,974
Deferred income taxes 634 677
Other assets 3,507 4,181
- -----------------------------------------------------------------------
Total assets $ 22,486 $ 22,832
=======================================================================
Liabilities and
Shareholder's Equity
- -----------------------------------------------------------------------
Other liabilities $ 3,563 $ 3,955
Due to parent 14,409 14,357
Shareholder's equity 4,514 4,520
- ------------------------------------------------------------------------
Total liabilities and
shareholder's equity $ 22,486 $ 22,832
========================================================================
</TABLE>
Condensed statements of earnings of Finance are as follows (In thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income on installment receivables:
Sold $ 5,782 $ 4,921 $ 4,816
Owned 1,296 906 735
Other operating income 285 332 353
- -------------------------------------------------------------------------------------
Total revenue 7,363 6,159 5,904
Expenses:
General and administrative 2,873 2,431 2,510
Provisions for doubtful accounts 854 120 120
Interest 419 3 64
- -------------------------------------------------------------------------------------
Earnings before income taxes 3,217 3,605 3,210
Income taxes 1,223 1,442 1,201
- -------------------------------------------------------------------------------------
Net earnings $ 1,994 $ 2,163 $ 2,009
=====================================================================================
</TABLE>
See Note 7 for information regarding derivative financial instruments.
12
<PAGE> 13
(6) Long-term Debt
Long-term debt consists of the following (In thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit $ 30,001 $ 16,896
Term loan 4,250 5,000
- ------------------------------------------------------------------------------
34,251 21,896
Less current portion 30,901 17,646
- ------------------------------------------------------------------------------
Long-term debt, less current portion $ 3,350 $ 4,250
==============================================================================
</TABLE>
The Company has a revolving line of credit (Revolver) of $50 million with an
initial due date of October 31, 2001. The Revolver is renewable for three
consecutive one-year periods beyond October 31, 2001. Amounts outstanding under
the Revolver are due one year after demand. However, the lender retains
absolute discretion regarding each advance, 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 carrying value of the Company's inventories and
trade accounts receivable. At December 31, 1996, the Company had approximately
$13.2 million of additional borrowing available under this line of credit. The
annual rate of interest under the Revolver ranges from 150 to 250 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 7.3% and 7.2% at
December 31, 1996 and 1995, 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, 1996, approximately $8.9
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 all covenants or has received the
appropriate waivers.
See Note 7 for information regarding derivative financial instruments.
13
<PAGE> 14
(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 paid $87,000 in 1996, received
$14,000 in 1995 and paid $217,000 in 1994.
The fair value of Finance's interest rate swap agreement at December 31, 1996
and 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 December 1996 and November 1995, the Company entered into two year interest
rate cap agreements in order to reduce the potential impact of increases in
interest rates on $44 million and $20 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 1996 and 1995, 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 $14,000 and $16,000 at December 31, 1996 and 1995, 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.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 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.
<TABLE>
<CAPTION>
(In thousands)
1996 1995
-------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Installment receivables owned $ 8,814 $ 8,508 $ 9,613 $ 9,272
Term loan $ 4,250 $ 4,206 $ 5,000 $ 4,932
====================================================================================
</TABLE>
14
<PAGE> 15
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.
(9) Income Taxes
The components of income tax expense (benefit) are as follows (In thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (410) $ 544 $ 1,594
State (73) 91 158
Foreign 222 232 204
- ------------------------------------------------------------------------
(261) 867 1,956
- ------------------------------------------------------------------------
Deferred:
Federal 1,123 1,295 (1,548)
State 186 199 (194)
- ------------------------------------------------------------------------
1,309 1,494 (1,742)
- ------------------------------------------------------------------------
$ 1,048 $ 2,361 $ 214
========================================================================
</TABLE>
Earnings before income taxes aggregated $2.1 million, $5.7 million and $.2
million for domestic operations and $1.0 million, $.6 million and $.4 million
for foreign operations in 1996, 1995 and 1994, respectively.
