<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
Quarterly Report Pursuant to section 13 or 15(d) of
The Securities and Exchange Act of 1934
--------------------
For the Quarter ended Commission File Number
September 30, 1999 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.)
4680 Parkway Drive, Suite 200
Mason, Ohio 45040-7198
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (513) 754-4500
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
The number of shares of the Common Stock outstanding of Baldwin Piano &
Organ Company, as of November 15, 1999 is 3,452,826.
<PAGE> 2
BALDWIN PIANO & ORGAN COMPANY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Number
- ------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 ............... 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended and nine months ended
September 30, 1999 and 1998 ....................... 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the nine months ended
September 30, 1999 and 1998 ....................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements, September 30, 1999 .......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 16
Item 2. Changes in Securities and Use of Proceeds ............... 16
Item 3. Defaults upon Senior Securities ......................... 16
Item 4. Submission of Matters to a Vote
of Security Holders .......................... 16
Item 5. Other Information ....................................... 16
Item 6. Exhibits and Reports on Form 8-K ........................ 17
Signatures ........................................................ 18
Exhibit Index ..................................................... 19
</TABLE>
2
<PAGE> 3
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash ....................................... $ 1,171 $ 327
Receivables, net ........................... 20,811 23,273
Inventories ................................ 44,250 51,089
Deferred income taxes ...................... 1,671 1,671
Other current assets ....................... 4,364 6,429
--------- ---------
Total current assets ............. 72,267 82,789
Installment receivables,
less current portion ....................... 14,136 14,616
Property, plant and equipment, net ............... 21,430 22,724
Deferred income taxes ............................ 3,086 1,089
Other assets ..................................... 17,333 16,032
--------- ---------
Total assets ..................... $ 128,252 $ 137,250
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 15,003 $ 11,582
Current portion of long-term debt .......... 13,833 11,380
Income taxes payable ....................... 0 452
Accrued liabilities ........................ 6,265 5,766
--------- ---------
Total current liabilities ........ 35,101 29,180
Long-term debt, less current portion ............. 33,715 42,817
Other liabilities ................................ 2,868 3,978
--------- ---------
Total liabilities ................ 71,684 75,975
--------- ---------
Shareholders' equity:
Common stock ............................... 42 42
Additional paid-in capital ................. 12,636 12,603
Accumulated other comprehensive
income (loss) ......................... (309) (394)
Retained earnings .......................... 50,695 55,520
--------- ---------
63,064 67,771
--------- ---------
Less cost of treasury shares ............... (6,496) (6,496)
--------- ---------
Total shareholders' equity ....... 56,568 61,275
--------- ---------
Total liabilities and
shareholders' equity .......... $ 128,252 $ 137,250
========= =========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE> 4
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ........................... $ 29,106 $ 34,277 $ 88,164 $ 98,072
Cost of goods sold .................. 31,033 28,884 83,726 81,953
-------- -------- -------- --------
Gross profit (loss) ........... (1,927) 5,393 4,438 16,119
Income on the sale of
installment receivables ....... 1,464 1,983 5,532 5,483
Interest income on
installment receivables .......... 306 388 1,002 1,196
Other operating income, net ......... 6,117 223 6,479 966
-------- -------- -------- --------
5,960 7,987 17,451 23,764
Operating expenses:
Selling, general and
administrative ............. 6,971 6,608 20,901 19,563
Provision for doubtful
accounts ................. 406 343 1,090 1,001
-------- -------- -------- --------
Operating (loss) profit .. (1,417) 1,036 (4,540) 3,200
Interest expense .................... 1,108 885 3,089 2,170
-------- -------- -------- --------
Earnings (loss) before
income taxes ........ (2,525) 151 (7,629) 1,030
Income taxes (benefits) ............. (903) 58 (2,804) 396
-------- -------- -------- --------
Net earnings (loss) ...... $ (1,622) $ 93 $ (4,825) $ 634
======== ======== ======== ========
Basic earnings (loss) per share ..... $ (0.47) $ 0.03 $ (1.40) $ 0.18
======== ======== ======== ========
Diluted earnings (loss) per share ... $ (0.47) $ 0.03 $ (1.40) $ 0.18
======== ======== ======== ========
Weighted average number
of common shares .............. 3,453 3,453 3,453 3,450
======== ======== ======== ========
Weighted average number of
common and common
equivalent shares ........ 3,453 3,465 3,453 3,502
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE> 5
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
1999 1998
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net earnings (loss) ........................ $ (4,825) $ 634
Reconciliations of net earnings (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization .... 2,440 2,303
Gain on sale of assets ........... (5,917) 0
Provision for doubtful accounts .. 1,090 1,002
Changes in working capital ....... 9,387 (20,423)
-------- --------
Net cash provided by (used in)
operating activities ............. 2,175 (16,484)
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment ............................. (1,862) (8,573)
Proceeds from sale of assets ............... 6,819 0
-------- --------
Net cash provided by (used in)
investing activities .................... 4,957 (8,573)
-------- --------
Cash flows from financing activities:
Installment receivables written ............ (71,085) (70,655)
Installment receivables liquidated ......... 6,124 8,067
Proceeds from sale of installment
receivables ........................... 65,322 65,796
(Repayment) borrowing on long-term debt .... (6,649) 21,505
Proceeds from exercise of stock options .... 0 44
-------- --------
Net cash (used in) provided by financing
activities ............................ (6,288) 24,757
-------- --------
Net increase (decrease) in cash .................. 844 (300)
Cash at beginning of period ...................... 327 680
-------- --------
Cash at end of period ............................ $ 1,171 $ 380
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the year for:
Interest ................................... $ 2,129 $ 1,975
======== ========
Income taxes ............................... $ (333) $ 311
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE> 6
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1999
(in thousands of dollars, except earnings per share)
(1) BASIS OF REPORTING FOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by Baldwin Piano & Organ Company ("Baldwin"
or "Company") pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report and Form 10-K for the year ended December 31,
1998.
The financial statements presented herewith reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion
of management, necessary to a fair statement of the results for the
nine-month periods ended September 30, 1999 and 1998. Results of
operations for interim periods are not necessarily indicative of
results to be expected for an entire year.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
FIFO cost:
Raw material ...... $ 17,908 $ 22,224
Work-in-process ... 12,471 11,573
Finished goods .... 24,234 27,492
-------- --------
54,613 61,289
Less revaluation to LIFO (10,363) (10,200)
-------- --------
Net inventories ... $ 44,250 $ 51,089
======== ========
</TABLE>
(3) EARNINGS PER SHARE
A reconciliation of the numerator and denominator of basic earnings per
share to diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30:
1999 1998
-------------------------------- ------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Earnings per share $(4,825) 3,453 $(1.40) $634 3,450 $.18
Dilutive effect of
options 0 52
------ -----
Earnings per share-
assuming dilution $(4,825) 3,453 $(1.40) $634 3,502 $.18
------- ----- ------ ---- ----- ----
</TABLE>
6
<PAGE> 7
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1999
(in thousands of dollars)
(4) SEGMENT INFORMATION
In June 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments. The adoption of this
statement in 1998 resulted in additional financial statement
information reported on the basis used internally by management to
evaluate performance and allocate resources. The Company did not make
material changes to its previously reported segment groupings.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
---------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Music and related ........ $ 17,915 $ 24,342 $ 53,843 $ 66,494
Contract Electronics ..... 11,191 9,935 34,321 31,578
Retail Financing ......... 1,770 2,371 6,534 6,679
--------- --------- --------- ---------
SALES AND RETAIL FINANCING
REVENUE ................. $ 30,876 $ 36,648 $ 94,698 $ 104,751
--------- --------- --------- ---------
Music and related (*) .... $ 1,418 $ 1,610 $ (1,232) $ 4,169
Contract Electronics ..... (908) (26) (360) 908
Retail Financing ......... 610 1,360 3,193 3,704
Corporate G&A and other
unallocated ............ (2,537) (1,908) (6,141) (5,581)
--------- --------- --------- ---------
OPERATING (LOSS) PROFIT .. $ (1,417) $ 1,036 $ (4,540) $ 3,200
--------- --------- --------- ---------
Music and related ........ $ 69,746 $ 79,744 $ 69,746 $ 79,744
Contract Electronics ..... 20,896 21,917 20,896 21,917
Retail Financing ......... 29,101 29,135 29,101 29,135
Corporate G&A ............ 8,509 5,477 8,509 5,477
--------- --------- --------- ---------
IDENTIFIABLE ASSETS ...... $ 128,252 $ 136,273 $ 128,252 $ 136,273
--------- --------- --------- ---------
Music and related ........ $ 511 $ 510 $ 1,534 $ 1,293
Contract Electronics ..... 156 216 504 597
Retail Financing ......... 10 10 39 30
Corporate G&A ............ 126 169 363 383
--------- --------- --------- ---------
DEPRECIATION AND
AMORTIZATION ........... $ 803 $ 905 $ 2,440 $ 2,303
--------- --------- --------- ---------
Music and related ........ $ 646 $ 1,942 $ 1,619 $ 7,572
Contract Electronics ..... 47 50 110 126
Retail Financing ......... -- -- -- --
Corporate G&A ............ 52 267 133 875
========= ========= ========= =========
CAPITAL ADDITIONS ........ $ 745 $ 2,259 $ 1,862 $ 8,573
========= ========= ========= =========
</TABLE>
7
<PAGE> 8
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1999
(in thousands of dollars)
* Third quarter 1999 results include a one-time pretax gain of $5,937
or $1.04 per share, on the sale of the Company's manufacturing facility
in Juarez, Mexico. Also, during the first quarter of 1999 the Company
consolidated its grand piano production. This created a one-time
decrease in Baldwin's Music and Related operating profit of $1,500 or
27 cents per share. Operating loss for Music and Related for the nine
months ended September 30, 1999 would have been $5,669 without the
effect of these one-time costs.
The amounts reflected as "Sales and Retail Finance Revenue" in the
above table are included in the "Net Sales", "Income on the sale of
installment receivables" and "Interest income on installment
receivables" captions on the Consolidated Statements of Operations.
The Music and Related segment includes a broad range of acoustic and
electronic instruments serving a broad consumer base. Music products
are sold through Company-owned retail stores, domestic wholesale
dealers and an international dealer network. In addition, this segment
includes musical components produced on behalf of other manufacturers.
The Contract Electronics segment assembles printed circuit boards and
electromechanical devices for original equipment manufacturers (OEMs)
outside the music industry.
The Retail Finance segment provides point-of-sale consumer financing
and leasing through keyboard product dealers located throughout the
United States.
The Company uses the LIFO method of valuing music products inventory
and the FIFO method for Contract Electronics inventory.
(5) RESTRUCTURING
On January 6, 1999, the Company announced the consolidation of its
grand piano assembly from its Conway, Arkansas plant to its Trumann,
Arkansas facility. In connection with this consolidation, the Company
recorded a restructuring charge of approximately $587 in the first
quarter of 1999 primarily related to severance and direct exit costs.
Other costs associated with the consolidation incurring in the first
quarter of 1999 amounted to $913. All of these costs were included in
cost of goods sold. At September 30, 1999, the Company had an accrual
of approximately $272 primarily related to certain exit costs in
connection with the consolidation. The Company believes that the
consolidation is substantially complete.
(6) ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income" requires that an
enterprise classify items of other comprehensive income by their
8
<PAGE> 9
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1999
(in thousands of dollars)
nature in a financial statement and display the accumulated balance of
other comprehensive income (loss) separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet.
