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, 1997 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, 1997 Class A Common Stock $0.01 par value 15,288,881 Class B Common Stock $0.01 par value 1,835,883 Total number of pages in this document 14 BALDWIN TECHNOLOGY COMPANY, INC. INDEX Page Part I Financial Information Consolidated Balance Sheet - March 31, 1997 and June 30, 1996 1 Consolidated Statement of Income - Three months and nine months ended March 31, 1997 and 1996 2 Consolidated Statement of Changes in Shareholders' Equity - Nine months ended March 31, 1997 3 Consolidated Statement of Cash Flows - Nine months ended March 31, 1997 and 1996 4-5 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II Other Information Item 6 Exhibits and Reports on Form 8-K 13 Signatures 14 CAUTIONARY STATEMENT -- This Form 10-Q may contain statements which constitute "forward-looking" information as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission ("SEC") in its rules, regulations and releases. Baldwin Technology Company, Inc. (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 from estimates contained in the Company's forward-looking statements are set forth in Exhibit 99 to Form 10-K for the year ended June 30, 1996. 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, 1997 1996 ASSETS CURRENT ASSETS: Cash $ 8,663 $ 9,781 Short-term securities 10 13 Accounts receivable trade, net of allowance for doubtful accounts of $1,955 ($2,503 at June 30, 1996) 40,092 53,894 Notes receivable, trade 14,908 9,827 Inventories 28,678 42,049 Prepaid expenses and other 7,580 8,724 Total current assets 99,931 124,288 MARKETABLE SECURITIES: Cost $655 ($742 at June 30, 1996) 777 984 PROPERTY, PLANT AND EQUIPMENT, at cost: Land and buildings 3,174 7,995 Machinery and equipment 7,234 10,176 Furniture and fixtures 5,888 5,746 Leasehold improvements 1,349 1,280 Capital leases 6,311 7,192 23,956 32,389 Less: Accumulated depreciation and amortization 16,391 19,075 Net property, plant and equipment 7,565 13,314 PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost, less accumulated amortization of $4,460 ($3,957 at June 30, 1996) 5,104 5,414 GOODWILL, less accumulated amortization of $6,895 ($12,218 at June 30, 1996) 31,487 64,381 OTHER ASSETS 9,951 8,959 TOTAL ASSETS $154,815 $217,340 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable $ 10,378 $ 9,704 Current portion of long-term debt 6,346 492 Accounts payable, trade 13,651 17,500 Notes payable, trade 11,521 10,793 Accrued salaries, commissions, bonus and profit-sharing 7,134 9,769 Customer deposits 6,847 6,686 Accrued and withheld taxes 1,618 2,780 Income taxes payable 4,025 5,557 Other accounts payable and accrued liabilities 16,368 14,957 Total current liabilities 77,888 78,238 LONG-TERM LIABILITIES: Long-term debt 20,432 33,576 Other long-term liabilities 5,243 8,470 Total long-term liabilities 25,675 42,046 Total liabilities 103,563 120,284 SHAREHOLDERS' EQUITY: Class A Common Stock, $.01 par, 45,000,000 shares authorized, 16,391,683 shares issued (16,391,683 at June 30, 1996) 164 164 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 57,185 57,185 Retained earnings 143 44,149 Cumulative translation adjustment (409) 49 Unrealized gain on investments net of $63,000 of deferred taxes ($124,000 at June 30, 1996) 59 118 Less: Treasury stock, at cost: Class A - 1,102,802 shares (818,156 at June 30, 1996) Class B - 164,117 shares (164,117 at June 30, 1996) (5,910) (4,629) Total shareholders' equity 51,252 97,056 COMMITMENTS ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $154,815 $217,340 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, except per share data) (Unaudited) For the three months For the nine months ended March 31, ended March 31, 1997 1996 1997 1996 Net sales $58,318 $63,812 $176,953 $182,463 Cost of goods sold 39,031 43,102 119,849 123,048 Gross Profit 19,287 20,710 57,104 59,415 Operating expenses: General and administrative 7,291 6,747 20,321 19,713 Selling 5,390 6,547 16,198 18,624 Engineering 3,451 3,547 10,761 9,944 Research and development 1,761 1,812 5,377 4,783 Provision for loss on the disposition of Misomex (Note 3) 46,036 Restructuring Charge (Note 4) 3,000 17,893 18,653 98,693 56,064 Operating income (loss) 1,394 2,057 (41,589) 3,351 Other (income) expense Interest expense 854 1,056 2,662 3,074 Interest income (97) (178) (305) (427) Other income, net (669) (656) (1,596) (1,197) Minority interest (73) (73) 15 222 688 1,450 Income (loss) before