The difference between the taxes provided 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 is as follows (In
thousands):
15
<PAGE> 16
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $ 1,055 $ 2,149 $ 190
State income taxes (benefits), net of Federal tax benefit (expense) 75 191 (24)
Other (82) 21 48
- --------------------------------------------------------------------------------------------------------------
$ 1,048 $ 2,361 $ 214
==============================================================================================================
</TABLE>
The significant components of deferred income tax expense (benefit) are as
follows (In thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserves for inventories $ 983 $ 502 $ (515)
Allowance for doubtful accounts 133 432 80
Nondeductible accruals 337 557 (997)
Other (144) 3 (310)
- --------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit) $ 1,309 $ 1,494 $ (1,742)
==============================================================================================================
</TABLE>
Components of deferred tax balances as of December 31, 1996 and 1995 are as
follows (In thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 1,887 $ 2,026
Nondeductible accruals, principally due to accrual for
financial reporting purposes 3,124 3,415
Inventories, principally due to nondeductible reserves -- 848
Other 341 123
- -------------------------------------------------------------------------------------------------
Total gross deferred tax assets 5,352 6,412
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Inventories, principally due to differences in LIFO (131) --
Property, plant and equipment, principally due to
differences in depreciation (1,258) (1,279)
Investments in affiliated companies, principally due
to undistributed income of affiliated companies (263) (263)
State income taxes (240) (341)
- -------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (1,892) (1,883)
- -------------------------------------------------------------------------------------------------
Net deferred tax assets $ 3,460 $ 4,529
==================================================================================================
</TABLE>
16
<PAGE> 17
In the opinion of management, no valuation allowance related to deferred tax
assets was required at December 31, 1996. 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.
(10) Accrued and Other Liabilities
Accrued and other liabilities consist of the following (In thousands):
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued liabilities:
Reserve for installment receivables sold with recourse $ 1,407 $ 1,510
Compensation and benefits 2,046 1,919
Other 2,304 2,970
- ----------------------------------------------------------------------------------------------
$ 5,757 $ 6,399
- ----------------------------------------------------------------------------------------------
Other liabilities:
Postretirement and postemployment $ 1,918 $ 2,790
Deferred compensation 2,052 2,277
Other 2,669 3,104
- ----------------------------------------------------------------------------------------------
$ 6,639 $ 8,171
==============================================================================================
</TABLE>
(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 material to the Company's financial condition. The
cost of providing these retirement benefits is as follows (In thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Defined contribution 401(k) $ 742 $ 744 $ 801
Deferred compensation 147 83 255
Defined benefit 240 231 226
- -----------------------------------------------------------------------
$ 1,129 $ 1,058 $ 1,282
=======================================================================
</TABLE>
(12) Shareholders' Equity
At December 31, 1996 and 1995, the Company had 14,000,000 shares of $.01 par
value common stock authorized and 4,175,144 and 4,164,944 shares issued,
respectively. As of those dates, the Company held 749,748 shares in treasury.
17
<PAGE> 18
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 key employees 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.
At December 31, 1996, there were 80,000 additional shares available for grant
under the plans. The per share weighted-average fair value of stock options
granted during 1996 and 1995 was $6.29 and $5.53, respectively, on the date of
the grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996 - expected dividend yield of 0%, expected
volatility of 31.6%, risk-free interest rate of 6.32%, and an expected life of
7 years; 1995 - expected dividend yield of 0%, expected volatility of 31.6%,
risk-free interest rate of 5.52%, and an expected life of 7 years.
The Company applies APB 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the
Company's net earnings and net earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Net earnings:
As reported $ 2,056 $ 3,960
Pro forma 1,874 3,916
Net earnings per share:
As reported $ .60 $ 1.16
Pro forma .55 1.15
================================================================
</TABLE>
Pro forma net earnings reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net earnings amounts presented
above because compensation cost is reflected over the options' vesting period
of five years and compensation cost for options granted prior to January 1,
1995 is not considered.