The Company adopted this standard in the first quarter of 1998.
The Company currently records as other comprehensive income (loss) the
change in cumulative translation adjustment resulting from changes in
exchange rates and the effect of those changes upon translation of the
financial statements of the Company's foreign operations.
<TABLE>
<CAPTION>
Comprehensive income (loss): Nine Months Ended Sept. 30,
1999 1998
--------------------------------------------------------
<S> <C> <C>
Net earnings (loss) ........ $(4,825) $ 541
Foreign currency
Translation Adjustment ... 85 --
--------------------------------------------------------
Total Comprehensive Income $(4,740) $ 541
--------------------------------------------------------
</TABLE>
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Board has subsequently delayed for a year the
implementation of the standard, thus the Company will be required to
adopt SFAS No. 133 no later than January 2001. Management has not yet
determined what impact this statement will have on the Company's
financial statements.
(7) DISCONTINUED OPERATIONS
During July 1999, the Company announced its intention to seek a
buyer for its Retail Financing businesses, Keyboard Acceptance
Corporation and Signature Leasing Company. The Company is in the
final stages of negotiation for the sale of its Retail Financing
units and expects to make an announcement during the fourth
quarter of 1999. See Note 4 for information regarding the assets
and operating profit of this segment.
9
<PAGE> 10
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS OF 1999 COMPARED
TO THE THIRD QUARTER AND NINE MONTHS OF 1998
Total third-quarter sales decreased 15 percent to $29.1 million, from
$34.3 million a year ago. Net losses for the period were $1,622,000, or 47 cents
per share, vs. income of $93,000, or 3 cents per share for the prior year
period. For the nine months ended September 30, 1999 sales were $88.2 million
with a net loss of $4,825,000, or $1.40 per share. Included in the results for
the first nine months of 1999 is the one time gain from the sale of the
Company's plant facility in Juarez, Mexico of $1.04 per share, and a loss of 27
cents per share related to restructuring and other non-recurring cost associated
with the consolidation of grand piano assembly operations. Through the third
quarter of 1998, net income was $634,000, or 18 cents per share, on sales of
$98.1 million.
Through the first nine months of 1999, Music and Related sales declined
19 percent to $53.8 million. The Music and Related sales decline was primarily
caused by excess dealer inventories during 1999 to date. At September 30, 1999
dealer inventories have returned to normal seasonal levels and orders for the
Company's music products have risen significantly. The Company's manufacturing
facilities are currently working expanded shifts in an effort to meet current
demand.
At Contract Electronics, year-to-year sales grew 9 percent to $34.3
million, up from $31.6 million a year ago primarily a result of increased sales
with our existing customers.
The portfolio for Retail Financing rose 8 percent compared to a year
ago. Revenues for the period of $6.5 million were less than a year ago due to
higher variable interest rates on the portion of the portfolio sold to a third
party.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 were $20.9 million, an increase of $1.3 million from $19.6
million for the comparable period in 1998. This increase resulted from higher
severance and employee benefit costs.
Interest expense increased by $0.9 million, to $3.1 million for the
nine months ended September 30, 1999 from $2.2 million for the comparable period
in 1998. This increase resulted from the Company's higher outstanding debt
levels caused by higher than normal inventories during most of 1999 and 1998
capital spending financed with debt.
As publicly announced in July 1999, the Company has retained an
investment banker to seek potential buyers for the Retail Financing businesses,
Keyboard Acceptance Corporation and Signature Leasing Company. The Company
is in the final stages of negotiation for the sale of its Retail Financing units
and expects to make an announcement during the fourth quarter of
10
<PAGE> 11
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
1999. See Note 4 for information regarding the assets and operating profit of
this segment.
INFLATION, OPERATIONS AND INTEREST RATES
Cost inflation can 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 improved efficiency and increases in sales
prices. During 1998 and early 1999, this was not the case for vertical piano
selling prices due to the effect of low cost Asian imports.
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.
The Company and its subsidiaries' operating results are sensitive to
changes in interest rates primarily because of fixed interest rates on
installment receivables contracts 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
increasing interest rates on its new installment receivable contracts. In
November 1997 and December 1998, the Company entered into two-year interest rate
cap agreements in order to reduce the potential impact of increases in interest
rates on $20 million and $44 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%. Further, in mid-March 1999, the Company made arrangements to
replace the swap agreement with a counterparty for a two-year "no-cost collar"
of $32 million which has a floor at the mid-March 1999 Commercial Paper rate and
a ceiling of 108 basis points higher. 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 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 Company's revolving Credit
Facility is equal to 2.0 percentage points above LIBOR, or under certain
specified circumstances, 0.5 percentage points per annum above the Prime Rate.
11
<PAGE> 12
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had outstanding indebtedness of
$47.5 million. The Company considers that indebtedness of $20.7 million supports
the retained portion of Retail Financing's portfolio and the remaining
indebtedness of $26.8 million supports the operations of Music and Contract
Electronics. Further, the Company is re-engineering its inventory management
systems and expects positive cash flow will be sufficient to support
operations based on cash provided from operations, available borrowings and
inventory reductions.
During 1997 the Company replaced its short-term $50 million revolving
line of credit with a long-term, secured $40 million revolving Credit Facility
expiring on October 1, 2000; however the Company can terminate the agreement at
any time without penalty upon sixty days' notice. Under the Credit Facility, the
lenders have made available a line of credit based upon certain percentages of
the carrying value of the company's inventories and accounts receivable. The
annual rate of interest under the Credit Facility is equal to 2.0 percentage
points above LIBOR, or under certain specified circumstances, 0.5 percentage
points per annum above the Prime Rate. At September 30, 1999, the rate under the
Credit Facility was 7.38% and the Company has approximately $5.4 million of
additional borrowing available under this Credit Facility.
The Company's debt agreements contain covenants that require the
Company to maintain certain financial ratios and tangible net worth within
defined amounts. The Company is currently in violation of certain of those
covenants and is operating on waivers obtained from its lenders. The Company
is currently negotiating with its current lenders and other potential
lenders and expects to be in compliance with its debt covenants by the
end of the fourth quarter 1999.
The Company's finance subsidiary (Retail Financing) sells substantially
all of its installment receivable contracts up to a maximum outstanding
principal amount of $150 million. Certain installment receivables are not
eligible for sale and are retained by Retail Financing. Retail Financing
continues to service all installment receivables sold. At the time of each
installment receivable sale, Retail Financing receives cash equal to the unpaid
principal balance of the contracts, less a purchase discount applied to the
principal balance of the contacts sold. The purchase discount is adjusted at
each receivable sale using the loss experience and effective yield of the
portfolio.
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 duration 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 provisions is remitted to Retail
Financing as a service fee.
Proceeds from the sale of installment receivables amounted to $65.3
million for the nine months ended September 30, 1999 and
12
<PAGE> 13
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
$65.8 million for the comparable period in 1998. Under the sale agreements,
Retail Financing 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 purchase discount. Retail Financing is responsible
for all credit losses associated with the sold receivables, and is contingently
liable for approximately $106.7 million of installment receivables sold. The
Company believes an adequate allowance has been provided for all uncollectible
receivables.
Capital expenditures amounted to $1.9 million through the third quarter
of 1999 and $8.6 million in the comparable period of 1998. At September 30,
1999, the Company has less than $500,000 in outstanding capital commitments. The
Company expects 1999 capital expenditures to be less than depreciation expense.
YEAR 2000
The Year 2000 problem is a result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which would result in
miscalculations or system failures.
The Company's major computer systems consist of third-party software. The
conclusion of the Company's analysis is that the latest existing releases of
this software contain the necessary changes to correct any significant Year 2000
problems. As a matter of ongoing policy, in order to assure continuing
contractual vendor support, the Company promptly installs and implements
third-party releases that it believes are Year 2000 compliant. The Company has
spent approximately $500,000 on these releases during 1998 and $100,000 during
1999, which amounts were planned expenditures irrespective of any Year 2000
issues. The Company has tested and has further plans to test its software for
compliance. Costs of addressing potential problems have not and are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods.
The Company's compliance plan includes review of Year 2000 readiness of its
major manufacturing equipment, products, suppliers and customers. The Company
has no Electronic Data Interchange (EDI) interfaces with either its customers or
vendors. To date, the Company has not discovered any significant Year 2000
issues in these areas and does not anticipate any significant problems. The
Company believes it has substantially completed its Year 2000 compliance plan.
Therefore, the Company has not developed specific contingency plans in
preparation for the year 2000. However, the Company has continued
13
<PAGE> 14
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
its structured MIS Recover Plan which is designed to include Year 2000 related
problems. As the Company continues to evaluate and test its readiness for the
year 2000, the Company will assess whether there are any specific areas where a
contingency plan could help alleviate possible adverse effects from the year
2000. If so, the Company will develop contingency plans in those areas prior to
the end of 1999. Accordingly, the Company plans to devote the necessary
resources to resolve all significant Year 2000 issues in a timely manner.
The most likely Year 2000 problems that the Company may face appear to
arise from the possible noncompliance of third parties. Possible difficulties
could arise in receiving materials from suppliers or from failures in the
operations of the Company's electronic contracting customers. In addition, in
the event that the Year 2000 would cause widespread loss of power or other
utilities in areas where the Company, its suppliers or customers operate, the
Company's business and operations could be disrupted. Such events could have a
material adverse impact on the Company.
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include, without
limitations, the Company's beliefs about trends in the Company's industries, and
its views about the long-term future of these industries and the Company. The
following factors, among others, could cause the Company's financial performance
to differ materially from that expressed in such statements: (i) changes in
consumer preferences resulting in a decline in the demand for pianos, (ii) the
inability to reduce SG&A expenses as expected, (iii) an increase in the price of
raw materials, (iv) political and/or economic instability in foreign countries
where the Company has operations or has suppliers who supply the Company, (v) an
unexpected increase in interest rates, (vi) a shift in strength of the overall
U.S. economy thereby possibly reducing durable goods purchases, and, (vii)
failure to remedy in a timely manner any Year 2000 issues that might arise.
14
<PAGE> 15
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
ITEM III
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on debt and fixed rate installment receivables and the commodity price of
wood used in the manufacturing process.
At September 30, 1999, the carrying value and estimated fair value of
the Company's debt totaled $47.5 million. All of the Company's debt at September
30, 1999 was at variable interest rates. For such floating rate debt, interest
rate changes generally do not affect the fair market value but do impact
earnings and cash flows, assuming other factors are held constant. Holding other
variables constant (such as foreign exchange rates and debt levels), the
earnings and cash flows impact for the next year resulting from a one percentage
point increase in interest rates on variable rate debt would be approximately
$0.5 million. The Company has limited its risk related to interest rate changes
by purchasing certain interest rate caps and collars discussed above under the
"Inflation, Operations and Interest Rates".
The Company is subject to market risk with respect to certain
commodities, principally wood prices, because the ability to recover increased
costs through higher pricing may be limited by the competitive environment in
which the Company operates. The Company does not use futures contracts to hedge
anticipated purchases of wood used in the manufacturing and assembly of piano
cases.
15
<PAGE> 16
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No changes have been made to the instruments defining the right of the
holders of the Company's common stock or to the rights of such shareholders.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is not in default nor has it defaulted on any indebtedness.
The Company is not obligated to pay any dividends or other payment to any of its
shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
third quarter of 1999.
