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, 2000 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 1, 2000 is 3,462,826.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY
INDEX
NUMBER
------
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 .......................3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended and nine months ended
September 30, 2000 and 1999 ..................................4
Unaudited Condensed Consolidated Statements of Cash
Flows for the nine months ended
September 30, 2000 and 1999 ..................................5
Notes to Unaudited Condensed Consolidated Financial
Statements, September 30, 2000 .................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ............................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 13
Item 2. Changes in Securities and Use of Proceeds ................. 13
Item 3. Defaults upon Senior Securities ........................... 13
Item 4. Submission of Matters to a Vote
of Security Holders ......................................13
Item 5. Other Information ......................................... 13
Item 6. Exhibits and Reports on Form 8-K .......................... 14
Signatures .......................................................... 15
Exhibit Index ....................................................... 16
2
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................... $ 260 $ 1,705
Receivables, net ................... 17,796 11,703
Installment receivables retained ... 4,120 5,344
Inventories ........................ 51,579 38,786
Deferred income taxes .............. 9,007 9,838
Other current assets ............... 2,265 2,974
Net assets of discontinued
operations .................... 0 21,748
--------- ---------
Total current assets ..... 85,027 92,098
Property, plant and equipment, net ....... 19,787 20,985
Deferred income taxes .................... 1,896 874
Other assets ............................. 9,135 14,035
--------- ---------
Total assets ............. $ 115,845 $ 127,992
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................... $ 15,990 $ 21,541
Current portion of long-term debt .. 5,436 12,765
Income taxes payable ............... 0 1,855
Accrued liabilities ................ 10,539 3,393
--------- ---------
Total current liabilities 31,965 39,554
Long-term debt, less current portion ..... 31,232 32,582
Other liabilities ........................ 2,077 2,168
--------- ---------
Total liabilities ........ 65,274 74,304
--------- ---------
Shareholders' equity:
Common stock ....................... 42 42
Additional paid-in capital ......... 12,698 12,635
Accumulated other comprehensive
income (loss) ................. (373) (270)
Retained earnings .................. 44,700 47,777
--------- ---------
57,067 60,184
Less cost of treasury shares ....... (6,496) (6,496)
--------- ---------
Total shareholders' equity 50,571 53,688
--------- ---------
Total liabilities and
shareholders' equity .. $ 115,845 $ 127,992
========= =========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net earnings per share)
<TABLE>
<CAPTION>
Three Months Nine Months
ENDED SEPT. 30 ENDED SEPT. 30
-------------------------- ------------------------
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales ............................................................... $ 33,340 $ 29,106 $ 99,147 $ 88,164
Cost of goods sold ...................................................... 29,168 31,033 87,450 83,726
-------- -------- -------- --------
Gross profit ...................................................... 4,172 (1,927) 11,697 4,438
Other operating income, net ............................................. 1,380 6,063 1,571 6,336
-------- -------- -------- --------
Operating profit ........................................................ 5,552 4,136 13,268 10,774
Operating expenses:
Selling, general and
administrative .................................................... 5,416 6,072 16,513 18,251
Provision for doubtful accounts ...................................... 90 85 260 256
-------- -------- -------- --------
Operating (loss) profit .......................................... 46 (2,021) (3,505) (7,733)
Interest expense ........................................................ 954 837 2,772 2,276
-------- -------- -------- --------
Earnings (loss) before
income taxes ................................................ (908) (2,858) (6,277) (10,009)
Income taxes ............................................................ 346 1,082 2,325 3,694
-------- -------- -------- --------
Net earnings (loss) from continuing
Operations ............................................................ (562) (1,776) (3,952) (6,315)
Discontinued operations:
Gain on sale of Retail Financing
(net of income tax of $444) ........................................ 0 0 725 0
Income from operations of Retail Financing discontinued (net of income
taxes for the nine months ended of $537 in 2000
and $890 in 1999) ............................................... 0 154 150 1,490
-------- -------- -------- --------
Net earnings (loss) ........................................ $ (562) $ (1,622) $(3,077) $ (4,825)
-------- -------- -------- --------
Earnings (loss) per share:
Basic
Earnings (loss) from continuing
operations .......................................................... $ (0.16) $ (0.51) $ (1.14) $ (1.83)
Earnings from discontinued
operations .......................................................... 0.00 0.04 0.25 0.43
-------- -------- -------- --------