A summary of the activity of the stock option plans follows (In thousands,
except per share data):
<TABLE>
<CAPTION>
Shares Weighted average
subject per share
to option option price
- --------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1994 276 $ 12.62
Options granted 75 12.17
Options expired (65) 12.37
- --------------------------------------------------------------------------
Balance, December 31, 1995 286 $ 12.56
Options granted 177 13.21
Options exercised (10) 10.21
Options expired (42) 11.44
- --------------------------------------------------------------------------
Balance, December 31, 1996 411 $ 13.00
==========================================================================
</TABLE>
18
<PAGE> 19
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.63 - $17.33 and 7.90
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 189,300
and 153,200, respectively, and the weighted-average exercise price of those
options was $12.87 and $12.29, respectively.
The Company has adopted a shareholder rights plan declaring a dividend
distribution of one Common Share Purchase Right for each outstanding share of
the Company's common stock. Under the plan, shareholders of record on September
10, 1996 will receive one right for each common share held on that date. This
distribution is not taxable to shareholders. The rights have a ten year life
and may be exercised if a party acquires 15 percent or more of the Company's
common stock, or announces a tender offer to do so, without the consent of the
Company's Board of Directors.
(13) 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. The Company does not anticipate that any environmental matters
currently known to the Company will result in any material liability.
At December 31, 1996, 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, 2001, are approximately $1.7 million, $1.5 million, $1.0 million,
$.9 million and $.7 million, respectively. Minimum rental payments due after
2001 are $.2 million. Rent expense under operating leases amounted to $2.3
million, $1.3 million and $1.0 million for 1996, 1995 and 1994, 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 the principal balance after the 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 $ .6 million of the outstanding dealer notes. The
Company believes the consolidated financial statements contain adequate
provisions for any loss that may be incurred as a result of this commitment.
19
<PAGE> 20
(14) Segment Information
A summary of operations by major segment follows (In thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and other revenue:
Musical products and other:
Musical products $ 82,941 $ 85,085 $ 91,421
Contract furniture and music 4,455 10,565 6,706
- -----------------------------------------------------------------------------------------------
87,396 95,650 98,127
Electronic contracting 30,894 30,687 28,361
Finance 7,363 6,159 5,904
- -----------------------------------------------------------------------------------------------
$ 125,653 $ 132,496 $ 132,392
===============================================================================================
Operating profit (loss):
Musical products and other $ 5,339 $ 6,674 $ 3,176
Electronic contracting 1,421 1,690 2,860
Finance 3,636 3,608 3,279
Unallocated corporate (4,424) (3,564) (6,655)
- -----------------------------------------------------------------------------------------------
$ 5,972 $ 8,408 $ 2,660
===============================================================================================
Identifiable assets:
Musical products and other $ 69,671 $ 62,988 $ 66,498
Electronic contracting 19,907 15,609 13,119
Finance 22,486 22,832 17,843
- -----------------------------------------------------------------------------------------------
$ 112,064 $ 101,429 $ 97,460
===============================================================================================
Depreciation:
Musical products and other $ 1,640 $ 1,948 $ 1,980
Electronic contracting 416 334 273
- -----------------------------------------------------------------------------------------------
$ 2,056 $ 2,282 $ 2,253
===============================================================================================
Capital additions:
Musical products and other $ 1,816 $ 3,770 $ 1,655
Electronic contracting 1,786 164 848
- -----------------------------------------------------------------------------------------------
$ 3,602 $ 3,934 $ 2,503
===============================================================================================
</TABLE>
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.
20
<PAGE> 21
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 Company uses the LIFO method of valuing musical products inventory and the
FIFO method for electronic contracting inventory.
