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, 1995 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.) 65 Rowayton Avenue, Rowayton, Connecticut 06853 (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 30, 1995 Class A Common Stock $0.01 par value 15,976,230 Class B Common Stock $0.01 par value 1,835,883 Total number of pages in this document 12 BALDWIN TECHNOLOGY COMPANY, INC. INDEX Page Part I Financial Information Consolidated Balance Sheet - March 31, 1995 and June 30, 1994 1 Consolidated Statement of Income - Three months and nine months ended March 31, 1995 and 1994 2 Consolidated Statement of Changes in Shareholders' Equity - Nine months ended March 31, 1995 3 Consolidated Statement of Cash Flows - Nine months ended March 31, 1995 and 1994 4 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II Other Information Item 6 Exhibits and Reports on Form 8-K 11 Signatures 12 PART I FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share data) (Unaudited) March 31, June 30, 1995 1994 ASSETS CURRENT ASSETS: Cash $ 8,909 $ 9,768 Short-term interest bearing securities 4,036 8,766 Accounts receivable trade, net of allowance for doubtful accounts of $2,763 ($3,209 at June 30, 1994) 42,459 31,253 Notes receivable trade 15,665 12,411 Inventories 42,459 32,939 Prepaid expenses and other 7,936 8,263 Total current assets 121,464 103,400 MARKETABLE SECURITIES, at cost: (Market $932; $1,190 at June 30, 1994) 896 918 PROPERTY, PLANT AND EQUIPMENT, at cost: Land and buildings 2,333 2,284 Machinery and equipment 8,745 8,516 Furniture and fixtures 5,793 5,075 Leasehold improvement 1,772 1,615 Capital leases 8,237 7,295 26,880 24,785 Less: Accumulated depreciation and amortization 19,712 17,172 Net property, plant and equipment 7,168 7,613 PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost, less accumulated amortization of $3,070 ($2,584 at June 30, 1994) 5,255 6,123 GOODWILL, less accumulated amortization of $9,153 ($7,579 at June 30, 1994) 61,030 60,584 OTHER ASSETS 9,701 8,578 TOTAL ASSETS $205,514 $187,216 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable $ 10,746 $ 5,891 Current portion of long-term debt 156 142 Accounts payable, trade 14,644 11,472 Notes payable, trade 12,217 11,079 Accrued salaries, commissions, bonus and profit-sharing 7,889 7,861 Customer deposits 6,674 4,139 Accrued and withheld taxes 1,908 1,742 Income taxes payable 2,691 4,374 Other accounts payable and accrued liabilities 12,575 11,602 Total current liabilities 69,500 58,302 LONG-TERM LIABILITIES: Long-term debt 31,210 32,230 Other long-term liabilities 9,336 8,604 Total long-term liabilities 40,546 40,834 Total liabilities 110,046 99,136 SHAREHOLDERS' EQUITY: Class A Common Stock, $.01 par, 45,000,000 shares authorized, 16,011,586 shares issued (16,010,706 at June 30, 1994) 160 160 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 54,881 54,837 Retained earnings 39,131 35,980 Cumulative translation adjustment 2,552 (1,900) Less: Treasury stock, at cost: Class A - 35,356 shares ( 21,756 at June 30, 1994) Class B - 164,117 shares (135,000 at June 30, 1994) (1,276) (1,017) Total shareholders' equity 95,468 88,080 COMMITMENTS ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $205,514 $187,216 The accompanying notes to consolidated financial statements are an integral part of these statements. - 1 - BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENT OF INCOME (in thousands of dollars except per share data) (Unaudited) For the three months For the nine months ended March 31, ended March 31, 1995 1994 1995 1994 Net sales $55,375 $49,403 $155,727 $141,261 Cost of goods sold 36,709 33,626 102,838 94,437 Gross Profit 18,666 15,777 52,889 46,824 Operating expenses: General and administrative 6,212 5,885 17,294 16,542 Selling 5,125 4,341 15,128 13,504 Engineering 3,092 2,238 8,783 7,171 Research and development 1,332 1,434 4,175 4,273 15,761 13,898 45,380 41,490 Operating income 2,905 1,879 7,509 5,334 Other (income) expense Interest expense 898 853 2,590 2,834 Interest (income) (146) (84) (468) (232) Other (income) expense, net (355) (439) (915) (934) 397 330 1,207 1,668 Income before taxes 2,508 1,549 6,302 3,666 Provision for income taxes 1,254 821 3,151 1,943 Net income $ 1,254 $ 728 $ 3,151 $ 1,723 Net income per common and common equivalent share $ 0.07 $ 0.04 $ 0.18 $ 0.10 Dividends declared Per share - Class A Per share - Class B Weighted average number of shares outstanding 17,932 18,053 17,938 18,029 The accompanying notes to consolidated financial statements are an integral part of these statements. - 2 - BALDWIN TECHNOLOGY COMPANY INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands, except