Net earnings (loss) ..................................................... $ (0.16) $ (0.47) $ (0.89) $ (1.40)
-------- -------- -------- --------
Diluted
Earnings (loss) from continuing
operations ........................................................... $ (0.16) $ (0.51) $ (1.14) $ (1.83)
Earnings from discontinued
operations ........................................................... 0.00 0.04 0.25 0.43
-------- -------- -------- --------
Net earnings (loss) ..................................................... $ (0.16) $ (0.47) $ (0.89) $ (1.40)
-------- -------- -------- --------
Weighted average number of
common shares ........................................................ 3,463 3,453 3,463 3,453
======== ======== ======== ========
Weighted average number of
common and common Equivalent shares .................................. 3,463 3,453 3,463 3,453
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
---------------------------
INCREASE (DECREASE) IN CASH 2000 1999
--------------------------- ------------ ------------
<S> <C> <C>
Cash flows from continuing
Operating activities
Net loss from continuing
operations ................................................................ $ (3,952) $(6,315)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation / amortization ............................................ 3,117 2,401
Gain on sale of assets ................................................. (1,120) (5,917)
Provision for doubtful accounts ........................................ 260 256
Deferred income taxes .................................................. (191) (2,233)
Change in assets and liabilities -
Receivables, net .................................................... (6,354) 1,493
Installment receivables retained .................................... 1,224 0
Inventories ......................................................... (12,793) 6,839
Other current assets ................................................ 709 (910)
Other assets ........................................................ 4,337 (918)
Accounts payable, accrued and
other liabilities ................................................... (6,160) 2,201
Income taxes payable ................................................ (2,299) (215)
-------- -------
Net cash used in continuing operating
activities .................................................................. (23,222) (3,318)
-------- -------
Discontinued operations:
Income .................................................................... 150 1,490
Adjustment to derive cash flows from
operating activities .................................................... 1,018 4,003
-------- -------
Net cash provided by discontinued operations ................................... 1,168 5,493
-------- -------
Net operating activities ....................................................... (22,054) 2,175
-------- -------
Cash flows from investing activities:
Plant, property and equipment ............................................... (1,460) (1,862)
Proceeds from sale of assets ................................................ 1,283 6,819
Net proceeds from sale of Retail Financing .................................. 33,083 0
-------- -------
Net cash provided by continuing investing
activities .................................................................. 32,906 4,957
-------- -------
Cash flows from financing activities:
Repayment of long-term debt ................................................. (8,679) (6,649)
-------- -------
Net cash used in continuing financing operations ............................... (8,679) (6,649)
Net cash (used in) provided by
discontinued operations ....................................................... (3,618) 361
-------- -------
Net financing activities ....................................................... (12,297) (6,288)
-------- -------
Net (decrease) increase in cash ............................................. (1,445) 844
Cash at beginning of period ................................................. 1,705 327
-------- -------
Cash at end of period .......................................................... $ 260 $ 1,171
-------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid (refunded) during the
quarter for:
Interest ................................................................. $ 1,711 $ 2,129
======== =======
Income taxes ............................................................. $ 1,646 $ (333)
======== =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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
accounting principles generally accepted in the United States of
America 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, 1999.
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 and nine-month periods ended September 30, 2000 and 1999.
Results of operations for interim periods are not necessarily
indicative of results to be expected for an entire year.
(2) DISCONTINUED OPERATIONS
On March 10, 2000, the Company completed the sale of its Retail
Financing subsidiaries. Gross proceeds from the sale were approximately
$35 million and an after-tax gain of $725,000 has been recorded in the
first quarter of 2000. Under the terms of the sales agreement, the
Company is contingently liable for and must repurchase all accounts
that become 120 days past due during a two year period after the
closing date. The Company has segregated on its balance sheet the
accounts repurchased under this agreement as "installment receivables
retained" and has recorded a liability for potential losses in accrued
liabilities.