(15) Quarterly Financial Data (Unaudited)
Quarterly financial data for the years ended December 31, 1996 and 1995 are as
follows (In thousands, except per share data):
<TABLE>
<CAPTION>
1996 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 27,147 $ 26,139 $ 26,508 $ 35,276 $ 115,070
- ---------------------------------------------------------------------------------------------
Gross profit 5,275 5,920 4,965 6,415 22,575
- ---------------------------------------------------------------------------------------------
Net earnings 684 750 192 430 2,056
- ---------------------------------------------------------------------------------------------
Net earnings per share .20 .22 .06 .13 .60
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 29,760 $ 30,688 $ 26,519 $ 35,667 $ 122,634
- ---------------------------------------------------------------------------------------------
Gross profit 6,444 6,836 5,508 7,513 26,301
- ---------------------------------------------------------------------------------------------
Net earnings 815 831 671 1,643 3,960
- ---------------------------------------------------------------------------------------------
Net earnings per share .24 .24 .20 .48 1.16
=============================================================================================
</TABLE>
(16) Subsequent Event
On March 11, 1997, the Company announced its agreement to sell its Church Organ
Systems division. The proposed divestiture reflects the Company's ongoing
effort to focus on its core music products - acoustic and digital pianos. Sale
of the Church Organ Systems division is conditioned upon approval of the
Company's principal lender.
21
<PAGE> 22
Baldwin Piano & Organ Company and Subsidiaries
Five-Year Summary (In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales $ 115,070 $ 122,634 $ 122,347 $ 120,658 $ 110,077
Cost of goods sold 92,495 96,333 96,559 89,563 79,264
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 22,575 26,301 25,788 31,095 30,813
Income on the sale of
installment receivables 5,811 4,946 4,828 5,646 5,223
Interest income on
installment receivables 1,296 906 735 600 440
Other operating income, net 3,476 4,010 4,482 4,984 5,002
- --------------------------------------------------------------------------------------------------------------------------
33,158 36,163 35,833 42,325 41,478
Operating expenses:
Selling, general and administrative 25,936 26,790 31,869 28,106 26,789
Provision for doubtful accounts 1,250 965 1,304 1,702 2,053
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 5,972 8,408 2,660 12,517 12,636
Interest expense 2,868 2,087 2,101 2,232 2,610
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes
and cumulative effect of changes
in accounting principles 3,104 6,321 559 10,285 10,026
Income taxes 1,048 2,361 214 4,120 4,090
- --------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect
of changes in accounting
principles 2,056 3,960 345 6,165 5,936
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits -- -- -- (1,604) --
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,056 $ 3,960 $ 345 $ 4,561 $ 5,936
=========================================================================================================================
Earnings per share:
Before cumulative effect of
changes in accounting principles $ .60 $ 1.16 $ .10 $ 1.81 $ 1.75
Cumulative effect of changes in
accounting for postretirement
and postemployment benefits -- -- -- (.47) --
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .60 $ 1.16 $ .10 $ 1.34 $ 1.75
===========================================================================================================================
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Balance Sheet Data (at December 31):
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 33,564 $ 34,703 $ 35,759 $ 35,941 $ 29,998
- -------------------------------------------------------------------------------------------------------------------------
Total assets 112,064 101,429 97,460 89,928 91,665
- -------------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 30,901 17,646 16,746 11,299 18,622
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 3,350 4,250 5,000 4,384 5,346
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 56,275 54,114 50,154 49,892 45,163
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1996 COMPARED TO 1995
While market share in the Company's core acoustic piano business increased in
1996, net earnings were $2.1 million compared to $4.0 million for 1995 and
gross profit decreased from $26.3 million to $22.6 million. Current year net
earnings and gross profit were negatively impacted by strategic initiatives
designed to enhance future competitiveness, including Baldwin's decision to
exit its non-strategic contract music and furniture businesses. Earnings and
gross profit were also impacted somewhat by lower profit margins due to a
change in mix of sales in both musical products and electronic contracting
businesses. 1996 results included a charge to record the one-time costs of a
salaried workforce reduction and increased interest expense. This workforce
reduction will generate pre-tax savings of approximately $1.3 million in 1997.
