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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             -----------------------

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                             -----------------------

For the fiscal year ended                              Commission File Number
    December 31, 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

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No    .
                                             ---   ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's

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knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. {X}

         The aggregate market value of the voting stock held by non-affiliates
of the registrant is $5,569,203 based upon the $2.50 per share price at which
the Common Stock was last sold as reported on the Nasdaq National Market through
March 30, 2001.

         The number of outstanding shares of Common Stock of Baldwin Piano &
Organ Company ("Company"), as of March 30, 2001, is 3,462,826.






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                                TABLE OF CONTENTS

PART I.                                                                  PAGE
                                                                         ----

Item  1.            Business                                             4-15

Item  2.            Properties                                            15

Item  3.            Legal Proceedings                                     15

Item  4.            Submission of Matters to a Vote of
                    Security Holders                                      16

PART II.
Item  5.            Market for Registrant's Common Equity                 17
                    and Related Stockholder Matters

Item  6.            Selected Financial Data                               18

Item  7.            Management's Discussion and Analysis of              19-23
                    Financial Condition and Results of Operation

Item 7A.            Quantitative and Qualitative Disclosures             23-24
                    about Market Risk

Item  8.            Financial Statements and Supplementary Data          25-46

Item  9.            Changes in and Disagreements with Accountants         46
                    on Accounting and Financial Disclosure


PART III.
Item 10.            Directors and Executive Officers of the               47-48
                    Registrant

Item 11.            Executive Compensation                                49-55

Item 12.            Security Ownership of Certain Beneficial              56-63
                    Owners and Management

Item 13.            Certain Relationships and Related                     64
                    Transactions


PART IV.
Item 14.          Exhibits, Financial Statement Schedules,               64-68
                  and Reports on Form 8-K


SIGNATURES                                                               69

Schedule VIII, Valuation and Qualifying Accounts                         70

Index to Exhibits                                                        71-79

Exhibits

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                                     PART I
                                     ------

                                ITEM 1. BUSINESS

         As used herein, the terms "Company" or "Baldwin" refer to Baldwin Piano
& Organ Company and its subsidiaries and the Company's predecessors, unless the
context otherwise indicates.

         As a leader in the U.S. keyboard market, the Company's core business,
Baldwin manufactures and markets a full range of high quality keyboard
instruments featuring the Baldwin(R), Wurlitzer(R), Chickering(TM),
ConcertMaster(TM) and Pianovelle(TM) trademarks. From artist-accepted concert
grand pianos to innovative digital keyboards, renowned Baldwin instruments are
found in homes, academic institutions and concert halls across the nation.

         As one of its businesses, the Company through its Contract Electronics
Division, offered printed circuit board assemblies, design, engineering,
testing, assembly, post-production repair and order fulfillment services for
original equipment manufacturers. On January 26, 2001, the Company completed the
sale of this division to Ayrshire Electronics, LLC ("Ayrshire") for net proceeds
of approximately $9.0 million in cash, subject to certain post-closing
adjustments.

         As one of its businesses, Baldwin provided in-house consumer
installment financing of musical products through its wholly-owned subsidiaries,
Keyboard Acceptance Corporation and Signature Leasing Company (together referred
to as "Retail Financing"). On March 10, 2000, Baldwin completed the sale of
these subsidiaries to Deutsche Financial Services Corporation ("DFS") for
approximately $35.0 million.

         On March 22, 2001, the Company sold eleven retail piano stores to an
affiliate of Chicago-based Biasco Musical Instrument Company, Baldwin's largest
dealer, for approximately $4.6 million, subject to certain adjustments.

         Sales of the Company's products and other revenue are set forth by
segment in the following table:

                                                 (dollars in millions)

                                               YEAR ENDED DECEMBER 31,
                                             ---------------------------
                                             2000       1999        1998
                                             ----       ----        ----

     Music and related . . . . . . . .     $ 86.1     $ 79.3       $ 91.6
     Discontinued operations:
         Retail Financing . . . .             1.5        8.8         10.4
         Contract Electronics . . . . .      42.9       45.0         42.7
                                             ----     ------        -----
                  Total . . . . . . . . .  $130.5     $133.1       $144.7
                                           ======     ======       ======


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MUSICAL PRODUCTS

         Since 1862, Baldwin's keyboard products have been recognized for their
high quality, value and performance by professional musicians, educators and
consumers. Today, Baldwin's keyboard products are consistent with the Company's
fine heritage and represent a broad range of acoustic and electronic instruments
aimed at a broad consumer base. In 2000, Baldwin's musical products were sold
through domestic wholesale dealers (86%), Company-owned retail stores (11%), and
an international dealer network (3%).

         ACOUSTIC PIANOS

                  The Company's premier product is the Baldwin(R) concert grand
         piano, a product which is widely accepted for concert performances.
         Baldwin is the only domestic manufacturer of concert grand pianos which
         also produces a full line of vertical pianos. The Company has
         successfully incorporated a number of enhancements and construction
         techniques originally designed for Baldwin(R) grand pianos into its
         vertical piano lines. The Company believes that the quality and
         durability of the Baldwin(R) concert grand pianos enhance the
         reputation and marketability of its entire line of acoustic keyboard
         instruments.

                  Baldwin offers three brands of pianos, under the Baldwin(R),
         Chickering(TM) and Wurlitzer(R) names, each earmarked for a different
         segment of the market on the basis of price and product positioning.
         Together, these three brands have represented nearly 50% of all
         domestic new piano sales over the past four decades and provide a
         significant competitive advantage to the Company. Product development
         activity is focused on the development of improved designs, periodic
         cabinetry changes, other aesthetic features and electronic
         enhancements.

                  Overall, the Company's product line offering covers all key
         price points, piano styles, finishes, and sizes -- ranging from 37-inch
         vertical pianos to 9-foot concert grand pianos.

         DIGITAL KEYBOARDS

                  Pianovelle(TM) products are manufactured to Baldwin's
         specifications in Italy by GeneralMusic, Europe's largest digital
         keyboard manufacturer. GeneralMusic provides Baldwin with an efficient
         source of cutting-edge technology to compete in this rapidly changing
         category without incurring any significant costs of its own. Baldwin
         enjoys exclusive North American rights to market these products and is
         working with GeneralMusic to design a new generation of products with
         superior tone and touch.

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         PRODUCT DEVELOPMENT

                  The Company's research staff, in conjunction with outside
         consulting and design services, continually refines existing products
         and develops new products.

                  During the National Association of Music Manufacturers (NAMM)
         2001 music trade show, Baldwin introduced an all-new line of Chickering
         grand pianos, as well as four new studio models, three under the
         Baldwin name and one new Wurlitzer model. The Company is augmenting its
         line-up of its Artist Series grand pianos with several new furniture
         styles and finishes and is expanding its line-up of Baldwin Pianovelle
         digital pianos with five new instruments available in portable,
         vertical and grand piano-style cabinets.

                  In 2000, Baldwin introduced significant changes to its
         flagship Artist Grand Piano line. Changes involved not only
         performance-based improvements to the touch response and tone quality
         of the instrument, but also new aesthetic features improving the
         overall look of the piano. These new products began shipping in April,
         2000.

                  In the third quarter of 1998, Baldwin began dealer
         shipments of a new line of grand pianos featuring the Company's new
         super-high-gloss polyester finishes. These new pianos have a
         mirror-like appearance with proven customer appeal. The finish is
         extremely hard and durable, is resistant to chemicals, scratches or
         abrasions, and is easily repaired should it be damaged. This
         achievement was the culmination of years of planning. It was a team
         effort including long-term employees and newly-hired experts, thorough
         training, and a multi-million-dollar capital investment for
         state-of-the-art polyester finishing equipment. The Company expanded
         the rate of production to meet the increase in demand. The Company
         believes that polyester finish is a prerequisite for entering into
         Asian and European piano markets. The Company believes approximately
         70% of the grand pianos sold in the United States have a polyester
         finish.

                  In September, 1998, competing against a large field of
         technologically innovative consumer electronics products,
         ConcertMaster(TM) won top honors for technical excellence at the New
         Orleans EXPO '98 show of the Custom Electronic Design and Installation
         Association. Additional features, software and other capabilities are
         under development to further enhance the competitiveness of
         ConcertMaster(TM). The demand for Baldwin grand pianos continued to
         increase -- in no small part due to the consumer appeal of
         ConcertMaster(TM).

                  In early 2000, Baldwin also introduced a new player piano
         system called ConcertMaster (TM) CD. This new product is targeted at an
         entry level price point and is available as a field retrofit kit that
         can be installed on any brand of piano, new or used.

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                  In digital keyboard products, the Company uses outside sources
         for the development and production of its products, under strict
         specifications developed by the Company. Outsourcing has enabled the
         Company to benefit from other companies' expertise in advanced
         electronic technology and new material development and to minimize
         operating costs.

                  In early February 1999, Baldwin announced that it had signed
         an exclusive 10-year agreement to purchase its cast iron piano plates
         from Southland Marketing - an Arkansas firm with approximately $50
         million in annual sales, operating for 25 years as a primary designer
         and supplier of machined complex castings for a wide variety of
         manufacturing applications. In connection with that agreement, Baldwin
         made a capital investment to help finance the purchase of equipment
         needed to produce the piano plates, including
         computer-numerically-controlled five-axis drilling and machining
         equipment unique to the piano plates, and state-of-the-art powder
         finishing. Baldwin's investment includes equipment which can be
         relocated, but excludes the casting process itself.

                  Plates from the manufacturing facility are made in accordance
         with stringent Baldwin performance requirements. Unlike traditional
         plates with very high scrap content, Baldwin's are from a process that
         relies almost exclusively on virgin iron ore. The resulting plates are
         of the very high chemical purity that the Company believes improves the
         sound of the piano and sets a standard for the piano industry.

         MARKETING AND DISTRIBUTION

                  The Company distributes its keyboard musical instruments in
         North America through approximately 375 independent dealers. The
         Company operated 15 Company-owned stores in seven large metropolitan
         areas prior to March 22, 2001, when eleven of those retail stores were
         sold to Biasco Musical Instrument Company ("Biasco"), Baldwin's largest
         dealer. The Company intends to sell or close the other four stores.

                  In 2000, no single dealer accounted for more than 4.5% of the
         Company's keyboard musical instrument sales. The top ten dealers in
         terms of net sales accounted for approximately 25.4% of the Company's
         keyboard musical instrument sales, excluding sales through Baldwin's
         retail stores. With the March 22, 2001 sale of eleven of the Company's
         retail stores, Biasco is expected to, in 2001, account for
         approximately 15% of the Company's keyboard musical instrument sales.
         In addition to the

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         retail stores in Cincinnati, Atlanta, Indianapolis, Louisville and
         Lexington sold to Biasco, Biasco is also the Company's dealer for the
         Chicago, Minneapolis, Miami, Pompano Beach, Lakeland and Tallahassee
         markets.

                  The Company's domestic unit sales leadership is attributable,
         in substantial part, to its excellent dealer network. The Company
         believes that it has been able to attract and maintain dealers by
         offering a superior product line and numerous programs and services
         designed both to assist dealers and promote the Company's products.
         These programs include:

                  -    A Concert and Artist program in which many of the
                  world's most renown pianists, composers, conductors,
                  vocalists and musical institutions endorse Baldwin grand
                  pianos. This provides Baldwin dealers with extensive national
                  and local product publicity and a method of product
                  differentiation. This promotes wide use of Baldwin's pianos in
                  broadcast media and provides for in-store merchandising
                  materials which promote these endorsements.

                  -    A dealer support program, providing training,
                  promotional programs and assistance, and sales incentives.

                  -    Institutional loan programs, which provide for short term
                  piano loans to universities followed by selling events at the
                  end of the loan term.

                  -    Sponsorship of educational activities, including piano
                  competitions.

         TRUCKING

                  The Company ceased its Company-managed trucking of pianos to
         dealers during 1997, and converted these operations to an independent
         company which specializes in piano transport. Through a contractual
         arrangement, this independent trucking company absorbed the Company's
         leased fleet and provides cartage at rates competitive with the
         Company's. The benefits to the Company were three-fold:

          (1)  The Company's delivery time to dealers was improved dramatically,
               particularly to dealers on the west coast of the U.S. because the
               transport company ships full loads on a more frequent basis
               utilizing the economies of scale of shipping pianos for several
               piano manufacturers.

          (2)  The specialized expertise of the independent contractor reduced
               in-transit damage to the Company's pianos.

          (3)  The Company reduced internal administrative costs and improved
               its business focus.

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         RETAIL STORES

                  On March 22, 2001 the Company announced the sale of eleven of
         its retail piano stores to an affiliate of Chicago based Biasco Musical
         Instrument Company ("Biasco"), Baldwin's largest customer. The retail
         stores sold are located in Cincinnati, Atlanta, Indianapolis,
         Louisville and Lexington. Net proceeds from the sale were $4.6 million
         and were used to further reduce the Company's outstanding debt. Biasco
         agreed to sell only the Baldwin family of products - Baldwin(R),
         Chickering(TM), Wurlitzer(R), Pianovelle(TM) and ConcertMaster(TM) -
         in these cities.

                  Prior to the Biasco sale, the Company operated retail outlets
         in Atlanta, Georgia; Cincinnati, Ohio; Indianapolis and Fort Wayne,
         Indiana; Louisville and Lexington, Kentucky. These Company-owned retail
         outlets sold only Company piano lines and were generally situated in
         areas where they did not compete directly with the Company's
         independent dealers. The Company believes that the existence of
         Company-owned stores did not adversely affect the Company's good
         relationships with its independent dealers.

         INTERNATIONAL SALES

                  The Company's products are distributed in Canada through
         approximately 15 independent dealers representing approximately 1.5% of
         the Company's total keyboard sales in 2000. The Company markets
         products through a number of other international distributors in
         markets such as Mexico, France, Taiwan, Japan and England representing
         approximately 1% of the Company's total keyboard sales in 2000.

         MARKETS AND COMPETITION

                  The principal targets for the Company's acoustic and
         electronic pianos are families with children aged 6 to 12, young
         adults, and educational institutions.

                  In the U.S., according to trade publications, the piano
         category has averaged approximately 4% growth over the past three years
         (1998; 1999; and 2000). Because available industry data reports unit
         sales from manufacturers to dealers, and not dealers to consumers, it
         is difficult to determine real consumption in any given year. Based on
         available information from a variety of sources, the Company believes
         1998 and 1999 were atypical. The unusually strong growth reported by
         the industry in 1998 followed by a decline in 1999 is, in the Company's
         view, a result of trade inventory loading in 1998. The dealers stocked
         up because the Asian economic crisis caused a surge of Asian piano
         imports into the U.S. at dramatically discounted piano pricing. Then,
         in 1999, the dealers worked off their excess inventory before
         reordering.

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         Therefore, the Company believes that averages over several years are
         probably a better predictor of real category growth dynamics. On that
         basis, average growth of acoustic pianos in the past three years has
         been stronger than the previous three years. The Company believes this
         is an indication of a strong domestic economy, a reduction in the
         number of used pianos in the marketplace, and strong media and public
         interest in newly-published research linking keyboard study to enhance
         intellectual development.

                  Sales of the Company's keyboard products are affected by the
         market for used keyboard instruments, particularly used acoustic
         instruments, although the Company is unaware of any reliable data for
         evaluating the size or impact of these used instruments on the sales of
         new products. Company sales data include the sales of new instruments,
         as well as a small number of used and non-Baldwin instruments sold by
         the Company's retail stores. The revenue represented by these used or
         non-Baldwin instruments is nominal.

                  The Company competes with a number of domestic and foreign
         acoustic piano manufacturers based on price relative to tone quality,
         performance characteristics, styling, finish options and electronic
         enhancement options.

                  The Company believes that its domestic unit market share for
         new acoustic pianos was approximately 24% in 1998, approximately 22% in
         1999 and approximately 20% in 2000. The Company believes that no single
         manufacturer has a domestic market share larger than the Company's. The
         Company's domestic market share for digital pianos was approximately,
         5% in 1998, 5% in 1998 and 5% in 2000.

CONTRACT ELECTRONICS OPERATIONS (DISCONTINUED OPERATIONS)

         In 1984, the Company began manufacturing printed circuit board
assemblies for original equipment manufacturers outside the music industry. The
Baldwin Contract Electronics Division operated from its Fayetteville, Arkansas
site and provided electronic and electromechanical products and services to a
broad range of original equipment manufacturers. Final applications included
commercial and industrial power controls, heating and air conditioning systems,
vending machines, mail handling systems, exercise equipment and semiconductor
fabrication equipment.

         On January 29, 2001, the Company completed the sale of its Contract
Electronics Division to Ayrshire Electronics, LLC ("Ayrshire"). Baldwin received
gross proceeds of approximately $9.7 million, subject to certain post-closing
adjustments. After transaction expenses, Baldwin expects to net approximately
$9.0 million, subject to certain post-closing adjustments, for total after-tax
losses on the sale of $4.2 million, or $1.21 per share. Of the total losses,
$3.4 million, or 97 cents per share, is reflected in the Company's results for
the year ended December 31, 2000. Further, as a result of the sale of the
Contract Electronics Division, the Company will record an after tax charge in
the first quarter of 2001 of approximately $800,000, or 23 cents per share,
related to certain corporate charges that were triggered upon the sale. Under
generally accepted accounting principles these costs do not qualify as part of
the loss on the disposal recognized in 2000. The Company retained land and a
building located in Fayetteville, Arkansas from the assets of the Contract
Electronics Division. The Company entered into a lease with Ayrshire pursuant to
which the Company will lease this property to Ayrshire. The Company and

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Ayrshire have also entered into a "Confidentiality, Non-solicitation and
Non-competition Agreement" and an "Information Technology Transition Services
Agreement".

         The Company sold its printed circuit board assemblies to its customers
through both Company representatives and independent electronics manufacturers'
representatives with territories covering 28 states. There are many contract
manufacturers of printed circuit board assemblies, and the Company did not have
a significant share of the market of such products. The industry remains highly
fragmented with predominantly small players and a few large ones. However, in
terms of sales, the Company established a niche in low-to-medium volume
assembly, and the Company believed that the Division was ranked in the top 65
out of approximately 1,000 contract electronics manufacturers in the U.S. This
Division had developed a strong reputation among its customers in the
consistency of its quality and flexibility in meeting rapidly changing customer
demands.

RETAIL FINANCING OPERATIONS (DISCONTINUED OPERATIONS)

         The Company's retail financing segment, ("Retail Financing"),
operated through two wholly-owned retail financing subsidiaries: Keyboard
Acceptance Corporation ("KAC") for installment payment finance and beginning in
1997, Signature Leasing Company ("SLC"). Retail Financing provided point-of-sale
consumer financing through keyboard dealers located throughout the United
States. On March 10, 2000, the Company completed the sale of Retail Financing to
Deutsche Financial Services Corporation ("DFS"). The gross proceeds from that
sale were approximately $35 million, and an after-tax gain of $725,000, or 21
cents per share, was recorded in the first quarter of 2000. The Company agreed
to continue to exclusively use KAC and SLC to service the retail financing needs
of its company-owned stores and to use its Atlanta repossession center to sell
any pianos repossessed by KAC and SLC. Under the terms of the sales agreement
with DFS, the Company is contingently liable for, and must repurchase, all
accounts that become more than 120 days past due during the two year period
after the transaction closing date.

