<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
March 31, 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 May 1, 1999 is 3,452,826.
<PAGE> 2
BALDWIN PIANO & ORGAN COMPANY
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998..................... 3
Unaudited Condensed Consolidated Statements of Earnings
for the three months ended
March 31, 1999 and 1998 ........................... 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended
March 31, 1999 and 1998 ........................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements, March 31, 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
2
<PAGE> 3
<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, December 31,
ASSETS 1999 1998
--------- -----------
<S> <C> <C>
Current assets:
Cash ................................................ $ 276 $ 327
Receivables, net .................................... 20,717 23,273
Inventories ......................................... 49,528 51,089
Deferred income taxes ............................... 1,671 1,671
Other current assets ................................ 3,243 6,429
--------- ---------
Total current assets ...................... 75,435 82,789
Installment receivables,
less current portion ................................ 15,066 14,616
Property, plant and equipment, net ........................ 22,701 22,724
Deferred income taxes ..................................... 1,089 1,089
Other assets .............................................. 16,857 16,032
--------- ---------
Total assets .............................. $ 131,148 $ 137,250
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 9,170 $ 11,582
Current portion of long-term debt ................... 11,204 11,380
Income taxes payable ................................ 0 452
Accrued liabilities ................................. 5,741 5,766
--------- ---------
Total current liabilities ................. 26,115 29,180
Long-term debt, less current portion ...................... 41,955 42,817
Other liabilities ......................................... 3,655 3,978
--------- ---------
Total liabilities ......................... 71,725 75,975
--------- ---------
Shareholders' equity:
Common stock ........................................ 42 42
Additional paid-in capital .......................... 12,620 12,603
Accumulated other comprehensive
income (loss) .................................. (421) (394)
Retained earnings ................................... 53,678 55,520
--------- ---------
65,919 67,771
Less cost of treasury shares ........................ (6,496) (6,496)
--------- ---------
Total shareholders' equity ................ 59,423 61,275
--------- ---------
Total liabilities and
shareholders' equity ................... $ 131,148 $ 137,250
========= =========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except net earnings per share)
Three months ended March 31,
--------------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales ............................................. $ 30,514 $ 31,687
Cost of goods sold .................................... 27,885 26,373
-------- --------
Gross profit .................................... 2,629 5,314
Income on the sale of
installment receivables ......................... 2,051 1,804
Interest income on installment receivables ............ 355 430
Other operating income, net ........................... 256 417
-------- --------
5,291 7,965
Operating expenses:
Selling, general and administrative ............. 6,979 6,452
Provision for doubtful accounts ................. 343 330
-------- --------
Operating (loss) profit .................... (2,031) 1,183
Interest expense ...................................... 938 585
-------- --------
Earnings (loss) before income taxes ........ (2,969) 598
Income taxes .......................................... 1,128 228
-------- --------
Net earnings (loss) ........................ $ (1,841) $ 370
======== ========
Basic earnings (loss) per share ....................... $ (0.53) $ 0.11
======== ========
Diluted earnings (loss) per share ..................... $ (0.53) $ 0.11
======== ========
Weighted average number of common shares .............. 3,453 3,445
======== ========
Weighted average number of common and
common equivalent shares ........................ 3,453 3,520
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Three months ended March 31,
INCREASE (DECREASE) IN CASH 1999 1998
- --------------------------- ---------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) ...................................... $ (1,841) $ 370
Reconciliations of net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization .................. 807 704
Provision for doubtful accounts ................ 343 330
Changes in working capital ..................... 3,120 (8,387)
-------- --------
Net cash provided by (used in)
operating activities ........................... 2,429 (6,983)
-------- --------
Cash flows from investing activities
Additions to property, plant and
equipment ........................................... (734) (3,759)
-------- --------
Net cash used in investing activities .................... (734) (3,759)
-------- --------
Cash flows from financing activities:
Installment receivables written .......................... (24,138) (21,776)
Installment receivables liquidated ....................... 2,059 3,774
Proceeds from sale of installment
receivables ......................................... 21,372 18,808
(Repayment) borrowing on long-term debt .................. (1,039) 9,602
-------- --------
Net cash (used in) provided by financing