taxes 1,379 1,835 (42,277) 1,901 Provision for income taxes 634 844 1,729 2,254 Net income (loss) $ 745 $ 991 $(44,006) $ (353) Net income (loss) per common and common equivalent share $ 0.04 $ 0.06 $ (2.55) $ (0.02) Weighted average number of shares outstanding 17,128 17,783 17,263 17,915 The accompanying notes to consolidated financial statements are an integral part of these statements. - 2 - PAGE BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED STATEMENT 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 on Treasury Stock Shares Amount Shares Amount of Par Earnings Adjustment Investments Shares Amount Balance at June 30, 1996 16,391,683 $164 2,000,000 $20 $57,185 $44,149 $49 $118 (982,273)$(4,629) Net loss for the nine months (44,006) Purchase of treasury stock (156,400) (481) Stock received in the settle- ment of an indemnification claim made under the Acrotec Stock Purchase Agreement (128,246) (800) Unrealized loss on available for sale securities, net of tax (59) Translation adjustment (458) Balance at March 31, 1997 16,391,683 $164 2,000,000 $20 $57,185 $ 143 $ (409) $ 59 (1,266,919) $(5,910) 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, 1997 1996 Cash Flows from operating activities: Loss from operations $(44,006) $ (353) Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,502 3,526 Accrued retirement pay (310) 138 Provision for losses on accounts receivable 287 36 Provision for loss on the disposition of Misomex 46,036 Restructuring charge 3,000 Changes in assets and liabilities net of effects from the acquisition and dispositions - Accounts and notes receivable, net (3,715) 5,627 Inventories 1,440 (3,298) Prepaid expenses and other (495) 256 Customer deposits 1,202 1,909 Accrued compensation (1,105) (251) Accounts and notes payable, trade 1,883 (1,138) Income taxes payable (1,174) (899) Accrued and withheld taxes (179) 528 Other accounts payable and accrued liabilities 1,489 (1,647) Interest payable 532 636 Net cash provided by operating activities 5,387 8,070 Cash flows from investing activities: Acquisitions of subsidiaries, net of cash acquired (543) (4,798) Additions of property, net (955) (5,567) Additions of patents, trademarks and drawings, net (339) (379) Other assets 194 (181) Net cash used by investing activities (1,643) (10,925) Cash flows from financing activities: Long-term borrowings 3,765 10,334 Long-term debt repayment (8,599) (7,777) Short-term borrowings 6,475 7,021 Short-term debt repayment (4,610) (7,465) Principal payments under capital lease obligations (199) (323) Other long-term liabilities (561) (827) Treasury stock purchased (481) (2,470) Stock options exercised 120 Net cash used by financing activities (4,210) (1,387) Effects of exchange rate changes (655) (737) Net decrease in cash and cash equivalents (1,121) (4,979) Cash and cash equivalents at beginning of year 9,794 13,189 Cash and cash equivalents at end of period $ 8,673 $ 8,210 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, 1997 1996 (in thousands) Cash paid during the period for: Interest $ 2,130 $ 2,438 Income taxes $ 3,361 $ 3,118 Supplemental schedule of non-cash investing and financing activities: For the nine months ended March 31, 1997: The Company recorded a provision for the disposition of its Misomex pre-press operations in a non-cash transaction in the amount of $46,036,000. In conjunction with the disposition, the related assets and liabilities of the pre-press operations were reduced to fair value less the estimated costs of disposal and recorded in "Other assets". (See Note 3 - Notes to Consolidated Financial Statements.) The Company reclassified $6,250,000 of its 8.17% Senior Notes to "Current portion of long-term debt" from "Long-term debt" as the first scheduled installment became current. All previously capitalized patent costs that had been recorded in other assets have been realized as royalties at March 31, 1997. See comments below for March 31, 1996. The Company entered into capital lease agreements of $1,885 for the nine months ended March 31, 1997. For the nine months ended March 31, 1996: The Company acquired the capital stock of Acrotec AB and subsidiaries (Acrotec) in a purchase transaction for consideration of $7,848,000 ($5,660,000 in cash and 350,000 shares of the Company's Class A Common Stock). The fair value of the acquired assets excluding goodwill was $16,915,000 and the liabilities assumed were $12,539,000. The excess of the purchase price over the net assets acquired of $3,472,000 was recorded as goodwill. A restructuring charge was expensed during the second quarter of the fiscal year in a non-cash transaction of $3,000,000. The change in the related liability is recorded as a change in "Other accounts payable and accrued liabilities" for cash flow purposes. (See Note 4 - Notes to Consolidated Financial Statements.) 