         DFS is a strategic buyer with extensive experience in, and knowledge
of, the piano business. The Company believes DFS will maintain Retail
Financing's excellent long-term dealer relationships and continue the
high-quality service that Baldwin dealers have come to expect. Based on
Baldwin's strong relationship with DFS, and DFS's relationship with piano
dealers, including Baldwin's dealers, together with other sources of available
financing to piano consumers, the Company believes the sale of Retail Financing
will have no adverse impact on Baldwin's piano business. The net proceeds of
approximately $32.5 million from the sale of Retail Financing, were used by the
Company to reduce the level of its borrowings and thereby strengthen its balance
sheet and core music business.

         During the last few years Retail Financing had expanded its focus. In
addition to financing only those keyboard products sold by Baldwin dealers,
Retail Financing made its consumer financing available through music dealers
that do not carry the Company's keyboard products.

         Retail Financing has offered music dealers consumer financing programs
which included competitive interest rates, leasing, rent-to-own options and
prompt credit

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approval. In addition to these services, Retail Financing both originated and
cooperated in special promotional programs with dealers.

         Prior to the sale of the Retail Financing to DFS, KAC financed its
installment receivable contracts portfolio by selling substantially all of such
contracts to General Electric Capital Corporation and its affiliates ("GECC").
Those installment receivables contracts which were not eligible for sale were
retained by KAC and financed through Baldwin's bank borrowings. Retail Financing
serviced both those contracts sold and those retained.

MANUFACTURING

         The Company has integrated acoustic piano manufacturing capability
beginning with the treatment of raw lumber; proceeding through the fabrication
and finishing of the cabinetry and assembly of the inner mechanisms; and
culminating in the creation of a completed piano. Since 1996, the Company has
implemented an aggressive initiative to modernize and simplify its piano
manufacturing operations, which lead the Company to announce on January 31, 2001
the phase-out of operations at its Greenwood, Mississippi plant and to outsource
component manufacturing to other woodworking firms in the U.S. and abroad.

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         The outsourcing of Greenwood's operations was the next step in the
Company's plan to properly size its manufacturing processes and operational base
to its business. This plan began three years ago with the implementation of
synchronous manufacturing, which achieved significant reductions in space
requirements. Utilizing synchronous manufacturing techniques, the Company is
gaining greater process efficiencies, reducing manufacturing costs and
inventories, improving cycle times, increasing capacity and usable space, and
producing consistently higher-quality pianos for its dealer network and
consumers.

         During the first half of 1999, Baldwin reduced its costs by
approximately $2 million annually by consolidating the production of its Artist
Grand pianos into its Trumann, Arkansas piano assembly plant, and ceasing
assembly at Conway, Arkansas. Synchronous manufacturing techniques made the
relocation possible. Previous to this consolidation, Baldwin had been assembling
some of Baldwin's Artist Grand pianos at the Trumann plant for over a year. The
Company incurred one-time expenses of $1.5 million and a capital investment of
approximately $0.5 million in connection with this consolidation. The Company's
polyester finishing operations at Conway were not affected.

         In September, 1999, Baldwin sold its Juarez, Mexico manufacturing
facility to an unrelated third party for $7.2 million. The implementation of
synchronous manufacturing techniques at our Juarez facility allowed the Company
to maintain production using only a third of the space once required for the
same operations. The Company's manufacturing in Juarez remains in Juarez,
but operating in a smaller, leased facility.

RAW MATERIALS

         Raw materials required for the Company's acoustic piano manufacturing
operations are primarily purchased in the United States. Due to the Company's
unique products, a limited number of vendors are available for certain
specialized parts needed for pianos. The Company has not experienced significant
difficulties in obtaining adequate supplies of raw materials. However, the
failure of one or more such vendors to continue to supply its products could
cause delays in the Company's manufacturing process until suitable alternate
sources could be obtained.

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SEASONALITY

         The Company's business is somewhat seasonal in nature. The fourth
quarter musical products sales are generally strongest during the holiday
season. However, in 2000, the fourth quarter accounted for approximately 23% of
net sales. The average fourth quarter sales for the previous three years is 29%,
thus fourth quarter 2000 is 5% lower. The Company believes a combination of
factors, including consumer preoccupation with the outcome of the 2000
presidential election, a skittish stock market, and a dramatic slowing of the
U.S. economy resulted in fourth quarter 2000 sales lower than previous years.

BACKLOG

         At both December 31, 2000 and 1999, the Company had sales orders for
keyboard products of approximately $2 million and $9 million, respectively. The
Company anticipates that all unfilled 2000 orders will be filled during 2001.

WORKING CAPITAL

         The Company requires significant working capital to support its
operations. The Company builds piano inventory levels during the year to support
its normally high fourth quarter seasonal sales demand.

         On March 24, 2000 the Company entered into a new revolving line of
credit (the "Credit Facility") with General Electric Capital Corporation
("GECC"). To finance its working capital requirements and to refinance the
Company's old credit facilities. The Credit Facility has a maximum commitment
level of $40 million and is scheduled to terminate on 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 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 was 250 basis points above such
commercial paper rate.

         For more information about the Company's credit facilities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" in Part II, Item 7 of this
document.

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EMPLOYEES

         As of December 31, 2000, the Company had approximately 1,500 full-time
employees. Approximately 276 hourly workers at the Company's Greenwood,
Mississippi facility are represented by the International Chemical Workers
Union, Local Union No. 800 and approximately 247 hourly workers at Fabricantes
Tecnicos, S.A. (wholly-owned subsidiary of the Company) Juarez, Mexico facility
are represented by the National Labor Union of Workers of Electronic Products.
All other employees are not represented by collective bargaining units. The
Company considers its relations with its employees to be good. After the sale of
the Contract Electronics Division, the sale of the eleven retail stores and the
closure of the Company's Greenwood, Mississippi facility, the Company estimates
it will have approximately 900 employees.

                               ITEM 2. PROPERTIES

         The Company operates the following manufacturing facilities, all of
which are owned, except for Juarez, Mexico, which is leased. These properties
are pledged as collateral under the Company's various credit facilities.

      Location               Industry Segment            Principal Products
      --------               ----------------            ------------------
Conway, Arkansas             Music and related           Polyester Finishing

Trumann, Arkansas            Music and related           Vertical pianos/
                                                         Grand pianos
Juarez, Mexico               Music and related           Keys and actions

OWNED PROPERTY TO BE CLOSED MID-2001:
Greenwood, Mississippi       Music and related           Piano cases and wood
                                                         components

OWNED PROPERTY CURRENTLY BEING LEASED TO ANOTHER PARTY (AYRSHIRE):
Fayetteville, Arkansas

         The Company's corporate offices are located in a 28,000 square foot
leased facility in a suburban office park in the greater Cincinnati, Ohio
metropolitan area. Generally, properties are utilized at normal capacity levels
on a single shift basis.

                            ITEM 3. LEGAL PROCEEDINGS

         The Company is involved in legal proceedings arising in its normal
course of business. The Company does not believe that any existing claim or suit
will have a material adverse effect on the business or financial condition of
the Company.

         The operations of the Company and its predecessors are subject to
federal, state and local laws regulating the discharge of pollutants into the
environment. The Company does not anticipate that any environmental matters
currently known to the Company will result in proceedings against the Company or
in any material liability.

                                      -15-
<PAGE>   16

         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Company submitted no matters to a vote of its shareholders during
the fourth quarter of the Company's 2000 fiscal year.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

         The following are the Company's current executive officers. They have
been elected by the Company's Board of Directors to serve until their respective
successors are elected.

         KAREN L. HENDRICKS, age 53, is the Company's Chairman of the Board and
Chief Executive Officer. Prior to joining the Company in 1994, Ms. Hendricks
served as the Executive Vice President and General Manager, Skin Care Division
of The Dial Corporation since 1992, where she had full responsibility for Dial's
United States bar and liquid soap business and their industrial products. Ms.
Hendricks previously was employed for over twenty years by The Procter & Gamble
Company in various executive positions in product development and was promoted
to General Manager of its Vidal Sassoon Hair Care Company in 1987. In her last
two years at Procter & Gamble, she was Manager of Worldwide Strategic Planning
for their hair care business. She also currently serves as a director of
ComProducts International.

          On February 28, 2001  Ms. Hendricks announced her plans to resign as
the Company's Chief Executive Officer in November 2001.

         DUANE D. KIMBLE, age 40, is President, Chief Financial Officer and
Corporate Secretary. Mr. Kimble joined the Company in August 1998 as Vice
President, Strategic Planning, was named Chief Financial Officer in December
1998, then named President in February 2001. Prior to joining the Company, Mr.
Kimble had been director of financial and operations analysis for Equistar
Chemicals, L.P., a leading producer of industrial chemicals, since 1997. From
1986 to 1997, Mr. Kimble held a variety of key financial positions with
Millennium Petrochemicals, Inc., the nation's largest domestic producer of
polyethylene plastic.

         There are no family relationships among any of the directors nor among
any of the directors and any executive officers of the Company.


                                      -16-
<PAGE>   17

                                     PART II
                                     -------

  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is not listed on any national securities
exchange, and its principal United States trading market is through the Nasdaq
Stock Market's National Market.

         Year 2000                            Year 1999
         ---------                            ---------
   Common Stock Price Range          Common Stock Price Range
  --------------------------         ------------------------
Quarter     High        Low          Quarter     High      Low
-------     ----        ---          -------     ----      ---
First       $9 5/8      $6 1/2       First       $11 1/2   $7 1/2
Second      $8 1/4      $5 3/8       Second      $9 5/8    $7 1/8
Third       $6 1/8      $4 5/8       Third       $9 1/4    $6
Fourth      $5          $2 1/8       Fourth      $9 1/4    $7

         As of March 31, 2001, the number of outstanding shares of the Company's
common stock was 3,462,826. The approximate number of record holders of such
shares was 95. The Company believes it has approximately 600 stockholders in the
aggregate.

         The Company has paid no dividends since its inception and intends to
continue its policy of retaining earnings to finance future growth.

         No changes have been made to the instruments defining the right of
holders of the Company's common stock or the rights of such shareholders.

         On September 4, 1996, the Company and The Provident Bank, as Rights
Agent, entered into a rights agreement. Pursuant to the terms of that 1996
rights agreement, the Board of Directors of the Company authorized the issuance
of one common share purchase right with respect to each common share of common
stock as of September 10, 1996. On April 20, 1998, the Board of Directors of the
Company authorized the redemption of those rights at the redemption price of one
cent ($0.01) per right specified in the 1996 rights agreement which amount
subsequently was paid to the holders of the outstanding rights as of April 20,
1998.

         On October 13, 1998, the Company announced that its Board of Directors
had adopted an innovative Shareholder Rights Plan (the "Rights Agreement") and
declared a shareholder dividend of one Stock Purchase Right for each common
share owned on October 22, 1998.

                                      -17-
<PAGE>   18

                         ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY
(In thousands, except per share data)

<TABLE>
<CAPTION>
Operations Statement Data:                                      2000        1999        1998        1997       1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>         <C>         <C>        <C>
Net sales                                                   $ 86,134    $ 79,315    $ 91,567    $107,492   $ 84,176
Cost of goods sold                                            76,819      76,895      73,395      82,655     64,420
--------------------------------------------------------------------------------------------------------------------
     Gross profit                                              9,315       2,420      18,222      24,837     19,756
Other operating income, net                                    1,744       6,932       1,402       2,083      3,135
--------------------------------------------------------------------------------------------------------------------
     Gross profit and other operating revenue                 11,059       9,352      19,624      26,920     22,891
Selling, general and administrative                           21,086      21,494      22,239      23,485     21,976
--------------------------------------------------------------------------------------------------------------------
     Operating profit (loss)                                 (10,027)    (12,142)     (2,615)      3,435        915
Interest expense                                               3,075       2,599       1,085       1,210     (1,944)
--------------------------------------------------------------------------------------------------------------------
     Earnings (loss) before income taxes and discontinued
     operations                                              (13,102)    (14,741)     (3,700)      2,225     (1,029)
Income taxes                                                  (4,624)     (6,430)     (1,511)        607       (484)
--------------------------------------------------------------------------------------------------------------------
     Net earnings (loss) before discontinued operations     $ (8,478)   $ (8,311)   $ (2,189)   $  1,618   $   (545)
Discontinued operations:
Income from operations net of income taxes                        83         568       2,926       2,831      2,601
Net  loss on sales, net of income taxes                       (1,922)
                                                            ---------    --------    --------    --------   --------
Net earnings (loss)                                         $(10,317)   $ (7,743)   $    737    $  4,449   $  2,056
====================================================================================================================
Basic earnings per share
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations                  $  (2.45)   $  (2.41)   $   (.63)   $    .47   $   (.16)
Earnings (loss) from discontinued operations                    (.53)        .17         .84         .83        .76
                                                            ---------    --------    --------    --------   --------
Net earnings (loss)                                         $  (2.98)   $  (2.24)   $    .21    $   1.30   $    .60
--------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations                  $  (2.45)   $  (2.41)   $   (.63)   $    .47   $   (.16)
Earnings (loss) from discontinued operations                    (.53)        .17         .84         .81        .75
                                                            ---------    --------    --------    --------   --------
Net earnings (loss)                                         $  (2.98)   $  (2.24)   $    .21    $   1.28   $    .59

--------------------------------------------------------------------------------------------------------------------

Balance Sheet Data (at December 31):
                                                                2000        1999        1998        1997       1996
--------------------------------------------------------------------------------------------------------------------
Working capital                                             $ 55,448    $ 55,249    $ 33,965    $ 30,176   $ 16,307
--------------------------------------------------------------------------------------------------------------------
Total assets of continuing operations                         99,037      87,090      93,803      72,133     81,060
--------------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations                          8,700      33,924      41,129      37,190     27,441
--------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt                              4,416      12,765      11,380         900     30,901
--------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion                          36,383      32,582      42,817      27,650      3,350
--------------------------------------------------------------------------------------------------------------------
Shareholders' equity                                          43,319      53,688      61,275      60,823     56,275
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -18-
<PAGE>   19

    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

2000 COMPARED TO 1999
2000 was a year which Baldwin continued its progress back to long-term financial
health.

In the first half of the year, the steep learning curve needed to restore the
production rate for our heirloom-quality grand pianos at our newly consolidated
facility in Trumann, Arkansas, impacted our ability to deliver product. Demand
initially outpaced our ability to deliver, but by mid-year, target rates were
achieved in time for the traditionally heavy fall selling season. By November,
however, it was evident that a combination of factors, including consumer
preoccupation with the outcome of the 2000 presidential election, a skittish
stock market, and a dramatic slowing of the U.S. economy, would result in slower
than expected end-of-year sales.

For the full year, Company-wide net sales from continuing operations rose to $86
million, up from $79 million in 1999. Net losses from continuing operations for
2000 rose to $8.5 million, or $2.45 per share, from $8.3 million, or $2.41 per
share, a year earlier.

Many strategic decisions vital to Baldwin's future were made and initiated in
2000. During 2000, the Company began an effort to find a qualified buyer for the
Company's Contract Electronics business. This division represented a notable
success story for the Company in 2000. Operating profit reached $0.8 million, a
$1.9 million improvement from 1999. While the division's sales were slightly
lower in 2000, success was achieved by concentrating on operational efficiency
and profitability.

While the successful turnaround of this business had clearly been demonstrated
and future projections were strong, Baldwin remained a small player unable to
justify the substantial investment needed for long-term survival in this highly
competitive business. Nevertheless, the successful turnaround the Company had
achieved positioned Contract Electronics for a sale to Ayrshire Electronics, LLC
(Ayrshire)on January 26, 2001. Net of any near-term transaction expenses, the
Company received approximately $9.0 million, subject to certain post-closing
adjustments, which will be used to repay outstanding indebtedness. The Company
also recorded total after-tax losses on the sale of approximately $4.2 million,
or $1.21 per share in the fourth quarter of 2000.

With the sale of Contract Electronics completed, the Company has come full
circle, returning single-mindedly to its 139-year-old roots as a manufacturer
and marketer of fine pianos. The challenge ahead, however, is clear: to succeed
as a piano company, Baldwin must be prepared to resolutely address any remaining
obstacles to profitability without relying on any ancillary businesses.

                                      -19-
<PAGE>   20

Music Division sales rose 8 percent in 2000, due largely to higher sales of the
Company's newly introduced and enhanced Artist Series grand piano. However,
losses continued throughout the year, reflecting soft fourth-quarter demand and
the huge burden of under-absorbed manufacturing overhead costs.

The Company's multiyear plan for restoring and enhancing profitability has been
based on narrowing Baldwin's focus, streamlining the manufacturing process,
consolidating operations, selective outsourcing and bringing innovative new
products to market. Progress was made on all of these fronts in 2000,
culminating in this January's sale of Contract Electronics and January's
announced closing by mid 2001 of the Company's underutilized woodworking
facility in Greenwood, Mississippi. Throughout 2000, the Company thoroughly
explored and vetted outsourcing alternatives for the wood parts produced in
Greenwood. The Company expects the outsourcing of components and the shutdown of
the plant to reduce overhead costs, lower inventories and generate approximately
$3 million in annual pre-tax savings. The Company will take a one-time charge in
first quarter 2001 of $2.5 million for costs associated with the shutdown. The
phase out of the Greenwood plant will eliminate approximately 275 jobs.

The Company's four-year strategic plan for improving manufacturing efficiency
should run its course in 2001. With the shut-down of Greenwood, fixed costs will
come down dramatically, reducing Baldwin's profit dependence on plant
throughput. The Company's operational focus in 2001 will be on ensuring a smooth
transition to outsourcing suppliers and the runout of materials at Greenwood.

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 was 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 transaction 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.

1999 COMPARED TO 1998

1999 continued to be a challenging year for Baldwin... one of transition and
change. The Company consolidated its grand piano operations in Trumann,
Arkansas, during the first half of 1999. The Company recognized an after tax
charge of $930 thousand or 26 cents per share for restructuring and other
non-recurring costs associated with the grand piano consolidation during the
first quarter 1999. The annual savings of the grand piano assembly consolidation
is expected to result in annual

                                      -20-
<PAGE>   21

cost savings after tax of approximately $1.3 million or 38 cents per share.

During 1999, the Company reduced headcount by 209 people or 12.5% to 1,586
people. These reductions in headcount resulted mainly from efficiencies gained
from the grand piano consolidation (95 people) and other consolidation and
automation activities at the Company's manufacturing sites. Most of people
reductions, excluding grand piano assembly consolidation, resulted from
attrition and retirement; however, during the third quarter of 1999, the Company
recognized one-time after-tax severance cost of $242 thousand or 7 cents per
share. The annual savings of people reductions, excluding the savings from grand
piano assembly consolidation as discussed above, is expected to result in annual
after-tax savings of approximately $2.4 million or 70 cents per share,
approximately half of which was recognized during 1999.