share data) (Unaudited) (PART 1 OF 2 PART TABLE) Class A Class B Common Stock Common Stock Shares Amount Shares Amount Balance at June 30, 1994 16,010,706 $160 2,000,000 $20 Net income for the nine months Stock options exercised 880 Purchase of treasury stock Acquisition of treasury stock in exchange for cancellation of note receivable from former officer Issuance of common stock from treasury to officer under incentive compensation agreement Translation adjustment Balance at March 31, 1995 16,011,586 $160 2,000,000 $20 BALDWIN TECHNOLOGY COMPANY INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands, except share data) (Unaudited) (PART 2 OF 2 PART TABLE) Capital Contributed Cumulative in Excess Retained Translation Treasury Stock of Par Earnings Adjustment Shares Amount Balance at June 30, 1994 $54,837 $35,980 $(1,900) (156,756) $(1,017) Net income for the nine months 3,151 Stock options exercised 4 Purchase of treasury stock (57,717) (263) Acquisition of treasury stock in exchange for cancellation of note re- ceivable from former officer (25,000) (171) Issuance of common stock from treasury to officer under incentive compen- sation agreement 40 40,000 175 Translation adjustment 4,452 Balance at March 31, 1995 $54,881 $39,131 $ 2,552 (199,473) $(1,276) The accompanying notes to consolidated financial statements are an integral part of these statements. - 3 - BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands) (Unaudited) For the nine months ended March 31, 1995 1994 Cash Flows from operating activities: Income from continuing operations $ 3,151 $ 1,723 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,488 3,574 Accrued retirement pay 151 368 Provision for losses on accounts receivable 62 978 Changes in assets and liabilities net of effects from subsidiary purchase - Accounts and notes receivable, net (10,169) 3,172 Inventories (7,380) (679) Prepaid expenses and other 279 (2,928) Customer deposits 2,367 1,075 Accrued compensation (242) (882) Accounts and notes payable, trade 2,465 (5,080) Income taxes payable (1,626) 288 Accrued and withheld taxes 38 (206) Other accounts payable and accrued liabilities (69) (1,232) Interest payable 481 894 Net cash (used) provided by operating activities (7,004) 1,065 Cash flows from investing activities: Additions of property, net (882) (767) Additions of patents, trademarks and drawings, net (274) (693) Other assets 433 (1,887) Net cash used by investing activities (723) (3,347) Cash flows from financing activities: Long-term borrowings 2,000 34,718 Long-term debt repayment (3,335) (33,788) Short-term borrowings 4,566 12,105 Short-term debt repayment (1,096) (15,301) Principal payments under capital lease obligations (372) (594) Other long-term liabilities (23) (18) Treasury stock purchased (263) (847) Stock options exercised 4 42 Net cash provided (used) by financing activities 1,481 (3,683) Effects of exchange rate changes 657 44 Net (decrease) increase in cash and cash equivalents (5,589) (5,921) Cash and cash equivalents at beginning of year 18,534 19,676 Cash and cash equivalents at end of period $12,945 $13,755 The accompanying notes to consolidated financial statements are an integral part of these statements. - 4 - BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Supplemental disclosures of cash flow information: For the nine months ended March 31, 1995 1994 (in thousands) Cash paid during the period for: Interest $ 2,109 $ 3,664 Income taxes $ 4,834 $ 1,620 Supplemental schedule of non-cash investing and financing activities: For the nine months ended March 31, 1995: The Company successfully defended a patent which, under the terms of the patent purchase agreement with the patent's inventor, entitles the Company to indemnification of a portion of the legal fees incurred to defend the patent infringement. Accordingly, the Company reclassified from patents to long term assets $693,000 of legal fees. These previously capitalized patent costs will be realized as royalties become payable to the patent's inventor. At March 31, 1995, other assets included $591,000 of such costs. In accordance with the terms of a note receivable from a former officer, the Company canceled the note in exchange for the collateral which consisted of 25,000 shares of the Company's Class B Common Stock. The balance of the note together with interest receivable was $171,000. Under an incentive compensation agreement with an officer, the Company issued from treasury 40,000 shares of Class A Common Stock for which the accrued compensation was $235,000. During the quarter ended March 31, 1995, the Company reclassified $279,000 of prepaid taxes previously classified as a current asset to long term other assets. For the nine months ended March 31, 1994: There were no significant non-cash transactions for the nine months ended March 31, 1994. Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid instruments 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. - 5 - BALDWIN TECHNOLOGY COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - General: Baldwin Technology Company, Inc. (Baldwin, or the Company) is engaged primarily in the development, manufacture and sale of material handling, accessory, control and pre-press equipment for the printing industry. The consolidated financial statements include the accounts of Baldwin and its subsidiaries and reflect all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods. Operating results for the three month and nine month periods ended March 31, 1995 are not necessarily indicative of the results that may be expected for the year ending June 30, 1995. All significant intercompany transactions have been eliminated in consolidation. Net income per share is based on the weighted average number of common shares and common equivalent shares outstanding during the period. For the three and nine month periods ended March 31, 1995 and 1994, net income was divided by the total of the weighted average number of common shares and common equivalent shares outstanding, in order to calculate net income per share. Common equivalent shares for the three month periods ended March 31, 1995 and 1994 consisted of 117,965 and 131,258 shares, respectively, for stock options. The total of the weighted average number of common shares and common equivalent shares outstanding for the three month periods ended March 31, 1995 and 1994 were 17,932,228 and 18,053,212, respectively. Common equivalent shares for the nine month periods ended March 31, 1995 and 1994 consisted of 121,134 and 72,274 shares, respectively, for stock options. For the nine month periods ended March 31, 1995 and 1994 the total of the weighted average number of common shares and common equivalent shares were 17,937,880 and 18,029,333, respectively. Common equivalent shares calculated for fully diluted earnings per share were not materially different from those calculated for primary earnings per share. Note 2 - Inventories: Inventories consist of the following: March 31, June 30, 1995 1994 Raw material $17,847,000 $ 13,991,000 In process 13,998,000 10,032,000 Finished goods 10,614,000 8,916,000 $42,459,000 $32,939,000 Inventories increased $2,140,000 due to the translation effects of exchange fluctuations from June 30, 1994 to March 31, 1995. - 6 - 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 significant factors which have affected the Company's financial position and consolidated financial statements. Nine Months Ended March 31, 1995 vs. Nine Months Ended March 31, 1994. Net sales for the nine months ended March 31, 1995 increased by $14,466,000 or 10% to $155,727,000 from $141,261,000 for the nine months ended March 31, 1994. Currency rate fluctuations attributable to the Company's overseas operations increased net sales for the current period by $7,657,000. Product volume was the primary reason for the remainder of the increase. In terms of local currency, sales changes were mixed within the European Sector. Sales were up 6% in Germany, were up 2% in the United Kingdom and were down 7% in Sweden. Local currency Asian Sector sales were down 1%. In the Americas Sector, net sales increased 11%. Gross profit for the nine month period ended March 31, 1995 was $52,889,000 (34% of net sales) as compared to $46,824,000 (33.1% of net sales) for the nine month period ended March 31, 1994, an increase of $6,065,000 or 13%. Gross profit increased by $3,580,000 due to volume increases and by $2,485,000 due to currency rate fluctuations. Selling, general and administrative expenses were $32,422,000 (20.8% of net sales) for the nine month period ended March 31, 1995 as compared to $30,046,000 (21.3% of net sales) for the same period of the prior year, an increase of $2,376,000 or 7.9% in these expenses. Currency rate fluctuations increased these expenses by $1,352,000 in the current period. Increased marketing expenses, related to increased sales volume and to trade shows were primarily responsible for the increase. Other operating expenses increased $1,514,000 over the same period of the prior year of which $729,000 was due to currency rate fluctuations with the remaining increase due primarily to product design engineering. Interest expense for the nine month period ended March 31, 1995 was $2,590,000 as compared to $2,834,000 