FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ Mark one ]
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For quarter ended March 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 1-9334
BALDWIN TECHNOLOGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3258160
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
One Norwalk West, 40 Richards Avenue, Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-838-7470
(Former name, former address and former fiscal year, if changed since last
report.)
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 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 .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 28, 2000
Class A Common Stock
$0.01 par value 13,394,147
Class B Common Stock
$0.01 par value 1,810,883
BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at March 31,
2000 (unaudited) and June 30, 1999 1-2
Consolidated Statements of Income
for the three and nine months ended March 31,
2000 (unaudited) and 1999 (unaudited) 3
Consolidated Statements of Changes in
Shareholders' Equity for the nine months
ended March 31, 2000 (unaudited) 4
Consolidated Statements of Cash Flows
for the nine months ended March 31, 2000
(unaudited) and 1999 (unaudited) 5-6
Notes to Consolidated Financial Statements 7-11
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 20
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 31, June 30,
2000 1999
(Unaudited)
CURRENT ASSETS:
Cash $ 8,574 $ 10,028
Short-term securities 555 645
Accounts receivable trade, net of allowance for
doubtful accounts of $2,040($1,740 at June 30, 1999) 36,696 37,387
Notes receivable, trade 9,732 9,511
Inventories 37,250 31,791
Prepaid expenses and other 8,380 8,821
Total current assets 101,187 98,183
MARKETABLE SECURITIES:
Cost $820 ($681 at June 30, 1999) 785 785
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 4,032 3,060
Machinery and equipment 4,852 6,430
Furniture and fixtures 5,080 5,313
Leasehold improvements 220 834
Capital leases 1,421 3,413
15,605 19,050
Less: Accumulated depreciation and amortization 8,352 12,122
Net property, plant and equipment 7,253 6,928
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost,
less accumulated amortization of $6,265 ($5,912 at
June 30, 1999) 3,997 4,534
GOODWILL, less accumulated amortization of $10,141
($9,103 at June 30, 1999) 30,770 30,900
OTHER ASSETS 18,795 18,025
TOTAL ASSETS $162,787 $159,355
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
2000 1999
(Unaudited)
CURRENT LIABILITIES:
Loans payable $ 5,509 $ 3,893
Current portion of long-term debt 6,517 6,397
Accounts payable, trade 13,837 10,691
Notes payable, trade 12,367 11,387
Accrued salaries, commissions, bonus and profit-sharing 6,420 6,946
Customer deposits 10,295 5,661
Accrued and withheld taxes 1,820 2,271
Income taxes payable 2,053 7,127
Other accounts payable and accrued liabilities 17,634 14,656
Total current liabilities 76,452 69,029
LONG-TERM LIABILITIES:
Long-term debt 8,979 16,515
Other long-term liabilities 7,668 7,271
Total long-term liabilities 16,647 23,786
Total liabilities 93,099 92,815
COMMITMENTS
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares
authorized, 16,458,849 shares issued 165 165
Class B Common Stock, $.01 par, 4,500,000 shares
authorized, 2,000,000 shares issued 20 20
Capital contributed in excess of par value 57,496 57,496
Retained earnings 23,724 20,793
Cumulative translation adjustment 469 (2,313)
Unrealized (loss) gain on investments net of $15 of
deferred taxes ($43 at June 30, 1999) (20) 61
Less: Treasury stock, at cost:
Class A - 3,002,202 shares (1,953,502 at June 30, 1999)
Class B - 189,117 shares (164,117 at June 30, 1999) (12,166) (9,682)
Total shareholders' equity 69,688 66,540
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $162,787 $159,355
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
For the three months For the nine months
ended March 31, ended March 31,
2000 1999 2000 1999
Net sales $50,711 $58,048 $147,717 $178,536
Cost of goods sold 34,545 39,629 100,922 121,099
Gross Profit 16,166 18,419 46,795 57,437
Operating expenses:
General and administrative 5,673 6,208 17,589 18,849
Selling 4,728 4,475 13,814 14,030
Engineering 3,091 3,502 9,147 10,681
Research and development 1,455 1,325 4,001 3,951
Restructuring charge 5,490 5,490
Provision for loss on the
disposition of
Pre-press operations 2,400 2,400
20,437 17,910 50,041 49,911
Operating income (loss) (4,271) 509 (3,246) 7,526
Other (income) expense:
Interest expense 397 603 1,390 1,744
Interest income (67) (83) (236) (353)
Other income, net (1,052) (608) (2,502) (1,681)
(722) (88) (1,348) (290)
Income (loss) before
income taxes (3,549) 597 (1,898) 7,816
Provision (benefit)
for income taxes (5,374) 976 (4,829) 3,678
Net income (loss) $ 1,825 $ (379) $ 2,931 $ 4,138
Basic income (loss) per share $ 0.12 $ (0.02) $ 0.19 $ 0.24
Diluted income (loss) per share $ 0.12 $ (0.02) $ 0.19 $ 0.24
Weighted average number of
shares:
Basic 15,408 16,719 15,812 16,908
Diluted 15,408 16,719 15,812 17,267
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Capital
Class A Class B Contributed Cumulative Unrealized
Common Stock Common Stock in Excess Retained Translation Gain(Loss)on Treasury Stock Comprehensive
Shares Amount Shares Amount of Par Earnings Adjustment Investments Shares Amount Income
Balance at
June 30, 1999 16,458,849 $165 2,000,000 $20 $57,496 $20,793 $(2,313) $61 (2,117,619) $(9,682)
Net income for the
nine months ended
March 31, 2000 2,931 $2,931
Translation
adjustment 2,782 2,782
Unrealized loss on
available-for-sale
securities,
net of tax (81) (81)
Comprehensive
income $5,632
Purchase of
treasury stock (1,073,700) (2,484)
Balance at
March 31, 2000 16,458,849 $165 2,000,000 $20 $57,496 $23,724 $ 469 $(20) (3,191,319) $(12,166)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the nine months
ended March 31,
2000 1999
Cash Flows from operating activities:
Net income $ 2,931 $4,138