The results of operations for all periods presented have been restated
for the discontinued operations.
(3) INVENTORIES
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
FIFO cost:
Raw material ......... $ 19,787 $ 17,716
Work-in-process ...... 9,614 9,247
Finished goods ....... 32,829 22,474
-------- --------
62,230 49,437
Less revaluation to LIFO... (10,651) (10,651)
-------- --------
Net inventories ...... $ 51,579 $ 38,786
======== ========
</TABLE>
6
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(in thousands of dollars)
(4) EARNINGS PER SHARE FROM CONTINUING OPERATIONS
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>
Nine Months Ended September 30:
2000 1999
------------------------------------------ -----------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
-------- ------ ------------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss)
per share $(3,952) 3,463 $ (1.14) $(6,315) 3,453 $(1.83)
Dilutive effect of
options ------- ----- -------- ------- ----- -----
Earnings (loss)
per share -
assuming dilution $(3,952) 3,463 $ (1.14) $(6,315) 3,453 $(1.83)
------ ----- -------- ------- ----- -----
</TABLE>
<TABLE>
<CAPTION>
(5) SEGMENT INFORMATION
Three Months Ended Nine Months Ended
SEPTEMBER 30 SEPTEMBER 30
---------------------- -------------------
2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Music and related $ 23,411 $ 17,915 $ 66,079 $ 53,843
Contract Electronics 9,929 11,191 33,068 34,321
--------- --------- --------- ---------
SALES AND OTHER REVENUE $ 33,340 $ 29,106 $ 99,147 $ 88,164
--------- --------- --------- ---------
Music and related (*) $ 150 $ 1,418 $ (1,594) $ (1,232)
Contract Electronics(**) 1,522 (908) 2,627 (360)
Corporate G&A and other
unallocated (1,626) (2,531) (4,538) (6,141)
--------- --------- --------- ---------
OPERATING (LOSS) PROFIT $ 46 $ (2,021) $ (3,505) $ (7,733)
--------- --------- --------- ---------
Music and related $ 76,902 $ 69,746 $ 76,902 $ 69,746
Contract Electronics 19,534 20,896 19,534 20,896
Discontinued Operations 0 20,222 0 20,222
Corporate G&A 19,409 14,250 19,409 14,250
--------- --------- --------- ---------
IDENTIFIABLE ASSETS $ 115,845 $ 125,114 $ 115,845 $ 125,114
--------- --------- --------- ---------
Music and related $ 632 $ 511 $ 1,835 $ 1,534
Contract Electronics 113 156 404 504
Corporate G&A 268 126 878 363
--------- --------- --------- ---------
DEPRECIATION AND
AMORTIZATION $ 1,013 $ 793 $ 3,117 $ 2,401
--------- --------- --------- ---------
Music and related $ 270 $ 646 $ 1,362 $ 1,619
Contract Electronics 31 47 115 110
Corporate G&A 10 52 (17) 133
--------- --------- --------- ---------
CAPITAL ADDITIONS $ 311 $ 745 $ 1,460 $ 1,862
========= ========= ========= =========
</TABLE>
* 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.
7
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(in thousands of dollars)
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.
**Third quarter 2000 results include a one-time pretax gain of $1,120
or 20 cents per share from the sale of an unused facility and land in
Fayetteville, Arkansas.
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, factory direct sales 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 Company uses the LIFO method of valuing music products inventory
and the FIFO method for Contract Electronics inventory.
(6) 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. The consolidation was completed during the second
quarter of 1999.
(7) COMPREHENSIVE INCOME (Loss)
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>
Total Comprehensive income (loss): Nine Months Ended September 30,
2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $(3,077) $(4,825)
Foreign currency
translation adjustment (103) 85
---------------------------------------------------------------------------------------
comprehensive income (loss) $(3,180) $(4,740)
---------------------------------------------------------------------------------------
</TABLE>
(8) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all
derivative financial instruments be recognized as either assets or
liabilities in the balance sheet. SFAS No. 133 will be effective no
later than the Company's first quarter of 2001. The Adoption of SFAS
No. 133 is not expected to have a material impact on the Company's
consolidated results of operation, financial position or cash flows.