activities .......................................... (1,746) 10,408
-------- --------
Net decrease in cash ........................................... (51) (334)
Cash at beginning of quarter ................................... 327 680
-------- --------
Cash at end of quarter ......................................... $ 276 $ 346
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the quarter for:
Interest ................................................. $ 755 $ 609
======== ========
Income taxes ............................................. $ (412) $ 165
======== ========
</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
March 31, 1999
(in thousands of dollars)
(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
three-month periods ended March 31, 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 (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- ------
<S> <C> <C>
FIFO cost:
Raw material ................... $ 20,476 $ 22,224
Work-in-process ................ 13,415 11,573
Finished goods ................. 25,688 27,492
-------- --------
59,579 61,289
Less revaluation to LIFO .......... (10,051) (10,200)
-------- ---------
Net inventories ................ $ 49,528 $ 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 (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31:
1999 1998
---------------------------------------- ----------------------------------
Per Per
Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C>
Earnings per share $(1,841) 3,453 $(0.53) $370 3,445 $.11
Dilutive effect of
options 75
-------- ------ ------- ----- -------- -----
Earnings per share-
assuming dilution $(1,841) 3,453 $(0.53) $370 3,520 $.11
-------- ------ ------- ----- -------- -----
</TABLE>
6
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BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31,
1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Music and related $ 18,789 $ 21,009
Contract Electronics 11,725 10,678
Retail Financing 2,406 2,234
---------------------------------------------------------------------------------------------------
SALES AND RETAIL FINANCING REVENUE $ 32,920 $ 33,921
---------------------------------------------------------------------------------------------------
Music and related (*) $ (1,797) $ 1,073
Contract Electronics 156 377
Retail Financing 1,175 1,239
Corporate G&A and other unallocated (1,565) (1,506)
---------------------------------------------------------------------------------------------------
OPERATING (LOSS) PROFIT $ (2,031) $ 1,183
---------------------------------------------------------------------------------------------------
Music and related $ 75,107 $ 64,587
Contract Electronics 20,728 21,614
Retail Financing 28,437 30,009
Corporate G&A 6,876 5,580
---------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS $ 131,148 $ 121,790
---------------------------------------------------------------------------------------------------
Music and related $ 509 $ 395
Contract Electronics 173 192
Retail Financing 13 10
Corporate G&A 112 107
---------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION $ 807 $ 704
---------------------------------------------------------------------------------------------------
Music and related $ 565 $ 3,359
Contract Electronics 112 221
Retail Financing 0 0
Corporate G&A 57 179
---------------------------------------------------------------------------------------------------
CAPITAL ADDITIONS $ 734 $ 3,759
---------------------------------------------------------------------------------------------------
</TABLE>
* During the first quarter of 1999 the Company consolidated its grand
piano production. This created a large, one-time decrease in Baldwin's
Music and Related operating profit. Operating loss for Music and
Related would have been $297 without the effect of the one-time costs.
7
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BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(in thousands of dollars)
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 Earnings.
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 furniture and 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 $587,000 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 $913,000. These costs are included in cost
of goods sold. At March 31, 1999, the Company has remaining an accrual
of approximately $570,000 primarily related to as-of-yet-unpaid
severance. The Company expects the consolidation to be completed
during the second quarter of 1999.
(6) ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997
and is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes was required. The statement requires that an
enterprise classify items of other comprehensive
8
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BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(in thousands of dollars)
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income 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 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): Three Months Ended March 31,
1999 1998
---------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $(1,841) $ 370
Foreign currency
translation adjustment (27) --
---------------------------------------------------------------------
Total comprehensive income (loss) $(1,868) $ 370
---------------------------------------------------------------------
</TABLE>
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Company will be required to adopt SFAS No. 133 no
later than January 2000. Management has not yet determined what impact
this statement will have on the Company's financial statements.