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 2,948 2,644
Accrued retirement pay (906) 435
Provision for losses on accounts receivable 1,255 14
Restructuring charge 5,490
Provision for loss on the disposition of
Pre-press operations 2,400
Changes in assets and liabilities:
Accounts and notes receivable, net 3,912 1,086
Inventories (5,535) (4,276)
Prepaid expenses and other 462 (357)
Other assets (1,626) 8
Customer deposits 4,686 (4,993)
Accrued compensation (677) (744)
Accounts and notes payable, trade 1,789 (3,476)
Income taxes payable (5,210) (4,739)
Accrued and withheld taxes (445) (290)
Other accounts payable and accrued liabilities (851) (109)
Interest payable 21 277
Net cash provided (used) by operating activities 8,244 (7,982)
Cash flows from investing activities:
Additions of property, net (2,372) (1,563)
Additions of patents, trademarks and drawings, net (239) (229)
Acquisitions of businesses, net of cash acquired (2,999)
Proceeds from disposition of business 2,751
Net cash used by investing activities (2,611) (2,040)
Cash flows from financing activities:
Long-term borrowings 23,378 16,704
Long-term debt repayment (30,517) (13,657)
Short-term borrowings 3,080 3,908
Short-term debt repayment (1,714) (5,136)
Principal payments under capital lease
obligations (291) (193)
Other long-term liabilities 1,022 (188)
Treasury stock purchased (2,484) (2,830)
Stock options exercised 138
Net cash used by financing activities (7,526) (1,254)
Effects of exchange rate changes 349 666
Net decrease in cash and cash equivalents (1,544) (10,610)
Cash and cash equivalents at beginning of year 10,673 22,026
Cash and cash equivalents at end of period $ 9,129 $11,416
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental disclosures of cash flow information:
For the nine months
ended March 31,
2000 1999
(in thousands)
Cash paid during the period for:
Interest $ 1,369 $ 1,467
Income taxes $ 3,132 $ 8,508
The Company did not enter into any capital lease agreements for either of
the nine month periods ended March 31, 2000 or 1999.
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments (cash and short term securities) with original
maturities of three months or less to be cash equivalents.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and Basis of Presentation:
Baldwin Technology Company, Inc. ("Baldwin", or the "Company") is engaged
primarily in the development, manufacture and sale of controls, accessories and
equipment for the printing industry.
The accompanying unaudited consolidated financial statements include the
accounts of Baldwin and its subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in compliance with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements reflect all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim periods. These financial statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's latest annual report on Form 10-K for the year ended
June 30, 1999. Operating results for the three and nine month periods ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2000. All significant intercompany
transactions have been eliminated in consolidation. The Company has
reclassified certain prior year amounts to conform to the current year's
presentation.
Note 2 - Earnings per share:
Basic earnings per share is computed by dividing net income for the period
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, and is computed by dividing net income
for the period by the weighted average number of common shares outstanding plus
potentially dilutive common stock equivalents. The weighted average shares
outstanding used to compute diluted income per share includes zero common stock
equivalents for the three and nine month periods ended March 31, 2000 and zero
and 359,000 common stock equivalents for the three and nine month periods ended
March 31, 1999 respectively, which represent outstanding options to purchase the
Company's common stock. Options to purchase the Company's common stock in the
amount of 2,127,000 and 1,174,000 common stock equivalents were not included in
the computation of diluted earnings per share for the three and nine month
periods ended March 31, 2000 and 1999 respectively, because the exercise prices
were greater than the average market price of the common stock for the
respective periods.
Note 3 - Inventories:
Inventories consist of the following:-
March 31, June 30,
2000 1999
(Unaudited)
Raw material $17,293,000 $12,314,000
In process 12,053,000 12,889,000
Finished goods 7,904,000 6,588,000
$37,250,000 $31,791,000
Foreign currency translation increased inventories by $79,000 from
June 30, 1999 to March 31, 2000.
Note 4 - Common Stock:
Stock options:-
On August 10, 1999 the Board of Directors granted non-qualified options to
purchase 57,500 shares of the Company's Class A Common Stock to certain
executives and key personnel under the Company's 1996 Stock Option Plan at an
exercise price of $3.19 per share, the fair market value on the date of grant.
The options granted are otherwise identical with regard to restrictions to the
options previously granted under this plan.
On November 16, 1999 the Board of Directors granted non-qualified options
to purchase 50,000 shares of the Company's Class A Common Stock to a certain
executive under the Company's 1996 Stock Option Plan at an exercise price of
$2.25 per share, the fair market value on the date of grant. The options
granted are otherwise identical with regard to restrictions to the options
previously granted under this plan.
On November 17, 1999 under the Company's 1998 Directors Stock Option Plan,
six (6) eligible non-employee Directors were granted non-qualified options to
purchase 3,000 shares each (for a total of 18,000 shares) of the Company's Class
A Common Stock at an exercise price of $2.25 per share, the fair market value on
the date of grant. The options granted are otherwise identical with regard to
restrictions to the options previously granted under this plan.