ITEM 5. OTHER INFORMATION
As publicly announced in July 1999, the Company has retained an
investment banker to seek potential buyers for the Retail Financing businesses
consisting of Keyboard Acceptance Corporation and Signature Leasing Company. The
Company is in the final stages of negotiation for the sale of its Retail
Financing units and expects to make an announcement during the fourth quarter
of 1999.
During the third quarter, the Company sold its Juarez, Mexico facility,
as discussed above. The Company also has appointed Herbert A. Denton as a new
member of the Company's Board of Directors, extended the term of the employment
agreement for Karen Hendricks, chief executive officer and president, through
August 31, 2002, and amended the change of control agreements for Ms. Hendricks
and Duane Kimble, chief financial officer.
16
<PAGE> 17
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amendment to Agreement of Employment between the Company and
Karen L. Hendricks.
10.2 Amendment to Change in Control Agreement between the Company
and Karen L. Hendricks.
10.3 Amendment to Change in Control Agreement between the Company
and Duane D. Kimble.
10.4 Sixth Amendment to Credit Agreement among the Company, Fifth
Third Bank and Bank One, Indiana (formerly NBD Bank).
10.5 First Amendment to Amended and Restated Term Loan Agreement
among the Company, Fifth Third Bank and Bank One, Indiana
(formerly NBD Bank).
27 Financial Data Schedule.
99.1 Press Release, dated November 12, 1999 announcing the
Company's financial results for the third quarter of 1999.
------------------------------
Index to Exhibits appears on sequentially numbered page 19.
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on September 7, 1999
announcing the sale of the Juarez, Mexico manufacturing
facility, and that Herbert A. Denton joined the Board of
Directors.
17
<PAGE> 18
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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
DATE: November 15, 1999 BY: /s/ Karen L. Hendricks
-------------------------- -------------------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and
President
DATE: November 15, 1999 BY: /s/ Duane D. Kimble
-------------------------- -------------------------------------
Duane D. Kimble,
Executive Vice President, and
Chief Financial Officer
18
<PAGE> 19
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
10.1 Amendment to Agreement of Employment between the Company and Karen L.
Hendricks.
10.2 Amendment to Change in Control Agreement between the Company and Karen
L. Hendricks.
10.3 Amendment to Change in Control Agreement between the Company and Duane
D. Kimble.
10.4 Sixth Amendment to Credit Agreement among the Company, Fifth Third Bank
and Bank One, Indiana (formerly NBD Bank).
10.5 First Amendment to Amended and Restated Term Loan Agreement among the
Company, Fifth Third Bank and Bank One, Indiana (formerly NBD Bank).
27 Financial Data Schedule.
99.1 Press Release, dated November 12, 1999 announcing the Company's
financial results for the third quarter of 1999.
<PAGE> 1
Exhibit 10.1
AMENDMENT TO AGREEMENT OF EMPLOYMENT
THIS AMENDMENT TO AGREEMENT OF EMPLOYMENT is made and entered into as
of September 1, 1999 by and between BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation having its principal office at 4680 Parkway Drive, Suite 200,
Mason, Ohio 45040-7198 (the "Company") and KAREN L. HENDRICKS (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee is currently employed as the Company's Chairman
of the Board of Directors, Chief Executive Officer and President pursuant to an
Agreement of Employment dated as of June 19, 1997 (the "Employment Agreement");
and
WHEREAS, the Company and the Employee mutually desire to continue the
employment of the Employee as the Company's Chairman of the Board of Directors,
Chief Executive Officer and President; and
WHEREAS, the Company and the Employee mutually desire to make certain
amendments to the Agreement to set forth the mutual understandings as to the
terms and conditions of the Employee's continued employment by the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree to amend the existing Employment Agreement
in the following respects:
1. AMENDMENT TO SECTION 3 - TERM.
The existing Section 3 shall be deleted in its entirety and replaced
with the following:
3. TERM. Employee's term of employment with the Company pursuant
to this Agreement shall begin as of September 1, 1999 (the
"Commencement Date") and shall continue through August 31,
2002, and, thereafter, without a specified term, until
terminated by the Company or Employee pursuant to Section 5
hereof.
2. AMENDMENT TO SUBSECTION 4.4 - RESTRICTED STOCK.
The existing subsection 4.4(e) shall be deleted in its entirety and
replaced with the following:
(e) By grant dated March 29, 1999, the Employee was awarded 10,000
additional shares of Restricted Stock, which vest on January
2, 2002. In the discretion of the Committee, the Employee may
receive additional grants of Restricted Stock. All restricted
stock grants, whether currently outstanding or made in the
future, shall be included within the term "Restricted Stock"
for the purposes of subsections 4.4(b), (c) and (d) hereof.
<PAGE> 2
3. AMENDMENT TO SUBSECTION 5.1 - TERMINATION OF AGREEMENT- WITHOUT CAUSE.
The existing Subsection 5.1 shall be deleted in its entirety and
replaced with the following:
5.1 Without Cause. The Company may terminate Employee's employment
at any time, whether or not for cause (as "cause" is defined
in Section 5.2. below). In the event the Company terminates
Employee's employment without cause, as severance, the Company
will continue to pay Employee her normal monthly salary for
thirty-six (36) months following Employees' termination, less
required withholdings and deductions, provided, however, that
at the option of the Employee, the payments to be provided for
hereunder shall be paid in a single lump sum payment, to be
paid not later than thirty (30) days after the Employee's
termination of employment, provided further, that the amount
of such lump sum payment shall be determined by taking the
severance payments to be made and discounting them to their
Present Value, as defined in Employee's Change in Control
Agreement. In the event the Company terminates Employee's
employment without cause, the Company shall also pay the cost
of out-placement services for Employee, up to an amount equal
to 15% of Employee's annual bases salary at the time of
Employee's termination of employment. The Company shall have
no further obligation to the Employee beyond the above
payments.
4. AMENDMENT TO SUBSECTION 5.5.
The existing Subsection 5.5 shall be deleted in its entirety and
replaced with the following:
5.5 (a) By Employee Prior to December 1, 2001. If Employee
terminates her employment with the Company for any reason,
other than pursuant to all provisions described in Section
5.5(b) hereof, Employee shall receive her salary through the
effective date of termination and all incentive payments
earned but not yet paid to Employee prior to such date, and
the Company shall have no further obligation to Employee other
than as set forth in Section 4.4 hereof. Such amounts shall be
paid by the Company within thirty (30) days from the effective
date of such termination.
5.5 (b) By Employee Subsequent to December 1, 2001 with Notice. If
Employee terminates her employment with the Company for any
reason:
(i) pursuant to a written notice delivered to the
Board of Directors on or after December 1, 2001; and
(ii) such termination is effective on a date no less
than nine (9) months after the receipt by the Board
of Directors of such written notice; and
(iii) no circumstances which would consititute
"cause" as defined in Section 5.6 hereof exist prior
to the effective date of the termination of
employment; and
2
<PAGE> 3
(iv) Employee continues to devote her full-time
efforts to her responsibilities, as provided in
Section 1 hereof, during the time between delivery of
the written notice and the effective date of the
termination of employment; and
(v) Employee cooperates with the Board of Directors
in good faith to recruit a qualified successor and,
if recruited, to accomplish an effective transition;
then, within ten (10) days of the effective date of
termination of employment, the Company shall pay Employee the
same severance benefit as is provided in Section 5.1 hereof.
5. REFERENCES TO THIS AGREEMENT AND OTHER AGREEMENTS.
Any reference to this Agreement or Employment Agreement shall mean the
Employment Agreement, as amended by this amendment. Any references to
the Change in Control Agreement, as defined in Section 5.6, shall refer
to such Change in Control Agreement, as amended.
6. REAFFIRMATION.
Except as expressly modified in this Amendment, the Company and the
Executive hereby ratify and confirm each and every provision of the
Employment Agreement.
7. SEVERABILITY.
If any provision of the Employment Agreement, as amended by this
Amendment, is held to be unenforceable for any reason, the remainder of
this Employment Agreement shall, nevertheless, remain in full force and
effect.
8. ENTIRE AGREEMENT.
The terms and provision of the Employment Agreement and this Amendment
constitute the entire agreement between the Company and the Executive
with respect to the subject matter hereof. This Amendment may be
amended or modified only by a written instrument executed by the
Company and the Executive.
9. GOVERNING LAW.
This Amendment shall be governed in all respects by the law of the
State of Ohio.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BALDWIN PIANO & ORGAN COMPANY
By: /s/ William Connell
------------------------
Printed Name: William Connell
--------------
Title: Director
---------------------
EMPLOYEE
/s/ Karen L. Hendricks
------------------------
KAREN L. HENDRICKS
4
<PAGE> 1
Exhibit 10.2
AMENDMENT TO CHANGE IN CONTROL AGREEMENT
THIS AMENDMENT is made effective as of the 17 day of September, 1999,
by and between BALDWIN PIANO & ORGAN COMPANY, a Delaware corporation (the
"Company") and KAREN L. HENDRICKS (the "Executive").
WHEREAS, the parties entered into a Change in Control Agreement, dated
June 26, 1996 (the "Change in Control Agreement"), and desire to amend the
Change in Control Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Amendment to Section II. Term of Agreement.
Section II. Term of Agreement, shall be deleted in its entirety and
replaced with the following:
The term of this Agreement shall commence on the date hereof
and continue for a period ending on August 31, 2003.
2. Amendment to Section III. Definitions.
The following definition shall be inserted at the end of Section III.
Definitions:
9. "Change in Control Related to Sale of Two Divisions" - the
Company shall sell or transfer, at any time, in related or unrelated
transactions, either simultaneously or sequentially, all or
substantially all of the assets or operations of any two of its three
businesses: music, contract electronics or finance.
3. Amendment to Section IV. Benefits Upon Termination Following a Change
in Control.
Subsection 1. Termination, shall be deleted in its entirety and
replaced with the following:
1. Termination - The Executive shall be entitled to, and the
Company shall pay or provide to the Executive, the benefits described
in Section 2 below if:
(i) (a) a Change in Control, other than a Change in Control
Related to Sale of Two Divisions, occurs during the term of
this Agreement, and (b) the Executive's employment is
terminated within three (3) years following the Change in
Control either by the Company, with or without cause, or the
Executive, with or without cause, except in
<PAGE> 2
either case due to the Executive's death, disability, or
retirement at or after the normal retirement date; or
(ii) (a) a Change in Control Related to Sale of Two Divisions
occurs during the term of this Agreement; and either
(b) the Company terminates the Executive's employment within
forty-five (45) days prior to the Change in Control Related to
the Sale of Two Divisions for reasons other than "Cause". For
purposes of this Agreement, "Cause" shall mean cause as
defined in Section 5.2 of the Agreement of Employment (the
"Employment Agreement") by and between the Company and the
Executive dated June 19, 1997, as amended; or
(c) the Executive's employment is terminated within three (3)
years following the Change in Control Related to Sale of Two
Divisions either (i) by the Company, without Cause , or (ii)
by the Executive, for any reason, provided in the case of a
termination by the Executive, the Executive provides the
Company with nine (9) months prior written notice of such
termination and the circumstances listed in Section 4.4(c) of
the Employment Agreement exist at the time of the notice and
continues through the nine (9) month notice period;
and except in the case of either (b) or (c) due to the
Executive's death, disability, or retirement at or after the
normal retirement date.