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
FIRST QUARTER OF 1999 COMPARED
TO THE FIRST QUARTER OF 1998
Total first-quarter sales fell 4 percent to $30.5 million, from $31.7
million a year ago. Net losses for the period were $1.8 million, or 53 cents
per share, vs. income of $0.4 million, or 11 cents per share for the prior year
period. Included in the loss for the 1999 period were anticipated pre-tax
charges of $1.5 million related to the consolidation of grand piano assembly
operations. These costs are included in cost of goods sold and represent
severance and outplacement expenses of approximately $0.6 million and training
and hiring expenses of $0.9 million.
First quarter Music sales decline of 10 percent year-to-year was
primarily a function of price concessions required to compete with lower-priced
Asian imports. The impact was not felt until second quarter 1998, when these
imports began in earnest. The first-quarter shortfall of 10 percent is less
than the 17 percent decline recorded in the fourth quarter of 1998.
First quarter Contract Electronics (CE) sales increased 10 percent to
$11.7 million, up from $10.7 million a year ago. This increase was entirely
attributable to existing customers because the Company elected not to accept
business from new customers until CE's upgraded infrastructure is operating
smoothly.
Strong overall market demand for pianos was responsible for an 8
percent increase in Retail Financing's revenue, which rose to $2.4 million
during the 1999 period versus $2.2 million for the same period last year.
Selling, general and administrative expenses in the first quarter of
1999 were $7.3 million, an increase of $0.5 million from $6.8 million in the
first quarter of 1998. This increase resulted from costs associated with opening
additional Music retail outlets, upgrading CE's infrastructure and collection
expenses at Retail Financing due to the increase in the portfolio.
Interest expense increased by $0.3 million, from $0.6 million in the
first quarter of 1998 to $0.9 million in the first quarter of 1999. This
increase resulted from the Company's higher debt levels primarily due to an
average increase in inventories of $10.9 million and capital spending during
1998 of $8.3 million for polyester finishing and piano plate projects.
10
<PAGE> 11
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
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.
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 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 1.5 percentage points above LIBOR, or under certain
specified circumstances, 0.5 percentage points per annum above the Prime Rate.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had outstanding indebtedness of $53.2
million. The Company considers that indebtedness of $22.0 million supports the
retained portion of Retail Financing's portfolio and the remaining indebtedness
of $31.2 million supports the
11
<PAGE> 12
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
$134 million annual operations of Music and Contract Electronics. Also, at March
31, 1999, the Company had significant investment in inventories, some of which
were intentional to mitigate any negative impact on delivery to customers as
the Company closes its grand assembly operation in Conway, Arkansas, and moves
to a new piano plate supplier. At December 31, 1998, these inventories
approximated $6.0 million and the Company has plans to reduce these inventories
by the middle of 1999. Further, the Company has plans to re-engineer 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 with 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 1.5 percentage points above
LIBOR, or under certain specified circumstances, 0.5 percentage points per annum
above the Prime Rate. At March 31, 1999, the rate under the Credit Facility was
6.4% and the Company has approximately $2.4 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's finance subsidiary (Finance) 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 Finance. Finance continues to service all installment
receivables sold. At the time of each installment receivable sale, Finance
receives cash equal to the unpaid principal balance of the contracts, less a
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 Finance as a
service fee.
Proceeds from the sale of installment receivables amounted to $21.4
million for the three months ended March 31, 1999 and $18.8 million for the
comparable period in 1998. This increase in 1999 compared to 1998 is largely the
result of an increase in the volume of
12
<PAGE> 13
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
new installment contracts written at traditional keyboard dealers and at the
Company's retail stores. Under the sale agreements, Finance is required to
repurchase accounts that become more than 120 days past due or accounts that are
deemed uncollectible. The repurchase price is equal to the remaining unpaid
principal balance of the contract on the date repurchased, less the related
purchase discount. Finance is responsible for all credit losses associated with
the sold receivables, and is contingently liable for approximately $106.4
million of installment receivables sold. The Company believes an adequate
allowance has been provided for all uncollectible receivables.