On January 31, 2000 the Company's Board of Directors granted non-qualified
options to purchase 40,000 shares of the Company's Class A Common Stock to a
certain executive under the Company's 1996 Stock Option Plan at an exercise
price of $2.19 per share, the fair market value on the date of grant. The
options granted are otherwise identical with regard to restrictions to the
options previously granted under this plan.
Stock repurchase program:-
On August 10, 1999 the Board of Directors terminated the Company's stock
repurchase program. Under the program, the Company spent $13,015,000 to
repurchase 2,821,656 shares of Class A Common Stock and 164,117 shares of Class
B Common Stock over the nine year period since the inception of the program.
On October 13, 1999, the Company repurchased 400,000 shares of Class A
Common Stock of the Company. In addition, on November 3, 1999, the Company
announced that the Board of Directors had approved a new stock repurchase
program (the "New Program"). Under the New Program, the Company is authorized
to utilize up to $5,000,000 to repurchase its Class A Common Stock. In the
aggregate, the Company repurchased 1,048,700 shares of Class A and 25,000 shares
of Class B Common Stock for $2,484,000 for the nine months ended March 31, 2000.
Note 5 Provision for loss on disposition of pre-press operations:
During the third quarter of the fiscal year ended June 30, 1999, the
Company recorded a charge to earnings in the amount of $2,400,000 as a result of
certain unfunded guaranteed pension obligations of the Company's former
pre-press operations. At June 30, 1999, the remaining balance of $860,000
relating to these potential obligations was included in "Other accounts payable
and accrued liabilities". The Company continues to carry a balance of $833,000
relating to these obligations as a current liability at March 31, 2000, as
$27,000, primarily bond and legal costs associated with these obligations, have
been charged against this reserve during the nine months ended March 31, 2000.
Note 6 Restructuring charges and related reserves:
A restructuring charge has been recorded for the three and nine month
periods ended March 31, 2000 in the amount of $5,490,000. The reserve was
established in order to account for the estimated costs associated with the
planned consolidation of production into certain facilities, resulting in a
reduction in total employment, primarily in the United States. This charge
includes approximately $3,221,000 in employee severance and benefit costs,
$1,260,000 in facility lease termination costs, $509,000 related to asset
impairment of property, equipment and certain intangibles, and $500,000 in
incremental costs due to product discontinuance associated with this
restructuring. The consolidation of production includes the closing of one
domestic facility and the phasing down of another domestic facility, with the
related production being shifted to other existing domestic and overseas
facilities. The workforce reductions consist of approximately 100 employees in
various employee groups throughout the world, including production, sales,
engineering and administration. These restructuring activities are expected to
be substantially completed by June 30, 2001. As of March 31, 2000, $4,125,000
is included in "Other accounts payable and accrued liabilities" and $856,000 is
included in "Other long-term liabilities". The asset impairment amount of
$509,000 has directly reduced the carrying amount of the affected assets by
reducing the net book value of property plant and equipment by $331,000,
patents by $162,000 and goodwill by $16,000.
A restructuring reserve was charged against earnings for the year ended
June 30, 1999 in the amount of approximately $870,000. The reserve was
established in order to accrue the costs associated with planned workforce
reductions at the Company's German and Japanese operations, and certain costs
associated with a scheduled plant closing in the United States. As of June 30,
1999, $144,000 had been charged against this reserve and the balance of $726,000
was included in "Other accounts payable and accrued liabilities". As of March
31, 2000 this balance has been reduced to $104,000 as $622,000, primarily
severance costs, have been charged against this reserve during the nine months
ended March 31, 2000.
Note 7 - Income tax benefit:
Under current accounting pronouncements, Financial Accounting Standards
Board Statement No. 109- "Accounting for Income Taxes" ("FAS 109"), deferred tax
assets are reduced by a valuation allowance if it is more likely than not that
the deferred tax asset will not be realized. The Company has recorded a tax
benefit of approximately $4,147,000 for the three and nine months ended March
31, 2000 as a result of decreasing the deferred tax valuation allowance to
recognize the effect of a net operating loss carryforward ("NOL") in one of its
foreign subsidiaries in accordance with FAS 109. The Company's assessment of
the deferred tax valuation allowance has been impacted by the estimated effects
that the continuing profitability of the foreign subsidiary will have with
regard to the ultimate utilization of foreign NOL's, which in the opinion of
management, are more likely than not to be realized in the future.
Note 8 - Business segment information:
The Company's two reportable segments are the Graphic Products and Controls
Group ("GPC"), and the Material Handling Group ("MHG"). The GPC segment includes
products such as cleaning systems, water systems and other equipment designed to
enhance the quality of the printed material and improve the productivity of the
printing process. The MHG segment includes products which handle the materials
supplied to the press and automate the handling of the printed material. The all
other category is comprised of the Print On-Demand Group, which operates in the
short-run digital printing market, and other activities.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Annual Report on Form 10-K
for the fiscal year ended June 30, 1999. A segment's financial performance is
primarily evaluated based on the operating profit of the segment, which includes
inter-segment sales.