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, 1996, "Other assets" included $267,000 of such costs. The Company entered into capital lease agreements of $80,927 for the nine months ended March 31, 1996. 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, and control 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, 1997 are not necessarily indicative of the results that may be expected for the year ending June 30, 1997. 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 stock equivalents outstanding during the period. For the three and nine month periods ended March 31, 1997 and 1996, net income was divided by the total of the weighted average number of common shares outstanding and common stock equivalents, in order to calculate net income per share. Common stock equivalents for the three month periods ended March 31, 1997 and 1996 consisted of no (0) shares and 18,476 shares, respectively, for stock options. The weighted average number of common and common equivalent shares outstanding for the three month periods ended March 31, 1997 and 1996 were 17,128,264 and 17,783,312, respectively. Common stock equivalents for the nine month periods ended March 31, 1997 and 1996 consisted of no (0) shares and 97,676 shares, respectively, for stock options. For the nine month periods ended March 31, 1997 and 1996, the weighted average number of common and common equivalent shares were 17,262,870 and 17,914,971, respectively. Common stock equivalents calculated for fully diluted earnings per share were not materially different from those calculated for primary. In February of 1997, Financial Accounting Standard ("FAS") No. 128, Earnings Per Share ("EPS") was released by the Fiancial Accounting Standards Board and will be effective for the Company's financial statements reported during the fiscal year ending June 30, 1998. The effect of adoption of this standard is not anticipated to have a material impact. On a proforma basis at March 31, 1997, quarterly net income and net losses for the nine months per common and common equivalent share would be the same for "basic" and "diluted" EPS as calculated under FAS No. 128 and for "primary" and "fully diluted" EPS under the current generally accepted accounting principle. Note 2 - Inventories: Inventories consist of the following:- March 31, June 30, 1997 1996 Raw material $15,913,000 $19,443,000 In process 7,451,000 14,236,000 Finished goods 5,314,000 8,370,000 $28,678,000 $42,049,000 Inventories decreased $2,129,000 due to translation effects of exchange from June 30, 1996 to March 31, 1997 and decreased by $9,802,000 due to the reclassification of inventories to "Other assets" for the planned disposition of Misomex (See Note 3 - Notes to Consolidated Financial Statements). Misomex inventories reclassified consisted of $4,010,000, $1,476,000 and $4,316,000 of raw materials, work in process and finished goods, respectively. - 6 - Note 3 - Disposition of Misomex pre-press operations: As previously indicated in the Company's Annual Report to Shareholders, the Company was evaluating several options with regard to its Misomex pre-press operations. During the quarter ended December 31, 1996, the Company wrote down the net assets of its Misomex operation to their estimated fair values, less the estimated costs of disposal, concurrent with the decision to dispose of such operations. On February 10, 1997, the Company signed a Letter of Intent with an investor group to sell substantially all the assets of its Misomex pre-press operations. Negotiations and the Letter of Intent with the investor group were mutually terminated on February 28, 1997. The Company continues to be committed to the divestiture of Misomex and is actively pursuing discussions with other interested parties. The net realizable value of the pre-press operations is reflected in "Other assets" in the amount of $1,383,000 in the March 31, 1997 Consolidated Balance Sheet. The following proforma condensed Consolidated Statement of Income of the Company reflects the removal of the results of the Company's pre-press operations for the nine month period ended March 31, 1997 and the fiscal