1996 net earnings were favorably impacted by reductions of 3% in selling,
general and administrative expenses as well as increased income on installment
receivables of 21% generated by the Company's wholly-owned finance subsidiary
(Finance).
Net sales for 1996 totaled $115.1 million compared to $122.6 million for 1995.
Contract music and furniture sales declined by $6.1 million (58%) due to
Baldwin's decision to exit from these non-strategic businesses. In 1995, the
Company consolidated the Baldwin and Wurlitzer dealer networks in order to
allow dealers to offer both Baldwin and Wurlitzer products. Net sales from the
musical products segment were slightly lower in 1996 versus the previous year
due to the impact of this strategic consolidation. While sales declined 2% for
the year, second half 1996 sales represent an 8% improvement over second half
1995. Within the musical products segment, digital piano sales dramatically
improved 37% from 1995 resulting from the successful launch of the new Baldwin
Pianovelle product line. Electronic contracting sales increased slightly
compared to 1995.
The Company values a substantial portion of its inventory on the last-in,
first-out (LIFO) method. The 1996 gross profit is $1.0 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 and interest income on
installment receivables increased by $.9 million and $.4 million, respectively,
from 1995. This total increase of 21% is primarily the result of growth in the
installment receivable portfolio of 8% complemented by lower interest rates.
See "Liquidity and Capital Resources."
Other operating income decreased due primarily to a non-recurring gain on sale
of fixed assets in 1995 of $.3 million.
Selling, general and administrative expenses decreased by $.9 million due
primarily to the 1995 decisions to transition Baldwin's retail locations in
Chicago to a wholesale dealer and the strategic consolidation of the Baldwin
and Wurlitzer dealer networks that resulted in less support staff. This was
partially offset by a one-time charge in 1996 due to a salaried workforce
reduction.
The provision for doubtful accounts increased in 1996 primarily as a result of
the growth in the dollar value of contracts sold by Finance.
Interest expense increased by $.8 million in 1996 resulting from higher debt
levels necessary for pipeline inventories for the new ConcertMaster autoplayer,
the Pianovelle digital piano line and additional purchases of imported
Wurlitzer grand pianos. In addition, several electronic contracting customers
delayed deliveries of orders throughout the year, which resulted in higher
inventories of finished products. During the fourth quarter, the Company
reduced its inventories by $7.8 million.
24
<PAGE> 25
1995 COMPARED TO 1994
Net earnings were $4.0 million compared to $.3 million for 1994. Previous year
net earnings were negatively 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 associated with the
half-year effect of the consolidation of Baldwin and Wurlitzer.
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 the consignment program, sales are reported after 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. The remainder
is due to the accounting treatment of delayed recognition of sales under the
consignment program. The decline in musical products sales was offset by an
increase in sales in the contract manufacturing businesses.
Gross profit for 1995 improved by $.5 million compared to 1994. Prior year
gross profit was negatively affected by inventory write-downs of $2.8 million.
Excluding this adjustment, 1995 gross profit decreased by $2.3 million as a
result of higher production costs in the keyboard instrument and electronic
contracting businesses and an increased percentage of sales coming from lower
margin furniture and music contracting businesses.
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 growth in the dollar value of contracts sold and higher
interest rates charged on new installment contracts offset by higher interest
costs. See "Liquidity and Capital Resources."
Selling, general and administrative expenses decreased by $5.1 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 a transition of Baldwin's retail locations in Chicago to a
wholesale dealer and the consolidation of the Baldwin and Wurlitzer dealer
networks.
The provision for doubtful accounts declined due to continued reductions in
losses experienced.
INFLATION, OPERATIONS AND INTEREST RATES
The impact of inflation on manufacturing and operating costs may affect the
Company's results. However, the Company has generally been able to offset the
impact of higher employment costs per hour and higher raw material unit costs
by increases in sales prices.