During the third quarter, the Company sold its Juarez, Mexico facility for $7.2
million resulting in a one-time after-tax gain of $3.6 million or $1.04 per
share. As a result of the implementation of synchronous manufacturing
techniques, the Company was able to sell its Juarez facility and move its
operations to a leased facility in Juarez with a 50% reduction in space. Also,
during the third quarter of 1999, the Company closely scrutinized its inventory
and recognized a one-time after-tax charge of $1.1 million or 32 cents per share
to revalue certain inventories. And, during 1999, the Company announced the sale
of its Retail Finance subsidiaries for approximately $35.0 million, which closed
on March 10, 2000.

The Music Division's challenges have been significant. During 1998, as a result
of the Asian economic crisis, the Music Division faced a surge of low-priced
Asian imports. The Company responded during 1998 with a defensive program which
included pricing discounts and other incentives. Sales orders improved
encouragingly, but some of the resulting sales served to increase dealer
inventories. As a result of production increases to meet these higher orders and
later, a leveling of dealer inventories, there was a slow down in the Company's
fourth quarter 1998 Music sales. Collectively, the Company and its dealers
began 1999 with approximately $18.0 million more finished goods than normal.
This overstock of inventory resulted in: (a) lower sales in 1999 as the dealers
worked off their excess inventories and (b) significant unfavorable
manufacturing variances, particularly higher fixed unit costs, as the Company
reduced its production rate to reduce its inventory during a period of slow
sales. The Company estimates that the lower sales and production adversely
impacted 1999 profit by a approximately $7.0 million after tax or $2.00 per
share. Late in 1999, the Music Division's inventories, sales and production
returned to pre-Asian economic crisis levels. In early 2000, the Company
successfully increased selling prices on many of its acoustical products.

Net sales from continuing operations of $79.3 million were lower by $12.3
million (13.4%) primarily as a result of overstocked dealer piano inventories as
discussed above. Had the Company's dealers inventories been at normal levels at
the beginning of 1999, the Company believes that 1999 sales would have been
approximately equal to 1998 sales.

                                      -21-
<PAGE>   22

Net losses from continuing operations of $8.3 million or $2.41 per share were
$6.1 million or $1.78 worse than the prior year. The sum of 1999 one-time items
previously mentioned produced income of approximately $1.3 million or 38 cents
per share, primarily due to the gain on the sale of the Company's Juarez
facility, offset in part by the various other charges. The single largest
contributor to the lower operating results was the overstock of Music finished
goods, which the Company estimates adversely impacted results by $7.0 million or
$2.00 per share. The remaining adverse difference of $1.2 million or 37 cents
per share was caused by higher interest expense of 28 cents per share resulting
from higher debt levels due to higher inventory during most of 1999 and due to
the above described operating losses.

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 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 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 after the first year based on the operating cash flow ratio of the
Company. The applicable initial 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%.

In December 1998, the Company entered into a two-year cap agreements in order to
reduce the potential impact on increases in interest rates on $44 million of
floating-rate long-term debt. The agreement entitled the Company to receive from
the counterparty, on a monthly basis, interest income to the extent the
one-month commercial paper rate exceeds 12%. This cap expired in December, 2000
and was not renewed. The Company does not hold or issue derivative financial
instruments for trading purposes.

LIQUIDITY AND CAPITAL RESOURCES

On March 10, 2000 the Company entered into a new revolving line of credit (the
"Credit Facility") with General Electric Capital Corporation

                                      -22-
<PAGE>   23
 ("GECC") to finance the Company's working capital requirements and to refinance
the Company's old credit facility. 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 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 what 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.

The Company as of December 31, 2000 has total outstanding indebtedness of $40.8
million. The total indebtedness is comprised of three credit arrangements. The
first is the Credit Facility with GECC described in the paragraph immediately
above with a total outstanding balance of $30.6 million at December 31, 2000.

The Company's second credit arrangement is an inventory purchase and consignment
agreement with DFS. Under the terms of this product financing arrangement, the
Company's borrowings are collateralized by pianos consigned to colleges,
universities, artists and concert halls. All debt under this agreement is
classified as current with an annual rate of interest of approximately 9%. The
outstanding balance of this credit agreement is $4.4 million at December 31,
2000.

The Company's third credit arrangement originated with the sale of its Retail
Financing subsidiary in 1999. The Company entered into a revolving credit loan
agreement with DFS for the repurchase of accounts that become more than 120 days
past due during a two year period after the sale closing date. The annual rate
of interest under the revolving credit loan is equal to 0.5 percentage points
per annum above LIBOR, or 6.69% at December 31, 2000. All collections on
repurchased accounts are to be applied against this revolving credit loan, and
the balance remaining on the loan will be due in March 2004. The revolving
credit loan is secured by the repurchased accounts, repossessed merchandise and
an irrevocable standby letter of credit for $2,000,000. The outstanding balance
of this credit agreement is $5.8 million at December 31, 2000.

Capital expenditures amounted to $1.3 million in 2000 and $2.0 million in 1999.
At December 31, 2000, the Company has less than $250,000 in outstanding capital
commitments. The Company expects 2001 capital expenditures to be less than
depreciation expense.

The Company believes that cash flow will be sufficient to support operations
based on cash provided from operations, available borrowings and the reduction
of its inventories.

                ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The Company believes three factors impact the susceptibility of the Company to
market risk. The first factor is general economic conditions, which include the
strength of the U.S. economy. The operating results of the Company could be
adversely effected with an overall slowdown of the U.S. economy. The second
factor is demographic trends in the U.S. As mentioned earlier, the Company
programs of institutional loans and sponsorship of educational activities will
be adversely impacted with a decrease of the age population these programs
target. The third factor is an overall interest in music. If interest in music
lessens the Company's sales could be impacted negatively.

Another 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 manufacturing process.

At December 31, 2000, the carrying value and estimated fair value of Company's
debt totaled $40.8 million. All of the Company's debt at December 31, 2000 was
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

                                      -23-
<PAGE>   24

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 has limited
its risk related to interest rate changes by purchasing certain interest rate
caps discussed above under the "Inflation, Operations and Interest Rates", but
all caps purchased had expired by December, 2000.

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 purchase of wood used in the manufacturing and assembly of piano
cases.

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, with 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 statement: (i) changes in consumer
preference 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.

                                      -24-
<PAGE>   25
               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
   Baldwin Piano & Organ Company:

We have audited the accompanying consolidated balance sheets of Baldwin Piano &
Organ Company and subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
Our audit also included the financial statement schedule listed in the Index at
Item 14. These consolidated financial statements and financial statement
schedule are the responsibility at the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Baldwin Piano &
Organ Company and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

Deloitte & Touche LLP
Cincinnati, Ohio
March 14, 2001 (except for Note 16 as to which the date is March 22, 2001)

                                      -25-
<PAGE>   26


BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998 (In thousands, except earnings
(loss) per share)

<TABLE>
<CAPTION>
                                                                    2000        1999        1998
---------------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>         <C>
Net sales                                                       $ 86,134    $ 79,315    $ 91,567
Cost of goods sold                                                76,819      76,895      73,345
---------------------------------------------------------------------------------------------------
         Gross profit                                              9,315       2,420      18,222
Other operating income, net                                        1,744       6,932       1,402
---------------------------------------------------------------------------------------------------
                                                                  11,059       9,352      19,624
Selling, general and administrative                               21,086      21,494      22,239
---------------------------------------------------------------------------------------------------
         Operating loss                                          (10,027)    (12,142)     (2,615)
Interest expense                                                   3,075       2,599       1,085
---------------------------------------------------------------------------------------------------
         Loss from continuing operations
         before income taxes                                     (13,102)    (14,741)     (3,700)
Income tax benefit                                                (4,624)     (6,430)     (1,511)
---------------------------------------------------------------------------------------------------
         Net loss from continuing operations                      (8,478)     (8,311)     (2,189)

Discontinued Operations:
         Income from operations, net of tax                           83         568       2,926
         Net loss on sales, net of tax                            (1,922)         --          --
---------------------------------------------------------------------------------------------------
Net earnings (loss)                                             $(10,317)   $ (7,743)   $    737
===================================================================================================
Basic earnings (loss) per share
Loss from continuing operations                                 $  (2.45)   $  (2.41)   $   (.63)
Earnings (loss) from discontinued operations                        (.53)        .17         .84
                                                                --------    --------    --------

                                                                $  (2.98)   $  (2.24)   $    .21
---------------------------------------------------------------------------------------------------
Weighted average number of common shares                           3,463       3,455       3,450
---------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share
Loss from continuing operations                                 $  (2.45)   $  (2.41)   $   (.63)
Earnings (loss) from discontinued operations                        (.53)        .17         .84
                                                                --------    --------    --------
                                                                $  (2.98)   $  (2.24)   $    .21
---------------------------------------------------------------------------------------------------
Weighted average number of common and
     common equivalent shares                                      3,463       3,455       3,490
===================================================================================================
 See accompanying Notes to Consolidated Financial Statements
</TABLE>

                                      -26-
<PAGE>   27

BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity Years ended December 31, 2000,
1999 and 1998 (In thousands)
<TABLE>
<CAPTION>

                                                                              Accumulated other
                                     Common      Additional       Retained      comprehensive        Cost of
                                      stock    paid-in capital    earnings      income (loss)    treasury shares    Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>                              <C>            <C>
Balance, December 31, 1997            $ 42          $12,381        $54,783            --            $(6,383)       $60,823
    Proceeds from exercise of
       stock options, net of
       treasury stock acquired          --              191             --            --               (113)            78
    Amortization of stock grants        --               65             --            --                 --             65
    Stock rights purchased              --              (34)            --            --                 --            (34)
    Comprehensive income:
    Net earnings                        --               --            737            --                 --            737
    Foreign currency
         translation adjustment         --               --             --          (394)                --           (394)
------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income                                                                                             343
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998              42           12,603         55,520          (394)            (6,496)        61,275
    Amortization of stock grants       ---               32            ---           ---                ---             32
    Comprehensive income (loss):
    Net loss                           ---              ---         (7,743)          ---                ---         (7,743)
    Foreign currency
       translation adjustment          ---              ---            ---           124                ---            124
------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income (loss)                                                                                   (7,619)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999              42           12,635         47,777          (270)            (6,496)        53,688
    Amortization of stock grants       ---              103            ---           ---                ---            103
    Comprehensive income (loss):
    Net loss                           ---              ---        (10,317)          ---                ---        (10,317)
    Foreign currency
       translation adjustment          ---              ---            ---          (155)               ---           (155)
------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income (loss)                                                                                  (10,472)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000            $ 42         $ 12,738       $ 37,460       $  (425)          $ (6,496)      $ 43,319
==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      -27-
<PAGE>   28

BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999 (In thousands)

<TABLE>
<CAPTION>
Assets                                                                   2000                  1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>
Current assets:
     Cash                                                          $      366             $     1,684
     Receivables, net                                                   9,375                   6,480
     Installment receivables retained                                   4,027                   5,344
     Inventories                                                       43,567                  27,587
     Deferred income taxes                                             13,007                   9,838
     Other current assets                                               2,466                   3,025
     Net assets of discontinued operations                              8,700                  33,924
-------------------------------------------------------------------------------------------------------------------
         Total current assets                                          81,508                  87,882
-------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net                                     17,525                  18,223
Deferred income taxes                                                   1,844                     874
Other assets                                                            6,860                  14,035
-------------------------------------------------------------------------------------------------------------------
         Total assets                                               $ 107,737              $  121,014
===================================================================================================================
Liabilities and Shareholders' Equity
-------------------------------------------------------------------------------------------------------------------
Current liabilities:
     Accounts payable                                               $  11,951             $    14,620
     Current portion of long-term debt                                  4,416                  12,765
     Income taxes payable                                                                       1,855
     Accrued liabilities                                                9,693                   3,393
-------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                     26,060                  32,633
-------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion                                   36,383                  32,582
Other liabilities                                                       1,975                   2,111
-------------------------------------------------------------------------------------------------------------------
         Total liabilities                                             64,418                  67,326
-------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
     Common stock (4,230,694 and 4,220,694 issued shares in 2000
         and 1999)                                                         42                      42
     Additional paid-in capital                                        12,738                  12,635
     Accumulated other comprehensive income (loss)                       (425)                   (270)
     Retained earnings                                                 37,460                  47,777
     Less cost of treasury shares (767,868 shares in 2000 and
         in 1999)                                                      (6,496)                 (6,496)
-------------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                    43,319                  53,688
-------------------------------------------------------------------------------------------------------------------
         Total liabilities and shareholders' equity                 $ 107,737             $   121,014
===================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>


                                      -28-
<PAGE>   29

<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998 (In thousands)
Increase (Decrease) in Cash                                                   2000               1999                1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>                 <C>
Cash flows from continuing operating activities:
     Net earnings (loss) from continuing operations                        $(8,478)           $(8,311)            $(2,189)
     Adjustments to reconcile net earnings (loss) to net cash
         provided by (used in) operating activities:
              Depreciation and amortization                                  3,716              2,736               2,291
              Gain on sale of assets                                        (1,120)            (5,917)               (128)
              Provision for doubtful accounts                                  719                192                (313)
              Deferred income taxes                                         (4,139)            (7,276)             (2,020)
              Change in assets and liabilities:
                  Trade receivables                                         (3,614)             1,360                 994
                  Installment receivables retained                           1,317              1,687                 523
                  Inventories                                              (15,980)             8,580             (13,349)
                  Other current assets                                         559             (1,929)                585
                  Other assets                                               6,416               (573)             (4,236)
                  Accounts payable, accrued and other liabilities           (4,226)             5,358                (760)
                  Income taxes payable                                        (806)             1,403                (123)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operating activities             (25,636)            (2,690)            (18,725)
------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
     Income                                                                     83                568               2,926
     Adjustment to derive cash flows from operating activities                (620)             8,448              (4,705)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) discontinued operations                        (537)             9,016              (1,779)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                        (26,173)             6,326             (20,504)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Additions to property, plant and equipment                             (1,345)            (2,043)             (8,200)
     Proceeds from sale of assets                                            1,283              6,820               1,437
     Net proceeds from sale of retail financing                             33,083                  0                   0
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing investing activities              33,021              4,777              (6,763)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Net borrowing on short-term debt                                       (8,349)             1,385              10,380
     Borrowing (repayment) on long-term debt                                 3,801            (10,235)             15,268
     Proceeds from exercise of stock options,
         net of treasury stock acquired                                          0                  0                  78
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing financing activities              (4,548)            (8,850)             25,726
Net cash provided by (used in) discontinued operations                      (3,618)              (569)              1,417
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                         (8,166)            (9,419)             27,143
------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash                                             (1,318)             1,684                (124)
Cash at beginning of year                                                    1,684                  0                 124
------------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                         $  366            $ 1,684             $     0
Supplemental Disclosure of Cash Flow Information
------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:     Interest                                 $2,409            $4,255              $ 2,957
                                   Income taxes (refunded)                  $  (50)           $  262              $  (197)
==============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                                      -29-
<PAGE>   30

BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 2000, 1999 and 1998
 (All dollars amounts in thousands, except where indicated)


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of Baldwin Piano & Organ Company and all of its
subsidiaries (Company). All material intercompany balances and transactions have
been eliminated.

REVENUE RECOGNITION - Title is transferred at the time of shipment to the dealer
and the Company recognizes a sale at that time.

In 2000, a one-time gain of approximately $1 million was recorded on the sale of
the Company's warehouse facility in Fayetteville, Arkansas. In 1999, a one-time
gain of approximately $5.9 million was recorded on the sale of the Juarez,
Mexico, manufacturing facility. These gains are included in "Other operating
income, net" in the accompanying consolidated statements of operations. In 2000
and 1999, the remaining amount included in "other operating income, net" and in
1998 the majority of this amount was composed of tuning income, and late charges
on installment receivables.

ALLOWANCE FOR DOUBTFUL ACCOUNTS - An allowance for losses on receivables is
provided through a charge to operations based on estimates of possible losses.
Accounts deemed to be uncollectible are charged and recoveries credited to the
allowance for doubtful accounts.

INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the last-in-first-out (LIFO) method for a substantial portion
of inventories. Cost for the remaining portion is determined using the first-in
first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related property. The estimated useful lives are
principally as follows:

         Description                        Years
         ----------------------------------------
         Buildings                          25-35
         Building equipment                    5
         Machinery and equipment             3-20

Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life of the asset. The cost of maintenance, repairs, minor
renewals and betterments of property, plant and equipment is charged to expense
in the year incurred. Major expenditures for renewals and betterments are
capitalized and depreciated over their estimated useful lives.

OTHER ASSETS - Other assets consists primarily of institutional and concert and
artist inventory of $3.1 million and $8.5 million at December 31, 2000 and 1999,
respectively, and goodwill. Goodwill, which represents the excess of purchase
price over the fair value of the net assets acquired, is amortized on a straight
line basis over the expected periods to be benefited, generally 40 years. The
Company evaluates long-lived assets, including goodwill and other intangibles,
based on fair values or projected undiscounted cash flows whenever significant
events or changes in circumstances occur which indicate the carrying amount may
not be recoverable.

TAXES ON INCOME - Deferred income taxes reflect the future tax consequences of
differences between the tax base of assets and liabilities and their financial
reporting amounts at each balance sheet date, based upon enacted income

                                      -30-
<PAGE>   31

tax laws and tax rates. Income tax expense or benefit is provided based on
earnings reported in the financial statements. The provision for income tax
expense or benefit differs from the amounts of income taxes currently payable
because certain items of income and expense included in the consolidated
financial statements are recognized in different time periods by taxing
authorities.

STOCK OPTION PLANS - Prior to January, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation",
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards of the date of the grant. Alternatively, SFAS
123 also allows entities to continue to apply the provisions of APB 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS 123 has been applied. The Company has
elected to continue to apply the provisions of APB 25 and provide the pro forma
disclosure provisions of SFAS 123.

RETIREMENT PLANS - Substantially all hourly and salaried employees located in
the United States are covered by either a defined contribution and/or a defined
benefit plan. The Company also maintains a deferred compensation plan for
certain key employees. The Company's cost of providing these retirement plans is
recognized as a charge to income in the year cost is incurred.

POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS - The Company is contractually
obligated to make health care benefits available to a certain group of retired
employees. Also, the Company sponsors several postemployment plans for various
groups of employees. These plans' provisions include severance benefits in which
the employees' rights either vest or accumulate for each additional year of
service performed.

The Company charges the expected cost of retiree health and certain
postemployment benefits to expense during the years employees render service.
The Company funds these postretirement and postemployment benefits primarily on
a pay-as-you-go basis.

FOREIGN CURRENCY TRANSLATION - The financial statements of the Company's
Canadian subsidiary are measured using the local currency as the functional
currency. Assets and liabilities are translated into U.S. dollars at the rate of
exchange existing at year-end. Income statement amounts are translated at the
average of the monthly exchange rates. The resulting translation adjustments are
recorded directly into a separate component of accumulated comprehensive income.
Gains and losses resulting from actual foreign currency transactions are
recognized currently in results of operations. The functional currency of the
Company's subsidiary in Mexico, which operates as an integral component of the
U.S. operations, is the U.S. dollar. Gains and losses resulting from
remeasurement of monetary assets and liabilities are recognized currently in
results of operations.