4. Amendment to Subsection IV2(d) - Accelerated Vesting Schedules.
Subsection IV2(d), Accelerated Vesting Schedules, shall be deleted in
its entirety and replaced with the following:
(d) Accelerated Vesting Schedules - All stock options and
restricted stock granted to the Executive shall immediately vest in
full. Moreover, the Executive shall be entitled to receive immediately
upon such termination the cash value of any long term incentives
payable to the Executive under any long term incentive compensation
plans including, but not limited to, the Company's 1994 Long Term
Incentive Plan, in which the Employee is then participating calculated
as of the date of the Executive's termination, regardless of any
provisions in such plans requiring continued employment with the
Company. If the Executive informs the Company that the Executive
desires to exercise any or all of the stock options granted which have
been vested (including such options which have vested pursuant to this
paragraph (d)) immediately prior to the Executive's termination of
employment, then the Company, in its sole discretion, shall either (a)
register the underlying shares of the Company's common stock for sale
to the public, pursuant to a registration
<PAGE> 3
statement filed by the Company with the Securities and Exchange
Commission within 180 days of the termination of the Executive's
employment; or (b) purchase from the Executive the stock options which
the Executive desires to exercise. If the Company elects to purchase
the stock options, the purchase price to be paid by the Company for
each such option being purchased shall be the difference between the
last sale price of the Company's common stock on the NASDAQ National
Market on the day prior to the date of termination and the exercise
price of the option. The registration of the restricted stock shall be
governed by the provisions of subsection 4.4(d) of the Agreement of
Employment between the Company and the Executive, dated as of June 19,
1997, as amended.
5. Reaffirmation. Except as expressly modified in this Amendment, the
Company and the Executive hereby ratify and confirm each and every
provision of the Change in Control Agreement.
6. Severability. If any provision of the Change in Control Agreement, as
amended by this Amendment, is held to be unenforceable for any reason,
the remainder of this Agreement shall, nevertheless, remain in full
force and effect.
7. Amendment. The Change in Control Agreement and this Amendment may be
amended or modified only by a written instrument executed by the
Company and the Executive.
8. Governing Law. This Amendment shall be governed in all respects by the
law of the State of Ohio.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BALDWIN PIANO & ORGAN COMPANY
By: /s/ William Connell
---------------------------
Printed Name: William Connell
-----------------
Title: Director
------------------------
EXECUTIVE
/s/ Karen L. Hendricks
---------------------------
KAREN L. HENDRICKS
<PAGE> 1
Exhibit 10.3
AMENDMENT TO CHANGE IN CONTROL AGREEMENT
THIS AMENDMENT is made effective as of the 24 day of September, 1999,
by and between BALDWIN PIANO & ORGAN COMPANY, a Delaware corporation (the
"Company") and DUANE D. KIMBLE (the "Executive").
WHEREAS, the parties entered into a Change of Control Agreement, dated
July 5, 1998 (the "Change of Control Agreement"), and desire to amend the Change
of Control Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Amendments to SECTION IV. BENEFITS UPON TERMINATION FOLLOWING
A CHANGE IN CONTROL.
(a) Subsection 1. Termination. THE FIRST SENTENCE SHALL
BE DELETED IN ITS entirety and replaced with the
following:
1. TERMINATION - The Executive shall be entitled to,
and the Company shall pay or provide to the Executive, the
benefits described in Section 2 below if (a) a Change in
Control occurs during the term of this Agreement, and (b) the
Company terminates the Executive's employment, either by
actual termination or by constructive termination, within two
(2) years following the Change in Control or the Company
terminates the Executive within forty-five (45) days prior to
a Change in Control, other than termination for Cause.
(b) SUBSECTION 2(a). COMPENSATION. Subsection 2(a) shall
be deleted in its entirety and replaced with the
following:
2(a) COMPENSATION - The Executive will receive an
amount equal to two times the Executive's Average Annual
Compensation in twenty-four (24) equal monthly installments,
beginning with the first month following the Executive's date
of termination, in the same manner as the Executive's salary
was being paid as of the date of termination, subject to
withholding of all applicable taxes and any amounts referred
to in Section 2(b) below; provided, however, that, at the
option of the Executive, the payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not
later than thirty (30) days after the Executive's termination
of employment, provided further, that the amount of such lump
sum payment shall be determined by taking the compensation
payments to be made and discounting them to their Present
Value.
<PAGE> 2
2(b) HEALTH AND LIFE INSURANCE COVERAGE - The health
and life insurance benefits coverage provided to the Executive
at the Executive's date of termination shall be continued at
the same level and in the same manner as if the Executive's
employment had not terminated (subject to the customary
changes in such coverages if the Executive retires, reaches
age 65 or similar events), beginning on the date of such
termination and ending on the earlier of (i) the date
twenty-four (24) months from the date of such termination and
(ii) the date that the Executive becomes eligible for health
insurance benefits offered by any subsequent employer, taking
into account any exclusion or waiting period in such
subsequent employer's health benefit plan. Any additional
coverages the Executive had at termination, including
dependent coverage, will also be continued for such period at
the same level and on the same terms as provided to the
Executive immediately prior to the Executive's termination, to
the extent permitted by the applicable policies or contracts.
Any costs Executive was paying for such coverages at the time
of termination shall be paid by the Executive by separate
check payable to the Company each month in advance. If the
terms of any benefit plan referred to in this Section do not
permit continued participation by the Executive, then the
Company will arrange for other coverage at its expense
providing substantially similar benefits as it can find for
other officers in similar positions.
2(c) EMPLOYEE RETIREMENT PLANS - To the extent
permitted by the applicable plan, the Executive will be fully
vested in and will be entitled to continue to participate,
consistent with past practices, in all employee retirement
plans maintained by the Company in effect as of the
Executive's date of termination. The Executive's participation
in such retirement plans shall continue for a period beginning
on the date of the Executive's termination and ending on the
earlier of (i) the date twenty-four (24) months from the date
of such termination and (ii) the date that the Executive
becomes employed by any other employer (at which point the
Executive will be considered to have terminated employment
within the meaning of the plans) and the compensation payable
to the Executive under paragraph (a) above shall be treated
(unless otherwise excluded) as compensation under the plan. If
full vesting and continued participation in any plan is not
permitted, the Company shall pay to the Executive and, if
applicable, the Executive's beneficiary, a supplemental
benefit equal to the Present Value on the date of termination
of employment of the excess (i) the benefit the Executive
would have been paid under such plan if the Executive had been
fully vested and had continued to be covered for the 24-month
period as if the Executive had earned compensation described
under paragraph (a) above and had made contributions
sufficient to earn the maximum matching contribution, if any,
under such plan (less any amounts the Executive would have
been required to contribute), over (ii) the benefit actually
payable to or on behalf of the Executive under such plan. For
purposes of determining the benefit under (i) in the preceding
sentence, contributions deemed to be made under a defined
contribution plan will be deemed to be invested in the same
manner as the Executive's account under such plan at the time
of termination of employment. The Company shall pay such
supplemental benefits (if any) in a lump sum.
<PAGE> 3
2(d) ACCELERATED VESTING SCHEDULES - All stock
options and the unvested portion of all grants of restricted
stock granted to the Executive shall immediately vest in full.
Moreover, the Executive shall be entitled to receive
immediately upon such termination the cash value of any long
term incentives payable to the Executive under any long term
incentive compensation plans, including but not limited, to
the Company's 1994 Long Term Incentive Plan, in which the
Employee is then participating calculated as of the date of
the Executive's termination regardless of any provisions in
such plans requiring continued employment with the Company.
If, within thirty (30) days of Executive's Termination of
Employment, the Executive informs the Company that the
Executive desires to exercise any or all of the stock options
granted which have vested (including such options which have
vested pursuant to this paragraph (d)) immediately prior to
the Executive's termination of employment, then the Company in
its sole discretion shall either (a) register the underlying
shares of the Company's common stock for sale to the public
pursuant to a registration statement filed by the Company with
the Securities and Exchange Commission within 180 days of the
termination of the Executive's employment, or (b) purchase
from the Executive the stock options which the Executive
desires to exercise. If the Company elects to purchase the
stock options, the purchase price to be paid by the Company
for each such option being purchased shall be the difference
between the last sale price of the Company's common stock on
the Nasdaq National Market on the day prior to the date of
termination and the exercise price of the option.
2. NOTICES. The notice address for the Company shall be changed
to:
To the Company: Baldwin Piano & Organ Company
4680 Parkway Drive
Mason, Ohio 45040-7198
3. REAFFIRMATION - Except as expressly modified in this
Amendment, the Company and the Executive hereby ratify and
confirm each and every provision of the Change of Control
Agreement.
4. SEVERABILITY - If any provision of the Change of Control
Agreement, as amended by this Amendment, is held to be
unenforceable for any reason, the remainder of this Agreement
shall, nevertheless, remain in full force and effect.
5. ENTIRE AGREEMENT - The terms and provision of the Change of
Control Agreement and this Amendment constitute the entire
agreement between the Company and the Executive with respect
to the subject matter hereof. This Amendment may be amended or
modified only by a written instrument executed by the Company
and the Executive.
6. GOVERNING LAW - This Amendment shall be governed in all
respects by the law of the State of Ohio.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BALDWIN PIANO & ORGAN COMPANY
By: /s/ Karen L. Hendricks
-------------------------------
Printed Name: Karen L. Hendricks
---------------------
Title: Chief Executive Officer
----------------------------
EXECUTIVE
/s/ Duane D. Kimble
-------------------------------
DUANE D. KIMBLE
<PAGE> 1
Exhibit 10.4
SIXTH AMENDMENT TO
CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT ("Sixth Amendment") dated as
of July 15, 1999 is by and among BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation, (hereinafter, together with its successors in title and assigns
called "Borrower" or "Baldwin"), THE FIFTH THIRD BANK, an Ohio banking
corporation, as Agent (in such capacity, the "Agent"), THE FIFTH THIRD BANK
("Fifth Third"), as a Lender, and BANK ONE, INDIANA, N.A., formerly known as NBD
BANK, N.A., a national banking association, ("Bank One") as a Lender, (Fifth
Third and Bank One are hereinafter collectively the "Lenders" and each
individually a "Lender").
PRELIMINARY STATEMENT
WHEREAS, Borrower, Agent and Lenders have entered into a Credit
Agreement dated as of October 16, 1997, as amended by a First Amendment dated as
of October 16, 1997, a Second Amendment dated as of April 27, 1998, a Third
Amendment dated June 19, 1998, a Fourth Amendment dated September 21, 1998, and
a Fifth Amendment dated January 29, 1999 (collectively, the "Credit Agreement");
and
WHEREAS, Borrower has requested Agent and Lenders to make various
revisions to the Credit Agreement as set forth herein; and
WHEREAS, Borrower, Agent and Lenders now wish to amend the Credit
Agreement in accordance with the terms and provisions hereof;
NOW, THEREFORE, the parties hereto agree to supplement and amend the
Credit Agreement upon such terms and conditions as follows:
1. Capitalized Terms. All capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement unless the context hereof
requires otherwise. Any definitions as capitalized terms set forth herein shall
be deemed incorporated into the Credit Agreement as amended by this Sixth
Amendment.