The operations of the Company and its predecessors are subject to Federal,
state and local laws regulating the discharge of materials into the
environment. The Company does not anticipate that any environmental matters
currently known to the Company will result in any material liability.
25
<PAGE> 26
The Company's and its subsidiaries' operating results are sensitive to changes
in interest rates primarily because of fixed interest rates on Finance's
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.
The Company can partially offset the effect of interest rate changes by
adjusting display fees on its consigned inventory and increasing interest rates
on its new installment receivable contracts. In December 1996 and November
1995, the Company entered into two year interest rate cap agreements in order
to reduce the potential impact of increases in interest rates on $44 million
and $20 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)
ranges from 150 to 250 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 requires significant working capital to support its operations. The
Company builds inventory levels during each year to support its high fourth
quarter seasonal sales demand.
The Company ships musical instruments to many of its dealers on a consignment
basis. Because the Company finances inventory on consignment to its dealers,
the Company's borrowings are higher than comparable companies not operating on
the consignment basis.
The Company has a Revolver of $50 million with an initial due date of October
31, 2001. The Revolver is renewable for three consecutive one-year periods
beyond October 31, 2001. Amounts outstanding under the Revolver are due one
year after demand. However, the lender retains absolute discretion regarding
each advance, 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 carrying value of the Company's inventories and
trade accounts receivable. At December 31, 1996, the Company had approximately
$13.2 million of additional borrowing available under this line of credit, and
considers this availability to be adequate.
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, 1996, approximately $8.9
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.
26
<PAGE> 27
In 1996, 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 $100 million. Certain installment receivables
are not eligible for sale and are retained by Finance. 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. Finance continues to service all installment
receivables 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 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 an increase in interest
rates on $20 million of installment contracts.
Proceeds from sale of installment receivables amounted to $66.5 million for
1996, $60.6 million for 1995 and $53.6 million for 1994. The increase in 1996
compared to 1995 and 1994 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".
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 $84.9 million of installment
receivables. The Company believes an adequate allowance has been provided for
any uncollectible receivables.
The Company has entered into negotiations with other potential lenders and
expects to reach agreement on lending terms more favorable than the terms of
agreements with its present lender, although such a result cannot be assured.
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 the principal balance after the 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 $.6 million of the outstanding dealer notes. The
Company believes the consolidated 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 September 1990, 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 $3.6 million in 1996, $3.9 million in 1995 and
$2.5 million in 1994. At December 31, 1996, the Company had no material
outstanding capital commitments.
27
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- -------------
<S> <C>
Keyboard Acceptance Corporation Delaware
The Wurlitzer Company Delaware
Baldwin Trading Company Ohio
Signature Leasing Company Ohio
The Baldwin Piano Company Canada
(Canada) Limited
Fabricantes Tecnicos, S.A. Mexico
Servicios Baldwin, S.A. Mexico
Immobiliaria Baldwin, S.A. Mexico
Korean American Musical Instrument Korea
Corporation
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Baldwin Piano & Organ Company:
We consent to the incorporation by reference in each of the
registration statements (File Nos. 33-53809 and 333-3775) on Form S-8 of Baldwin
Piano & Organ Company of our report dated February 25, 1997, except as to Note
16, which is as of March 11, 1997, relating to the consolidated balance sheets
of Baldwin Piano & Organ Company and subsidiaries as of December 31, 1996 and
1995, 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,
1996, and our report dated February 25, 1997 on the related schedule, which
reports are included or incorporated by reference in the December 31, 1996
annual report on Form 10-K of Baldwin Piano & Organ Company.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 774,026
<SECURITIES> 0
<RECEIVABLES> 9,692,609
<ALLOWANCES> 3,228,619
<INVENTORY> 56,555,085
<CURRENT-ASSETS> 79,290,700
<PP&E> 32,523,245
<DEPRECIATION> 16,043,852
<TOTAL-ASSETS> 112,064,151
<CURRENT-LIABILITIES> 45,726,750
<BONDS> 4,250,000
0
0
<COMMON> 41,751
<OTHER-SE> 56,232,523
<TOTAL-LIABILITY-AND-EQUITY> 112,064,151
<SALES> 115,070,374
<TOTAL-REVENUES> 125,653,476
<CGS> 92,494,947
<TOTAL-COSTS> 92,494,947
<OTHER-EXPENSES> 25,936,432
<LOSS-PROVISION> 1,249,867
<INTEREST-EXPENSE> 2,868,045
<INCOME-PRETAX> 3,104,185
<INCOME-TAX> 1,048,256
<INCOME-CONTINUING> 2,055,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055,929
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
<PAGE> 1
EXHIBIT 99.4
[LOGO]
Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140-8390
(513) 576-4500
BALDWIN PIANO & ORGAN COMPANY NAMES
CHIEF FINANCIAL OFFICER
LOVELAND, OHIO, DECEMBER 5, 1996 - Baldwin Piano & Organ Company (NASDAQ:BPAO)
announced that Perry Schwartz, age 57, has joined the Company as Executive Vice
President and Chief Financial Officer.