The tables below present information about reportable segments for the
three and nine month periods ended March 31, 2000, and 1999 (in thousands):
Three months ended Nine months ended
March 31, March 31,
(Unaudited) (Unaudited)
Net Sales: 2000 1999 2000 1999
Graphic Products and Controls Group $ 36,317 $ 36,630 $107,244 $116,720
Material Handling Group 14,997 21,070 43,174 61,491
All other 92 848 213 1,736
Total segments 51,406 58,548 150,631 179,947
Inter-segment sales (695) (500) (2,914) (1,411)
Total Net Sales $ 50,711 $ 58,048 $147,717 $178,536
Three months ended Nine months ended
March 31, March 31,
(Unaudited) (Unaudited)
Operating income (loss): 2000 1999 2000 1999
Graphic Products and Controls Group $ 509 $ 1,967 $ 5,400 $11,300
Material Handling Group (2,497) (512) (3,083) 1,151
All other (276) 161 (579) 314
Total segments (2,264) 1,616 1,738 12,765
Corporate (2,007) (1,107) (4,984) (5,239)
Total operating income (loss) (4,271) 509 (3,246) 7,526
Interest expense, net (330) (520) (1,154) (1,391)
Royalty income, net 1,004 1,064 2,588 2,559
Minority interest (5) (7) (19) (14)
Other income (expense), net 53 (449) (67) (864)
Income (loss) before income taxes $(3,549) $ 597 $(1,898) $ 7,816
Note 9 - Recent accounting pronouncements:
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which is effective for all fiscal quarters of all fiscal years
beginning after March 15, 2000. SAB 101 summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company is currently evaluating the
impacts of SAB 101, if any, and management has not yet concluded whether or not
the adoption of SAB 101 will have a significant effect on the Company's results
of operations or its financial position.
BALDWIN TECHNOLOGY COMPANY, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain factors
which have affected the financial position and consolidated financial statements
of Baldwin Technology Company, Inc. (The "Company").
During the three months ended March 31, 2000, the Company has taken a
restructuring charge against earnings resulting from the Company's plan to
reduce its worldwide cost base and strengthen its competitive position. The
Company estimates that the total cost of implementing the restructuring plan
will be approximately $7,000,000, with $5,490,000 recorded in the current period
and the balance to be charged against earnings as incurred during
implementation. This charge has negatively impacted the results of operations
for the three and nine months ended March 31, 2000, as well as the working
capital of the Company at March 31, 2000, and is expected to negatively
impact cash flow in the near future as it is anticipated that these costs
will be incurred during the next twelve to fifteen months.
Upon completion of the employee reductions and the consolidation of the
facilities, it is expected that annual operating costs will be reduced by
approximately $6,000,000 which is expected to be completed by June 30, 2001.
These estimated annual cost savings consist of approximately $3,800,000 in
production compensation, $2,100,000 in selling general and administrative
compensation, and $500,000 in facility lease costs, while other production
costs, principally freight costs are estimated to increase by approximately
$400,000. The Company anticipates that revenues will not be materially impacted
as a result of this restructuring program.
In addition, the Company has recorded a tax benefit of approximately
$4,147,000 for the three and nine months ended March 31, 2000 by decreasing the
deferred tax valuation allowance to recognize the effect of a net operating loss
carryforward ("NOL") in one of its foreign subsidiaries. The Company's
assessment of the deferred tax valuation allowance has been impacted by the
estimated effect that the continuing profitability of the foreign subsidiary
will have with regard to the ultimate utilization of foreign NOL's, which in the
opinion of management, are more likely than not to be realized in the future.
During the three months ended March 31, 1999, the Company recorded a charge
against earnings in the amount of $2,400,000 which is the result of a guarantee
obligation related to certain pension liabilities associated with the Company's
former Pre-press operations. This charge against earnings has negatively
impacted the results of operations for the three and nine months ended March 31,
1999.
During the fiscal year ended June 30, 1999, the Company acquired a ninety
percent (90%) interest in a distributor of consumables in Europe, increased its
ownership of a U.S. subsidiary from 80% to 100%, and divested its former U.S.
In-Line Finishing division ("In-Line"). As a result, the revenues and
corresponding expenses attributable to each of the operations associated with
these transactions is included in these consolidated financial statements only
for the period and to the extent the operation is owned by the Company. None of
these transactions, either individually or in the aggregate, has had or is
expected to have a material impact on the financial statements when taken as a
whole. However, certain items may be affected more than others, and the effects
of these transactions on these items are discussed below.
Forward-looking Statements
Except for the historical information contained herein, the following
statements and certain other statements contained herein are based on current
expectations. Such statements are forward-looking statements that involve a
number of risks and uncertainties. The Company cautions investors that any such
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements. Some of the factors that could cause actual results
to differ materially include, but are not limited to the following: (i) the
ability to obtain, maintain and defend challenges against valid patent
protection on certain technology, primarily as it relates to the Company's
cleaning systems, (ii) changes in foreign currency exchange rates versus the
U.S. Dollar, (iii) changes in the mix of products and services comprising
revenues, (iv) any Year 2000 compliance issues that may arise, (v) a decline
in the rate of growth of the installed base of printing press units and the
timing of new press orders, (vi) general economic conditions, either
domestically or in foreign locations, (vii) the ultimate realization of
certain trade receivables, (viii) the timely and successful execution of the
restructuring program, and (ix) competitive market influences. Additional
factors are set forth in Exhibit 99 to Form 10-K for the year ended June 30,
1999, which should be read in conjunction herewith.