Capital expenditures amounted to $734,000 in the first quarter of 1999
and $3.8 million in the comparable period of 1998. At March 31, 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 for 90% of its
software. The Company has spent approximately $500,000 on these releases during
1998, which amounts were planned expenditures irrespective of any Year 2000
issues. The remaining 10% of new third party releases will be installed during
the first half of 1999 at an anticipated cost of approximately $100,000, which
expenditures would have been incurred by the Company 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.
Therefore, the Company has not developed specific contingency plans in
preparation for the year 2000. As the Company continues to evaluate
13
<PAGE> 14
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
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 March 31, 1999, the carrying value and estimated fair value of
Company's debt totaled $53.2 million. All of the Company's debt at March 31,
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
(a) 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
first quarter of 1999.
ITEM 5. OTHER INFORMATION
As previously announced, the Company's annual meeting with shareholders
will be held on Monday, June 14, 1999 at the Company's principal executive
offices. Shareholders of record as of May 19, 1999 will be entitled to vote at
the annual meeting.
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 Fifth Amendment to Credit Agreement, between Baldwin
Piano & Organ Company and The Fifth Third Bank and
NBD Bank, N.A., dated January 29, 1999.
19 1999 First Quarter Report to Shareholders of the
Company.
99.1 Press Release, dated February 24, 1999 announcing
results for the fourth quarter and year ended
December 31, 1998, incorporated by reference to the
Form 10-K of the Company for the period ended
December 31, 1998.
99.2 Press Release, dated April 27, 1999 announcing the
Company's financial results for the first quarter of
1999.
27 Financial Data Schedule.
------------------------------
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 January 6, 1999
announcing the consolidation of its grand piano production
from its Conway, Arkansas plant to its Trumann, Arkansas
plant.
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: May 14, 1999 BY: /S/ KAREN L. HENDRICKS
---------------------- --------------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and
President
DATE: May 14, 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 Fifth Amendment to Credit Agreement, between Baldwin Piano & Organ
Company and The Fifth Third Bank and NBD Bank, N.A., dated January
29, 1999.
19 1999 First Quarter Report to Shareholders of the Company.
99.1 Press Release, dated February 24, 1999 announcing results for the
fourth quarter and year ended December 31, 1998, incorporated by
reference to the Form 10-K of the Company for the period ended
December 31, 1998.
99.2 Press Release, dated April 27, 1999 announcing the Company's
financial results for the first quarter of 1999.
27 Financial Data Schedule.
19
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT ("Fifth Amendment") dated as
of January 29, 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 NBD BANK, N.A., a national banking
association, ("NBD") as a Lender, (Fifth Third and NBD 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 (the
"Credit Agreement"); and
WHEREAS, Borrower have requested Agent and Lenders to make additional
credit in the amount of $4,000,000 available to Borrower and to make various
other 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 Fifth Amendment.
2. DEFINITIONS.
a. The clause (a) of the definition of "INELIGIBLE ACCOUNTS"
is hereby amended in its entirety to read as follows:
"(a) (i) Accounts created from the sale of goods and services (other
than to Biasco) that by their terms are unpaid for more than sixty (60)
days from date of sale, (ii) prior to March 15, 1999, Accounts from
Biasco (other than the Biasco Special Account), which are unpaid for
more than one hundred thirty (130) days from date of sale and (iii)
after March 1, 1999, the Biasco Special Account;"
<PAGE> 2
b. Section 1.2 of the Credit Agreement is hereby amended to add
the following definitions to read in their entirety as
follows:
"BIASCO" shall mean Biasco Musical Instrument Company, an
Illinois corporation.
"BIASCO SPECIAL ACCOUNT" means the Account created with Biasco on
September 22, 1998 from the sale of Inventory previously on consignment with
Biasco.
3. EXHIBITS. Exhibit D to the Credit Agreement Form of Revolving
Promissory Note, is hereby amended in its entirety by Exhibit D to
this Fifth Amendment.