Previously, Mr. Schwartz was Senior Vice President - Chief Financial Officer
and a member of the Board of Directors of Heekin Can, Inc., a manufacturer of
metal food and aerosol containers; then Executive Vice President - Chief
Financial Officer of Brockway Standard Holdings Corp., a metal general line
container manufacturer; and, most recently, Vice President - Chief Financial
Officer of Richwood Pharmaceutical, a manufacturer and distributor of ethical
drugs.
"I am delighted that Perry Schwartz is joining the Baldwin team," stated Karen
L. Hendricks, President and Chief Executive Officer of Baldwin. "His extensive
background in finance and accounting will help as we focus our energies on
improving the profit performance of our core businesses .... music, finance and
contract electronics. Perry will be a key player on our management team which
is dedicated to building shareholder value."
Baldwin Piano & Organ Company has manufactured and marketed keyboard musical
products for more than 130 years and has been providing consumer financing for
its instruments for nearly a century. The market leader of acoustic pianos in
the United States, Baldwin also manufactures electronic and electro-mechanical
components for Original Equipment Manufacturers.
# # #
CONTACT: Karen L. Hendricks (513) 576-4693
<PAGE> 1
EXHIBIT 99.5
[BALDWIN LOGO]
Contacts: Perry Schwartz Joel Pomerantz
Baldwin Piano The Dilenschneider Group
(513) 576-4518 (212) 922-0900
BALDWIN PIANO NAMES KAREN L. HENDRICKS CHAIRMAN
R.S. HARRISON STEPS DOWN AFTER 41 YEARS WITH COMPANY
LOVELAND, OH, January 14 -- Baldwin Piano & Organ Company
(NASDAQ:BPAO) announced today that Karen L. Hendricks, currently president,
chief executive officer and a director of the company, has been named chairman
of the board, succeeding R.S. Harrison, who has been chairman since 1984.
Regarding his resignation as chairman and board member, Mr. Harrison
told the board that after 41 years at Baldwin, he felt it was time to move on.
Mr. Harrison, who led a successful LBO of the company in 1984 and took the
company public again in 1986, served as chief executive officer from 1984 to
1994.
Speaking on behalf of the board, Ms. Hendricks said, "We want to thank
Dick Harrison for his more than four decades of dedication to preserving and
building the Baldwin franchise. Mr. Harrison joined the predecessor company in
1955 and served as its president since 1974. Management and the board will
continue to have access to Mr. Harrison through a three year consulting
agreement."
Baldwin Piano & Organ Company has manufactured and marketed keyboard
musical products for more than 130 years and has been providing consumer
financing for its instruments for nearly a century. The market leader in
acoustic pianos in the United States, Baldwin also manufactures electronic and
electro-mechanical components for Original Equipment Manufacturers.
# # #
Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, OH 45140-8390
(513) 576-4500