2. Definitions.
(a) Section 1.2 of the Credit Agreement is hereby amended to add the
following definitions to read in their entirety as follows:
"Applicable Margin" shall initially mean 2.00%; provided that
upon the completion of Borrower's next fiscal quarter after the Sixth
Amendment Closing Date, the Applicable
<PAGE> 2
-2-
Margin shall mean the amount set forth below, as a percentage, to be
added to the LIBOR Rate, and used in calculating the Interest Rate at
any time:
<TABLE>
<CAPTION>
===========================================================================================
MARGIN RATIO APPLICABLE MARGIN
-------------------------------------------------------------------------------------------
<S> <C> <C>
Less than 1.0 to 1 2.00%
-------------------------------------------------------------------------------------------
Greater than or equal to 1.0 to 1, but 1.75%
less than 1.5 to 1
-------------------------------------------------------------------------------------------
Greater than or equal to 1.5 to 1 1.50%
===========================================================================================
</TABLE>
The determination of Applicable Margin hereunder as of any Interest
Adjustment Date shall be based on unaudited quarterly financial
statements and compliance certificates required to be delivered
pursuant to Section 10.3(a)(iii) hereof, provided, that in the event of
any discrepancy between computations based upon any compliance
certificates and the related audited financial statements furnished
pursuant to Section 10.3(a)(i), the computation based upon the audited
financial statements shall govern (retroactive to the most recent
Interest Adjustment Date). In the event of a retroactive correction of
the determinations of the Applicable Margin in favor of the Lenders,
the amount of interest thereby overdue and payable by the Borrower
shall be paid to the Lenders within five (5) days after the date of
such retroactive correction. Upon any upward adjustment of the
Applicable Margin, there shall be no downward adjustment of the
Applicable Margin until the first day of the first month after the
Margin Ratio shall have been less than or equal to the Margin Ratio
which would result in such downward adjustment as of the end of a
subsequent fiscal quarter. No downward adjustment of the Applicable
Margin shall occur if, at the time such downward adjustment would
otherwise be made, there shall exist any Default or Event of Default,
provided, that such downward adjustment shall be made on the first day
of the first month after the date on which any Default or Event of
Default shall have been waived or cease to exist.
"Capital Lease" means any lease of property which has been or
is required to be capitalized on a Borrower's financial statements in
accordance with GAAP.
"Contingent Obligation" means any direct or indirect
liability, contingent or otherwise, with respect to any Indebtedness,
lease, dividend, letter of credit, banker's acceptance or other
obligation of another if the primary purpose or intent thereof in
incurring the Contingent Obligation is to provide assurance to the
obligee of such obligation of another that such obligation of another
will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof.
Contingent Obligations shall include, without limitation, (i) the
direct or indirect guaranty, endorsement (otherwise than for collection
or deposit in the ordinary course of business), co-making, discounting
with recourse or sale with recourse by such Person of the obligation of
another; (ii) any liability
<PAGE> 3
-3-
for the obligations of another through any agreement (contingent or
otherwise) (A) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), (B) to
maintain the solvency of any balance sheet item, level of income or
financial condition of another, or (C) to make take-or-pay, pay-or-play
or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, if in the case of any agreement
described under subclauses (A), (B) or (C) of this sentence the primary
purpose or intent thereof is as described in the preceding sentence.
The amount of any Contingent Obligation shall be equal to the amount of
the obligation so guaranteed or otherwise supported."Debt" shall have
the meaning set forth in Section .
"Conway Closure" means the suspension of Borrower's business
operations at and the transfer of all of borrowers assets from the
facility located at Highway 365 & 286 Sturgis Road, Conway, Arkansas
72033-0309.
"EBITDA" for any period shall mean without duplication, (i)
Net Income; plus (ii) for such period any Interest Expense deducted in
the determination of Net Income; plus (iii) any income and franchise
taxes paid in cash and included in the determination of Net Income;
plus (iv) amortization and depreciation deducted in determining Net
Income for such period; minus (v) the sum for such period of interest
income, extraordinary non-cash gains, gains from sales of assets (other
than sales of inventory in the ordinary course of business) and
unrealized losses from changes in currency; plus (vi) extraordinary
non-cash losses; plus (vii) any one time cash charges incurred relative
to the Conway Closure in an aggregate amount not to exceed
$1,500,000.00, provided that such charge is recognized in the month(s)
incurred.
"Fixed Charges" means, for any period, the following, each
calculated for such period, without duplication: (i) Interest Expense
paid on accrual; plus (ii) any income and franchise taxes paid in cash;
plus (iii) scheduled payments of principal with respect to all
Indebtedness for Borrowed Money of Borrower including the principal
component of any cash payments made on any Capital Lease.
"Indebtedness for Borrowed Money" means at any particular
time, all Indebtedness (i) in respect of any money borrowed; (ii) under
or in respect of any Contingent Obligation (whether direct or indirect)
of any money borrowed; (iii) evidenced by any loan or credit agreement,
promissory note, debenture, bond, guaranty or other similar written
obligation to pay money; or (iv) Capital Lease obligations.
" Interest Expense" means, for any period, the total amount of
all charges for the use of funds (whether characterized as interest,
debt service or otherwise) payable during such period with respect to
all Indebtedness of a Borrower for such period including the
amortization of debt discounts and the amortization of all fees payable
in connection with the incurrence of such Indebtedness.
<PAGE> 4
-4-
"Interest Adjustment Date" means the first day of the first
month after the date on which each of the Quarterly Compliance
Certificates (together with monthly unaudited financial statements for
each month during such quarter) are required to be delivered under
Section 10.1(k)(iii) with respect to the most recent quarter.
"Interest Rate" means the rate of interest per annum equal to
the LIBOR Rate plus the Applicable Margin.
"Juarez Sale" means the sale of Borrower's real property
located in Fabricantes Tecnicos, S.A. Juarez, Mexico.
"Margin Ratio" means the ratio of EBITDA to Fixed Charges, as
calculated in Section 10.3(a)(iv) hereof.
" Net Income" means, for any period, the aggregate of the net
income (or net loss) of a Borrower for such period, determined in
accordance with GAAP, but excluding, without duplication: (i) the
income of any Person in which a Borrower has an ownership interest,
unless received by such Borrower in a cash distribution; (ii) any
after-tax gains or losses attributable to dispositions of assets; (iii)
the income of any Subsidiary of a Borrower to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at that time permitted by operation of
the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
that Subsidiary; and (iv) any after-tax extraordinary non-cash gains or
extraordinary non-cash losses.
3. Exhibits. The following Exhibits to the Credit Agreement are hereby
amended in their entirety to read as the corresponding Exhibits to this Sixth
Amendment:
(a) Exhibit C Form of Borrowing Base Certificate;
(b) Exhibit D Form of Fourth Amended and Restated Revolving
Promissory Note
(c) Exhibit H Form of Quarterly Covenant Certificate;
(d) Exhibit I Form of Monthly Compliance Certificate.
4. Section 3.1 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 3.1. Total Credit Facility. In consideration of
Baldwin's payment and performance of its Obligations and subject to the
terms and conditions contained in this Credit Agreement, the Lenders
agree to provide, and Baldwin agrees to accept, (i) until
<PAGE> 5
-5-
December 31, 1999, an aggregate credit facility of up to Forty Million
and 00/100 Dollars ($40,000,000.00), provided, that, from and after the
closing of the Juarez Sale, up to Thirty-Five Million and 00/100
($35,000,000.00), and (ii) after December 31, 1999, an aggregate credit
facility of up to Thirty Million and 00/100 Dollars ($30,000,000.00)
(the "Total Credit"), subject to the terms and conditions hereof (the
"Credit Facility"). No Loans need be made by the Lenders if Baldwin is
in Default or if there exists any Unmatured Default. This is an
agreement regarding the extension of credit, and not the provision of
goods or services."
5. Eligible Accounts and Eligible Inventory. Section 3.2(a)(i) and
Section 3.2(a)(ii) of the Credit Agreement are hereby amended to in their
entirety to read as follows:
"(i) Eligible Accounts. On receipt of each Borrowing
Base Certificate, in the form of Exhibit C, together with such
supporting information as Agent may require from time to time
(the "Borrowing Base Certificate"), Agent will credit Baldwin
with the lesser of: (i) eighty-five percent (85%) until
September 30, 1999, and eighty percent (80%) from and after
September 30, 1999, of the net amount of the Eligible Accounts
which are, absent error or other discrepancy, listed in such
Borrowing Base Certificate ("Eligible Account Availability");
and (ii) Fifteen Million and 00/100 Dollars ($15,000,000.00).
For purposes hereof, the net amount of Eligible Accounts at
any time shall be the face amount of such Eligible Accounts
less any and all returns, discounts (which may, at Agent's
option, be calculated on shortest terms), credits, rebates,
allowances, or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding, or
payable in connection with such Accounts at such time.
(ii) Eligible Inventory. On receipt of each Borrowing
Base Certificate, Agent will credit Baldwin with the lesser
of: (i) seventy-five percent (75%) until September 30, 1999,
and sixty-five percent (65%) from and after September 30,
1999, of the Value of Eligible Inventory which is, absent
error or other discrepancy, listed in such Borrowing Base
Certificate, and (ii) Thirty Million Dollars and 00/100
Dollars ($30,000,000.00)."
6. Interest; Calculation of Charges; Fees; Loans. Section 3.5(a)(i) of
the Credit Agreement is hereby amended in its entirety to read as follows:
"(i) Interest. Baldwin hereby agrees to pay interest
to Agent for the benefit of the Lenders, on the average daily
loan balance owed under Baldwin's Loans interest at the annual
rate equal to the Interest Rate. Any change in the Applicable
Margin shall become effective in accordance with the
definition of Applicable Margin. Interest on Loans prior to
maturity shall be payable monthly and at maturity.
<PAGE> 6
-6-
7. Financial Covenants. Section 10.3(a) of the Credit Agreement is
hereby amended as follows:
(a) Section 10.3(a)(i) is hereby amended to read in its entirety
as follows:
"(i) a Tangible Net Worth in the combined amount of not less
than Forty Million and 00/100 Dollars ($40,000,000.00) prior to the
Juarez Sale, and thereafter not less than Forty-Five Million and 00/100
Dollars ($45,000,000.00).
(b) Section 10.3(a)(ii) is hereby amended to read in its entirety
as follows:
"(ii) a ratio of Debt to Tangible Net Worth of not more than
one and one-half to one (1.5 to 1).
(c) The following clause is added as Section 10.3(a)(iv) to read
in its entirety as follows:
"(iv) a ratio of EBITDA to Fixed Charges, calculated on a four
(4) quarter rolling basis, greater than the amount set forth below
opposite the applicable time period.
<TABLE>
<CAPTION>
===========================================================================================
Minimum Ratio of
Four (4) Quarter Period Ending EBITDA to Fixed Charges
-------------------------------------------------------------------------------------------
<S> <C> <C>
June 30, 1999 .75:1
-------------------------------------------------------------------------------------------
September 30, 1999 .95 to 1
-------------------------------------------------------------------------------------------
December 31, 1999 and thereafter 1.50 to 1
===========================================================================================
</TABLE>
8. Reaffirmation of Covenants, Warranties and Representations. Borrower
hereby agrees and covenants that all representations and warranties in the
Credit Agreement, including without limitation all of those warranties and
representations set forth in Article 9, are true and accurate as of the date
hereof. Borrower further reaffirms all covenants in the Credit Agreement, and
reaffirm each of the affirmative covenants set forth in Section 10.1, the
negative covenants set forth in Section 10.2 and the financial covenants set
forth in Section 10.3 thereof, as if fully set forth herein, except to the
extent modified by this Sixth Amendment.