8
<PAGE>
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 OF 2000 COMPARED
TO THE THIRD QUARTER OF 1999
Net sales for the third quarter increased 14 percent to $33.3 million,
an increase from $29.1 million a year ago. The net loss for the quarter was
$562,000, or 16 cents per share, versus a comparable loss of $1,622,000, or 47
cents a share, a year ago. The current quarter's loss from continuing operations
includes a gain of 20 cents per share from the sale of an unused facility and
land in Fayetteville, Arkansas. Third quarter 1999 loss from continuing
operations included a one-time gain of $1.04 per share from the sale of the
Company's facility in Juarez, Mexico. In the third quarter of 1999, the Company
recorded income from its discontinued retail financing operations of $154,000,
or four cents per share.
For the first nine months, the Company's net sales increased
12 percent to $99.1 million, increasing from $88.2 million for the 1999 period.
The net loss decreased to $3,077,000, or 89 cents per share, including the
20 cents per share gain on the sale of the excess facility in Fayetteville,
Arkansas. The loss for the first nine months is less than last year's loss of
$4,825,000, or $1.40 per share, which included the gain of $1.04 per share from
the sale of the Juarez, Mexico facility, offset in part by a restructuring and
other non-recurring charges of 27 cents per share related to the consolidation
of grand piano assembly operations. Earnings from discontinued operations for
the first nine months of 2000 were 25 cents per share, which included a gain of
21 cents per share from the sale of the Company's retail financing subsidiaries.
Last year's earnings from discontinued operations for the first nine months of
1999 were 43 cents per share.
The Music Division reported sales of $23.4 million in the third
quarter, an increase of 30 percent from a year ago, reflecting an increased
demand for Baldwin's products. Music reported a pre-tax and interest operating
profit of $150,000, which resulted from strong unit sales including increased
sales of the Company's higher margin products, Artist and Concert Grand Pianos
and Digital Pianos. Third quarter 2000 unit sales increased by 16 percent. In
the third quarter of last year, Music reported a loss of $4,519,000 excluding
the gain on the sale of the Juarez, Mexico facility.
The Contract Electronics Division reported third quarter sales of $9.9
million, down 11 percent from a year ago. However, Contract Electronics reported
pre-tax and interest profits of $402,000, excluding the gain on the sale of real
estate, compared with a loss of $908,000 in the third quarter of 1999. Contract
Electronics increased its gross profit margin by 0.5 percent from the second
quarter of 2000.
9
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Selling, general and administrative expenses for the first nine months
of 2000 were $16.5 million, a decrease of $1.8 million from $18.3 million for
the first nine months of 1999. This decrease reflects the impact of efficiencies
and cost controls put in place over the last year by the Company.
Interest expense increased by $0.5 million, to $2.8 million for the
nine months ended September 30, 2000 from $2.3 million for the comparable period
in 1999. This increase resulted from rate increases on the Company's debt and
increases in debt levels for inventories of product to satisfy seasonally high
fourth quarter keyboard sales.
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 annual rate of interest under the Company's new revolving credit
facility is equal to an index rate plus applicable index margins. The index rate
is equal to the latest 30-day commercial paper rate for high-grade unsecured
notes sold through dealers by major corporations. The applicable index margins
at credit facility inception are 2.5% for applicable index margin and 2.0% for
applicable letter of credit margin. The applicable index margins can be adjusted
prospectively based on the operating cash flow ratio of the Company. The
applicable index margin can be adjusted between 2.0% and 3.0%, and the
applicable letter of credit margin can be adjusted between 1.75% and 2.5%.