DERIVATIVE FINANCIAL INSTRUMENTS - The Company does not hold or issue derivative
financial instruments for trading purposes. During June 1998, and as
subsequently amended, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The Company
adopted SFAS No. 133 on January 1, 2001. The impact was not material to the
Company's financial statements.

EARNINGS PER SHARE - Basic earnings per share is based upon the weighted average
number of common shares outstanding during the year. Diluted earnings per share
is computed based on the weighted average number of common and common equivalent
shares outstanding. Unless otherwise indicated, references to per share amounts
are basic per share amounts.

USE OF ESTIMATES - The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.

                                      -31-
<PAGE>   32

RESTRUCTURING CHARGES - On January 31, 2001, the Company announced its intention
to shutdown the Greenwood, Mississippi plant and outsource the components
manufacturing to other woodworking firms in the United States and abroad. The
Company expects to take a one-time charge in the first quarter of 2001 of $2.5
million for exit costs associated with the shutdown, which is expected to be
completed in mid-2001. On January 6, 1999, the Company announced it would stop
assembling grand pianos in its Conway, Arkansas, plant and consolidate all of
its piano assembly operations in its Trumann, Arkansas, plant. The consolidation
was completed in mid-1999. The company incurred pre-tax expenses of
approximately $1.5 million during 1999, primarily severance and other exit
related costs. Additionally, fixed asset expenditures related to the
consolidation approximated $0.5 million. As of December 31, 1999, substantially
all severance payments have been paid and all other exit related cash payments
have been made.

RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform
with current year financial presentation and to reflect the discontinued
operations of the Company (Note 5).

(2) RECEIVABLES
Receivables consist of the following:

                                                      2000           1999
--------------------------------------------------------------------------------
         Trade                                    $  9,755       $  6,573
         Other                                         762            441
--------------------------------------------------------------------------------
               Total receivables                    10,517          7,014
         Less allowance for doubtful accounts        1,142            534
--------------------------------------------------------------------------------
               Net receivables                    $  9,375       $  6,480
================================================================================

In the normal course of business, the Company extends credit to various dealers
where certain concentrations of credit risk exist. These concentrations of
credit risk may be similarly affected by changes in economic or other conditions
and may, accordingly, impact the Company's overall credit risk. However,
management believes that consolidated trade accounts receivable are well
diversified, thereby reducing potential material credit risk, and that the
allowance for doubtful accounts is adequate to absorb estimated losses as of
December 31, 2000 and 1999.


(3) INVENTORIES
Inventories consist of the following:

                                                     2000            1999
--------------------------------------------------------------------------------
         FIFO cost:   Raw materials              $ 12,139        $ 10,138
                      Work-in-process               6,730           6,395
                      Finished goods               36,557          21,705
--------------------------------------------------------------------------------
                                                   55,426          38,238
         Less revaluation to LIFO                  11,859          10,651
--------------------------------------------------------------------------------
                                                 $ 43,567        $ 27,587
================================================================================

At December 31, 2000 and 1999, approximately 99% and 98%, respectively, of the
Company's inventories were valued on the LIFO method.

Net earnings are approximately $0.8 million and $0.2 million less for 2000 and
1999, respectively, than would have been reported had the FIFO method been used.

See Note 6 for information regarding the use of inventories to secure
borrowings.

                                      -32-
<PAGE>   33

(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:

                                                     2000             1999
-------------------------------------------------------------------------------
         Land                                    $    314        $     346
         Buildings and building equipment          17,510           12,147
         Machinery and equipment                   16,585           18,966
         Leasehold improvements                       692              692
         Construction in process                    1,511            3,364
-------------------------------------------------------------------------------
                                                   36,612           35,515
         Less accumulated depreciation
         and amortization                          19,087           17,292
-------------------------------------------------------------------------------
                                                 $ 17,525         $ 18,223
================================================================================

Depreciation expense was $2.1 million, $2.0 million and $1.8 million for the
years ended December 31, 2000, 1999 and 1998, respectively.

See Note 6 for information regarding the use of property, plant and equipment to
secure borrowings.


(5)  DISCONTINUED OPERATIONS
In December, 2000 the Company adopted a formal plan to sell certain assets and
liabilities of its Contract Electronics (CE) business and in January, 2001, the
Company completed the sale to Ayrshire Electronics, LLC for approximately $9
million, subject to certain closing adjustments. The Company recorded an
after-tax loss of approximately $2.6 million in December, 2000, which includes
anticipated operating losses from the measurement date to the disposal date as
well as transaction costs.

At December 31, 2000, net assets of the CE business to be sold consisted of
accounts receivable, inventory and property of $11,889 net of an allowance for
the estimated loss on disposal and liabilities of $3,189 which includes
operating losses to the anticipated disposal date. At December 31, 1999, net
assets of the CE business to be sold consisted of accounts receivable,
inventory, and property of $19,154 and liabilities of $6,978.


                                      -33-
<PAGE>   34
Condensed statements of operations of discontinued CE Operations are as follows:

<TABLE>
<CAPTION>
                                                                     2000           1999           1998
----------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>             <C>
         Net Sales                                               $ 42,856       $ 44,974        $ 42,723
         Cost of goods sold                                        40,447         44,007          40,625
----------------------------------------------------------------------------------------------------------
         Gross Profit                                               2,409            967           2,098
         Selling, general and administrative                        1,593          2,129           2,042
----------------------------------------------------------------------------------------------------------
         Operating profit (loss)                                      816        (1,162)              56
         Interest expense                                             920            920             920
----------------------------------------------------------------------------------------------------------
         Loss before income taxes                                   (104)        (2,082)           (864)
         Income tax benefit                                            37            792             328
----------------------------------------------------------------------------------------------------------
         Net loss of discontinued CE operations                  $   (67)      $ (1,290)        $  (536)
----------------------------------------------------------------------------------------------------------
</TABLE>

In November, 1999, the Company adopted a formal plan to sell the stock of its
Retail Financing subsidiary (Retail Financing) and in December, 1999, the
Company entered into an agreement with Deutsche Financial Services Corporation
(DFS) to sell all of the outstanding stock of Retail Financing for approximately
$35 million, subject to certain closing adjustments. The transaction closed in
March, 2000. The Company recorded an after-tax gain of approximately $0.7
million in the first quarter of the year end December 31, 2000. Net assets of
approximately $22 million relating to the sale have been segregated on the
December 31, 1999 balance sheet. Under the terms of the sales agreement with
DFS, the Company is contingently liable and must repurchase all accounts that
become more than 120 days past due during a two year period after the sale
closing date. The Company has segregated such accounts on its balance sheet as
"installment receivables retained".

The results of operations for all years presented have been restated for the
discontinued Retail Financing operations.

Net Assets of Discontinued Retail Financing Operations:

                                                                       1999
--------------------------------------------------------------------------------

         Installment receivables owned                             $  2,564
         Holdback on accounts sold                                   14,801
         Allowance for doubtful accounts                              (476)
--------------------------------------------------------------------------------
              Installment receivables, net                           16,889
         Deferred income taxes                                           62
         Servicing asset                                              3,264
         Other assets                                                 4,329
         Liabilities                                                (2,796)
--------------------------------------------------------------------------------
              Net assets of discontinued
              operations                                           $ 21,748
================================================================================






                                      -34-
<PAGE>   35
Condensed statements of earnings of discontinued Retail Financing Operations are
as follows:

                                                             1999        1998
--------------------------------------------------------------------------------
         Income on installment receivables:
         Sold                                             $ 7,366     $  8,671
         Owned                                              1,455        1,690
--------------------------------------------------------------------------------
              Total revenue                                 8,821       10,361
         Expenses:
         General and administrative                         3,477        2,878
         Provision for doubtful accounts                    1,536          797
         Other operating income (expense)                     241        (102)
--------------------------------------------------------------------------------
              Operating profit                              4,049        6,584
         Interest expense                                   1,083        1,133
--------------------------------------------------------------------------------
              Earnings before income taxes                  2,966        5,451
         Income taxes                                       1,108        1,989
--------------------------------------------------------------------------------
              Net earnings of discontinued operations     $ 1,858     $  3,462
================================================================================

In 2000, Retail Financing had net after-tax earnings from operations of $150 to
March 10, 2000, the disposal date.

(6) LONG-TERM DEBT
Long-term debt consists of the following:

                                                            2000         1999
--------------------------------------------------------------------------------
         Revolving credit agreement                     $ 30,628     $ 25,082
         Revolving credit loans                            5,755
         Term loan                                                      8,500
         Inventory purchase and consignment agreement      4,416       11,765
--------------------------------------------------------------------------------
                                                          40,799       45,347
         Less maturities due within one year
              included in current liabilities              4,416       12,765
--------------------------------------------------------------------------------
                                                        $ 36,383     $ 32,582
================================================================================


At December 31, 1999, the Company had a long-term, secured $35 million revolving
Credit Facility bearing interest at 8.5%. In March, 2000, the Company received a
commitment for a new, thirty-six month, secured Credit Facility with a financial
institution. Under the terms of the new Credit Facility, the Company has an
available line of credit based on certain percentages of the carrying amount of
the Company's accounts receivable and inventories, up to a maximum amount of $40
million. The annual rate of interest under the new Credit Facility is equal to
2.5% above the Commercial Paper Rate. The proceeds from the new Credit Facility
were used to refinance the old Credit Facility and provide working capital. The
rate under the Credit Facility was 9.5% at December 31, 2000.

At December 31, 2000, the Company had approximately $3.6 million of additional
borrowing available under this Credit Facility.

The financial covenants of the Credit Facility agreement 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. As
of December 31, 2000, the Company was in violation of certain financial
covenants. The financial institution has waived the violation as of December 31,
2000.

At December 31, 1999, the Company had $8.5 million outstanding on a secured term
loan. The term loan was repaid in March, 2000 using the proceeds from the sale
of Retail Financing.

Substantially all of the tangible assets of the Company and its subsidiaries are
pledged as collateral under the various debt agreements.

The Company has entered into an inventory purchase and consignment agreement.
Under the terms of this product financing arrangement, the Company's borrowings
are collateralized by pianos consigned to colleges, universities, artists and
concert halls. All debt under this agreement is classified as current with an
annual rate of interest of approximately 9%.

In conjunction with the sale of its Retail Financing subsidiary in 1999, the
Company has entered into a revolving credit loan agreement with DFS for the
repurchase of accounts that become more than 120 days past due during a two year
period after the sale closing date. The annual rate of interest under the
revolving credit loan is equal to 0.5 percentage points per annum above LIBOR,
or 6.69% at December

                                      -35-
<PAGE>   36

31, 2000. All collections on repurchased accounts are to be applied against this
revolving credit loan, and the balance remaining on the loan will be due in
March 2004. The revolving credit loan is secured by the repurchased accounts,
repossessed merchandise and an irrevocable standby letter of credit for
$2,000,000.

(7)  DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
interest rate risks.

In December 1998, the Company entered into a two-year interest rate cap
agreement in order to reduce the potential impact of increases in interest rates
on $44 million of floating-rate long-term debt. The agreement entitled the
Company to receive from the counterparty, on a monthly basis, interest income to
the extent the one-month commercial paper rate exceeds 12%. As the commercial
paper rate did not exceed 12% in 2000 and 1999, the Company did not receive
interest income for those years. This cap agreement expired in December 2000 and
was not renewed.

Due to the short maturity of the interest rate cap agreement, fair market value
approximates carrying value. The carrying amount of the unamortized premium was
$10,000 at December 31, 1999.

(8)  FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has only limited involvement with financial instruments and does not
use them for trading purposes.

The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 2000 and 1999. SFAS 107,
"Disclosures about Fair Value of Financial Instruments," defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.

                                          2000                       1999
                                    --------------------------------------------
                                    Carrying     Fair       Carrying     Fair
                                     amount      value       amount      value
--------------------------------------------------------------------------------
         Installment receivables
            retained                 $ 4,026    $ 3,922      $ 5,344    $ 5,120
         Term loan                        --         --      $ 8,500    $ 8,500
================================================================================


The fair value of installment receivables retained is determined as the present
value of expected future cash flows discounted at a rate the Company believes a
purchaser would require as a rate of return, approximately 12%. The fair value
of the term loan is estimated by discounting the future cash flows at rates
currently offered for similar debt instruments of comparable maturities.

The fair value of the Credit Facility equals carrying value as a result of the
variable nature of the interest rate. Note 7 presents the estimated fair values
of derivative financial instruments.

For all financial instruments other that those noted above, fair value
approximates carrying value primarily due to the short maturity of those
instruments.

                                      -36-
<PAGE>   37
(9) INCOME TAXES
The components of income tax expense (benefit) are as follows:

                                       2000         1999        1998
--------------------------------------------------------------------------------
         Current:     Federal      $      0       $ (839)  $     207
                      State               0          142         220
                      Foreign          (178)       1,509         118
--------------------------------------------------------------------------------
                                       (178)         812         545
         Deferred:    Federal        (3,859)      (6,152)     (1,634)
                      State            (587)      (1,090)       (422)
--------------------------------------------------------------------------------
                                     (4,446)      (7,242)     (2,056)
--------------------------------------------------------------------------------
                                   $ (4,624)   $  (6,430) $   (1,511)
================================================================================

Earnings (loss) from continuing operations before income taxes aggregated
$(12.6) million, $(20.9) million, and $(4.5) million for domestic operations and
$(0.5) million, $6.2 million, and $0.8 million for foreign operations in 2000,
1999 and 1998, respectively.

The difference between the taxes provided in the accompanying Consolidated
Statements of Earnings and the amount which would be computed by applying the
U.S. Federal income tax rate to earnings before income taxes is as follows:


                                                 2000         1999        1998
--------------------------------------------------------------------------------
         Computed expected tax (benefit)     $ (4,455)   $  (5,012)  $  (1,258)
         State income taxes, net of
              Federal tax benefit                (387)        (626)       (133)
         Foreign tax rate differences             (20)        (596)       (101)
         Other                                    238         (196)        (19)
--------------------------------------------------------------------------------
                                             $ (4,624)    $ (6,430)   $ (1,511)
================================================================================

                                      -37-
<PAGE>   38
Components of deferred tax balances as of December 31, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                                              2000           1999
----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
         Deferred tax assets:
              Accounts receivable, principally due to
                   allowance for doubtful accounts                        $  332          $   242
              Inventories, principally inventory reserves and LIFO
                differences                                                2,699            1,084
              Nondeductible accruals, principally due to
                   accrual for financial reporting purposes                1,653            1,734
              Foreign tax credit carry forwards                            1,532              806
              Valuation allowance                                         (1,532)            (806)
             Net operating loss carry forwards                            10,816            8,178
             Other                                                           909              849
</TABLE>

<TABLE>
<S>                                                                     <C>             <C>
----------------------------------------------------------------------------------------------------------
                   Total gross deferred tax assets                      $ 16,409        $  12,087

----------------------------------------------------------------------------------------------------------
         Deferred tax liabilities:
             Property, plant and equipment, principally
                 due to differences in depreciation                         (832)            (814)
            State income taxes                                              (726)            (561)
----------------------------------------------------------------------------------------------------------
                   Total gross deferred tax liabilities                   (1,558)          (1,375)
----------------------------------------------------------------------------------------------------------
              Net deferred tax assets                                  $  14,851        $  10,712
==========================================================================================================
</TABLE>

The Company has approximately $1.5 million in foreign tax credits for which the
utilization is uncertain. The Company has reserved for these credits through a
valuation allowance at December 31, 2000 and 1999. The net operating loss carry
forward of $26.9 million at December 31, 2000 expires in years 2018 through
2020.

                                      -38-
<PAGE>   39


(10) ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following:

                                                       2000         1999
--------------------------------------------------------------------------------
         Accrued liabilities:
              Compensation and benefits             $ 1,372     $  1,147
              Contingent recourse obligation          2,200
              Other                                   6,121        2,246
--------------------------------------------------------------------------------
                                                    $ 9,693     $  3,393
================================================================================

         Other liabilities:
              Deferred compensation                 $ 1,137     $  1,265
              Postretirement and postemployment         186          195
              Other                                     652          651
--------------------------------------------------------------------------------
                                                    $ 1,975     $  2,111
================================================================================


(11) RETIREMENT PLANS
The Company maintains retirement plans under Section 401(k) of the Internal
Revenue Code. Under these plans, the Company makes an annual contribution up to
3% of compensation paid to all covered employees. To the extent employees
contribute up to 6% of their compensation, the Company will match a portion of
each dollar contributed. The Company also maintains a deferred compensation plan
for certain key employees and a defined benefit plan for certain hourly
employees. The cost of providing these retirement benefits is as follows:

                                                2000         1999         1998
--------------------------------------------------------------------------------
         Defined contribution 401(k)        $    667       $  517     $    696
         Deferred compensation                   112          136          163
         Defined benefit                         102          270          266
--------------------------------------------------------------------------------
                                            $    881       $  923     $  1,125
================================================================================


Benefits to employees under the defined benefit plan are based upon their years
of credited service. Contributions to the plan are designed to fund the plan's
current service cost on a current basis and initial prior service cost over 30
years. Plan assets consist primarily of U.S. government obligations, Federal
agency obligations, mortgages, corporate bonds and notes, and common stocks. The
defined benefit plan of the Company was amended to cease benefit accruals
effective in April, 2000 and to freeze the benefits accrued as of that date.
This resulted in a curtailment gain of $577 for the year ended December 31,
2000.

                                      -39-
<PAGE>   40

Net pension expense for plans included the following components:

                                                Year Ended December 31,
                                                -----------------------
                                              2000         1999        1998
--------------------------------------------------------------------------------
         Service cost                       $   97       $  149    $    160
         Interest cost                         244          253         240
         Return on plan assets                (269)        (216)       (222)
         Net amortization and deferral          30           84          88
--------------------------------------------------------------------------------
         Net periodic pension expense       $  102       $  270    $    266
================================================================================


The following table shows reconciliations of pension plan obligations and
assets:

                                                                Year Ended
                                                               December 31,
                                                               ------------
                                                            2000           1999
--------------------------------------------------------------------------------
         Beginning benefit obligation                    $ 3,550        $ 3,853
         Service cost                                         97            149
         Interest cost                                       244            253
         Benefits paid                                      (395)          (116)
         Actuarial loss (gain)                                 3           (589)
         Curtailment gain                                   (577)
--------------------------------------------------------------------------------
         Ending benefit obligation                       $ 2,922        $ 3,550
================================================================================

         Beginning fair value of plan assets             $ 3,342        $ 2,930
         Actual return on plan assets                        269            216
         Company contributions                               460            360
         Benefits paid                                      (395)          (116)
         Plan expense payments                               (76)           (48)
--------------------------------------------------------------------------------
         Ending fair value of plan assets                $ 3,600        $ 3,342
================================================================================

         Funded status of the plan                       $   678        $  (208)
         Unrecognized actuarial gain                        (229)          (228)
         Unrecognized prior service cost                     431
         Unrecognized transition obligation                   18
--------------------------------------------------------------------------------
         Prepaid pension liability                       $   449        $    13
================================================================================


         The weighted average rate assumptions used in determining pension costs
         and the benefit obligations were:

                                                       2000      1999      1998
--------------------------------------------------------------------------------
         Discount rate                                 7.8%      7.8%      6.8%
         Long-term rate of return on plan assets       9.0%      9.0%      9.0%
================================================================================

                                      -40-
<PAGE>   41
(12) SHAREHOLDERS' EQUITY

At December 31, 2000 and 1999, the Company had 14,000,000 shares of $.01 per
value common stock authorized and 4,230,694 shares issued. The Company held
767,868 shares in treasury at December 31, 2000, and 1999.