for the nine month period ended March 31, 1994. Currency rate fluctuations increased interest expense for the current period by $120,000. Decreased interest expense was primarily related to lower interest rates. Interest income was $468,000 and $232,000 for the nine month periods ended March 31, 1995 and March 31, 1994, respectively. Other income and expense includes foreign currency transaction gains of $204,000 and $389,000 for the nine month periods ended March 31, 1995 and 1994, respectively. The effects of currency rate fluctuations increased other expense by $48,000 for the current period. The Company's effective tax rate was 50% for the nine month period ended March 31, 1995, as compared to 53% for the nine month period ended March 31, 1994. The difference in effective rates results primarily from increased domestic income. The effective tax rate reflects the impact of foreign source income which is generally taxed at significantly higher rates than domestic source income and foreign source losses for which no tax loss carryback benefit is available. Currency rate fluctuations increased the provision for income taxes by $91,000 for the current period. Net income for the nine month period ended March 31, 1995 increased by $1,428,000 or 82.9% to $3,151,000 from $1,723,000 for the nine month period ended March 31, 1994, or to $0.18 from $0.10 per share, respectively. Currency rate fluctuations increased net income by $91,000 for the current period. Weighted average equivalent shares outstanding during the nine month periods ended March 31, 1995 and March 31, 1994 were 17,937,880 and 18,029,333, respectively. - 7 - Three Months Ended March 31, 1995 vs. Three Months Ended March 31, 1994. Net sales for the three months ended March 31, 1995 increased by $5,972,000 or 12% to $55,375,000 from $49,403,000 for the three months ended March 31, 1994. Currency rate fluctuations attributable to the Company's overseas operations increased net sales for the current period by $3,378,000 with product volume increases primarily responsible for the remainder of the change. In terms of local currency, sales changes were mixed within the European Sector. Sales were up 14.4% in Germany and were down 12% in United Kingdom and 16.9% in Sweden. Local currency Asian Sector sales were up by 8.7%. In the Americas Sector, net sales increased 9.6% for the period. Gross profit for the three month period ended March 31, 1995 was $18,666,000 (33.7% of net sales) as compared to $15,777,000 (31.9% of net sales) for the three month period ended March 31, 1994, an increase of $2,889,000 or 18.3%. Currency rate fluctuations increased gross profit by $1,052,000 with the remainder of the increase due primarily to increased sales volume. Selling, general and administrative expenses were $11,337,000 (20.4% of net sales) for the three month period ended March 31, 1995 as compared to $10,226,000 (20.7% of net sales) for the same period of the prior year, an increase of $1,111,000 or 10.9% in these expenses. Currency rate fluctuations increased these expenses in the current period by $572,000. The remainder of the increase was primarily selling expenses related to increased volume and trade shows. Other operating expenses increased $752,000 or 20.5% over the same period of the prior year. Currency rate fluctuations increased these expenses for the current period by $303,000 with the remaining increase primarily related to product design engineering. Interest expense for the three month period ended March 31, 1995 was $898,000 as compared to $853,000 for the three month period ended March 31, 1994. Currency rate fluctuations increased interest expense for the current period by $73,000. Interest income was $146,000 and $84,000 for the three month periods ended March 31, 1995 and March 31, 1994, respectively. Other income and expense includes foreign currency transaction gains of $147,000 and $35,000 for the three month periods ended March 31, 1995 and 1994, respectively. Currency rate fluctuations decreased other expense for the period by $4,000. The Company's effective tax rate on income before taxes was 50% for the three month period ended March 31, 1995, as compared to 53% for the three month period ended March 31, 1994. The difference in effective rates results primarily from increased domestic source income. The effective tax rate reflects the impact of foreign source income which is generally taxed at significantly higher rates than domestic source income and foreign source losses for which no tax loss carryback benefit is available. Currency rate fluctuations increased the provision for income taxes by $43,000 for the current