Nine months Ended March 31, 2000 vs Nine months Ended March 31, 1999
Consolidated Results
Net sales for the nine months ended March 31, 2000 decreased by $30,819,000,
or 17.3%, to $147,717,000 from $178,536,000 for the nine months ended March 31,
1999. Currency rate fluctuations attributable to the Company's overseas
operations increased net sales by $2,281,000 in the current period. Otherwise,
sales would have decreased by $33,100,000, of which $2,243,000 relates to the
previously noted divestiture of In-Line. The remaining decrease is primarily
the result of reduced product volumes, principally roll handling equipment,
including reduced orders from one of the Company's largest OEM customers, and
a reduction in equipment orders in the commercial web heatset printing market.
In terms of local currency, and as compared to the same period in the prior
year, net sales decreased by 60.0% in Australia, by 34.7% in the Americas,
by 10.4% in Japan, and by 10.0% in Germany. Sales increased by 17.7% in Sweden.
Gross profit for the nine month period ended March 31, 2000 was $46,795,000
(31.7% of net sales), as compared to $57,437,000 (32.2% of net sales) for the
nine month period ended March 31, 1999, a decrease of $10,642,000 or 18.5%.
Currency rate fluctuations increased gross profit by $397,000 in the current
period. Otherwise gross profit would have decreased by $11,039,000 in the
current period. Gross profit was lower due primarily to decreased sales
volumes, and to continuing pricing pressures in the market.
Selling, general and administrative expenses amounted to $31,403,000 (21.3%
of net sales), for the nine month period ended March 31, 2000 as compared to
$32,879,000 (18.4% of net sales) for the same period in the prior year, a
decrease of $1,476,000 or 4.5%. Currency rate fluctuations increased these
expenses by $197,000 in the current period. Otherwise, selling, general and
administrative expenses would have decreased by $1,673,000. Selling expenses
decreased by $285,000 which primarily related to reduced sales commissions
resulting from lower sales volumes offset by higher trade show costs. General
and administrative expenses decreased by $1,388,000 due primarily to reduced
incentive compensation costs as a result of the lower profitability of the
Company, and expenses of the previously noted divestiture of In-Line in the
prior year period. Excluding the $1,100,000 bad debt charge (see
"Liquidity and Capital Resources") in the current period, general and
administrative expenses would have decreased by $2,488,000 or 13.2% when
compared to the same period in the prior year.
Engineering and research and development expenses decreased by $1,484,000
compared to the same period in the prior year. Currency rate fluctuations
increased these expenses by $78,000 in the current period. Otherwise, these
expenses would have decreased by $1,562,000. The decrease in these expenses
relates primarily to reduced costs in Japan, Germany and the United States
attributable to reduced personnel costs associated with the planned workforce
reductions which began during the fiscal year ended June 30, 1999, and the
expenses of the previously noted divestiture of In-Line in the prior year
period. As a percentage of net sales, engineering and research and development
expenses increased by 0.7% to 8.9% for the nine months ended March 31, 2000
compared to 8.2% for the same period in the prior year.
Interest expense for the nine month period ended March 31, 2000 was
$1,390,000 as compared to $1,744,000 for the nine month period ended March
31, 1999, a decrease of $354,000. This decrease was primarily due to lower
long-term debt levels during the period, which was slightly offset by higher
interest rates. Currency rate fluctuations decreased interest expense by
$83,000 in the current period. Interest income amounted to $236,000 and
$353,000 for the nine month periods ended March 31, 2000 and March 31, 1999,
respectively. This reduction in interest income is primarily due to lower
average cash balances during the period. Currency rate fluctuations increased
interest income by $11,000 in the current period.
Other income, net includes net foreign currency transaction losses of
$433,000 and $168,000 for the nine months ended March 31, 2000 and 1999,
respectively. Currency rate fluctuations increased other income by $167,000
in the current period.
Certain items have significantly impacted the Company's effective tax rate,
specifically the $4,147,000 NOL benefit in the current period and the $2,400,000
provision for the loss on the Pre-press operations in the prior year period. The
Company's effective tax rate on income before taxes (excluding the effects of
the above noted items) remained flat at 35.9% and 36.0% for the nine month
periods ended March 31, 2000 and 1999, respectively. Currency rate fluctuations
increased the provision for income taxes by $138,000 in the current period.
The Company's net income amounted to $2,931,000 for the nine month period
ended March 31, 2000, as compared to $4,138,000 for the nine month period ended
March 31, 1999. This decrease of $1,207,000 or 29.2%, is primarily due to the
$5,490,000 restructuring charge recorded in the current period, the $1,100,000
bad debt charge in the prior quarter and the previously noted overall reduction
in sales volumes and related gross profit which have been significantly offset
by the $4,147,000 NOL benefit recorded in the current period as discussed above,
and the $2,400,000 provision for the loss on the Pre-press operations in the
prior year period. Currency rate fluctuations increased net income by $245,000
in the current period. Net income per share amounted to $0.19 basic and diluted
for the nine months ended March 31, 2000, as compared to $0.24 basic and diluted
for the nine months ended March 31, 1999.
Segment Results
Graphic Products and Controls Group
Net sales for the nine months ended March 31, 2000 decreased by
$9,476,000, or 8.1%, to $107,244,000 from $116,720,000 for the nine months ended
March 31, 1999. Currency rate fluctuations attributable to the Company's
overseas operations increased net sales for the current period by $2,368,000,
otherwise, net sales would have decreased by $11,844,000 in the current period.
This decrease is primarily the result of reduced sales levels of on-press
accessories and controls in the United States and Europe and post-press
equipment and a general economic slowdown in Asia.