9. Conditions Precedent to Closing of Sixth Amendment. On or prior to
the closing of the Sixth Amendment (hereinafter the "Sixth Amendment Closing
Date"), each of the following conditions precedent shall have been satisfied:
(a) Proof of Corporate Authority. Agent shall have received from
Borrower copies, certified by a duly authorized officer to be
true and complete on and as of the Sixth Amendment Closing
Date, of records of all action taken by Borrower to authorize
(i) the
<PAGE> 7
-7-
execution and delivery of this Sixth Amendment and all other
certificates, documents and instruments to which it is or is
to become a party as contemplated or required by this Sixth
Amendment, and (ii) its performance of all of its obligations
under each of such documents.
(b) Documents. Each of the documents to be executed and delivered
at the Sixth Amendment Closing and all other certificates,
documents and instruments to be executed in connection
herewith shall have been duly and properly authorized,
executed and delivered by Borrower and shall be in full force
and effect on and as of the Sixth Amendment Closing Date.
(c) Legality of Transactions. No change in applicable law shall
have occurred as a consequence of which it shall have become
and continue to be unlawful (i) for Agent and each Lender to
perform any of its agreements or obligations under any of the
Loan Documents, or (ii) for Borrower to perform any of its
agreements or obligations under any of the Loan Documents.
(d) Performance, Etc. Except as set forth herein, Borrower shall
have duly and properly performed, complied with and observed
each of its covenants, agreements and obligations contained in
each of the Loan Documents. Except as set forth herein, no
event shall have occurred on or prior to the Sixth Amendment
Closing Date, and no condition shall exist on the Sixth
Amendment Closing Date, which constitutes a Default or an
Event of Default.
(e) Changes; None Adverse. Since the date of the most recent
balance sheets of Borrower delivered to Agent, no changes
shall have occurred in the assets, liabilities, financial
condition, business, operations or prospects of Borrower
which, individually or in the aggregate, are material to
Borrower, and Agent shall have completed such review of the
status of all current and pending legal issues as Agent shall
deem necessary or appropriate.
10. Miscellaneous. (a) Borrower shall reimburse Agent for all fees and
disbursements of legal counsel to Agent which shall have been incurred by Agent
in connection with the preparation, negotiation, review, execution and delivery
of this Sixth Amendment and the handling of any other matters incidental hereto.
(b) All of the terms, conditions and provisions of the Agreement
not herein modified shall remain in full force and effect. In
the event a term, condition or provision of the Agreement
conflicts with a term, condition or provision of this Sixth
Amendment, the latter shall govern.
(c) This Sixth Amendment shall be governed by and shall be
construed and interpreted in accordance with the laws of the
State of Ohio.
<PAGE> 8
-8-
(d) This Sixth Amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs,
successors and assigns.
(e) This Sixth Amendment may be executed in several counterparts,
each of which shall constitute an original, but all which
together shall constitute one and the same agreement.
[Remainder of page intentionally left blank. Signature page follows.]
<PAGE> 9
IN WITNESS WHEREOF, this Sixth Amendment has been duly executed and
delivered by or on behalf of each of the parties as of the day and in the year
first above written.
BALDWIN PIANO & ORGAN COMPANY, Borrower
By: /s/ Perry H. Schwartz
-------------------------------
Name: Perry H. Schwartz
-----------------------------
Title: Treasurer
----------------------------
THE FIFTH THIRD BANK, Agent
By: /s/ Robert Ries
-------------------------------
Name: Robert Ries
-----------------------------
Title: Vice President
----------------------------
THE FIFTH THIRD BANK, Lender
By: /s/ Robert Ries
-------------------------------
Name: Robert Ries
-----------------------------
Title: Vice President
----------------------------
BANK ONE, INDIANA, N. A., Lender
By: /s/ Andrea Hoskin
-------------------------------
Name: Andrea Hoskin
-----------------------------
Title:
----------------------------
<PAGE> 10
EXHIBIT D
FORM OF FOURTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE(1)
[$20,000,000.00] Cincinnati, Ohio
[July __, 1999]
THIS FOURTH AMENDED AND RESTATED REVOLVING CREDIT NOTE ("Note") is made
and entered into as of the date hereof by BALDWIN PIANO & ORGAN COMPANY, a
Delaware corporation, (the "Borrower") to the order of [THE FIFTH THIRD
BANK/BANK ONE, INDIANA, N.A., formerly known as NBD BANK, N.A.] (hereinafter,
together with its permitted successors and assigns, called "Bank").
This Note has been executed and delivered pursuant to a certain Credit
Agreement dated as of October 16, 1997, as amended by First Amendment to Credit
Agreement dated October 16, 1997, Second Amendment to Credit Agreement dated as
of April, 27, 1998, Third Amendment to Credit Agreement dated as of June 19,
1998, Fourth Amendment to Credit Agreement dated as of September 21, 1998, a
Fifth Amendment dated as of January 29, 1999, and a Sixth Amendment dated as of
July ___, 1999, by and among Borrower, The Fifth Third Bank, an Ohio banking
corporation, as "Agent", and the Banks listed therein (collectively, and as the
same may be further amended, modified or restated, the "Credit Agreement"), and
is subject to the terms and conditions of the Credit Agreement, including
without limitation, acceleration upon the terms provided therein. All
capitalized terms used herein shall have the meanings assigned to them in the
Credit Agreement unless the context hereof requires otherwise.
Borrower, for value received, promises to pay to the order of Bank, at
Agent's Head Office, for the account of Bank in accordance with the Credit
Agreement, the principal sum of TWENTY MILLION AND 00/100 DOLLARS
($20,000,000.00), subject to the mandatory reductions set forth in Section 3.1
of the Credit Agreement (the "Credit Commitment") or so much thereof as is
loaned by Bank pursuant to the provisions hereof and the terms and provisions of
the Credit Agreement, together with interest on the unpaid principal amount as
defined, determined and adjusted pursuant to the Credit Agreement ("Interest
Rate"). Interest shall be due and payable monthly in arrears on the first day of
each month. All interest under this Note shall be computed on the basis of the
actual number of days elapsed over an assumed year consisting of three hundred
sixty (360) days. Principal and all remaining accrued interest shall be due and
payable on or before October 1, 2000, or as otherwise provided in the Credit
Agreement.
- --------
(1) This Fourth Amended and Restated Revolving Promissory Note is
issued upon surrender of and in exchange for a Third Amended and Restated
Revolving Promissory Note dated January 29, 1999, in the original principal
amount of $22,000,000.00 having a maturity date of October 1, 2000. The issuance
of this Fourth Amended and Restated Revolving Promissory Note is to reflect the
various amendments that have been made to the terms of the Credit Agreement,
including but not limited to Lender replacing the Third Amended and Restated
Revolving Promissory Note. This Fourth Amended and Restated Revolving Promissory
Note shall not be construed as a novation or be construed in any manner as an
extinguishment of the obligations arising under the Amended and Restated
Revolving Promissory Note, the Second Amended and Restated Revolving Promissory
Note, the Third Amended and Restated Revolving Promissory Note, or to affect the
priority of the security interest granted in connection with any promissory
notes executed pursuant to the Credit Agreement as defined herein.
<PAGE> 11
-2-
This Note is subject to mandatory prepayment upon the terms and
conditions set forth in the Credit Agreement. This Note may be prepaid in whole
or in part as set forth in the Credit Agreement.
If this Note is accelerated pursuant to the Credit Agreement or if a
Default or an Event of Default with respect to any monetary payment under the
Credit Agreement shall have occurred and during the period in which such Default
or Event of Default is continuing, the outstanding principal and all accrued
interest as well as any other Obligations due Bank or Agent under any Loan
Document shall bear interest at three percent (3%) above the Interest Rate.
Subject to the terms and conditions of the Credit Agreement and until
the earlier of October 1, 2000 or the earlier termination of the Credit
Agreement in accordance with its terms, Borrower may borrow, repay and reborrow
from Bank and Bank hereby agrees to lend and relend to Borrower such amounts not
to exceed Bank's Participation Percentage of the Total Credit as the Borrower
may from time to time request.
The Borrower hereby: (i) waives presentment, demand, notice of demand,
protest, notice of protest, notice of presentment and notice of nonpayment and
any other notice required to be given by law, except as otherwise specifically
provided in the Credit Agreement, in connection with the delivery, acceptance,
performance, default or enforcement of this Note, of any indorsement or guaranty
of this Note; and (ii) consents to any and all delays, extensions, renewals or
other modifications of this Note or waivers of any term hereof or the failure to
act on the part of Agent or Bank or any indulgence shown by Agent or Bank, from
time to time and in one or more instances, (without notice to or further assent
from Borrower) and agrees that no such action, failure to act or failure to
exercise any right or remedy, on the part of Agent or Bank shall in any way
affect or impair the obligations of Borrower or be construed as a waiver by Bank
of, or otherwise affect, any of Bank's rights under this Note, or under any
indorsement or guaranty of this Note. Subject to the terms of the Credit
Agreement, Borrower further agrees to reimburse Agent and Bank for all advances,
charges, costs and expenses, including reasonable attorney's fees, incurred or
paid in exercising any right, power or remedy conferred by this Note, or in the
enforcement thereof.
Anything herein to the contrary notwithstanding the obligations of
Borrower under this Note, the Credit Agreement or any other Loan Documents shall
be subject to the limitation that payments of interest shall not be required to
the extent that receipt of any such payment by any Bank would be contrary to the
provisions of law applicable to such Bank limiting the maximum rate of interest
that may be charged or collected by the Bank. Without limiting the generality of
the foregoing, all calculations of the rate of interest contracted for, charged
or received under this Note which are made for the purposes of determining
whether such rate of interest exceeds the maximum rate of interest permitted by
applicable law shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of this
<PAGE> 12
-3-
Note, all interest at any time contracted for, charged or received in connection
with the indebtedness evidenced by this Note, and then to the extent that any
excess remains, all such excess shall be automatically credited against and in
reduction of the principal balance, and any portion of said excess which exceeds
the principal balance shall be paid by Bank to Borrower, it being the intent of
the parties hereto that under no circumstances shall Borrower be required to pay
any interest in excess of the highest rate permissible under applicable law.
The provisions of this note shall be governed by and interpreted in
accordance with the laws of Ohio.
The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as forums where any action, suit or proceeding in respect of or arising
from or out of this Note, its making, validity or performance, may be prosecuted
as to all parties, their successors and assigns, and by the foregoing
designation the undersigned consents to the jurisdiction and venue of such
courts.
TIME IS OF THE ESSENCE IN THE PERFORMANCE OF THE OBLIGATIONS OF THIS
NOTE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year set forth above.