The Company maintains an incentive stock option plan. Under this plan, options
for 300,000 shares of common stock may be granted to key managerial personnel of
the Company. In 1998 the Company adopted an Omnibus Stock Plan ("Omnibus Plan")
which allows the Company to grant up to 200,000 non-qualified stock options,
incentive stock options, restricted stock, stock appreciation rights,
performance units and performance shares to directors, executive officers and
other key employees. The Company has also granted other non-qualified stock
options to key employees and to each non-employee director. In all cases, the
option price shall not be less than the fair market value of the common stock at
the date of grant.

At December 31, 2000, there were 127,550 additional shares available for grant
under the incentive stock option plan, and 102,000 additional shares available
for grant under the 1998 Omnibus Plan. The per share weighted-average fair value
of stock options granted during 2000, 1999 and 1998 was $4.26, $4.99 and $7.03,
respectively, on the date of the grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 2000 - expected dividend
yield of 0%, expected volatility of 41.95%, risk-free interest rate of 4.5%, and
an expected life of 7 years; 1999 - expected dividend yield of 0%, expected
volatility of 32.12%, risk-free interest rate of 6.9%, and an expected life of
6.5 years; 1998 - expected dividend yield of 0%, expected volatility of 32.3%,
risk-free interest rate of 5.21%, and an expected life of 7 years.

The Company applies APB 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the Company's
net earnings (loss) from continuing operations, basic earnings per share and
diluted earnings per share would have been reduced to the pro forma amounts
indicated below (In thousands, except earnings per share):

<TABLE>
<CAPTION>
                                                          2000         1999         1998
         Net earnings (loss) from continuing operations:
----------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>         <C>
         As reported                                 $ (8,478)    $ (8,311)   $  (2,189)
              Pro forma                                (8,552)      (8,523)      (2,390)
         Basic earnings per share:
              As reported                            $  (2.45)    $  (2.41)   $    (.63)
              Pro forma                                 (2.47)       (2.47)        (.69)
         Diluted earnings per share:
              As reported                            $  (2.45)    $  (2.41)   $    (.63)
              Pro forma                                 (2.47)       (2.47)        (.69)
==========================================================================================================
</TABLE>


Pro forma net earnings reflect only options granted in 2000, 1999 and 1998.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net earnings amounts presented
above because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 1, 1995,
is not considered.

                                      -41-
<PAGE>   42
A summary of the activity of the stock option plans follows (In thousands,
except per share data):

                                               Shares        Weighted average
                                             subject to          per share
                                               option          option price
--------------------------------------------------------------------------------
         Balance, December 31, 1997              413              $  13.10
              Options granted                     84                 15.46
              Options exercised                  (15)                12.26
              Options expired                    (17)                14.27
--------------------------------------------------------------------------------
         Balance, December 31, 1998              465              $  13.51
              Options granted                     60                  7.66
              Options exercised                    0                    --
              Options expired                   (102)                13.54
--------------------------------------------------------------------------------
         Balance, December 31, 1999              423              $  12.66
--------------------------------------------------------------------------------
              Options granted                     62                  5.84
              Options exercised                    0                     0
              Options expired                   (112)                12.43
--------------------------------------------------------------------------------
         Balance, December 31, 2000              373              $  11.66
================================================================================


At December 31, 2000, the range of exercise prices was $5.84 - $17.25, and
weighted-average remaining contractual life of outstanding options was 6 years.

At December 31, 2000 and 1999, the number of options exercisable was 269,530 and
307,410, respectively, and the weighted-average exercise price of those options
was $12.86 and $13.20, respectively.

The Company had adopted a shareholder rights plan declaring a dividend
distribution of one Common Share Purchase Right for each outstanding share of
the Company's common stock. Under the plan, shareholders of record on September
10, 1996, received one right for each common share held on that date. This
distribution was not taxable to shareholders. The rights had a ten year life and
could be exercised if a party acquired 15 percent or more of the Company's
common stock, or announced a tender offer to do so, without the consent of the
Company's Board of Directors. In April 1998, the Company adopted a resolution to
terminate this shareholder rights plan. Each holder of a right was paid $.01 per
right on May 8, 1998 in redemption of the rights, an aggregate amount of
$34,457. The termination of this rights agreement had no impact on the number of
shares of common stock outstanding.

In October 1998, the Company adopted a new shareholder rights plan declaring a
dividend distribution of one Common Stock Purchase Right for each outstanding
share of the Company's common stock to the shareholders of record on October 22,
1998. Each right entitles the holder to purchase from the Company one share of
common stock for $45 if a party acquires 15 percent or more of the Company's
common stock, or announces a tender offer to do so, without the consent of the
Company's Board of Directors.

                                      -42-
<PAGE>   43
(13) EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(In thousands, except per share data):

<TABLE>
<S>                                                 <C>                 <C>            <C>
                                                 Net earnings         Shares         Per share
</TABLE>

<TABLE>
<CAPTION>
         2000                                     (Numerator)      (Denominator)      amount
----------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>            <C>
         Basic earnings (loss) per share:
              Net earnings available to
                   common shareholders              $  (8,478)          3,463          $ (2.45)
              Effect of dilutive securities
                   stock options                            --             --                --
----------------------------------------------------------------------------------------------------------
         Diluted earnings (loss) per share:
              Earnings available to common
                   stockholders and assumed
                   conversions                      $  (8,478)           3463          $ (2.45)
==========================================================================================================
         1999
----------------------------------------------------------------------------------------------------------
         Basic earnings (loss) per share:
              Net earnings available to
                   common shareholders              $  (8,311)          3,455          $ (2.41)
              Effect of dilutive securities
                   stock options                            --             --                --
----------------------------------------------------------------------------------------------------------
         Diluted earnings (loss) per share:
              Earnings available to common
                   stockholders and assumed
                   conversions                      $  (8,311)          3,455          $ (2.41)
==========================================================================================================

         1998
----------------------------------------------------------------------------------------------------------
         Basic earnings (loss) per share:
              Net earnings available to
                   common shareholders              $  (2,189)          3,450         $   (.63)
              Effect of dilutive securities
                   stock options                            --             40                --
----------------------------------------------------------------------------------------------------------
         Diluted earnings (loss) per share:
              Earnings available to common
                   stockholders and assumed
                   conversions                      $  (2,189)          3,490         $   (.63)
==========================================================================================================
</TABLE>

Options to purchase 372,900, 369,600 and 446,600 shares of common stock were
outstanding in 2000, 1999 and 1998, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of common shares.

(14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation arising in its normal course of business.
The Company does not believe that any existing claim or suit will have a
material adverse effect on the business, financial condition or cash flows of
the Company.

The operations of the Company and its predecessors are subject to Federal, state
and local laws regulating the discharge of materials into the environment. The
Company does not anticipate that any environmental matters currently known to
the Company will result in any material liability.

At December 31, 2000, the Company was obligated under non-cancelable operating
leases for real and personal property which are subject to certain renewal and
purchase options. Non-cancelable operating leases in effect at December 31,
2000, require rental payments of $2.2 million, $1.9 million, $1.6 million,

                                      -43-
<PAGE>   44

$1.1 million and $1.0 million for the years 2001 through 2005, respectively, and
$2.2 million for years thereafter. Lease expense for all operating leases was
$1.8 million, $2.2 million and $1.6 million for 2000, 1999 and 1998,
respectively.

 In conjunction with the sale of its Retail Financing subsidiary in 1999 (see
Note 5), the Company is required to repurchase all accounts that become more
than 120 days past due during a two year period after the sale closing date. At
December 31, 2000 the Company has included in accrued liabilities a contingent
recourse obligation of $2.2 million, which represents potential losses on
installment accounts receivable that have been repurchased as well as potential
losses on any accounts that have to be repurchased in the future. Management of
the Company believes that this contingent liability is adequate to absorb
potential losses on repurchased accounts. Determining this liability requires
judgement. It is at least reasonably possible that the assumptions used to
calculate this reserve and its effect on operations could materially change in
the near term.

(15) SEGMENT INFORMATION
As a result of the discontinued operations described in Note 5, the Company now
operates in only one segment, Music and related.

The Music and related segment includes a broad range of acoustic and electronic
instruments serving a broad consumer base. Keyboard instruments are sold through
Company-owned retail stores, domestic wholesale dealers, factory direct sales
and an international dealer network. In addition, this segment includes
furniture and musical components produced on behalf of other manufacturers.

(16) SUBSEQUENT EVENT
On March 22, 2001, the Company sold eleven retail piano stores to an affiliate
of Chicago-based Biasco Musical Instrument Company, Baldwin's largest dealer,
for approximately $4.6 million, subject to certain adjustments. The net proceeds
of the transaction will be used to reduce debt.


                                      -44-
<PAGE>   45

 (17) QUARTERLY FINANCIAL DATA (UNAUDITED)
The sum of the quarter's earnings per share amounts may not add to full year
earnings per share because each quarter is calculated independently. Quarterly
financial data for the years ended December 31, 2000 and 1999 are as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
         2000                               First       Second        Third       Fourth            Year
==============================================================================================================
<S>                                       <C>          <C>          <C>          <C>               <C>
         Net sales                        $19,861      $22,807      $23,411      $20,055           $86,134
--------------------------------------------------------------------------------------------------------------
         Gross profit                       2,094        3,474        3,411          336             9,315
--------------------------------------------------------------------------------------------------------------
         Net earnings (loss) from
         Continuing operations            $(2,094)     $(1,712)     $  (652)     $(4,020)          $(8,478)
--------------------------------------------------------------------------------------------------------------
         Discontinued Operations:
         Income from operations
         to be disposed of, net of tax        461          105           91         (574)               83
         Gain (loss) on sales, net of tax     725            0            0       (2,647)           (1,922)
--------------------------------------------------------------------------------------------------------------
         Basic earnings (loss) per share:
--------------------------------------------------------------------------------------------------------------
         Earnings (loss) from continuing
         operations                          (.60)        (.49)        (.19)       (1.16)            (2.45)
         Earnings from discontinued
         operations                           .34          .03          .03         (.93)             (.53)
                                           -------      -------      -------      -------           -------
                                          $  (.26)     $  (.46)     $  (.16)     $ (2.09)          $ (2.98)
--------------------------------------------------------------------------------------------------------------
         Diluted earnings (loss) per share:
--------------------------------------------------------------------------------------------------------------
         Earnings (loss) from continuing
         operations                          (.60)        (.49)        (.19)       (1.16)            (2.45)
         Earnings from discontinued
         operations                           .34          .03          .03         (.93)             (.53)
                                           -------      -------      -------      -------           -------
                                          $  (.26)     $  (.46)     $  (.16)     $ (2.09)          $ (2.98)
==============================================================================================================
</TABLE>

                                      -45-
<PAGE>   46


<TABLE>
<CAPTION>
         1999                               First       Second        Third       Fourth        Year
==============================================================================================================
<S>                                       <C>          <C>          <C>          <C>          <C>
         Net sales                       $ 18,789     $ 17,139     $ 17,915     $ 25,472     $ 79,315
--------------------------------------------------------------------------------------------------------------

         Gross profit                       1,881        2,816      (1,567)        (710)        2.420
--------------------------------------------------------------------------------------------------------------
         Net earnings (loss) from
         Continuing operations           $(2,362)     $(2,233)     $(1,360)     $(2,356)     $(8,311)
--------------------------------------------------------------------------------------------------------------
         Discontinued Operations:
         Income (loss) from operations
         to be disposed of                    521          871        (262)        (562)          568
--------------------------------------------------------------------------------------------------------------
         Basic earnings per share:

--------------------------------------------------------------------------------------------------------------
         Earnings (loss) from continuing
         operations                         (.68)        (.64)        (.39)        (.68)       (2.41)
         Earnings (loss) from discontinued
         operations                           .15          .25        (.08)        (.16)          .17
                                              ---          ---        -----        -----       ------
                                         $  (.53)     $  (.39)     $  (.47)     $  (.84)     $ (2.24)
--------------------------------------------------------------------------------------------------------------
         Diluted earnings per share:

--------------------------------------------------------------------------------------------------------------
         Earnings (loss) from continuing
         operations                         (.68)        (.64)        (.39)        (.68)       (2.41)
         Earnings (loss) from discontinued
         operations                           .15          .25        (.08)        (.16)          .17
                                              ---          ---        -----        -----        -----
                                         $  (.53)     $  (.39)     $  (.47)     $  (.84)     $ (2.24)
==========================================================================================================
</TABLE>


     ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

         None.



                                      -46-
<PAGE>   47

                                    PART III

                      ITEM 10. DIRECTORS OF THE REGISTRANT

         KAREN L. HENDRICKS, age 53, is the Company's Chairman of the Board and
Chief Executive Officer. Prior to joining the Company in 1994, Ms. Hendricks
served as the Executive Vice President and General Manager, Skin Care Division
of The Dial Corporation since 1992, where she had full responsibility for Dial's
United States bar and liquid soap business and their industrial products. Ms.
Hendricks previously was employed for over twenty years by The Procter & Gamble
Company in various executive positions in product development and was promoted
to General Manager of its Vidal Sassoon Hair Care Company in 1987. In her last
two years at Procter & Gamble, she was Manager of Worldwide Strategic Planning
for their hair care business. She also currently serves as a director of
ComProducts International.

     WILLIAM B. CONNELL, age 60, has served as a director of the Company since
July 1995 and as Lead Director from January 1997 until May 2000. Mr. Connell has
also served as director since 1988 and, since 1994, Chairman of EDB Holdings,
Inc., a privately held company engaged in the international retail sale of
optical eyewear. From 1990 to 1994 Mr. Connell served as President and Vice
Chairman of Whittle Communications, a limited partnership that specialized in
multi-media services. From 1984 to 1989 Mr. Connell was a Vice President of the
Procter & Gamble Company. He also currently serves as a director of Remington
Products Company and Information Resources, Inc.

     HERBERT A. DENTON, age 54, has served as director of the Company since
September 1999. Mr. Denton is President of Providence Capital, Inc., a private
investment bank and registered broker dealer. Mr. Denton currently serves on the
board of directors for PolyMedica Corporation and Mesa Air Group, Inc.

     JOHN H. GUTFREUND, age 71, has served as a director of the Company since
March 1998 and as Lead Director since June 2000. Mr. Gutfreund is President of
Gutfreund & Company, Inc., a New York based financial consulting firm
specializing in advising select corporations and financial institutions in the
United States, Europe and Asia. Mr. Gutfreund was the former Chairman and Chief
Executive Officer of Salomon Brothers from 1981 to 1991. He currently serves as
a director of LCA-Vision, Inc., Universal Bond Fund, Ascent Assurance, Inc.,
Evercel, Inc., AMBI, Inc., AccuWeather, Inc., Arch Wireless, and Maxicare Health
Plans, Inc.

     JOSEPH H. HEAD, JR., age 69, has been a director of the Company since May
1987 and was previously a director from November 1983 until June 1986. He also
served as Secretary of the Company from its formation until May 1989. Mr. Head
is Chairman, former Chief Executive Officer and a director of Atkins & Pearce,
Inc., a manufacturer of industrial textiles. He has held these various
offices/directorships at Atkins & Pearce, Inc. since

                                      -47-
<PAGE>   48

1990. Mr. Head also currently serves as a director of Fifth Third Bancorp, a
position he has held since 1987.

     JAMES P. HEFFERNAN, age 55, has served as a director of the Company since
June, 2000. Mr. Heffernan has been a private investor and investment banker
since 1996. From 1987 through 1996, Mr. Heffernan was Managing Director and
general partner of Whitman, Heffernan & Rhein & Co., Inc. ("WHR"), an investment
advisory and merchant banking company with limited partners some of which
include major pension funds. Further, WHR served as an advisor to companies,
boards of directors and creditor groups. Mr. Heffernan was Chief Financial
Officer, Chief Operating Officer and a director of Danielson Holding Corporation
from 1990 to 1996. Mr. Heffernan also served as Chairman of Herman Holdings,
Inc. from 1993 to 1996 and Chairman of its subsidiary, Herman Sporting Goods,
Inc, from 1995 to 1996. From 1993 until 2000 Mr. Heffernan served as a director
of Columbia Energy Group. He currently serves as a director of United Natural
Foods, Inc., Herman Holdings, Inc., and Herman Sporting Goods, Inc. He is also a
Trustee of New York Racing Association.

     KENNETH W. PAVIA, age 58, is chairman of FHI, Inc., a private investment
company, and is a general partner of Bolero Investment Group, a limited
partnership established for the principal purpose of investment in securities.
Mr. Pavia also currently serves as a director of Seibels Bruce Group, Inc.

     There are no family relationships among any of the directors nor among any
of the directors and any executive officers of the Company.

     Ms. Hendricks' employment agreement with the Company provides that she will
be nominated as a director of the Company for each year of her employment as
described under "Executive Compensation - Employment Contracts and Change of
Control Agreements".

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         To the best of the Company's knowledge, all of the Company's directors,
officers and 10% or more shareholders have timely filed with the Securities and
Exchange Commission all reports required to be so filed pursuant to Section 16
of the Securities Exchange Act of 1934 for the Company's 2000 fiscal year.


                                      -48-
<PAGE>   49



                         ITEM 11. EXECUTIVE COMPENSATION


SUMMARY COMPENSATION TABLE

                  The following table is a summary of certain information
concerning the compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, each of the Company's other three most highly compensated
executive officers in 2000. Information is provided for each of the last three
fiscal years or such shorter period during which the named executive served as
an executive officer of the Company.

<TABLE>
<CAPTION>
                                                                          Long Term Compensation Awards
                                                                      ---------------------------------------
                                             Annual Compensation      Restricted  Securities
                                       -----------------------------    Stock     Underlying     All Other
Name and                                         Salary      Bonus      Awards      Options    Compensation
Principal Position                      Year     (1)($)     (2)($)      (3)($)        (#)         (4)($)
------------------                      ----     ------     ------      ------        ---         ------
<S>                                     <C>     <C>         <C>           <C>        <C>          <C>
Karen L. Hendricks                      2000    $372,000    $75,549      -0-         11,000       $ 8,340
    Chairman and Chief Executive        1999     372,000      -0-      10,000        10,000        13,245
    Officer                             1998     350,000      -0-        -0-         10,000        30,039

Duane D. Kimble                         2000    $195,000    $50,000     4,284         5,500       $ 7,066
    President,                          1999     175,000      -0-        -0-          4,000        19,426
    Chief Financial Officer             1998      67,282      -0-        -0-         10,000        12,373
    And Corporate Secretary

Daniel B. Baker (5)                     2000    $145,000    $20,000      -0-          2,500       $ 5,421
    Former Vice President,              1999     144,130      -0-        -0-          2,500         4,825
    Music Sales                         1998     132,275      -0-        -0-          2,500         9,529

Perry H. Schwartz (6)                   2000    $ 97,276     $-0-        -0-          -0-         $ 1,213
    Senior Vice President and           1999     143,833      -0-        -0-          -0-           2,827
    Treasurer                           1998     186,000      -0-        -0-          2,500        13,306
</TABLE>

-------------------------
(1) Includes amounts contributed by the following named executives to the
Baldwin Piano & Organ Company Retirement Plan for Salaried Employees and the
Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Plan as
elective salary reduction contributions.