Operating income amounted to $5,400,000 (5.0% of net sales) for the
nine months ended March 31, 2000, as compared to $11,300,000 (9.7% of net sales)
for the same period in the prior year, a decrease of $5,900,000. Currency rate
fluctuations increased the current year's operating income by $309,000,
otherwise operating income would have decreased by $6,209,000. This decrease is
primarily the result of a restructuring charge applicable to the segment in the
amount of $2,928,000, and to the overall decrease in sales levels discussed
above, coupled with continuing pricing pressures in the market.
Material Handling Group
Net sales for the nine months ended March 31, 2000 decreased by
$18,317,000, or 29.8%, to $43,174,000 from $61,491,000 for the nine months ended
March 31, 1999. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $628,000,
otherwise net sales would have decreased by $17,689,000. This decrease is
primarily the result of reduced product volumes, principally roll handling
equipment, including reduced orders from one of the Company's largest OEM
customers, a reduction in equipment orders in the commercial web heatset
printing market, and the effect of the disposition of In-Line
during the prior year, which further reduced net sales by $2,243,000.
Operating loss amounted to $3,083,000 (7.1% of net sales) for the nine
months ended March 31, 2000, as compared to operating income of $1,151,000 (1.9%
of net sales) for the same period in the prior year, a decrease of $4,234,000.
Currency rate fluctuations decreased the current year's operating profit by
$91,000. The remaining decrease is primarily the result of the decrease in
sales levels, a restructuring charge applicable to the segment in the amount of
$2,276,000, and the $1,100,000 bad debt charge for the sale of the pre-petition
accounts receivable from Goss in the current year period, offset by the
$2,400,000 provision for loss on the Pre-press operations in the prior year
period.
Three Months Ended March 31, 2000 vs Three Months Ended March 31, 1999
Consolidated Results
Net sales for the three months ended March 31, 2000 decreased by $7,337,000,
or 12.6%, to $50,711,000 from $58,048,000 for the three months ended March 31,
1999. Currency rate fluctuations attributable to the Company's overseas
operations decreased net sales by $164,000 in the current period. Otherwise,
sales would have decreased by $7,173,000. This decrease is primarily the result
of reduced product volumes, principally roll handling equipment, including
reduced orders from one of the Company's largest OEM customers. In terms of
local currency, and as compared to the same period in the prior year, net sales
decreased by 31.3% in the Americas, and by 11.6% in Germany. Sales increased
by 55.9% in Sweden.
Gross profit for the three month period ended March 31, 2000 was
$16,166,000 (31.9% of net sales), as compared to $18,419,000 (31.7% of net
sales) for the three month period ended March 31, 1999, a decrease of $2,253,000
or 12.2%. Currency rate fluctuations decreased gross profit by $144,000 in the
current period. Otherwise gross profit would have decreased by $2,109,000 in
the current period. Gross profit was lower due primarily to decreased sales
volumes as gross profit margins increased 0.2% to 31.9% from 31.7% for the
three months ended March 31, 2000 and 1999, respectively.
Selling, general and administrative expenses amounted to $10,401,000 (20.5%
of net sales), for the three month period ended March 31, 2000 as compared to
$10,683,000 (18.4% of net sales) for the same period in the prior year, a
decrease of $282,000 or 2.6%. Currency rate fluctuations decreased these
expenses by $74,000 in the current period. Otherwise, selling, general and
administrative expenses would have decreased by $208,000. Selling expenses
increased by $301,000 which primarily related to increased trade show,
advertising and marketing costs, which were partially offset by reduced sales
commissions resulting from lower sales volumes. General and administrative
expenses decreased by $509,000 due primarily to reduced incentive compensation
costs as a result of the lower profitability of the Company, and personnel cost
reductions associated with the planned workforce reductions which began during
the fiscal year ended June 30, 1999.
Engineering and research and development expenses decreased by $281,000
compared to the same period in the prior year. Currency rate fluctuations
decreased these expenses by $65,000 in the current period. Otherwise, these
expenses would have decreased by $216,000. The decrease in these expenses
relates primarily to personnel cost reductions associated with planned workforce
reductions which began during the fiscal year ended June 30, 1999, and costs
attributable to reduced subcontracting costs. As a percentage of net sales,
engineering and research and development expenses increased by 0.7% to 9.0% for
the three months ended March 31, 2000 compared to 8.3% for the same period in
the prior year.
Interest expense for the three month period ended March 31, 2000 was
$397,000 as compared to $603,000 for the three month period ended March 31,
1999. This decrease was primarily due to lower long-term debt levels during the
current period, which has been slightly offset by slightly higher interest
rates. Currency rate fluctuations decreased interest expense by $35,000 in the
current period. Interest income amounted to $67,000 and $83,000 for the three
month periods ended March 31, 2000 and 1999, respectively. This reduction in
interest income is primarily due to decreased cash balances during the period.
Currency rate fluctuations decreased interest income by $1,000 in the current
period.
Other income, net includes net foreign currency transaction losses of
$142,000 and $94,000 for the three months ended March 31, 2000 and 1999,
respectively. Currency rate fluctuations increased other income by $52,000
in the current period.
Certain items have significantly impacted the Company's effective tax rate,
specifically the $4,147,000 NOL benefit in the current period and the $2,400,000
provision for the loss on the Pre-press operations in the prior year period.
The Company's effective tax rate on income before taxes (excluding the effects
of the above noted items) was 34.6% for the three month period ended March 31,
2000 as compared to 32.6% for the three month period ended March 31, 1999.
Currency rate fluctuations increased the provision for income taxes by
$29,000 in the current period. The increase in the current period's effective
tax rate is primarily due to higher taxable income in jurisdictions which have
higher income tax rates.