BALDWIN PIANO & ORGAN COMPANY,
a Delaware corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 13
FORM OF BORROWING BASE CERTIFICATE
<TABLE>
<CAPTION>
<S> <C> <C>
BALDWIN PIANO & ORGAN COMPANY Report # Today's date
--------------- ----------------------------------------------
Accounts Reported as of
-----------------------
Inventory Reported as of
----------------------
- --------------------------------------------------------------------------------------------------------------------
I. ELIGIBLE ACCOUNT AVAILABILITY
- --------------------------------------------------------------------------------------------------------------------
A. ELIGIBLE ACCOUNT AVAILABILITY
1. Accounts $
------------
LESS:
2. From sales of goods and services > 60 Days
from date of sale, except Biasco -------------
3. Biasco (other than Biasco Special Account),
Due > 130 Days from date of sale (3/15/99) -------------
4. Biasco Special Account (after 3/1/99)
-------------
5. Contract Electronics unpaid > 90 Days
and others > 120 days -------------
6. Entire Account, if 50% or more unpaid > 90 Days
-------------
7. Affiliate Accounts
-------------
8. Consignment Receivables > 120 Days
-------------
9. Conditional
-------------
10. Non U.S./Canada
-------------
11. Non Reps & Warr. (per Section 9.18 of Credit
Agreement) -------------
12. Demonstration/Loan
-------------
13. Progress/Barter/Contra
-------------
14. Personal/family/household
-------------
15. Agent Designated Accounts
-------------
16. TOTAL INELIGIBLE (sum lines 2 through 15) ( )
------------
17. SUBTOTAL
------------
18. LESS: ELIGIBLE ACCOUNT NET AVAILABILITY ( )
(15% times Line 17, and after 9/30/99, 20% times Line 17) ------------
19. TOTAL ELIGIBLE ACCOUNT AVAILABILITY $
(Line 17, Less Line 18) ------------
------------------
20. TOTAL CREDIT FOR ELIGIBLE ACCOUNTS |$ |
(Lesser of Line 19, or $15,000,000) | ------------ |
------------------
- --------------------------------------------------------------------------------------------------------------------
II. ELIGIBLE INVENTORY AVAILABILITY
- --------------------------------------------------------------------------------------------------------------------
A. ELIGIBLE INVENTORY AVAILABILITY
21. INVENTORY (Wholesale Dealer Cost)
LESS:
</TABLE>
<PAGE> 14
-2-
<TABLE>
<CAPTION>
<S> <C> <C>
22. Work in Progress ( )
23. Spare Parts/Shipping and Packaging Materials ( )
24. Defective Inventory ( )
25. Returned or repossessed ( )
26. Non U.S./Canada ( )
27. TOTAL INELIGIBLE INVENTORY: ( )
(Sum of Lines 22 through 26)
28. SUBTOTAL
29. LESS: NET ELIGIBLE INVENTORY ( )
(25% times Line 28, and after 9/30/99, 35% of Line 28)
30. TOTAL ELIGIBLE INVENTORY AVAILABILITY
(Line 28 minus Line 29)
------------------
31. TOTAL CREDIT FOR ELIGIBLE INVENTORY |$ |
(The Lesser of Line 30, or $30,000,000) | ------------ |
------------------
- --------------------------------------------------------------------------------------------------------------------
III. ELIGIBLE RAW MATERIALS AVAILABILITY
- --------------------------------------------------------------------------------------------------------------------
The Sum of:
32. Value of Raw Materials/electronic (Baldwin's Cost)
33. Times 10% X .10 = $
34. PLUS: The Value of all other Raw Materials
(Baldwin's Cost)
35. Times 50% X .50 = +
36. TOTAL
============
------------------
37. Raw Materials Availability | |
(Lesser of Line 35 or $5,000,000) | ------------ |
------------------
====================================================================================================================
38. TOTAL BORROWING BASE AVAILABILITY
(Sum of Lines 20, 31 and 37) $
====================================================================================================================
39. Lesser of Line 38 and the Total Credit ------------------
($40,000,000, $35,000,000 or $30,000,000) | |
as determined by the Credit Agreement) | ------------ |
------------------
40. LESS: Outstanding Standby Letters of Credit ------------------
| ( ) |
| ------------ |
------------------
41. LESS: Outstanding Revolving Credit Balance ------------------
| ( ) |
| ------------ |
------------------
====================================================================================================================
TOTAL AVAILABILITY TO BORROWERS
(Sum of Lines 39, 40 and 41) $
====================================================================================================================
</TABLE>
We certify that the foregoing report is true and correct.
BALDWIN PIANO & ORGAN COMPANY
Name:
--------------------------
Title:
-------------------------
<PAGE> 1
Exhibit 10.5
FIRST AMENDMENT TO
AMENDED AND RESTATED TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED TERM LOAN AGREEMENT
("First Amendment") dated as of July 15, 1999 is by and among BALDWIN PIANO &
ORGAN COMPANY, a Delaware corporation, (hereinafter, together with its
successors in title and assigns called "Borrower" or "Baldwin"), THE FIFTH THIRD
BANK, an Ohio banking corporation, as Agent (in such capacity, the "Agent"), THE
FIFTH THIRD BANK ("Fifth Third"), as a Lender, and BANK ONE, INDIANA, N.A.,
formerly known as NBD BANK, N.A., a national banking association, ("Bank One")
as a Lender, (Fifth Third and Bank One are hereinafter collectively the
"Lenders" and each individually a "Lender").
PRELIMINARY STATEMENT
WHEREAS, Borrower, Agent and Lenders have entered into a Amended and
Restated Term Loan Agreement dated as of May 15, 1998, (the "Term Loan
Agreement"); and
WHEREAS, Borrower have requested Agent and Lenders to make various
revisions to the Term Loan Agreement as set forth herein; and
WHEREAS, Borrower, Agent and Lenders now wish to amend the Term Loan
Agreement in accordance with the terms and provisions hereof;
NOW, THEREFORE, the parties hereto agree to supplement and amend the
Term Loan Agreement upon such terms and conditions as follows:
1. Capitalized Terms. All capitalized terms used herein shall have the
meanings assigned to them in the Term Loan Agreement unless the context hereof
requires otherwise. Any definitions as capitalized terms set forth herein shall
be deemed incorporated into the Term Loan Agreement as amended by this First
Amendment.
2. Definitions.
(a) Section 2.1 of the Term Loan Agreement is hereby to amend the
following definitions to read in their entirety as follows:
"Interest Rate" means, with respect to the Term Loan, the rate
of interest per annum equal to the LIBOR Rate plus the Applicable
Margin.
"EBITDA" for any period shall mean without duplication, (i)
Net Income; plus (ii) for such period any Interest Expense deducted in
the determination of Net Income; plus (iii) any income and franchise
taxes paid in cash and included in the determination of Net
<PAGE> 2
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Income; plus (iv) amortization and depreciation deducted in determining
Net Income for such period; minus (v) the sum for such period of
interest income, extraordinary non-cash gains, gains from sales of
assets (other than sales of inventory in the ordinary course of
business) and unrealized losses from changes in currency; plus (vi)
extraordinary non-cash losses; plus (vii) any one time cash charges
incurred relative to the Conway Closure in an aggregate amount not to
exceed $1,500,000.00, provided that such charge is recognized in the
month(s) incurred.
(b) Section 2.1 of the Term Loan Agreement is hereby amended to
add the following definitions to read in their entirety as
follows:
"Applicable Margin" shall initially mean 2.25%; provided that
after the first fiscal quarter of Borrower after the Sixth Amendment
Closing Date, the Applicable Margin shall mean the amount set forth
below, as a percentage, to be added to the LIBOR Rate, and used in
calculating the rate of interest for applicable Loan at any time:
================================================================================
MARGIN RATIO APPLICABLE MARGIN
================================================================================
Less than 1.0 to 1 2.25%
================================================================================
Greater than or equal to 1.0 to 1, but 2.00%
less than 1.5 to 1
================================================================================
Greater than or equal to 1.5 to 1 1.75%
================================================================================
The determination of Applicable Margin hereunder as of any Interest
Adjustment Date shall be based on unaudited quarterly financial
statements and compliance certificates required to be delivered
pursuant to Section 7.1(j)(iii) hereof, provided, that in the event of
any discrepancy between computations based upon any compliance
certificates and the related audited financial statements furnished
pursuant to Section 7.1(j)(i), the computation based upon the audited
financial statements shall govern (retroactive to the most recent
Interest Adjustment Date). In the event of a retroactive correction of
the determinations of the Applicable Margin in favor of the Lenders,
the amount of interest thereby overdue and payable by the Borrower
shall be paid to the Lenders within five (5) days after the date of
such retroactive correction. Upon any upward adjustment of the
Applicable Margin, there shall be no downward adjustment of the
Applicable Margin until the first day of the first month after the
Margin Ratio shall have been less than or equal to the Margin Ratio
which would result in such downward adjustment as of the end of a
subsequent fiscal quarter. No downward adjustment of the Applicable
Margin shall occur if, at the time such downward adjustment would
otherwise be made, there shall exist any Default or Event of Default,
provided, that such downward adjustment shall be made on the first day
of the first month after the date on which any Default or Event of
Default shall have been waived or cease to exist.
<PAGE> 3
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"Conway Closure" means the suspension of Borrower's business
operations at and the transfer of all of borrowers assets from the
facility located at Highway 365 & 286 Sturgis Road, Conway, Arkansas
72033-0309.
"Interest Adjustment Date" means the first day of the first
month after the date on which each of the Quarterly Compliance
Certificates (together with monthly unaudited financial statements for
each month during such quarter) are required to be delivered under
Section 7.1(j)(iii) with respect to the most recent quarter.
"Juarez Sale" means the sale of Borrower's real property
located in Fabricantes Tecnicos, S.A. Juarez, Mexico.
"Margin Ratio" means the ratio of EBITDA to Fixed Charges, as
calculated in Section 7.3(a)(iv) hereof.
3. Exhibits. The following Exhibits to the Term Loan Agreement are
hereby amended in their entirety to read as the corresponding Exhibits to this
First Amendment:
(a) Exhibit F Form of Quarterly Covenant Certificate;
(b) Exhibit G Form of Monthly Compliance Certificate.
4. Determination of Interest Rate. The last sentence of Section
3.4(a)(i) of the Term Loan Agreement is hereby amended in its entirety to read:
"Any change in the Applicable Margin shall become effective in accordance with
the definition of Applicable Margin."
5. Financial Covenants. Section 7.3(a) of the Term Loan Agreement is
hereby amended as follows:
(a) Section 7.3(a)(i) is hereby amended to read in its entirety as
follows:
"(i) a Tangible Net Worth in the combined amount of not less
than Forty Million and 00/100 Dollars ($40,000,000.00) prior to the
Juarez Sale, and thereafter not less than Forty-Five Million and 00/100
Dollars ($45,000,000.00).
(b) Section 7.3(a)(ii) is hereby amended to read in its entirety
as follows:
"(ii) a ratio of Debt to Tangible Net Worth of not more than
one and one-half to one (1.5 to 1).
(c) Section 7.3(a)(iv) is hereby amended to read in its entirety
as follows:
"(iv) a ratio of EBITDA to Fixed Charges, calculated on a four
(4) quarter rolling basis, greater than the amount set forth below
opposite the applicable time period.
<PAGE> 4
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===========================================================================
Minimum Ratio of
Four (4) Quarter Period Ending EBITDA to Fixed Charges
===========================================================================
June 30, 1999 .75:1
===========================================================================
September 30, 1999 .95 to 1
===========================================================================
December 31, 1999 and thereafter 1.50 to 1
===========================================================================
6. Waiver. The Agent and the Lenders hereby consent to waive the
application of Section 7.3(a)(iv) of the Term Loan Agreement as it relates to
the ratio of EBITDA to Fixed Charges, provided, that, for the four (4) quarters
ending on June 30, 1999, the Minimum Ratio of EBITDA to Fixed Charges is greater
than three-fourths to one (0.75 to 1).