                                         2000           1999             1998
                                         ----           ----             ----
Karen L. Hendricks                    $10,500        $21,160          $20,500
Duane D. Kimble                        12,707         15,730            6,198
Daniel B. Baker                        14,553         12,712            7,817
Perry H. Schwartz                       1,518          4,315           10,993

(2) The bonuses are shown for the years earned, but were paid in the following
year.

(3) In 1994, the Company's Board of Directors adopted the Company's 1994 Long
Term Incentive Plan pursuant to which awards of restricted stock based upon the
Company's stock performance in comparison to the Russell 2000 index could be
made. No shares of restricted stock have been earned to date under this Plan.
The 10,000 shares of restricted stock granted to Ms. Hendricks in 1999 were
issued pursuant to the Company's 1998 Omnibus Stock Plan and will vest 100% on
the earlier of the third anniversary of the grant date and Ms. Henricks'
termination of her employment pursuant to the terms of her Change in Control
Agreement. See, "Executive Compensation - Employment Contracts and Change in
Control Agreements." At December 31, 2000, 10,000 shares of restricted stock
granted to Ms. Hendricks were unvested and had a market value of $21,250. For
fiscal year 2000, Baldwin paid part of its annual bonus in shares of restricted
stock pursuant to its 1998 Omnibus Stock Plan. As part of his 2000 bonus, Mr.
Kimble received 4,284 shares of restricted stock valued at $8,568. All shares
issued as bonus payments for fiscal year 2000 will vest 100% on February 28,
2003.


                                      -49-
<PAGE>   50

(4) "All Other Compensation" includes, as shown below, amounts contributed by
the Company under the Baldwin Piano & Organ Company Retirement Plan for Salaried
Employees; amounts contributed by the Company under the Baldwin Piano & Organ
Company Non-Qualified Deferred Compensation Plan; group term life insurance
premiums paid by the Company on policies obtained by the Company for all
employees; relocation expenses incurred by Mr. Kimble in 1998; special incentive
payments to Mr. Kimble in 1999; life insurance premiums paid by the Company for
$500,000 of executive life insurance on the life of Ms. Hendricks; and insurance
premiums paid by the Company for supplemental disability coverage for Ms.
Hendricks providing $10,000 in excess disability coverage per month. The net
proceeds of the executive life policy is payable to the estate of Ms. Hendricks.

                             ALL OTHER COMPENSATION
                             ----------------------

                                             2000             1999          1998
                                             ----             ----          ----

KAREN L. HENDRICKS
   Retirement Plan                           $ 5,580       $11,160       $23,939
   Executive Insurance                           795             0         2,400
   Disability Insurance                          885           885         1,480
   Group Life Insurance                        1,080         1,200         2,220
                                             -------       -------       -------
       Totals                                $ 8,340       $13,245       $30,039
                                             =======       =======       =======

DUANE D. KIMBLE
   Retirement Plan                           $ 6,450       $ 2,850       $     0
   Group Life Insurance                          616           576           355
   Relocation Expenses                             0             0        12,018
   Incentive Payment                               0        16,000             0
                                             -------       -------       -------
      Totals                                 $ 7,066       $19,426       $12,373
                                             =======       =======       =======

DANIEL B. BAKER
   Retirement                                $ 4,950       $ 4,324       $ 8,663
   Group Life Insurance                          471           501           866
                                             -------       -------       -------
          Totals                             $ 5,421       $ 4,825       $ 9,529
                                             =======       =======       =======

PERRY H. SCHWARTZ
   Retirement Plan                           $   759       $ 2,158      $12,.067
   Group Life Insurance                          454           669         1,239
                                             -------       -------       -------
         Totals                              $ 1,213       $ 2,827       $13,306
                                             =======       =======       =======

(5)      Mr. Baker's employment with the Company terminated in January, 2001.

(6)      Mr. Schwartz began working on a part-time basis during 2000.




                                      -50-
<PAGE>   51

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS

         The Company and Karen L. Hendricks, its Chief Executive Officer and
Chairman of the Board, have entered into an Employment Agreement, as amended,
and a Change in Control Agreement, as amended. Pursuant to the terms of her
Change in Control Agreement, Ms. Hendricks had the contractual right to
terminate her employment upon certain circumstances, including at any time
within three years following the sale of all or substantially all of the assets
of the operations of any two of the Company 's historical three businesses of
music, contract electronics or finance. The Company sold its finance business in
2000 and sold its contract electronics business in 2001. In February 2001, in
accordance with the terms of her Change in Control Agreement, Ms. Hendricks gave
written notice to the Company's Board of Directors that she was exercising her
right to terminate her employment with the Company effective in November 2001.
Ms. Hendricks also confirmed to the Board that she would work with the Board in
good faith to recruit a qualified successor and to accomplish an effective
transition, all as contemplated by her Change in Control Agreement and her
Employment Agreement.

         Ms. Hendricks' Change in Control Agreement provides that Ms. Hendricks
will receive 2.99 times the average annual salary and average annual bonus
and/or incentive compensation that she received over the five years immediately
preceding her termination. At Ms. Hendricks' option, such severance compensation
may be paid by the Company over 36 months or in a lump sum discounted to present
value. Pursuant to her Change in Control Agreement, all stock options,
restricted stock and other incentive awards granted to Ms. Hendricks will, upon
termination of employment, immediately vest in full and she will be entitled to
receive immediately upon termination the cash value of any long term incentives
payable under any long term incentive compensation plans maintained by the
Company on the date of termination. Her Change in Control Agreement also
provides that health and life insurance coverage will be maintained by the
Company at the level in existence at the time of her termination, and that Ms.
Hendricks will be fully vested and continue her participation in all employee
retirement plans maintained by the Company on the date of her termination,
either for 36 months or until Ms. Hendricks becomes employed by any other
employer. Pursuant to her Change in Control Agreement, any agreement not to
compete entered into by the Company and Ms. Hendricks shall remain in effect.

         In accordance with the terms of her Employment Agreement, which will
remain in effect through her expected termination date, Ms. Hendricks will be
employed as the Chief Executive Officer and Chairman of the Board of the Company
and she is being nominated as a director for the one year term ending at the
Company's 2002 Annual Meeting of shareholders. For the remainder of her
employment, Ms. Hendricks will continue to receive an annual base salary of no
less than $350,000. She will participate in the Company's management incentive
plans at the highest participant level, she will receive all other benefits
normally accorded to the Company's senior officers and the Company will continue
to provide, in addition to the customary insurance provided to Company
employees, a $500,000 term life insurance policy on her life payable to her
beneficiaries and supplemental disability coverage providing $10,000 in excess
disability


                                      -51-
<PAGE>   52

coverage per month. If not for Ms. Hendricks' voluntary termination of her
employment, her Employment Agreement otherwise would have provided that Ms.
Hendricks would have continued in the Company's employ until August 31, 2002,
and thereafter, without a specified term, until terminated by the Company or Ms.
Hendricks.

         In the event that the Company would terminate her employment without
cause, Ms. Hendricks' Employment Agreement provides that the Company would
continue to pay her as severance pay her normal monthly salary for 36 months
following termination. At Ms. Hendricks' option, she could elect to be paid a
single lump sum, discounted to present value, within thirty (30) days following
termination. In the event the Company terminates her employment without cause,
the Company shall also pay the cost of out placement services for Ms. Hendricks
up to an amount equal to 15% of her annual base salary at the time her
employment is terminated. In the event Ms. Hendricks would be terminated for
cause, she would receive her salary through the effective date of termination
and all incentive payments earned by but not yet paid to her prior to such date.
The Company shall pay such amounts within 30 days of the effective date of such
termination. Her Employment Agreement contains covenants by Ms. Hendricks not to
compete with the Company for a period of one year after termination of her
Employment Agreement by Ms. Hendricks or by the Company for cause or upon her
disability.

         The Company also has entered into change in control agreements with the
Company's other two current executive officers, Duane D. Kimble, and Perry H.
Schwartz (the "Change in Control Agreements"). Pursuant to Mr. Kimble's Change
in Control Agreement, if a change in control occurs during the term of the
agreement and the Company terminates his employment, either by actual
termination or by constructive termination, then Mr. Kimble will receive two
times his average annual salary and average annual bonus and/or incentive
compensation that he received over the five years immediately preceding his
termination. For purposes of Mr. Kimble's Change in Control Agreement, a change
in control was deemed to have occurred upon completion of the Company's sale of
its contract electronics business in 2001. Accordingly, Mr. Kimble will be
entitled to receive the payments contemplated by his Change in Control Agreement
if he is terminated at any time prior to the expiration of the term of his
agreement on July 5, 2003, unless termination is for cause.

                  At Mr. Kimble's option, such severance compensation may be
paid by the Company over 24 months or in a lump sum discounted to present value.
Pursuant to his Change in Control Agreement, all stock options, restricted stock
and other incentive awards granted to Mr. Kimble will, upon termination of
employment, immediately vest in full and he will be entitled to receive
immediately upon termination the cash value of any long term incentives payable
under any long term incentive compensation plans maintained by the Company on
the date of termination. His Change in Control Agreement further provides that
health and life insurance coverage will be maintained at the level in existence
at the time of his termination, and that he will be fully vested and continue
his participation in all employee retirement plans maintained by the Company on
the date of his termination for 24 months or until he becomes employed by any
other


                                      -52-
<PAGE>   53

employer. Mr. Kimble is further subject to an agreement not to compete with the
Company for one year following the date of termination.

         Pursuant to the Change in Control Agreement for Mr. Schwartz, if a
change in control occurs during the term of the agreement and the Company
terminates his employment within one year after the change in control, he will
receive the average annual salary and average annual bonus and/or incentive
compensation that he received over the five years immediately preceding his
termination. At his option, such severance compensation may be paid by the
Company over 12 or in a lump sum discounted to present value. Pursuant to his
Change in Control Agreement, all stock options, restricted stock and other
incentive awards granted to Mr. Schwartz will, upon termination of employment,
immediately vest in full and he will be entitled to receive immediately upon
termination the cash value of any long term incentives payable under any long
term incentive compensation plans maintained by the Company on the date of
termination.

         Mr. Schwartz's Change in Control Agreement further provides that health
and life insurance coverage will be maintained at the level in existence at the
time of his termination, and that he will be fully vested and continue his
participation in all employee retirement plans maintained by the Company on the
date of his termination, either for 12 months or until he becomes employed by
any other employer. Mr. Schwartz is further subject to an agreement not to
compete with the Company for one year following the date of termination. His
Change in Control Agreement has a term ending on November 12, 2001.

OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth certain information regarding grants by
the Company of stock options to each of the named executives during 2000.



<TABLE>
<CAPTION>
                         Individual Grants(1)
                       -------------------------
                                                                                Potential Realizable
                       Number of      % of Total                                Annual Rate of
                       Securities     Options                                   Stock Price
                       Underlying     Granted to                                Appreciation for
                       Options        Employees      Exercise or                Option Terms(4)
                       Granted        in Fiscal      Base Price Expiration
Name                   (#)(2)         Year(3)        ($/Share)  Date            5%($)      10%($)
                       ------         -------        ---------  -------         -------    --------
<S>                    <C>             <C>           <C>        <C>             <C>        <C>
Karen L. Hendricks     11,000          21.7%         $5.84375   5/24/10         $ 40,426   $102,455
Duane D. Kimble         5,500          10.9%         $5.84375   5/24/10         $ 20,213   $ 51,227
Daniel B. Baker         2,500           4.9%         $5.84375   5/24/10         $  9,188   $ 23,285
Perry H. Schwartz           0             0%            --         --                  0          0
</TABLE>


(1) All grants were made at the fair market value on the grant date.

(2) Options vest over a four year period, 20% on the grant date and 20% on each
anniversary of the grant date.

(3) Total options granted to all executive officers and other employees of the
Company in 2000 were for an aggregate of 50,600 shares of Common Stock.

(4) Calculated based upon assumed stock prices for the Company's Common Stock
assuming 5% and 10% annual rates of stock appreciation are achieved over the
full term of the options granted to the executive officers reflected in the
table. The potential realizable gain equals the product of the number of shares
underlying the stock option grant and the difference between the assumed stock
price and the exercise price of each option.



                                      -53-
<PAGE>   54

        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR
                                END OPTION VALUES

         The following table sets forth certain information regarding individual
exercises of stock options during 2000 by each of the named executives.

                                                    Number of
                                                  Securities       Value of
                                                  Underlying       Unexercised
                                                  Unexercised      In-the-Money
                                                  Options at       Options at
                                                  12/31/00         12/31/00
                      Shares
                      Acquired on    Value        Exercisable/     Exercisable/
                      Exercise       Realized     Unexercisable    Unexercisable
NAME                  (#)               ($)       (1)   (#)        (2) (3) ($)
------------------   ---------      ---------     --------------   -----------
Karen L. Hendricks    -0-            $  -0-        145,400/        0/
                                                    24,600         0

Duane D. Kimble       -0-               -0-          8,700/        0/
                                                    10,800         0

Daniel B. Baker       -0-               -0-         12,100/        0/
                                                     4,900         0

Perry H. Schwartz     -0-               -0-         13,900/        0/
                                                     1,600         0

---------------------------------

(1) See note (2) to the table appearing under "Option Grants in Last Fiscal
Year" regarding the vesting of options granted in 2000.

(2) The shares of the Company's Common Stock issuable upon the exercise of
non-qualified stock options (except as noted below), have not been registered
under the Securities Act of 1933 ("1933 Act"). Generally, such shares may not be
resold by the holder for a minimum period of one year following exercise of the
option. The shares of the Company's Common Stock issuable upon the exercise of
outstanding stock options granted under the Company's 1994 Incentive Stock
Option Plan and 1998 Omnibus Stock Plan, and the shares issuable upon the
exercise of 100,000 non-qualified stock options granted to Ms. Hendricks under
her employment agreement, have been registered under the 1933 Act and generally
can be resold immediately upon exercise.

(3) Based on a December 29, 2000 closing sale price on the Nasdaq National
Market of $2.125 per share.


                                      -54-
<PAGE>   55

COMPENSATION OF DIRECTORS

         In 2000, non-employee directors of the Company were compensated for
serving on the Board of Directors and the committees thereof, in the amount of
$10,000 per year, payable in quarterly installments, except for Mr. Gutfreund
who received $22,000 in consideration of his additional duties as Lead Director.
Directors also received an additional $900 for each Board of Directors meeting
and each committee meeting attended in person or by telephone. Such directors
are reimbursed for all reasonable expenses incurred in connection with their
services and receive an annual grant of 2,000 non-qualified stock options under
the 1998 Omnibus Stock Plan having an exercise price equal to the market price
on the date of the grant. Ms. Hendricks receives no additional compensation for
serving on the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Messrs. Head, Connell, Denton and Howe comprised the Company's entire
Executive Compensation Committee during 2000, and were both non-employee
directors of the Company. No director or executive officer of the Company serves
on any board of directors or compensation committee of any entity that
compensates Messrs. Head, Connell, Denton or Howe.



                                      -55-
<PAGE>   56


            ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
                        DIRECTORS AND EXECUTIVE OFFICERS

HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP

         The following table sets forth information regarding all persons known
to the Company to be the beneficial owners of more than five percent of the
Company's Common Stock as of April 9, 2001.

                                    Amount and
                                    Nature of
Name and Address of                 Beneficial                Percent of
Beneficial Owner(1)                 Ownership                 Class
-------------------                 ---------                 -----
Heartland Advisors, Inc.            303,700(1)(2)             8.8%

Cameron Baird Foundation            500,700(1)(3)             14.5%

Bolero Investment Group, L.P.       404,645(1)(4)             11.7%

State of Wisconsin Investment
   Board                            300,000(1)(5)              8.7%

Dimensional Fund Advisors Inc.      275,200(1)(6)              7.9%

Herbert A. Denton                   264,300(1)(7)              7.6%

Franklin Resources, Inc.            173,600(1)(8)              5.0%
-------------------------------------

(1) Based upon the Schedule 13D's and Schedule 13G's provided to the Company by
the named shareholders: the address of Heartland Advisors, Inc. is 790 North
Water Street, Milwaukee Wisconsin 53202; the address of Cameron Baird Foundation
is 1350 One M&T Plaza, Buffalo, New York 14203; the address of State of
Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin 53707; the
address of Bolero Investment Group, L.P. is 25 S.E. 2nd Avenue, Suite 720,
Miami, Florida 33131; the address of Herbert A. Denton is 730 Fifth Avenue, New
York, New York 10019; the address of Dimensional Fund Advisors Inc. is 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401; and the address of
Franklin Resources, Inc. is 777 Mariners Island Boulevard, San Mateo, California
94404.

(2) Pursuant to Amendment No. 10 to Schedule 13G dated January 31, 2001,
Heartland Advisors, Inc., last informed the Company that it is a registered
investment adviser that may be deemed the beneficial owner of 303,700 shares of
Common Stock. Heartland Advisors, Inc. has sole dispositive power and sole
voting power over all 303,700 shares.


                                      -56-
<PAGE>   57

(3) Pursuant to Amendment No. 3 to Schedule 13D dated April 7, 2000 filed by The
Cameron Baird Foundation (the "Foundation"), Brent D. Baird, Anne S. Baird,
Bridget B. Baird, successor trustee, Jane D. Baird, Bruce C. Baird, Brian D.
Baird, successor trustee, and Aries Hill Corp. (collectively, the "Baird
Parties"), the Baird Parties beneficially own 500,700 shares of Common Stock in
the aggregate. The Baird Parties have informed the Company that the Foundation
is a charitable private foundation, that Aries Hill Corp., is a private holding
company owned by various members of the Baird family, and that the other Baird
Parties are individuals and/or individuals serving as trustees of various trusts
under trust agreements with Cameron Baird and Flora M. Baird. Each of the Baird
Parties has sole voting and dispositive power over the number of shares as
follows: the Foundation--216,000 shares; Brent D. Baird--35,000 shares; Anne S.
Baird--10,000 shares; Bridget B. Baird, successor trustee--69,700 shares; Jane
D. Baird--125,000 shares; Bruce C. Baird--10,000 shares; Brian D. Baird,
successor trustee--20,000 shares; and Aries Hill Corp.--15,000 shares.