The Company's net income amounted to $1,825,000 for the three month period
ended March 31, 2000, as compared to a net loss of $379,000 for the three month
period ended March 31, 1999. This increase of $2,204,000 is primarily due to
the $4,147,000 NOL benefit recorded in the current period as previously
discussed, and the $2,400,000 provision for the loss on the Pre-press operations
in the prior year period, which have been partially offset by the $5,490,000
restructuring charge in the current year period and the previously noted overall
reduction in sales volumes and related gross profit. Currency rate fluctuations
increased net income by $52,000 in the current period. Net income per share
amounted to $0.12 basic and diluted for the three months ended March 31, 2000,
as compared to net loss per share of $(0.02) basic and diluted for the three
months ended March 31, 1999.
Segment Results
Graphic Products and Controls Group
Net sales for the three months ended March 31, 2000 decreased by
$313,000, or 0.9%, to $36,317,000 from $36,630,000 for the three months ended
March 31, 1999. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $152,000,
otherwise, net sales would have decreased by $161,000 in the current period.
This decrease is primarily the result of reduced sales levels of on-press
accessories and controls for the commercial web heatset printing market.
Operating income amounted to $509,000 (1.4% of net sales) for the
three months ended March 31, 2000, as compared to $1,967,000 (5.4% of net sales)
for the same period in the prior year, a decrease of $1,458,000. Currency rate
fluctuations increased the current year's operating income by $47,000, otherwise
operating income would have decreased by $1,505,000. This decrease is primarily
the result of a restructuring charge applicable to the segment in the amount of
$2,928,000, which was partially offset by reduced incentive compensation and
personnel costs.
Material Handling Group
Net sales for the three months ended March 31, 2000 decreased by
$6,073,000, or 28.8%, to $14,997,000 from $21,070,000 for the three months ended
March 31, 1999. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $273,000,
otherwise net sales would have decreased by $5,800,000. This decrease is
primarily the result of reduced product volumes, principally roll handling
equipment, including reduced sales to one of the Company's largest OEM
customers.
Operating loss amounted to $2,497,000 (16.6% of net sales) for the
three months ended March 31, 2000, as compared to $512,000 (2.4% of net sales)
for the same period in the prior year, a decrease of $1,985,000. Currency rate
fluctuations decreased the current year's operating profit by $16,000. The
remaining decrease is primarily the result of a restructuring charge applicable
to the segment in the amount of $2,276,000, and the overall decrease in sales
levels discussed above, offset by the $2,400,000 provision for loss on the
Pre-press operations in the prior year period.
Liquidity and Capital Resources at March 31, 2000
Liquidity and Working Capital
The Company's long-term debt includes $6,250,000 of 8.17% senior notes
(the "Senior Notes") due October 29, 2000. The Company also maintains a
$25,000,000 Revolving Credit Agreement (the "Revolver") with Bank of America,
N.A., as agent.
The Senior Notes and the Revolver require the Company to maintain
certain financial covenants and have certain restrictions regarding the payment
of dividends, limiting them throughout the terms of the Senior Notes and the
Revolver to $1,000,000 plus 50% of the Company's net income after January 1,
1997. The Company also was required to pledge certain of the shares of its
domestic subsidiaries as collateral.
Both the Senior Notes and the Revolver require the Company to maintain
a current ratio, a fixed charges ratio, and a funded debt to cash flow ratio, as
those terms are defined in the agreements, of not less than 1.40 to 1.00 and
1.15 to 1.00, or greater than 2.25 to 1.00, respectively. At March 31, 2000,
these ratios were 1.55 to 1.00, 0.72 to 1.00 and 2.45 to 1.00, respectively.
The Company is not in compliance with the latter two covenants, primarily as a
result of the restructuring charge, and has received a waiver thereon through
June 29, 2000. The Company and its lenders have recently agreed to extend the
maturity date of the Revolver by 91 days to June 30, 2001. Accordingly, the
Company continues to classify amounts due under the Revolver as non-current.
Management believes it will be in compliance with financial covenants in
the future.
The Company's working capital decreased by $4,419,000 or 15.2% from
$29,154,000 at June 30, 1999 to $24,735,000 at March 31, 2000. Currency rate
fluctuations increased working capital by $801,000 in the current period.
Otherwise, working capital would have decreased by $5,220,000. The primary
reasons for the decrease in working capital were lower cash balances and trade
accounts and notes receivable and increases in loans payable, customer deposits,
and trade accounts and notes payable and other accrued liabilities (including
restructuring charges of $4,125,000), which were significantly offset by
increases in inventories and decreases in accrued incentive compensation costs
due to the lower profitability of the Company and income taxes payable due
mainly to the $4,147,000 NOL benefit realized in the current period.
Net cash used by investing activities amounted to $2,611,000 for the
nine months ended March 31, 2000 as compared to $2,040,000 for the nine months
ended March 31, 1999 and resulted from additions to property, plant and
equipment, which included investments in the expansion of certain existing
facilities in the current period, as well as additions to patents.
Additionally, the prior period included net cash used for net acquisitions of
businesses.
Net cash used by financing activities amounted to $7,526,000 for the
nine months ended March 31, 2000 as compared to $1,254,000 for the nine months
ended March 31, 1999. The increase in cash used by financing activities was
primarily due to the net repayments of long-term debt.