4. BORROWING BASE CERTIFICATE. During the period from and after the
Fifth Amendment Closing Date, Lenders hereby approve the Form of
Borrowing Base Certificate, attached as an Exhibit to this Fifth
Amendment, as the form of Borrowering Base Certificate in lieu of
the form attached as Exhibit C to the Credit Agreement.
5. TOTAL CREDIT FACILITY. Section 3.1 of the Credit Agreement is
hereby amended to change the phrase "until January 31, 1999" to
"until March 15, 1999."
6. 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 Fifth Amendment.
7. CONDITIONS PRECEDENT TO CLOSING OF FIFTH AMENDMENT. On or prior to
the closing of the Fifth Amendment (hereinafter the "Fifth
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 Fifth
Amendment Closing Date, of records of all action taken by
Borrower to authorize (i) the execution and delivery of
this Fifth Amendment and all other certificates,
documents and instruments to which it is or is to become
a party as contemplated or required by this Fifth
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 Fifth Amendment Closing and all other
certificates, documents and instruments to be executed in
connection herewith shall have been duly and properly
authorized,
-2-
<PAGE> 3
executed and delivered by Borrower and shall be in full
force and effect on and as of the Fifth 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 Fifth Amendment Closing Date, and no
condition shall exist on the Fifth 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.
8. 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 Fifth 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 Fifth Amendment, the latter shall
govern.
c. This Fifth Amendment shall be governed by and shall be
construed and interpreted in accordance with the laws of
the State of Ohio.
d. This Fifth Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their
respective heirs, successors and assigns.
e. This Fifth 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.
-3-
<PAGE> 4
IN WITNESS WHEREOF, this Fifth 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: Senior Vice President and Treasurer
------------------------------------
THE FIFTH THIRD BANK, Agent
By: /s/ Robert C. Ries
--------------------------------------
Name: Robert C. Ries
-------------------------------------
Title: Vice President
------------------------------------
THE FIFTH THIRD BANK, Lender
By: /s/ Robert C. Ries
--------------------------------------
Name: Robert C. Ries
-------------------------------------
Title: Vice President
------------------------------------
NBD BANK, N. A., Lender
By: /s/ Andrea Mosken
--------------------------------------
Name: Andrea Mosken
------------------------------------
Title: Vice President
------------------------------------
<PAGE> 5
EXHIBIT D
---------
FORM OF THIRD AMENDED AND RESTATED REVOLVING PROMISSORY NOTE(1)
[$22,000,000.00] Cincinnati, Ohio
[January 29, 1999]
THIS THIRD 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/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 and a
Fifth Amendment dated as of January 29, 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-TWO MILLION AND 00/100 DOLLARS
($22,000,000.00) until March 15, 1999, and thereafter TWENTY MILLION AND 00/100
DOLLARS ($20,000,000.00) (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
- --------
(1) This Third Amended and Restated Revolving Promissory Note is issued
upon surrender of and in exchange for a Second Amended and Restated Revolving
Promissory Note dated June 19, 1998, in the original principal amount of
$22,000,000.00 having a maturity date of October 1, 2000. The issuance of this
Third 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 Second Amended and Restated Revolving
Promissory Note, and Lender extending to Borrowers, as hereinafter defined,
additional funds under the Revolving Promissory Loan. This Third 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, 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> 6
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.
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 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
-2-
<PAGE> 7
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 Revolving Credit
Note as of the day and year set forth above.
BALDWIN PIANO & ORGAN COMPANY,
a Delaware corporation
By: _________________________________
Name: _________________________________
Title:_________________________________
-3-
<PAGE> 1
EXHIBIT 19
May 3, 1999
Total first-quarter sales fell 4 percent to $30.5 million, from $31.7
million a year ago. Net losses for the period before expected restructuring and
other non-recurring costs were $911,000, or 26 cents per share, versus first
quarter earnings a year ago of $370,000, or 11 cents per share. Previously
disclosed restructuring charges and other non-recurring costs related to the
consolidation of grand piano assembly operations amounted to $930,000, or 27
cents per share, resulting in a total first-quarter net loss of $1,841,000, or
53 cents per share.