year ended June 30, 1996. Nine months ended Year ended March 31, June 30, 1997 1996 Net sales $155,872,000 $226,069,000 Gross profit 50,337,000 73,193,000 Operating expenses 44,399,000 60,938,000 Provision for loss on disposal of Misomex 46,036,000 Restructuring charge 3,000,000 Operating (loss) income (40,098,000) 9,255,000 Other expenses 726,000 1,641,000 Pre-tax (loss) income $(40,824,000) $ 7,614,000 Note 4 - Restructuring Reserves: A restructuring reserve was charged to income for the quarter ended December 31, 1995 in the amount of $3,000,000. The reserve was established in order to accrue the costs associated with a planned workforce rationalization of the Company's German operations as well as to accrue for dealer claims associated with changes made to the European dealer network and distribution system. Since December 31, 1995, charges of $727,000 have been made against the severance reserve. At the time the severance benefits were accrued, management expected the restructuring would take place over a twelve month period due to German law restrictions regarding employee terminations. Two factors have affected the utilization of this reserve. As is customary in Germany, the Company's first actions were to terminate those employees with the least seniority as the required notice period is shorter. These employees also tend to have lower severance costs since the severance cost is a function of both salary level and duration of employment. In addition, certain of the process changes being implemented in the German operations are behind schedule which affect the pace of terminations. Charges to the severance reserve for the three month period ended March 31, 1997 were $184,000. There has been no movement in the reserve for dealer claims as the parties have been unable to negotiate a settlement and the matter is likely to be resolved in the courts. Restructuring reserves, except for the long-term portion of the excess facility sublease subsidy of $64,000 recorded in "Other long-term liabilities", were included in "Other accounts payable and accrued liabilities". - 7 - Restructuring reserves consist of the following:- March 31, June 30, 1997 1996 Severance $ 773,000 $1,052,000 Dealer Claims 1,500,000 1,500,000 Excess facility sublease subsidy 167,000 263,000 $2,440,000 $2,815,000 Note 5 - Common Stock: Stock Options:- On November 22, 1996, five (5) eligible non-employee Directors of the Company were automatically granted non-qualified options for a total of 4,470 shares of Class A Common Stock and 530 shares of Class B Common Stock under the Company's 1990 Directors' Stock Option Plan at exercise prices of $2.5625 and $3.20 per share, respectively, the fair market values on the date of grant. Restrictions, as described in the Company's 1991 Proxy Statement, are similar to the 1986 Stock Option Plan, as amended and restated (the "1986 Plan"), with the exception of the dates of exercise, vesting and termination. On October 15, 1996, the Board of Directors adopted, subject to stockholder approval, the 1996 Stock Option Plan (the "1996 Plan"). The 1996 Stock Plan, having the terms and conditions set forth in Exhibit A to the Company's Proxy Statement dated October 16, 1996, was approved on November 19, 1996 at the Company's Annual Meeting. No options have been granted under the 1996 Plan. On October 14, 1996 the 1986 Plan terminated. On October 7, 1996, the Board of Directors granted non-qualified options to purchase 352,500 shares of the Company's Class A Common Stock and 120,000 shares of Class B Common Stock to certain executives under the Company's 1986 Plan at exercise prices of $3.00 and $3.75 per share, respectively, the fair market values on the date of grant. The options granted are otherwise identical with regard to restrictions to options previously granted. - 8 - 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, 1997 vs. Nine Months Ended March 31, 1996. Net sales of $176,953,000 for the nine months ended March 31, 1997 decreased by $5,510,000 or 3.0% as compared to $182,463,000 for the nine months ended March 31, 1996. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales by $8,647,000 (72.6% of which relates to a weaker Japanese Yen). Acquisitions added $7,754,000 to sales for the current nine month period. Product volume changes were primarily responsible for the remainder of the difference. In terms of local currency and after excluding the impact of acquisitions, sales generally decreased in the European Sector. Sales were down 13.2% in Germany and were down 16.1% in Sweden. In the Asian Sector, local currency sales increased by 31.9% in Japan and decreased in Australia. In the Americas Sector, net sales decreased by 13.4%. Gross profit for the nine month period ended March 31, 1997 was $57,104,000 (32.3% of net sales) as compared to $59,415,000 (32.6% of net sales) for the nine month period ended March 31, 1996, a decrease of $2,311,000 or 3.9%. Gross profit decreased by $2,580,000 on fluctuations in currency rates. Acquisitions added $2,615,000 to gross profit. The remainder of the difference was due to volume changes, product mix and other factors. Gross profit was lower as a percentage of sales when compared to the prior year due primarily to the effects of lower sales levels in the Americas Sector and in Germany and weaker margins at Misomex, the effects of which were partially offset by increased sales of products with stronger gross profit rates in Japan. Selling, general and administrative expenses were $36,519,000 (20.6% of net sales) for the nine month period ended March 31, 1997 as compared to $38,337,000 (21.0% of net sales) for the same period of the prior year, a decrease of $1,818,000 or 4.8%. Currency rate fluctuations decreased these expenses by $1,205,000 and acquisitions increased these expenses by $1,457,000. General and administrative expenses increased primarily due to severance expenses related to the termination of the Chairman of the Company and increased consulting and professional fees the effects of which were partially offset by reduced charges for goodwill amortization and cost savings achieved through the consolidation of facilities and reduced staff. Selling expenses declined due to lower staffing and generally lower expenses related to sales volume changes in the Americas and Europe. Other operating expenses, before the provision for loss on the disposition of Misomex and the loss on restructuring charges (See Notes 3 and 4 - Notes to Consolidated Financial Statements) increased by $1,411,000 over the same period of the prior year. Acquisitions added $765,000 to other operating expenses and currency rate fluctuations decreased other operating expenses by $749,000. The remainder of the increase in other operating expenses related primarily to increased engineering and research and development project costs and personnel. Interest expense for the nine month period ended March 31, 1997 was $2,662,000 as compared to $3,074,000 for the nine month period ended March 31, 1996. Currency rate fluctuations decreased interest expense by $336,000 while acquisitions added $351,000 for the current period. Decreased interest expense resulted from lower levels of working capital related indebtedness used by the Company's European operations and a decrease in long-term debt. Interest income was $305,000 and $427,000 for the nine month periods ended March 31, 1997 and March 31, 1996, respectively. Currency rate fluctuations decreased interest income by $80,000 and acquisitions increased interest income by $21,000 for the current period. Other income - 9 - increased from $1,197,000 to $1,596,000 and included foreign currency transaction gains of $129,000 and $418,000 for the nine month periods ended March 31, 1997 and 1996, respectively, with the remainder of the change due to increased royalty income. The effects of currency rate fluctuations decreased other income by $(18,000) for the current period. The Company's effective tax rate was 46% on income before the provision for loss on the disposition of Misomex (See Note 3 - Notes to Consolidated Financial Statements) for the nine month period ended March 31, 1997, as compared to 46% on income before restructuring charges (See Note 4 - Notes to Consolidated Financial Statements) for the nine month period ended March 31, 1996. Currency rate fluctuations decreased the provision for income taxes by $156,000 for the current period. The current period's effective tax rate reflects the impact of foreign source income which is generally taxed at significantly higher rates than domestic income. No tax benefit was recorded for the nine month periods ended March 31, 1997 or 1996 on either the provision for loss on the disposition of Misomex or the charge for restructuring due to the Company's tax loss carryforward positions in Europe. Net loss for the nine month period ended March 31, 1997 was $(44,006,000) versus a net loss of $(353,000) for the nine month period ended March 31, 1996, or $(2.55) and $(0.02) per share, respectively. Acquisitions decreased the net loss by $89,000 while currency rate fluctuations increased the net loss by $183,000 for the current period. Weighted average equivalent shares outstanding during the nine month periods ended March 31, 1997 and March 31, 1996 were 17,262,870 and 17,914,971, respectively. For the nine months ended March 31, 1997 and March 31, 1996, the net losses due to the provision for the disposition of Misomex and restructuring charges were $(46,036,000) or $(2.67) per share and $(3,000,000) or $(0.17) per share, respectively. The following condensed income statement data sets forth the consolidated results of the Misomex pre-press business for the three and nine month periods ended March 31, 1997 and 1996. For the three months For the nine months ended March 31, ended March 31, 1997 1996 1997 1996 Net sales $6,720 $7,667 $21,081 $24,502 Costs and expenses 7,095 7,988 22,572 24,511 Operating loss (375) (321) (1,491) (9) Other expense (income), net 3 9 (38) 243 Loss before taxes $ (378) $ (330) $(1,453) $ (252) Three Months Ended March 31, 1997 vs. Three Months Ended March 31, 1996. Net sales for the three months ended March 31, 1997 decreased by $5,494,000 (8.6%) to $58,318,000 from $63,812,000 for the three months ended March 31, 1996. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales by $3,937,000 while acquisitions increased net sales by $19,000 for the current period. Product volume was primarily responsible for the remainder of the change. In terms of local currency, sales were mixed in the European Sector increasing by 1.4% in Germany and 41.7% in the United Kingdom but decreasing by 26.2% in Sweden. Local currency Asian Sector sales increased 20.6% in Japan. In the Americas Sector, net sales decreased 13.7% for the period. Gross profit for the three month period ended March 31, 1997 was $19,287,000 (33.1% of net sales) as compared to $20,710,000 (32.5% of net sales) for the three month period ended March 31, 1996, a decrease of $1,423,000 or 6.9%. Gross profit decreased by $1,252,000 due to currency rate fluctuations and by $15,000 due to acquisitions with the remainder due primarily to volume changes, product mix and other factors. Gross profit increased as a percentage of sales when compared to the prior year due primarily to the effects of increased sales of products with stronger gross profit rates in Japan. - 10 - Selling, general and administrative expenses were $12,681,000 (21.7% of net sales) for the three month period ended March 31, 1997 as compared to $13,294,000 (20.8% of net sales) for the same period of the prior year, a decrease of $613,000 or 4.6% in these expenses of which currency rate fluctuations decreased these expenses by $604,000 and acquisitions increased these expenses by $110,000 in the current period. General and administrative expenses were increased primarily due to severance expenses related to the termination of the Chairman of the Company and increased consulting and professional fees the effects of which were partially offset by reduced charges for goodwill amortization. Selling expenses declined due to lower staffing and to sales volume changes in the Americas and Europe. Other operating expenses decreased by $147,000 or 2.7% as compared to the same period of the prior year. Currency rate fluctuations decreased other operating expenses by $394,000 for the current period. Increases in both engineering and research and development expenses relate to increased staffing. Interest expense for the three month period ended March 31, 1997 was $854,000 as compared to $1,056,000 for the three month period ended March 31, 1996. Currency rate fluctuations decreased interest expense by $149,000 with the remaining decrease due primarily to lower levels of long-term debt for the current period. Interest income was $97,000 and $178,000 for the three month periods ended March 31, 1997 and March 31, 1996, respectively. Other income was flat due to the offsetting effects of foreign currency transaction (losses) versus gains of $(107,000) and $426,000, respectively, and increased royalty income for the three month periods ended March 31, 1997 and 1996, respectively. Currency rate fluctuations increased other income by $50,000 for the period. The Company's effective tax rate was 46% on income before taxes for the three month period ended March 31, 1997, as compared to 46% on income before taxes for the three month period ended March 31, 1996. Currency