7. Reaffirmation of Covenants, Warranties and Representations. Borrower
hereby agrees and covenants that all representations and warranties in the Term
Loan Agreement, including without limitation all of those warranties and
representations set forth in Article 6 are true and accurate as of the date
hereof. Borrower further reaffirms all covenants in the Term Loan Agreement, and
reaffirm each of the affirmative covenants set forth in Section 7.1, the
negative covenants set forth in Section 7.2 and the financial covenants set
forth in Section 7.3 thereof, as if fully set forth herein, except to the extent
modified by this First Amendment.
8. Conditions Precedent to Closing of First Amendment. On or prior to
the closing of the First Amendment (hereinafter the "First Amendment Closing
Date"), each of the following conditions precedent shall have been satisfied:
(a) Proof of Corporate Authority. Agent shall have received from
Borrower copies, certified by a duly authorized officer to be
true and complete on and as of the First Amendment Closing
Date, of records of all action taken by Borrower to authorize
(i) the execution and delivery of this First Amendment and all
other certificates, documents and instruments to which it is
or is to become a party as contemplated or required by this
First Amendment, and (ii) its performance of all of its
obligations under each of such documents.
(b) Documents. Each of the documents to be executed and delivered
at the First Amendment Closing and all other certificates,
documents and instruments to be executed in connection
herewith shall have been duly and properly authorized,
executed and delivered by Borrower and shall be in full force
and effect on and as of the First Amendment Closing Date.
(c) Legality of Transactions. No change in applicable law shall
have occurred as a consequence of which it shall have become
and continue to be unlawful (i) for Agent and each Lender to
perform any of its agreements or obligations under any of the
Loan Documents, or (ii) for Borrower to perform any of its
agreements or obligations under any of the Loan Documents.
<PAGE> 5
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(d) Performance, Etc. Except as set forth herein, Borrower shall
have duly and properly performed, complied with and observed
each of its covenants, agreements and obligations contained in
each of the Loan Documents. Except as set forth herein, no
event shall have occurred on or prior to the First Amendment
Closing Date, and no condition shall exist on the First
Amendment Closing Date, which constitutes a Default or an
Event of Default.
(e) Changes; None Adverse. Since the date of the most recent
balance sheets of Borrower delivered to Agent, no changes
shall have occurred in the assets, liabilities, financial
condition, business, operations or prospects of Borrower
which, individually or in the aggregate, are material to
Borrower, and Agent shall have completed such review of the
status of all current and pending legal issues as Agent shall
deem necessary or appropriate.
9. Miscellaneous. (a) Borrower shall reimburse Agent for all fees and
disbursements of legal counsel to Agent which shall have been incurred by Agent
in connection with the preparation, negotiation, review, execution and delivery
of this First Amendment and the handling of any other matters incidental hereto.
(b) All of the terms, conditions and provisions of the Agreement
not herein modified shall remain in full force and effect. In
the event a term, condition or provision of the Agreement
conflicts with a term, condition or provision of this First
Amendment, the latter shall govern.
(c) This First Amendment shall be governed by and shall be
construed and interpreted in accordance with the laws of the
State of Ohio.
(d) This First Amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs,
successors and assigns.
(e) This First Amendment may be executed in several counterparts,
each of which shall constitute an original, but all which
together shall constitute one and the same agreement.
<PAGE> 6
IN WITNESS WHEREOF, this First Amendment has been duly executed and
delivered by or on behalf of each of the parties as of the day and in the year
first above written.
BALDWIN PIANO & ORGAN COMPANY, Borrower
By: /s/ Perry H. Schwartz
-----------------------------------
Name: Perry H. Schwartz
---------------------------------
Title: Treasurer
--------------------------------
THE FIFTH THIRD BANK, Agent
By: /s/ Robert Ries
-----------------------------------
Name: Robert Ries
---------------------------------
Title: Vice President
--------------------------------
THE FIFTH THIRD BANK, Lender
By: /s/ Robert Ries
-----------------------------------
Name: Robert Ries
---------------------------------
Title: Vice President
--------------------------------
BANK ONE, INDIANA, N. A., Lender
By: /s/ Andrea Hoskin
-----------------------------------
Name: Andrea Hoskin
---------------------------------
Title:
--------------------------------
<PAGE> 1
Exhibit 99.1
Contacts: Duane Kimble Joel Pomerantz
Baldwin Piano The Dilenschneider Group
(513) 754-4647 (212) 922-0900
BALDWIN PIANO REPORTS THIRD-QUARTER RESULTS
FOURTH-QUARTER ORDERS INCREASE FOR COMPANY'S MUSIC PRODUCTS
MASON, OH, November 12, 1999 - Baldwin Piano & Organ Company
(NASDAQ:BPAO) today reported operating results for the third quarter ended
September 30, 1999.
Baldwin reported a third quarter net loss of $1,622,000, or 47 cents
per share, on sales of $29.1 million. A year ago, the company reported net
income of $93,000, or 3 cents per share, on sales of $34.3 million. Third
quarter 1999 results include a one-time gain of $3,586,000, or $1.04 per share,
on the previously announced sale of the company's facility in Juarez, Mexico.
Third quarter results also were adversely impacted by one-time per share charges
of 32 cents and 7 cents, respectively, to revalue certain inventories and record
severance-related expenses.
Through the first nine months of 1999, Baldwin reported sales of $88.2
million, versus $98.1 million for the same period a year ago. The net loss for
the current nine-month period was $4,825,000, or $1.40 cents per share, which
includes the one-time gain on the sale of Juarez, net of a loss recorded earlier
this year of 27 cents per share. A year ago, the company reported nine-month net
income of $634,000, or 18 cents per share.
Karen L. Hendricks, chairman, president and chief executive officer of
Baldwin said, "The encouraging news is that dealer inventories have now returned
to normal seasonal levels and orders for the company's music products have risen
significantly. Our manufacturing facilities are currently working expanded
shifts in an effort to meet current demand."
-more-
<PAGE> 2
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Ms. Hendricks added, "Baldwin is in the final stages of negotiation for
the sale of its retail financing units, and we expect to make an announcement
within the next 10 days. Completion of this sale will significantly improve the
company's financial flexibility and so help ensure the financial strength of
Baldwin's remaining businesses. It is important to recognize that the
competitiveness of Baldwin's Music business is not tied to consumer financing.
Today's piano buyer can chose from a wide variety of financing options. The key
to maintaining the financial health of our Music business is in continuing to
produce the highest quality pianos at the lowest possible cost, in keeping with
Baldwin's long tradition of excellence.
"In recent years, Baldwin has made a significant investment in
streamlining its music product offerings, processes and manufacturing
operations. In 1999 alone, Baldwin reduced employment levels by 12 percent, cut
debt by $6.7 million and trimmed inventories by more than $7.6 million, versus a
year ago. Many of these actions will produce financial benefits that will not be
fully felt until next year, but should nevertheless continue to strengthen and
improve Baldwin's financial performance for many years to come.
Through the first nine months of 1999, total Music sales declined 19
percent to $53.8 million. The portfolio for Baldwin's Retail Financing unit rose
8 percent compared to a year ago. Revenues for the period of $6.5 million were
off slightly from a year ago due to higher variable interest rates on the
portion of the portfolio sold to a third party. At Contract Electronics,
year-to-date sales grew 9 percent to $34.3 million, up from $31.6 million a year
ago.
Baldwin Piano & Organ Company has marketed keyboard musical products
for over 137 years. Baldwin, maker of America's best selling pianos, also
manufactures electronic and electro-mechanical components for Original Equipment
Manufacturers.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995:
This release contains forward-looking statements that are subject to
risks and uncertainties, including, but not limited to, the impact of
competitive products and pricing, product demand and market acceptance,
reliance on key strategic alliances, fluctuations in operating results
and other risks detailed from time to time in the company's filings
with the Securities and Exchange Commission.
(Unaudited Condensed Operations Statement and Balance Sheet Attached)
<PAGE> 3
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
(Unaudited)
(In Thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 29,106 $ 34,277 $ 88,164 $ 98,072
Cost of goods sold (1) $ 31,033 28,884 83,726 81,953
-------- -------- -------- --------
Gross profit (1,927) 5,393 4,438 16,119
Interest income on installment receivables $ 1,770 2,371 6,534 6,679
Other operating income, net $ 6,117 223 6,479 966
Selling, general and administrative $ (7,377) (6,951) (21,991) (20,564)
Interest expense $ (1,108) (885) (3,089) (2,170)
-------- -------- -------- --------
Earnings before income taxes (2,525) 151 (7,629) 1,030
Income taxes $ (903) 58 (2,804) 396
-------- -------- -------- --------
Net earnings $ (1,622) $ 93 $ (4,825) $ 634
======== ======== ======== ========
Basic earnings per share $ (0.47) $ 0.03 $ (1.40) $ 0.18
======== ======== ======== ========
Diluted earnings per share $ (0.47) $ 0.03 $ (1.40) $ 0.18
======== ======== ======== ========
Average number of shares outstanding 3,453 3,453 3,453 3,450
======== ======== ======== ========
Diluted number of shares outstanding 3,453 3,465 3,453 3,502
======== ======== ======== ========
</TABLE>
(1) DURING THE FIRST QUARTER OF 1999, THE COMPANY RECOGNIZED THE EXPECTED
RESTRUCTURING AND OTHER NON-RECURRING COSTS ASSOCIATED WITH THE
CONSOLIDATION OF GRAND PIANO ASSEMBLY TO ITS TRUMANN, ARKANSAS, FACILITY OF
$1.5 MILLION OR 27 CENTS PER SHARE.
CONSOLIDATED SUMMARY BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30,
------------------- December 31,
1999 1998 1998
-------- -------- --------
<S> <C> <C> <C>
Assets
Receivables, net $ 20,811 $ 24,649 $ 23,273
Inventories 44,250 51,925 51,089
Other current assets 8,173 7,381 8,427
-------- -------- --------
Total current assets 73,234 83,955 82,789
Installment receivables, less current portion 14,136 13,329 14,616
Property, plant and equipment, net 21,430 24,754 22,724
Other assets 19,452 14,235 17,121
-------- -------- --------
Total assets $128,252 $136,273 $137,250
======== ======== ========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 13,833 $ 1,000 $ 11,380
Other liabilities 21,268 18,948 17,800
-------- -------- --------
Total current liabilities 35,101 19,948 29,180
Long-term debt, less current portion 33,715 49,199 42,817
Other liabilities 2,868 6,275 3,978
Shareholders' equity 56,568 60,851 61,275
-------- -------- --------
Total liabilities and shareholders' equity $128,252 $136,273 $137,250
======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET, STATEMENT OF OPERATIONS AND IS QUALIFIED INT ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,171
<SECURITIES> 0
<RECEIVABLES> 21,922
<ALLOWANCES> 1,111
<INVENTORY> 44,250
<CURRENT-ASSETS> 72,267
<PP&E> 40,502
<DEPRECIATION> 19,072
<TOTAL-ASSETS> 128,252
<CURRENT-LIABILITIES> 35,101
<BONDS> 33,715
0
0
<COMMON> 42
<OTHER-SE> 56,526
<TOTAL-LIABILITY-AND-EQUITY> 128,252
<SALES> 88,164
<TOTAL-REVENUES> 101,177
<CGS> 83,726
<TOTAL-COSTS> 83,726
<OTHER-EXPENSES> 20,901
<LOSS-PROVISION> 1,090
<INTEREST-EXPENSE> 3,089
<INCOME-PRETAX> (7,629)
<INCOME-TAX> (2,804)
<INCOME-CONTINUING> (4,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,825)
<EPS-BASIC> (1.40)
<EPS-DILUTED> (1.40)
</TABLE>