The consolidation of grand piano assembly operations in Trumann, Arkansas
is still expected to yield annual pre-tax savings of at least $2.0 million.
The 10 percent year-to-year decline in first-quarter Music sales was
primarily a function of price concessions required to compete with low cost
Asian piano imports. The impact was not felt until second quarter 1998, when
these low-priced imports began in earnest. We remain hopeful that the Asian
import situation may be diminishing. While unacceptably high, the first-quarter
sales shortfall of 10 percent was substantially below the 17 percent decline
recorded in the fourth quarter of 1998.
Significant progress has also been made in laying the groundwork that will
return Baldwin to sustained profitability. Both ongoing restructuring efforts
- --the consolidation of grand piano assembly operations and the infrastructure
fixes at Contract Electronics -- should be completed by the end of the second
quarter. Start-up for our new piano plate supplier is on track to deliver 10
percent savings on this key component. We expect a significant improvement in
second-half operating performance as cost savings begin to flow through to the
bottom line.
During the first quarter, headcount was reduced by 138 people, or 7.5
percent, with another reduction of 52 people expected during the second quarter
as we complete the plant consolidation. Personnel reductions and continuing
productivity improvements are directly related to the implementation of
synchronous manufacturing techniques at our Music and Contract Electronics
operations.
First quarter Contract Electronics (CE) sales grew 10 percent to $11.7
million, up from $10.7 million a year ago. This growth was entirely attributable
to existing customers because Baldwin elected not to accept business from new
customers until CE's upgraded infrastructure is operating smoothly.
Strong overall market demand for pianos was responsible for an 8 percent
increase in Retail Financing revenue, which rose to $2.4 million, up from $2.2
million for the same period last year. The company produced $1 million of
positive cash flow during the first quarter, compared with negative cash flow
of $9.6 million a year earlier. Positive cash flow was a function of the
company's successful ongoing efforts to reduce inventories and receivables.
Karen L. Hendricks
Chairman, Chief Executive Officer and President
<PAGE> 2
Music Products Division
Grand pianos, vertical pianos, computerized auto-player piano systems and
digital pianos.
Company owned retail outlets in Atlanta, Georgia; Cincinnati, Ohio; Indianapolis
and Fort Wayne, Indiana; Lexington and Louisville, Kentucky; Lansing, Michigan;
Memphis, Tennessee.
Independent keyboard dealers (400).
Retail Financing Division
Point-of-sale consumer financing for new and used pianos, and special promotion
programs.
Piano leasing programs.
Contract Electronics Division
Printed circuit board assemblies, design, engineering, testing,
electro-mechanical and mechanical assemblies, post-production repair and order
fulfillment.
Home Office
4680 Parkway Drive, Suite 200, Mason, OH 45040-7198, (513) 754-4500 e-mail:
[email protected]
web sites: www.baldwinpiano.com or www.pianovelle.com
Manufacturing Locations
Conway, Fayetteville and Trumann, Arkansas; Greenwood, Mississippi; Juarez,
Mexico
Registrar and Transfer Agent
The Provident Bank, One East Fourth Street,
Cincinnati, OH 45202
Baldwin Piano & Organ Company common stock is traded on The Nasdaq National
Market; Symbol: BPAO
<PAGE> 3
<TABLE>
<CAPTION>
Consolidated Summary of Earnings (unaudited)
Three Months Ended
March 31,
(in thousands, except earnings per share) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 30,514 $ 31,687
Cost of goods sold 27,885 26,373
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 2,629 5,314
Income on the sale of installment receivables 2,051 1,804
Interest income on installment receivables 355 430
Other operating income 256 417
Selling, general and administrative expenses (7,322) (6,782)
Interest expense (938) (585)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (2,969) 598
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes (1,128) 228
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,841) $ 370
====================================================================================================================================