rate fluctuations decreased the provision for income taxes by $33,000 for the current period. The current period's effective tax rate reflects the impact of foreign source income which is generally taxed at significantly higher rates than domestic income. Net income for the three month period ended March 31, 1997 was $745,000 versus net income of $991,000 for the three month period ended March 31, 1996, or $0.04 and $0.06 per share, respectively. Currency rate fluctuations decreased net income by $39,000 for the current period. Weighted average equivalent shares outstanding during the three month periods ended March 31, 1997 and March 31, 1996 were 17,128,264 and 17,783,312, respectively. Liquidity and Capital Resources at March 31, 1997 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 December, 1998. 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. In addition, the Company was required to pledge certain of its shares of its 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, 1997, this ratio was 1.5 to 1. - 11 - The Net cash used by investing activities as reflected in the Consolidated Statement of Cash Flows decreased by $9,282,000 from $10,925,000 at March 31, 1996 to $1,643,000 at March 31, 1997 primarily due to the fact that the prior year amount included the purchase of a Swedish manufacturing facility for SEK 28,840,000 ($4,295,000) and the purchase of Acrotec AB and Subsidiaries, net of cash acquired, of $4,798,000. The Net cash used by financing activities increased by $2,823,000 to $4,210,000 at March 31, 1997 from $1,387,000 at March 31, 1996. The difference is primarily caused by the fact that the prior year amounts included new borrowings associated with the acquired Acrotec Group and the purchase of the Swedish manufacturing facility while the current year amounts reflect lower repayments of long term debt and less treasury stock repurchase activity. The Company's working capital decreased from $46,421,000 at March 31, 1996, to $23,870,000 at March 31, 1997, a decrease of $22,551,000 or 48.6%. The principal reasons for the decrease in working capital were the write- down of $11,348,000 of net working capital in conjunction with the planned disposition of the Misomex pre-press business and the reclassification of $8,965,000 of long-term debt to current liabilities of which $6,250,000 was due to scheduled repayment and the remainder due to refinancing a long-term loan in order to obtain a more favorable interest rate. Currency rate fluctuations decreased working capital by $2,260,000. Increases in trade accounts and notes payable, income taxes payable and other current liabilities offset the increases in cash and trade receivables net of inventory decreases. The Company's working capital decreased by $22,180,000 or 48.2% from $46,050,000 at June 30, 1996 to $23,870,000 at March 31, 1997. The principal reasons for the decrease in working capital were the same as noted above. Currency rate fluctuations decreased working capital by $1,940,000. Decreases in accrued compensation were more than offset by increases in other current liabilities and more than offset the change in current assets where increases in receivables were partially offset by decreases in inventory and all other current assets. The Company maintains relationships with foreign and domestic banks which have extended credit facilities to the Company totaling $36,024,000, including amounts available under the Revolver. As of March 31, 1997, the Company had outstanding $10,584,000 under these lines of credit, of which $103,000 is classified as long-term debt. Total debt levels as reported on the balance sheet at March 31, 1997 are $1,681,000 lower than they would have been if June 30, 1996 exchange rates had been used. The reported amounts for "Current portion of long-term debt" and "Long-term debt" at March 31, 1997 exclude $264,000 and $1,702,000, respectively, of the Misomex mortgage note payable that has been reclassified to "Other assets" in conjunction with the planned disposition of the Misomex pre-press business. Net capital expenditures made to meet the normal business needs of the Company for the nine months ended March 31, 1997 and March 31, 1996, including commitments for capital lease payments, were $1,294,000 and $1,651,000, respectively. 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. - 12 - 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, 1997. - 13 - 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 14, 1997 - 14 -