LIQUIDITY AND CAPITAL RESOURCES
On March 24, 2000 the Company entered into a new revolving line of
credit (the "Credit Facility") with General Electric Capital Corporation (GECC)
to refinance the Company's old credit facility and to finance its working
capital requirements. The Credit Facility has a maximum commitment level of $40
million and a due date of March 24, 2003. Under the Credit Facility, GECC is
committed to make available a line of credit based upon certain defined
percentages of the carrying value of the Company's inventories, trade accounts
receivable and property, plant and equipment. The annual rate of interest under
the Credit Facility is based upon the 30-day commercial paper rate for
high-grade unsecured notes as
10
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
reported in The Wall Street Journal and varies quarterly, after the first year,
depending upon performance criteria set forth in the Credit Facility. The
initial rate is 250 basis points above such commercial paper rate.
The Credit Facility contains financial covenants which require the
Company to maintain certain financial ratios and tangible net worth within
defined amounts and restrict the amount of capital expenditures that can be made
each year. The Credit Facility also contains covenants that restrict, among
other things, the Company's ability to incur new indebtedness, pay dividends,
make loans or investments, prepay debt, issue securities, repurchase the
Company's common stock, guarantee debt, create liens on assets, sell assets,
enter into sale-leaseback transactions, change its operations or business,
purchase real estate, merge or consolidate with other entities or acquire new
businesses. Additionally, the Credit Facility contains provisions by which a
change of control of the Company or a default under the Company's other debt
agreements would constitute a default under the Credit Facility. Substantially
all of the assets of the Company and its subsidiaries are pledged as collateral
under the Credit Facility.
As of September 30, 2000, the Company had outstanding indebtedness of
$36.7 million.
Capital expenditures amounted to $1.5 million through the third quarter
of 2000 and $1.9 million in the comparable period of 1999. At September 30,
2000, the Company has less than $500,000 in outstanding capital commitments. The
Company expects 2000 capital expenditures to be less than depreciation expense.
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, and, (vi) a shift in strength of the
overall U.S. economy, thereby possibly reducing durable goods purchases.
11
<PAGE>
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 the commodity price of wood used in the manufacture of pianos.
At September 30, 2000, the carrying value and estimated fair value of
Company's debt totaled $36.7 million. All of the Company's debt at September 30,
2000 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 $0.4 million.
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.
12
<PAGE>
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
third quarter of 2000.
ITEM 5. OTHER INFORMATION
The Company during the third quarter of 2000 sold an unused facility
and land in Fayetteville, Arkansas for a one-time pretax gain of $1.1 million or
20 cents per share.
13
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION - (Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Certificate of Incorporation of the Company, as
amended. Incorporated by reference from the Company's
Form S-1 Registration Statement as declared effective
by the Commission on October 8, 1986.
3.2 Amended and Restated Bylaws of the Company dated as
of February 10, 1997. Incorporated by reference from
the Company's Form 8-K dated February 10, 1997 as
filed with the Commission on February 27, 1997.
10.1 First Amendment and Limited Waiver to Credit
Agreement among the Company and General Electric
Capital Corporation.
99.1 Press Release, dated November 1, 2000 announcing the
Company's financial results for the third quarter of
2000.
27 Financial Data Schedule.
--------------------------------------
Index to Exhibits appears on sequentially numbered page 19.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter
ended September 30, 2000.
14
<PAGE>
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 14, 2000 BY: /s/ KAREN L. HENDRICKS
------------------------ ------------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and
President
DATE: NOVEMBER 14, 2000 BY: /s/ DUANE D. KIMBLE
------------------------ ------------------------------
Duane D. Kimble,
Executive Vice President, and
Chief Financial Officer
15
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
NUMBER EXHIBIT
------ -------
3.1 Certificate of Incorporation of the Company, as amended.
Incorporated by reference from the Company's Form S-1
Registration Statement as declared effective by the Commission on
October 8, 1986.
3.2 Amended and Restated Bylaws of the Company dated as of
February 10, 1997. Incorporated by reference from the Company's
Form 8-K dated February 10, 1997 as filed with the Commission on
February 27, 1997.
10.1 First Amendment and Limited Waiver to Credit Agreement among the
Company and General Electric Capital Corporation.
99.1 Press Release, dated November 1, 2000 announcing the Company's
financial results for the third quarter of 2000.
27 Financial Data Schedule.
16