Basic earnings (loss) per share $ (0.53) $ 0.11
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.53) $ 0.11
- ------------------------------------------------------------------------------------------------------------------------------------
Basic number of shares outstanding (000) 3,453 3,445
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted number of shares outstanding (000) 3,453 3,520
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Consolidated Summary Balance Sheets (unaudited)
Three Months Ended
March 31, December 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Receivables, net $ 20,717 $ 23,970 $ 23,273
Inventories 49,528 42,252 51,089
Other current assets 5,190 6,458 8,427
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 75,435 72,680 82,789
Installment receivables, less current portion 15,066 15,505 14,616
Property, plant and equipment, net 22,701 21,391 22,724
Other assets 17,946 12,214 17,121
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 131,148 $ 121,790 $ 137,250
====================================================================================================================================
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 11,204 $ 3,125 $ 11,380
Other current liabilities 14,911 15,954 17,800
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 26,115 19,079 29,180
Long-term debt, less current portion 41,955 35,027 42,817
Other liabilities 3,655 6,475 3,978
Shareholders' equity 59,423 61,209 61,275
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 131,148 $ 121,790 $ 137,250
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Balance Sheet Statement of Earnings and is qualified by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 276
<SECURITIES> 0
<RECEIVABLES> 22,021
<ALLOWANCES> 1,304
<INVENTORY> 49,528
<CURRENT-ASSETS> 75,435
<PP&E> 40,840
<DEPRECIATION> 18,139
<TOTAL-ASSETS> 131,148
<CURRENT-LIABILITIES> 26,115
<BONDS> 41,955
0
0
<COMMON> 42
<OTHER-SE> 59,381
<TOTAL-LIABILITY-AND-EQUITY> 131,148
<SALES> 30,514
<TOTAL-REVENUES> 33,176
<CGS> 27,885
<TOTAL-COSTS> 27,885
<OTHER-EXPENSES> 6,979
<LOSS-PROVISION> 343
<INTEREST-EXPENSE> 938
<INCOME-PRETAX> (2,969)
<INCOME-TAX> (1,128)
<INCOME-CONTINUING> (1,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,841)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
<PAGE> 1
[Baldwin Piano & Organ Company Letterhead]
4680 Parkway Drive
Mason, OH 45040-5301
800.876.2976 - 513.754.4500
www.baldwinpiano.com
[BALDWIN LOGO]
- --------------------------------------------------------------------------------
CONTACTS: Duane Kimble Joel Pomerantz
Baldwin Piano The Dilenschneider Group
(513) 754-4647 (212) 922-0900
BALDWIN PIANO REPORTS FIRST-QUARTER RESULTS
MUSIC - PLANT CONSOLIDATION AHEAD OF SCHEDULE;
CONTRACT ELECTRONICS - INFRASTRUCTURE FIXES ON SCHEDULE;
RETAIL FINANCING - REVENUE UP 8%
MASON, OH, April 27, 1999--Baldwin Piano and Organ Company (NASDAQ:BPAO) today
announced results for the first quarter ended March 31, 1999, noting that the
adverse impact of low-price Asian piano imports continued to negatively impact
Baldwin's Music business.
Total first-quarter sales fell 4 percent to $30.5 million, down from
$31.7 million a year ago. Net losses for the period, before expected
restructuring and other non-recurring costs were $911,000, or 26 cents per
share, versus first-quarter earnings a year ago of $370,000, or 11 cents per
share. Previously disclosed restructuring charges and other non-recurring costs
related to the consolidation of grand piano assembly operations amounted to
$930,000, or 27 cents per share, resulting in a total first-quarter net loss
$1,841,000, or 53 cents per share.
The company also said that it still expects the consolidation of grand
piano assembly operations in Trumann, Arkansas to yield annual pre-tax savings
of at least $2.0 million.
Karen L. Hendricks, chairman, president and chief executive officer of
Baldwin said, "The 10 percent year-to-year decline in first-quarter Music sales
was primarily a function of price concessions required to compete with Asian
imports. The impact was not felt until second quarter 1998, when these
low-priced imports began in earnest. We remain hopeful that the Asian import
situation may be diminishing. While unacceptably high, the first-quarter sales
shortfall of 10 percent was substantially below the 17 percent decline recorded
in the fourth quarter of 1998.