(4) Pursuant to information provided by Mr. Pavia and Schedule 13D, as amended,
filed by Bolero Investment Group, L.P. ("Bolero"), Kenneth W. Pavia, Sr.
("Pavia"), FHI, Inc. ("FHI"), Florence Partners Inc. ("Florence") and Charles
Powers ("Powers") (collectively, "Bolero Investment Group, et. al"), Bolero, a
limited partnership whose principal business is investing in marketable
securities, directly owns 287,245 shares of Common Stock. FHI, whose principal
business is private investment banking, directly owns 51,000 shares of Common
Stock, and Florence, a corporation whose principal business is investing in
marketable securities, directly owns 66,400 shares of Common Stock. As a
result, Pavia, whose principal business is to make and hold investments, and who
is the sole general partner of Bolero and the founder, a director, and the sole
executive officer and shareholder of FHI and the managing director of Florence,
may be deemed the beneficial owner of 404,645 shares of Common Stock. Powers,
whose principal business is to make and hold investments, and who is the sole
director, executive officer and shareholder of Florence, and a limited partner
of Bolero, may be deemed the beneficial owner of 66,400 shares of Common
Stock. In these Amendments, Messrs. Pavia and Powers have disclaimed beneficial
ownership of the shares that may be attributed to them and the reporting persons
have stated that they have not affirmed the existence of a "group" as defined in
Section 13(d) of the Securities Exchange Act of 1934.

(5) Pursuant to Amendment No. 7 to Schedule 13G dated February 14, 2001, State
of Wisconsin Investment Board last informed the Company that it is a government
agency which manages public pension funds and that it may be deemed the
beneficial owner of 300,000 shares of Common Stock. State of Wisconsin
Investment Board has sole dispositive power and sole voting power over all
300,000 shares.

(6) Pursuant to Schedule 13G, as last amended dated December 31, 2000,
Dimensional Fund Advisors Inc. stated that it is a registered investment adviser
that may be deemed the beneficial owner of 275,200 shares of Common Stock as a
result of its role as investment advisor to four investment companies and
investment manager to certain other investment vehicles, including commingled
group trusts. Dimensional Fund


                                      -57-
<PAGE>   58

Advisors Inc. disclaims beneficial ownership of all such shares. Dimensional
Fund Advisors Inc. has sole dispositive power and sole voting power over all
285,500 shares.

(7) Pursuant to Amendment No. 1 to Schedule 13D dated September 9, 1999, Herbert
A. Denton is the beneficial owner of 260,300 shares of Common Stock. Of these
shares, 185,300 are owned of record by U.S. Value Investment Co., plc ("USVI")
to which Mr. Denton is sole advisor, and 75,000 are owned of record by
Providence Investors, LLC, to which Mr. Denton is co-advisor. Mr. Denton and
USVI may be deemed to have sole power to vote and dispose of 185,300 shares and
Mr. Denton is deemed to have shared power to vote and dispose of 75,000 shares.
Mr. Denton also has the right to acquire 4,000 shares of Common Stock pursuant
to outstanding stock options granted by the Company to him as a director of the
Company.

(8) Pursuant to Amendment No. 2 to Schedule 13G, dated January 13, 2000,
Franklin Resources, Inc. ("Franklin") last informed the Company that it is a
holding company through which it is the beneficial owner of 173,600 shares of
Common Stock. Franklin's investment subsidiary, Franklin Mutual Advisers, LLC,
is an investment advisor that has sole dispositive power and sole voting power
over all 173,600 shares. Charles B. Johnson and Rupert H. Johnson, Jr. each own
in excess of 10% of the outstanding common stock of Franklin.



                                      -58-
<PAGE>   59

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth information regarding the ownership of
Common Stock of the Company for each director, each nominee, each named
executive and all current executive officers and directors as a group as of
April 9, 2001.

                                               Amount and
                                               Nature of
                                               Beneficial            Percent of
Name of Beneficial Owner                       Ownership             Class
------------------------                       ---------             -----

CURRENT DIRECTORS AND NOMINEES

Karen L. Hendricks                             207,500(1)(2)           5.7%

Herbert A. Denton                              264,300(2)              7.6%

Joseph H. Head, Jr                              30,000(2)              0.9%

Kenneth W. Pavia                               403,569(4)             11.6%

William B. Connell                              13,000(2)              0.4%

John H. Gutfreund                               16,000(2)              0.5%

James P. Heffernan                               2,000(2)              0.06%

NAMED EXECUTIVE OFFICERS

Duane D. Kimble                                 74,500(1)              2.1%

Daniel B. Baker                                 17,000(1)              0.5%

Perry H. Schwartz                               15,500(1)              0.4%

All current executive officers and
 directors as a group (8 persons)            1,010,869(1)(2)          27.0%

------------------------------
(1) Includes shares owned beneficially subject to the holder's right to exercise
outstanding incentive stock options: 51,000 shares for Ms. Hendricks, 69,500
shares for Mr. Kimble, 17,000 shares for Mr. Baker and 15,500 shares for Mr.
Schwartz. Mr. Baker's employment with the Company terminated in January, 2001.

(2) Includes shares owned beneficially subject to the holder's right to exercise
outstanding non-qualified stock options: 119,000 shares for Ms. Hendricks,
22,000 shares


                                      -59-
<PAGE>   60

for Mr. Head, 12,000 shares for Mr. Connell, 6,000 shares for Mr. Gutfreund,
4,000 shares for Mr. Denton and 2,000 shares for Mr. Heffernan.

(3) See note (3) to the table in "--Holders of More than Five Percent Beneficial
Ownership."

(4) See note (4) to the table in "---Holders of More than Five Percent
Beneficial Ownership."

         No agreements, formal or informal, exist among the various officers and
directors to vote their shares collectively. Except as otherwise indicated
herein, no director is a party to any contracts, arrangements or understandings
with any person with respect to any securities of the Company. In addition,
except as otherwise indicated herein, no director nor any associate of any
director has any arrangements or understandings with any person with respect to
any future employment by the Company or with respect to any future transaction
to which the Company will or may be a party. See "Executive
Compensation-Employment Contracts and Change in Control Agreements."

RIGHTS AGREEMENT

         The preceding tables under "Holders of More than Five Percent
Beneficial Ownership" and "Security Ownership of Directors and Executive
Officers" do not reflect the effect of the Rights Agreement entered into by the
Company in October 1998 (the "Rights Agreement"). Pursuant to the terms of the
Rights Agreement, the Board of Directors of the Company authorized the issuance
of one common share purchase right (a "Right") with respect to each outstanding
share of Common Stock. The Rights were issued on October 23, 1998 to the holders
of record of Common Stock on October 22, 1998. Each Right entitles the
registered holder to purchase from the Company one share of Common Stock at a
price of $45.00 (the "Purchase Price"), subject to adjustment. All of the rights
previously issued by the Company under its September 1996 rights agreement were
redeemed in April 1998.

         Initially, the Rights will attach to all Common Stock certificates
representing outstanding shares and no separate Right Certificate will be
distributed. The Rights will separate from the Common Stock and a distribution
date (the "Distribution Date") will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding Voting Shares (as defined below) of the Company
other than pursuant to a Qualifying Offer (as defined below), or such earlier or
later date (not beyond the thirtieth day after the share acquisition date) as
the Company's Board of Directors may from time to time by resolution adopted
prior to the Distribution Date that otherwise would have occurred, or (ii) 10
business days following the commencement or announcement of an intention to
commence a tender offer or exchange offer the consummation of which would result
in any person becoming an Acquiring Person. "Voting Shares" means (i) the Common
Stock and (ii) any other shares of capital stock of the Company entitled to vote
generally in the election of directors or entitled to


                                      -60-
<PAGE>   61

vote together with the Common Stock in respect of any merger or consolidation of
the Company, any sale of all or substantially all of the Company's assets or any
liquidation, dissolution or winding up of the Company.

         Until the Distribution Date, (or earlier redemption or expiration of
the rights), the Rights will be transferred with and only with the Common Stock.
Common Stock certificates issued after October 22, 1998, but prior to the
Distribution Date shall evidence one Right for each share of Common Stock
represented thereby and shall contain a legend incorporating by reference the
terms of the Rights Agreement. Promptly following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of Common Stock at the Distribution Date.

         The Rights are not exercisable until the Distribution Date. The Rights
will expire on October 12, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchanged by
the Company as described below.

         If any person becomes an Acquiring Person, each Right then outstanding
(other than Rights beneficially owned by the Acquiring Person which would become
null and void) would become a right to buy that number of shares of Common Stock
that at the time of such acquisition would have a market value of two times the
purchase price of the Right.

         If, at any time after a person becomes an Acquiring Person, the Company
were acquired in a merger or other business combination transaction or more than
50% of its consolidated assets or earning power were sold, proper provision will
be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the purchase
price of the Right.

         The offer and sale of the Common Stock issuable upon the exercise of
the Rights will be registered with the Securities and Exchange Commission, but
such registration will not be effective until the Rights become exercisable. As
described above, however, the Rights will not be transferable separately from
the Common Stock until the Distribution Date.

         The number of shares of Common Stock or other securities or property
issuable upon exercise of the Rights, and the Purchase Price payable, are
subject to customary adjustments from time to time to prevent dilution.

         The number of outstanding Rights and the number of shares of Common
Stock issuable upon exercise of each Right are also subject to adjustment in the
event of a stock split of the Common Stock or a stock dividend on the Common
Stock payable in shares


                                      -61-
<PAGE>   62

of Common Stock or subdivisions, consolidations or combinations of the Common
Stock occurring, in any such case, prior to the Distribution Date.

         At any time after a person becomes an Acquiring Person and before the
acquisition by a person or group of 50% or more of the outstanding Voting Shares
(other than pursuant to a Qualifying Offer), the Company's Board of Directors,
may, at its option, issue Common Stock in mandatory redemption of, or in
exchange for, all or part of the then outstanding and exercisable Rights (other
than Rights owned by such acquiring Person or group which would become null and
void) at an exchange ratio of one share of Common Stock for each two shares for
which each Right is then exercisable, subject to adjustment.

         At any time before a person becomes an Acquiring Person, the Board of
Directors may redeem all, but not less than all, of the then outstanding Rights
at a price of $0.001 per Right (the "Redemption Price"). The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.

         Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

         The terms of the Rights may be amended by the Company's Board of
Directors without the consent of the holders of the Rights, including an
amendment to extend the Final Expiration Date, and, provided a Distribution Date
has not occurred, to extend the period during which the Rights may be redeemed,
except that after the Distribution Date no such amendment may materially and
adversely affect the interests of the holders of the Rights.

         The Rights will not be exercisable if a person or group were to acquire
15% or more of the Voting Shares pursuant to a "Qualifying Offer." A "Qualifying
Offer" is defined as an all cash tender offer for all outstanding voting shares
of the Company which meets the requirements specified in the Agreement,
including:

          (1)  the offer is accompanied by firm written commitments from
               responsible financial institutions to provide funds for such
               offer which, when added to the offeror's available cash, will be
               sufficient to pay for all shares on a fully-diluted basis and the
               second-step transaction described below; and

          (2)  after consummation of the offer, the offeror will own at least
               75% of the then outstanding voting shares of the Company; and

          (3)  the offer remains open for at least 45 business days; and


                                      -62-
<PAGE>   63

          (4)  the offer is accompanied by a written opinion of a nationally
               recognized investment banking firm stating that the price to be
               paid in the offer is fair from a financial point of view to the
               Company's stockholders; and

          (5)  the offeror agrees to consummate the second-step transaction in
               which all shares not acquired upon completion of the tender offer
               will be acquired at the same price per share paid in such offer.

         The Independent Directors Committee of the Company will review the
Rights Plan at least every two years and, if a majority of the members of the
Independent Directors Committee deems it appropriate, may recommend a
modification or termination of the Rights Plan.

This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights agreement. A copy of the
Rights Agreement has been filed with the Securities and Exchange Commission as
an Exhibit to the Company's Form 8-K dated October 12, 1998. Shareholders may
obtain a copy of the Rights Agreement free of charge from the Company.



                                      -63-
<PAGE>   64

     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                      PART IV

     ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 (a)  FINANCIAL STATEMENT SCHEDULES

      VIII. Valuation and Qualifying Accounts.

      All other schedules are omitted, as the required information is
      inapplicable or the information is presented in the consolidated financial
      statements or related notes.

 (b)  REPORTS ON FORM 8-K

           The Company filed a report on Form 8-K on January 9, 2001 announcing
      Mr. Kenneth W. Pavia, Sr. joined the Company's Board of Directors. On
      February 12, 2001, the Company filed a report on Form 8-K disclosing the
      completion of the sale of its Contract Electronics Division to Ayrshire
      Electronics, LLC ("Ayrshire") for $9.7 million. In addition, the Company
      filed a report on Form 8-K on March 2, 2001 announcing that Karen L.
      Hendricks, the Company's Chief Executive Officer, President and Chairman
      of the Board, had given notice of her termination of her employment with
      the Company effective as of November 27, 2001, and that Duane D. Kimble,
      the Company's Chief Financial Officer, had been named as President of the
      Company.

 (c)  EXHIBITS

 2.1  Stock Purchase Agreement dated December 8, 1999 between the Company and
      Deutsche Financial Services Corporation. (17)

 2.2. Asset Purchase Agreement dated January 26, 2001 between the Company and
      Ayshire Electronics LLC (excluding schedules and annexes). (21)

 3.1  Certificate of Incorporation of the Company, as amended.  (1)

 3.2  Amended and Restated Bylaws of the Company dated as of February 10, 1997.
      (9)

 4.1  Rights Agreement dated as of October 12, 1998 between the Company and the
      Provident Bank as Rights Agreement. (12)


             MANAGEMENT CONTRACTS, COMPENSATORY PLANS AND ARRANGEMENTS


10.1  Baldwin Piano & Organ Company Retirement Plan for Salaried Employees, as
      amended. (1)

10.2  Baldwin Piano & Organ Company Retirement Trust for Salaried Employees
      dated September 28, 1984. (1)


                                      -64-
<PAGE>   65

 10.3 Baldwin Piano & Organ Company 1994 Incentive Stock Option Plan. (4)

 10.4 Baldwin Piano & Organ Company 1999 Management Incentive Plan.  (18)

 10.5 Baldwin Piano & Organ Company 1994 Long Term Incentive Plan.  (5)

 10.6 Baldwin Piano & Organ Company 1998 Omnibus Stock Plan.  (13)

 10.7 Agreement of Employment between the Company and Karen L. Hendricks dated
      as of June 19, 1997. (10)

 10.8 Amendment to Agreement of Employment between the Company and Karen L.
      Hendricks dated September 1, 1999. (16)

 10.9 Change in Control Agreement between the Company and Karen L. Hendricks
      dated June 26, 1996. (7)

10.10 Amendment to Change in Control Agreement between the Company and Karen L.
      Hendricks dated September 17, 1999. (16)

10.11 Form of Indemnification Agreements between the Company and the Company's
      Officers and Directors dated June 30, 1986 and accompanying schedule. (1)

10.12 Change in Control Agreement between the Company and Stephen P. Brock dated
      June 11, 1996. (7)(8)

10.13 Amendment to Change in Control Agreement between the Company and Duane D.
      Kimble dated September 24, 1999. (16)

10.14 Second Amendment to Change in Control Agreement between the Company and
      Duane D. Kimble dated October 3, 2000.

10.15 Third Amendment to Change in Control Agreement between the Company and
      Duane D. Kimble dated March 14, 2001.

10.16 Letter of employment between the Company and Duane D. Kimble as Senior
      Vice President, Strategic Planning, dated as of June 30, 1998. (15)

10.17 Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Plan.
      (2)

10.18 Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Rabbi
      Trust Agreement as amended and restated as of October 4, 1993. (2)

OTHER CONTRACTS AND ARRANGEMENTS



                                      -65-
<PAGE>   66

10.19 Amended and Restated Inventory Purchase and Consignment Agreement, between
      Baldwin Piano & Organ Company and Deutsche Financial Services Corporation,
      dated October 28, 1998. (14)

10.20 Amendment to Amended and Restated Inventory Purchase and Consignment
      Agreement dated as of March 23, 2000 between Baldwin Piano and Organ
      Company and Deutsche Financial Services Corporation. (19)

10.21 Credit Agreement dated as of March 24, 2000 among Baldwin Piano & Organ
      Company, The Wurlitzer Company, Baldwin Trading Company, The Baldwin Piano
      Company (Canada) Limited and General Electric Capital Corporation
      (excluding schedules not deemed material). (19)

10.22 Security Agreement dated as of March 24, 2000 among Baldwin Piano & Organ
      Company, The Wurlitzer Company, Baldwin Trading Company and General
      Electric Capital Corporation (excluding schedules not deemed material).
      (19)

10.23 Baldwin Canada Security Agreement dated as of March 24, 2000 between The
      Baldwin Piano Company (Canada) Limited and General Electric Capital
      Corporation (excluding schedules not deemed material). (19)

10.24 Copyright Security Agreement dated as of March 24, 2000 among Baldwin
      Piano & Organ Company, The Wurlitzer Company and General Electric Capital
      Corporation (excluding schedules not deemed material). (19)

10.25 Trademark Security Agreement dated as of March 24, 2000 among Baldwin
      Piano & Organ Company, The Wurlitzer Company and General Electric Capital
      Corporation (excluding schedules not deemed material). (19)

10.26 Patent Security Agreement dated as of March 24, 2000 among Baldwin Piano &
      Organ Company, The Wurlitzer Company and General Electric Capital
      Corporation (excluding schedules not deemed material). (19)

10.27 Subsidiary Guaranty dated as of March 24, 2000 among The Wurlitzer
      Company, Baldwin Trading Company and General Electric Capital Corporation.
      (19)

10.28 Baldwin Canada Guarantee dated as of March 24, 2000 between The Baldwin
      Piano Company (Canada) Limited and General Electric Capital Corporation.
      (19)

10.29 Pledge Agreement dated as of March 24, 2000 between Baldwin Piano & Organ
      Company, The Baldwin Piano Company (Canada) Limited and General Electric
      Capital Corporation. (19)

10.30 Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture
      Filing (Arkansas) dated as of March 24, 2000 from Baldwin Piano & Organ
      Company to General Electric Capital Corporation (Trumann, Arkansas
      property) (excluding exhibits not deemed material). Substantially similar
      agreement were entered into with respect to the Company's properties
      located in Conway, Arkansas, Fayetteville, Arkansas, Greenwood,
      Mississippi and Marietta, Georgia. (19)

10.31 Intercreditor Agreement dated as of March 24, 2000 among Deutsche
      Financial Services Corporation, General Electric Capital Corporation and
      Baldwin Piano & Organ Company. (19)

10.32 First Amendment and Limited Waiver to Credit Agreement among the Company
      and General Electric Capital Corporation dated August 11, 2000 (20)

10.33 Second Amendment and Limited Waiver to Credit Agreement among the Company
      and General Electric Capital Corporation dated December 15, 2000

10.34 Irrevocable Standby Letter of Credit issued August 13, 1993 by The Fifth
      Third Bank on behalf of the Company in favor of Harold S. Smith. (3)

10.35 Letter of Credit Reimbursement Agreement dated as of August 13, 1993
      between the Company and The Fifth Third Bank. (3)

10.36 Office lease between Baldwin Piano & Organ Company and Duke Realty Limited
      Partnership, dated July 2, 1998. (14)

10.37 Distribution Agreement between Baldwin Piano & Organ Company and
      GeneralMusic S.p.A. dated as of July 1, 1995. (6)

10.38 Amended and Restated Amendment and Supplemental Agreement between Baldwin
      Piano & Organ Company and GeneralMusic S.p.A. dated as of January 1, 1997.
      (11)

10.39 Land Lease Agreement between Fabricantes Tecnicos, S.A. DE C.V. and Delphi
      Automotive Systems, S.A. DE C.V. dated as of December 13, 1996. (11)

10.40 Lease dated January 26, 2001 by and between Baldwin Piano & Organ Company,
      as Landlord, and Ayrshire Electronics LLC, as Tenant (excluding exhibits)
      (21)

10.41 Confidentiality,  Nonsolicitation  and  Noncompetition  Agreement  dated
      as of January  26,  2001 among Ayrshire Electronics LLC and Baldwin
      Piano & Organ Company  (21)

10.42 Information Technology Transition Services Agreement dated as of January
      26, 2001 by and between Ayrshire Electronics LLC and Baldwin Piano & Organ
      Company (21)

10.43 Third Amendment and Limited Waiver and Consent to Credit Agreement dated
      as of January 26, 2001 by and among Baldwin Piano & Organ Company,
      General Electric Capital Corporation and the Lenders and Credit Parties
      listed thereon (21)

22.1  Subsidiaries of the Company.

23.1  Consent of Independent Accountants - Deloitte & Touche LLP

99.1  Baldwin Stock Repurchase Plan. (2)

99.2  Amendment No. 1 to Baldwin Stock Repurchase Plan. (3)

99.3  Amendment No. 2 to Baldwin Stock Repurchase Plan. (4)

99.4  Press Release dated January 8, 2001 announcing the appointment of Kenneth
      W. Pavia, Sr. to the Company's board of directors.