The Company maintains relationships with foreign and domestic banks
which have extended credit facilities to the Company. As of March 31, 2000,
these credit facilities total $35,929,000 including amounts available under the
Revolver. The Company had outstanding $12,942,000 under these lines of credit,
of which $7,433,000 is classified as long-term debt. Total debt levels as
reported on the balance sheet at March 31, 2000 are $28,000 lower than they
would have been if June 30, 1999 exchange rates had been used.
On July 30, 1999, one large OEM customer, Goss Graphic Systems, Inc.
("Goss") filed for bankruptcy protection under a prearranged Chapter 11
proceeding in the U.S. Bankruptcy Court. Goss' European and Asian subsidiaries
are not included in this proceeding, and furthermore, the Company continues to
receive timely payments from the foreign subsidiaries of Goss. The pre-petition
accounts receivable from Goss of approximately $4,100,000 were sold pursuant to
an agreement between the Company and a third party for approximately $3,000,000.
The Company has taken a charge to earnings for the prior quarter ended December
31, 1999 in the amount of $1,100,000 as a bad debt, which is included in General
and Administrative expenses. As of March 31, 2000, the entire amount of
$3,000,000 has been received from the third party. For the three and nine
months ended March 31, 2000, Goss represented less than 10% of the Company's
total net sales.
The estimated cash cost of the restructuring program is expected to be
approximately $6,500,000, with approximately $5,600,000 to be spent over the
next twelve months and approximately $900,000 (primarily facility lease costs)
to be spent over the balance of the lease terms of approximately three years.
The Company believes its cash flow from operations and bank lines of credit
(before considering the estimated savings from the restructuring program) are
sufficient to finance its working capital and other capital requirements for the
near and long-term future.
Year 2000 Compliance
As of the date of this filing, the Company has not incurred any
significant business interruptions as a result of the Year-2000 situation.
However, while no such occurrence has developed as of the date of this filing,
Year-2000 problems may surface throughout calendar year 2000. Therefore, there
is no assurance that the Company will not be negatively impacted by the
Year-2000 situation in the future. The Company will continue to monitor this
situation and expeditiously remediate any issues that may arise.
Euro Conversion
Effective January 1, 1999, the "Euro" has become the new common
currency for 11 countries of the European Community ("EC") (including Germany
and France where the Company has operations). Other member states (including
the United Kingdom and Sweden where the Company also has operations) may join
in future years. Beginning January 1, 1999, transactions in the Euro became
possible, with the national currencies continuing to circulate until January 1,
2002, when the Euro will become the functional currency for these 11 countries.
During the transition period from January 1, 1999 to January 1, 2002, payments
can be made using either the Euro or the national currencies at fixed exchange
rates.
Beginning January 1, 1999, the Company began conducting business with
customers in both the Euro and the respective national currency. Systems and
processes that are initially impacted by this dual currency requirement are
customer billing and receivables, payroll and cash management activities,
including cash collections and disbursements. To accomplish compliance, the
Company is making the necessary systems and process changes and is also working
with its financial institutions on various cash management issues. The Company
currently expects to have new systems and
processes in place by July, 2000 to accommodate the recording of all business
transactions in the Euro for the affected countries.
Management currently believes that the costs associated with
implementing and completing the Euro conversion, as well as business and market
implications, if any, associated with the Euro conversion, will not be material
to its results of operations or financial condition in any year or in the
aggregate. The competitive impact of increased cross-border price transparency,
however, is uncertain, both with respect to products sold by the Company, as
well as products and services purchased by the Company.
The Company's ongoing efforts with regard to the Year-2000 compliance
and Euro conversion, and those of its significant customers and suppliers,
including financial institutions may, at some time in the future, reveal as yet
unidentified or not fully understood issues that may not be addressable in a
timely fashion, or that may cause unexpected competitive or market effects, all
contrary to the foregoing statements. These issues, if not resolved favorably,
could have a material adverse effect on the Company's results of operations or
financial condition in any year.
Impact of Inflation
The Company's results are affected by the impact of inflation on
manufacturing and operating costs. Historically, the Company has used selling
price adjustments, cost containment programs and improved operating efficiencies
to offset the otherwise negative impact of inflation on its operations.
Item 3: Quantitative and Qualitative Disclosures About Market Risk:
A discussion of market risk exposures is included in Part II Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk" of the Company's
Annual Report on Form 10-K for the year ended June 30, 1999. There have been
no material changes during the nine months ended March 31, 2000.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.31 Tenth Amendment and Waiver to Amended and Restated Revolving
Credit Agreement by and among Baldwin Americas Corporation and
Baldwin Technology Limited (as "Borrowers") and Baldwin
Technology Company, Inc., together with the Borrowers (as
"Credit Parties") and Bank of America, N.A. (as "Agent") and
Fleet National Bank, together with Agent (as "Lenders") (filed
herewith).
10.32 Employment agreement dated March 1, 2000 and effective as of
November 10, 1999 between Baldwin Technology Company, Inc. and
Michael R. Samide (filed herewith).
10.33 Employment agreement dated February 7, 2000 and effective as of
February 9, 2000 between Baldwin Technology Company, Inc. and
Lawrence M. Miller (filed herewith).
10.34 Employment agreement dated April 27, 2000 and effective as of
April 27, 2000 between Baldwin Technology Company, Inc. and
Peter E. Anselmo (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated March 30,
2000, relating to items 5 and 7 of Form 8-K. Such Current Report announced
a corporate restructuring plan undertaken by the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALDWIN TECHNOLOGY COMPANY, INC.
BY s\ James M. Rutledge
Vice President, Chief Financial
Officer and Treasurer
Dated: May 2, 2000