-more-
<PAGE> 2
-2-
"Significant progress has also been made in laying the groundwork that
will return Baldwin to sustained profitability. Both ongoing restructuring
efforts -- the consolidation of grand piano assembly operations and the
infrastructure fixes at Contract Electronics -- should be completed by the end
of the second quarter. Start-up for our new piano plate supplier is on track to
deliver 10 percent savings on this key component. We expect a significant
improvement in second-half operating performance as cost savings begin to flow
through to the bottom line."
Ms. Hendricks continued, "During the first quarter, headcount was
reduced by 138 people or 7.5 percent, with another reduction of 52 people
expected during the second quarter, as we complete the plant consolidation.
Personnel reductions and continuing productivity improvements are directly
related to the implementation of synchronous manufacturing techniques at our
Music and Contract Electronics operations."
The company also noted that first-quarter Contract Electronics (CE)
sales grew 10 percent to $11.7 million, up from $10.7 million a year ago. This
growth was entirely attributable to existing customers because Baldwin elected
not to accept business from new customers until CE's upgraded infrastructure is
operating smoothly.
Strong ongoing demand for pianos was responsible for an 8 percent
increase in Retail Financing revenue, which rose to $2.4 million, up from $2.2
million for the same period last year. The company said it produced $1 million
of positive cash flow during the first quarter, compared with negative cash flow
of $9.6 million a year earlier. Positive cash flow was a function of the
company's successful ongoing efforts to reduce inventories and receivables.
Baldwin Piano & Organ Company has marketed keyboard musical products
for over 137 years and has been providing consumer financing for the keyboard
industry for nearly a century. 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 Earnings Statement and Balance Sheet Attached)
<PAGE> 3
<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands, except earnings per share)
Three Months Ended
March 31,
-------------------------------------
unaudited unaudited
1999 1998
---------------- ---------------
<S> <C> <C>
Net sales $ 30,514 $ 31,687
Cost of goods sold(1) 27,885 26,373
-------- --------
Gross profit 2,629 5,314
Interest income on installment receivables 2,406 2,234
Other operating income, net 256 417
Selling, general and administrative (7,322) (6,782)
Interest expense (938) (585)
-------- --------
Earnings (loss)before income taxes (2,969) 598
Income taxes (1,128) 228
-------- --------
Net earnings (loss) $ (1,841) $ 370
======== ========
Basic earnings (loss) per share $ (0.53) $ 0.11
======== ========
Diluted earnings (loss) per share $ (0.53) $ 0.11
======== ========
Average number of shares outstanding 3,453 3,445
======== ========
Diluted number of shares outstanding 3,453 3,520
======== ========
</TABLE>
(1) DURING THE QUARTER ENDED MARCH 31, 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 PRE-TAX OR 27 CENTS PER SHARE.
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY BALANCE SHEETS
(In Thousands)
unaudited unaudited December 31,
March 31, 1999 March 31,1998 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Assets
Receivables, net $ 20,717 $ 23,970 $ 23,273
Inventories 49,528 42,252 51,089
Other current assets 5,190 6,458 8,427
-------- -------- --------
Total current assets 75,435 72,680 82,789
Installment receivables, less current portion 15,066 15,505 14,616
Property, plant and equipment, net 22,701 21,391 22,724
Other assets 17,946 12,214 17,121
-------- -------- --------
Total assets $131,148 $121,790 $137,250
======== ======== ========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 11,204 $ 3,125 $ 11,380
Other liabilities 14,911 15,954 17,800
-------- -------- --------
Total current liabilities 26,115 19,079 29,180
Long-term debt, less current portion 41,955 35,027 42,817
Other liabilities 3,655 6,475 3,978
Shareholders' equity 59,423 61,209 61,275
-------- -------- --------
Total liabilities and shareholders' equity $131,148 $121,790 $137,250
======== ======== ========
</TABLE>