99.5  Press Release dated January 11, 2001 announcing layoff at the Company's
      Conway, Arkansas plant.

99.6  Press Release dated January 11, 2001 announcing layoffs at the Company's
      Trumann, Arkansas plant.


                                      -66-
<PAGE>   67


99.7  Press Release dated January 29, 2001 announcing the sale of the Company's
      Contract Electronics Division to Ayrshire Electronics, LLC.

99.8  Press Release dated January 31, 2001 announcing the shut down of the
      Company's Greenwood, Mississippi plant and outsourcing components
      manufacturing to other woodworking firms in the U.S. and abroad.

99.9  Press Release dated February 29, 2001 announcing that Karen L. Hendricks,
      chairman and chief executive officer, plan to step down as CEO in November
      2001.

99.10 Press Release dated March 14, 2001 reporting financial results for the
      fourth quarter and 12 months ended December 31, 2000.

99.11 Press Release dated March 22, 2001 announcing the sale of eleven of the
      Company's retail piano stores to an affiliate  of Chicago-based Biasco
      Musical Instrument Company.

(1)   Incorporated by reference from the Company's Form S-1 Registration
      Statement as declared effective by the Commission on October 8, 1986.

(2)   Incorporated by reference from the Company's Form 10-Q for the period
      ended September 30, 1993.

(3)   Incorporated by reference from the Company's Form 10-K for the period
      ended December 31, 1993.

(4)   Incorporated by reference from the Company's proxy statement relating to
      its May 10, 1994 Annual Meeting of Shareholders.

(5)   Incorporated by reference from the Company's Form 10-Q for the period
      ended June 30, 1994.

(6)   Incorporated by reference from the Company's Form 10-Q for the period
      ended September 30, 1995.

(7)   Incorporated by reference from the Company's Form 10-Q for the period
      ended June 30, 1996.

(8)   A substantially identical agreement was entered into by Baldwin Piano &
      Organ Company with Duane D. Kimble dated July 5, 1998.

(9)   Incorporated by reference from the Company's Form 8-K dated February 10,
      1997 as filed with the Commission on February 27, 1997.


                                      -67-
<PAGE>   68

(10) Incorporated by reference from the Company's Form 10-Q for the period ended
     June 30, 1997.

(11) Incorporated by reference from the Company's Form 10-K for the period ended
     December 31, 1996.

(12) Incorporated by reference to the Company's Form 8-K dated October 12, 1998.

(13) Incorporated by reference to the Company's Proxy Statement dated April 27,
     1998 relating to the Company's 1998 Annual Meeting of Shareholders.

(14) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1998.

(15) Incorporated by reference from the Company's Form 10-K for the period ended
     December 31, 1998.

(16) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1999.

(17) Incorporated by reference from the Company's Form 8-K dated December 9,
     1999.

(18) Incorporated by reference from the Company's Form 10-Q for the period ended
     March 31, 2000.

(19) Incorporated by reference from the Company's Form 8-K filed April 16, 2000.

(20) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 2000.

(21) Incorporated by reference from the Company's Form 8-K filed February 12,
     2001.

Index to Exhibits - pages 71-79.


                                      -68-
<PAGE>   69

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             BALDWIN PIANO & ORGAN COMPANY


                                             By: /s/ Karen L. Hendricks
                                                -------------------------------
                                             Karen L. Hendricks, Chairman and
                                             Chief Executive Officer

                                             Date: April  16, 2001_
                                                  -----------------------------

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


Principal Executive Officer:

Date:  April 16, 2001                  /s/ Karen L. Hendricks
      ---------------                  ------------------------------------
                                          Karen L. Hendricks, Chairman, Chief
                                          Executive Officer and Director

Date:  April 16, 2001                  /s/ William B. Connell
      ---------------                  ------------------------------------
                                          William B. Connell, Director

Date:  April 16, 2001                  /s/ Herbert A. Denton
      ---------------                 ------------------------------------
                                          Herbert A. Denton, Director

Date:  April 16, 2001                  /s/ John H. Gutfreund
      ---------------                  ------------------------------------
                                          John H. Gutfreund, Director

Date:  April 16, 2001                  /s/ Joseph H. Head, Jr.
      ---------------                  ------------------------------------
                                          Joseph H. Head, Jr., Director

Date:  April 16, 2001                  /s/ James P. Heffernan
      ---------------                  ------------------------------------
                                          James P. Heffernan, Director

Date:  April 16, 2001                  /s/ Kenneth W. Pavia, Sr.
      ---------------                  ------------------------------------
                                          Kenneth W. Pavia, Sr., Director

                                          Principal Financial and Accounting
                                          Officer:

Date:  April 16, 2001                  /s/ Duane D. Kimble
      ---------------                  ------------------------------------
                                          Duane D. Kimble, President and
                                          Chief Financial Officer



                                      -69-
<PAGE>   70

                                  SCHEDULE VIII
                 BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                   YEAR ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                            Beginning                                                           Ending
Description                                  Balance          Additions     Other        Charge-offs            Balance

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

<S>                                         <C>               <C>            <C>         <C>                    <C>
Year ended Dec. 31, 2000                    $  534,000        $ 719,194      $ -         $ 111,194(1)           $ 1,142,000
Year ended Dec. 31, 1999                    $  341,000        $ 300,000      $ -         $ 107,000(1)           $   534,000
Year ended Dec. 31, 1998                    $  654,000        $ 264,000      $ -         $ 577,000(1)           $   341,000
</TABLE>

(1) Represents adjustments and accounts charged-offs, less recoveries.



                                      -70-
<PAGE>   71

                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit                                        Exhibit                                                    Sequentially
Number                                         -------                                                      Numbered
------                                                                                                        Page
                                                                                                              ----
<S>               <C>                                                                                          <C>
2.1               Stock Purchase Agreement dated December 8, 1999 between the Company and Deutsche               *
                  Financial Services Corporation. (17)

2.2               Asset Purchase Agreement dated January 26, 2001 between the Company and Ayshire
                  Electronics LLC (excluding schedules and annexes). (21)

3.1               Certificate of Incorporation of the Company, as amended. (1)                                   *


3.2               Amended and Restated Bylaws of Baldwin Piano & Organ Company dated as of February              *
                  10, 1997. (9)


4.1               Rights Agreement dated as of October 12, 1998 between the Company and the                      *
                  Provident Bank as Rights Agreement. (12)


                              MANAGEMENT CONTRACTS, COMPENSATORY PLANS AND ARRANGEMENTS


10.1              Baldwin Piano & Organ Company Retirement Plan for Salaried Employees, as amended.              *
                  (1)


10.2              Baldwin Piano & Organ Company Retirement Trust for Salaried Employees dated                    *
                  September 28, 1984. (1)
</TABLE>



                                      -71-
<PAGE>   72

<TABLE>
<CAPTION>
Exhibit                                        Exhibit                                                    Sequentially
Number                                         -------                                                      Numbered
------                                                                                                        Page
                                                                                                              ----
<S>               <C>                                                                                          <C>
10.3              Baldwin Piano & Organ Company 1994 Incentive Stock Option Plan. (4)                            *


10.4              Baldwin Piano & Organ Company 1999 Management Incentive Plan. (18)                             *


10.5              Baldwin Piano & Organ Company 1994 Long Term Incentive Plan. (5)                               *


10.6              Baldwin Piano & Organ Company 1998 Omnibus Stock Plan. (13)                                    *


10.7              Agreement of Employment between the Company and Karen L. Hendricks dated as of                 *
                  June 19, 1997. (10)


10.8              Amendment to Agreement of Employment between the Company and Karen L. Hendricks                *
                  dated September 1, 1999. (16)


10.9              Change in Control Agreement between the Company and Karen L. Hendricks dated June              *
                  26, 1996. (7)


10.10             Amendment to Change in Control Agreement between the Company and Karen L.                      *
                  Hendricks dated September 17, 1999. (16)
</TABLE>



                                      -72-
<PAGE>   73

<TABLE>
<S>            <C>                                                                                              <C>
10.11          Form of Indemnification Agreements between the Company and the Company's Officers and             *
               Directors dated June 30, 1986 and accompanying schedule. (1)


10.12          Change in Control Agreement between the Company and Stephen P. Brock dated June 11,               *
               1996. (7) (8)


10.13          Amendment to Change in Control Agreement between the Company and Duane D. Kimble                  *
               dated September 24, 1999. (16)

10.14          Second Amendment to Change in Control Agreement between the Company and Duane D. Kimble
               dated October 3, 2000.

10.15          Third Amendment to Change in Control Agreement between the Company and Duane D. Kimble
               dated March 14, 2001.

10.16          Agreement of Employment between the Company and Duane D. Kimble as Senior Vice                    *
               President, Strategic Planning, dated June 30, 1998. (15)

10.17          Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Plan. (2)                       *


10.18          Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Rabbi Trust                     *
               Agreement as amended and restated as of October 4, 1993. (2)

                        OTHER CONTRACTS AND ARRANGEMENTS

</TABLE>


                                      -73-
<PAGE>   74

<TABLE>
<S>            <C>                                                                                              <C>

10.19          Amended and Restated Inventory Purchase and Consignment Agreement                                 *
               between Baldwin Piano & Organ Company and Deutsche Financial
               Services Corporation, dated October 28, 1998. (14)

10.20          Amendment to Amended and Restated Inventory Purchase and
               Consignment Agreement dated as of March 23, 2000 between Baldwin
               Piano and Organ Company and Deutsche Financial Services
               Corporation. (19)

10.21          Credit Agreement dated as of March 24, 2000 among Baldwin Piano &
               Organ Company, The Wurlitzer Company, Baldwin Trading Company,
               The Baldwin Piano Company (Canada) Limited and General Electric
               Capital Corporation (excluding schedules not deemed material).
               (19)

10.22          Security Agreement dated as of March 24, 2000 among Baldwin Piano
               & Organ Company, The Wurlitzer Company, Baldwin Trading Company
               and General Electric Capital Corporation (excluding schedules not
               deemed material). (19)

10.23          Baldwin Canada Security Agreement dated as of March 24, 2000
               between The Baldwin Piano Company (Canada) Limited and General
               Electric Capital Corporation (excluding schedules not deemed
               material). (19)

10.24          Copyright Security Agreement dated as of March 24, 2000 among
               Baldwin Piano & Organ Company, The Wurlitzer Company and General
               Electric Capital Corporation (excluding schedules not deemed
               material). (19)

10.25          Trademark Security Agreement dated as of March 24, 2000 among
               Baldwin Piano & Organ Company, The Wurlitzer Company and General
               Electric Capital Corporation (excluding schedules not deemed
               material). (19)

10.26          Patent Security Agreement dated as of March 24, 2000 among
               Baldwin Piano & Organ Company, The Wurlitzer Company and General
               Electric Capital Corporation (excluding schedules not deemed
               material). (19)

10.27          Subsidiary Guaranty dated as of March 24, 2000 among The
               Wurlitzer Company, Baldwin Trading Company and General Electric
               Capital Corporation. (19)

10.28          Baldwin Canada Guarantee dated as of March 24, 2000 between The
               Baldwin Piano Company (Canada) Limited and General Electric
               Capital Corporation. (19)

10.29          Pledge Agreement dated as of March 24, 2000 between Baldwin Piano
               & Organ Company, The Baldwin Piano Company (Canada) Limited and
               General Electric Capital Corporation. (19)

10.30          Mortgage, Security Agreement, Assignment of Rents and Leases and
               Fixture Filing (Arkansas) dated as of March 24, 2000 from Baldwin
               Piano & Organ Company to General Electric Capital Corporation
               (Trumann, Arkansas property) (excluding exhibits not deemed
               material). Substantially similar agreement were entered into with
               respect to the Company's properties located in Conway, Arkansas,
               Fayetteville, Arkansas, Greenwood, Mississippi and Marietta,
               Georgia. (19)

10.31          Intercreditor Agreement dated as of March 24, 2000 among Deutsche
               Financial Services Corporation, General Electric Capital
               Corporation and Baldwin Piano & Organ Company. (19)

10.32          First Amendment and Limited Waiver to Credit Agreement among the
               Company and General Electric Capital Corporation dated August 11,
               2000 (20)

10.33          Second Amendment and Limited Waiver to Credit Agreement among the
               Company and General Electric Capital Corporation dated December
               15, 2000

10.34          Irrevocable Standby Letter of Credit issued August 13, 1993 by The Fifth
               Third Bank on behalf of the Company in favor of Harold S. Smith. (3)

10.35          Letter of Credit Reimbursement Agreement dated as of August 13,                                   *
               1993 between the Company and The Fifth Third Bank. (14)

10.36          Office lease between Baldwin Piano & Organ Company and Duke                                       *
               Realty Limited Partnership, dated July 2, 1998. (14)


10.37          Distribution Agreement between Baldwin Piano & Organ Company and                                  *
               GeneralMusic S.p.A. dated as of July 1, 1995. (6)
</TABLE>

# Included, but not page numbered



                                      -74-
<PAGE>   75

<TABLE>
<S>            <C>                                                                                              <C>
10.38          Amended and Restated Amendment and Supplemental Agreement between Baldwin Piano &                 *
               Organ Company and GeneralMusic S.p.A. dated as of January 1, 1997. (11)


10.39          Land Lease Agreement between Fabricantes Tecnicos, S.A. DE C.V. and Delphi Automotive             *
               Systems, S.A. DE C.V. dated as of December 13, 1996. (11)

10.40          Lease dated January 26, 2001 by and between Baldwin Piano & Organ Company, as Landlord,
               and Ayrshire Electronics LLC, as Tenant (excluding exhibits) (21)

10.41          Confidentiality,  Nonsolicitation  and  Noncompetition  Agreement  dated as of January  26,
               2001 among Ayrshire Electronics LLC and Baldwin Piano & Organ Company  (21)

10.42          Information Technology Transition Services Agreement dated as of January 26, 2001 by and
               between Ayrshire Electronics LLC and Baldwin Piano & Organ Company (21)

10.43          Third Amendment and Limited Waiver and Consent to Credit Agreement dated as of January 26, 2001
               by and among Baldwin Piano & Organ Company, General Electric Capital Corporation and the
               Lenders and Credit Parties listed thereon (21)

22.1           Subsidiaries of the Registrant.


23.1           Consent of Independent Accountants

               -Deloitte & Touche LLP
</TABLE>



                                      -75-
<PAGE>   76

<TABLE>
<S>            <C>                                                                                              <C>
99.1           Baldwin Stock Repurchase Plan. (2)                                                                *


99.2           Amendment No. 1 to Baldwin Stock Repurchase Plan. (3)                                             *


99.3           Amendment No. 2 to Baldwin Stock Repurchase Plan. (4)                                             *


99.4           Press Release dated January 8, 2001 announcing the appointment of Kenneth W. Pavia,
               Sr. to the Company's board of directors


99.5           Press Release dated January 11, 2001 announcing layoffs at the Company's Conway,
               Arkansas plant.


99.6           Press Release dated January 11, 2001 announcing layoffs at the Company's Trumann,
               Arkansas plant.


99.7           Press Release dated January 29, 2001 announcing the sale of the Company's Contract
               Electronics Division to Ayrshire Electronics, LLC.


99.8           Press Release dated January 31, 2001 announcing the shut down of the Company's
               Greenwood, Mississippi plant and outsourcing component manufacturing to other
               woodworking firms in the U.S. and abroad.
</TABLE>



                                      -76-
<PAGE>   77

99.9           Press Release dated February 29, 2001 announcing that Karen L.
               Hendricks, chairman and chief executive officer, plan to step
               down as CEO in November 2001.

99.10          Press Release dated March 14, 2001 announcing financial results
               for the fourth quarter and 12 months ended December 31, 2000.

99.11          Press Release dated March 22, 2001 announcing the sale of eleven
               of the Company's retail stores to an affiliate of Chicago-based
               Biasco Musical Instrument Company.

*           Incorporated by reference as indicated in the applicable footnote.


(1)  Incorporated by reference from the Company's Form S-1 Registration
     Statement as declared effective by the Commission on October 8, 1986.


(2)  Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1993.


(3)  Incorporated by reference from the Company's Form 10-K for the period ended
     December 31, 1993.


(4)  Incorporated by reference from the Company's Proxy Statement relating to
     its May 10, 1994 Annual Meeting of Shareholders.


(5)  Incorporated by reference from the Company's Form 10-Q for the period ended
     June 30, 1994.


(6)  Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1995.



                                      -77-
<PAGE>   78

(7)  Incorporated by reference from the Company's Form 10-Q for the period ended
     June 30, 1996.


(8)  A substantially identical agreement was entered into by Baldwin Piano &
     Organ Company with Duane D. Kimble dated July 5, 1998.

(9)  Incorporated by reference from the Company's Form 8-K dated February 10,
     1997 as filed with the Commission on February 27, 1997.


(10) Incorporated by reference from the Company's Form 10-Q for the period ended
     June 30, 1997.


(11) Incorporated by reference from the Company's Form 10-K for the period ended
     December 31, 1996.

(12) Incorporated by reference to the Company's Form 8-K dated October 12, 1998.



                                      -78-
<PAGE>   79


(13) Incorporated by reference to the Company's Proxy Statement dated April 27,
     1998 relating to the Company's 1998 Annual Meeting of Shareholders.


(14) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1998.


(15) Incorporated by reference from the Company's Form 10-K for the period ended
     December 31, 1998.

(16) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 1999.


(17) Incorporated by reference from the Company's Form 8-K dated December 9,
     1999.


(18) Incorporated by reference from the Company's Form 10-Q for the period ended
     March 31, 2000.

(19) Incorporated by reference from the Company's Form 8-K filed April 6, 2000.


(20) Incorporated by reference from the Company's Form 10-Q for the period ended
     September 30, 2000.

(21) Incorporated by reference from the Company's Form 8-K filed February 12,
     2001.

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