period. Net income for the three month period ended March 31, 1995 increased by $526,000 or 72.3% to $1,254,000 from $728,000 for the three month period ended March 31, 1994, or to $0.07 from $0.04 per share, respectively. Currency rate fluctuations increased net income by $43,000 for the current period. Weighted average equivalent shares outstanding during the three month periods ended March 31, 1995 and March 31, 1994 were 17,932,228 and 18,053,212, respectively. - 8 - Liquidity and Capital Resources at March 31, 1995 Liquidity and Working Capital The Company's long-term debt includes $25,000,000 of 8.17% senior notes (the "Senior Notes") due October 29, 2000 and a three-year $20,000,000 Revolving Credit Agreement (the "Revolver") with NationsBank of North Carolina, as Agent which matures in November, 1996. 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 $3,000,000 plus 50% of the Company's net income after June 30, 1993. In addition, the Company was required to pledge certain of the shares of it's domestic subsidiaries as collateral for both the Senior Notes and the Revolver. Both the Senior Notes and the Revolver require the Company to maintain a ratio of current assets to current liabilities (as those terms are defined in the agreements) of not less than 1.4 to 1. At March 31, 1995, this ratio was 1.75 to 1. Net cash used by investing activities decreased by $2,624,000 from $3,347,000 at March 31, 1994 to $723,000 at March 31, 1995. The March 31, 1994 amount was significantly impacted by the capitalization of costs associated with the Company's debt refinancing. The remainder of the decrease was due primarily to a reduction of capitalized patent costs. Net cash provided by financing activities increased by $5,164,000 to $1,481,000 at March 31, 1995 as compared to net cash used by financing activities of $3,683,000 at March 31, 1994 primarily due to the difference in debt borrowing and repayment activity and lower levels of treasury stock purchased during the current period. The Company's working capital increased from $43,879,000 at March 31, 1994, to $51,964,000 at March 31, 1995, an increase of $8,085,000 or 18.4%. Currency rate fluctuations increased working capital by $4,045,000. The remainder of the increase was due primarily to the effects of increases in trade accounts and notes receivable, due to both an increase in sales to direct customers in the Asia-Pacific Sector and increased March 1995 sales overall and increases in inventory levels to meet customer requirements in the next succeeding quarter, offset by a decrease in cash. The increase in current assets was partially offset by a net increase in current liabilities which included increases in loans payable, trade accounts and notes payable and customer deposits. The Company's working capital increased by $6,866,000 or 15.2% from $45,098,000 at June 30, 1994 to $51,964,000 at March 31, 1995. Currency rate fluctuations increased working capital by $2,967,000. The increase in working capital was due to increases in both trade accounts and notes receivable and inventories which was partially offset by a decrease in short term interest bearing securities. Increases in loans payable, trade accounts and notes payable and customer deposits were offset by decreases in income taxes payable and accrued compensation. The Company maintains relationships with foreign and domestic banks which have extended credit facilities to the Company totaling $35,220,000, including amounts available under the Revolver. As of March 31, 1995, the Company had outstanding $12,996,000 under these lines of credit, of which $2,673,000 is classified as long-term debt. Total debt levels as reported on the balance sheet at March 31, 1995 are $1,714,000 higher then they would have been if June 30, 1994 exchange rates had been used. Net capital expenditures made to meet the normal business needs of the Company for the nine months ended March 31, 1995 and March 31, 1994, including commitments for capital lease payments, were $1,156,000 and $1,460,000, respectively. - 9 - The Company believes its cash flow from operations and bank lines of credit are sufficient to finance its working capital and other capital requirements for the near and long-term future. 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. - 10 - BALDWIN TECHNOLOGY COMPANY, INC PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K. There were no reports on Form 8-K filed for the three months ended March 31, 1995. - 11 - 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/William J. Lauricella --------------------- Treasurer and Chief Financial Officer Dated: May 4, 1995 - 12 -