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 September 30, 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.) 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 October 31, 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 10 BALDWIN TECHNOLOGY COMPANY, INC. INDEX Page Part I Financial Information Consolidated Balance Sheet - September 30, 1997 and June 30, 1997 1 Consolidated Statement of Income - Three months ended September 30, 1997 and 1996 2 Consolidated Statement of Changes in Shareholders' Equity - Three months ended September 30, 1997 3 Consolidated Statement of Cash Flows - Three Months ended September 30, 1997 and 1996 4-5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Part II Other Information Item 6 Exhibits and Reports on Form 8-K 9 Signatures 10 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, 1997. PART I FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BALDWIN TECHNOLOGY COMPANY, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share data) (Unaudited) September 30, June 30, 1997 1997 ASSETS CURRENT ASSETS: Cash $ 8,000 $ 9,421 Short-term securities 5,336 4,032 Accounts receivable trade, net of allowance for doubtful accounts of $2,110($2,106 at June 30, 1997) 42,998 38,177 Notes receivable, trade 10,769 15,051 Inventories 33,568 27,833 Prepaid expenses and other 9,684 13,512 Total current assets 110,355 108,026 MARKETABLE SECURITIES: Cost $673 ($712 at June 30, 1997) 832 942 PROPERTY, PLANT AND EQUIPMENT, at cost: Land and buildings 3,183 3,136 Machinery and equipment 6,939 6,732 Furniture and fixtures 5,710 5,638 Leasehold improvements 1,047 976 Capital leases 5,421 5,397 22,300 21,879 Less: Accumulated depreciation and amortization 14,666 14,334 Net property, plant and equipment 7,634 7,545 PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost, less accumulated amortization of $4,852 ($4,664 at June 30, 1997) 5,187 5,279 GOODWILL, less accumulated amortization of $7,530 ($7,368 at June 30, 1997) 31,004 31,452 OTHER ASSETS 8,688 8,879 TOTAL ASSETS $163,700 $162,123 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable $ 7,995 $ 8,312 Current portion of long-term debt 6,389 6,425 Accounts payable, trade 15,972 15,634 Notes payable, trade 11,892 11,273 Accrued salaries, commissions, bonus and profit-sharing 7,612 7,794 Customer deposits 9,635 6,439 Accrued and withheld taxes 1,846 1,941 Income taxes payable 3,909 5,369 Other accounts payable and accrued liabilities 14,575 15,143 Total current liabilities 79,825 78,330 LONG-TERM LIABILITIES: Long-term debt 20,278 20,256 Other long-term liabilities 5,059 5,275 Total long-term liabilities 25,337 25,531 Total liabilities 105,162 103,861 SHAREHOLDERS' EQUITY: Class A Common Stock, $.01 par, 45,000,000 shares authorized, 16,391,683 shares issued (16,391,683 at June 30, 1997) 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 7,353 6,152 Cumulative translation adjustment (351) 538 Unrealized gain on investments net of $79 of deferred taxes ($117 at June 30, 1997) 77 113 Less: Treasury stock, at cost: Class A - 1,102,802 shares (1,102,802 at June 30, 1997) Class B - 164,117 shares (164,117 at June 30, 1997) (5,910) (5,910) Total shareholders' equity 58,538 58,262 COMMITMENTS ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $163,700 $162,123 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 ended September 30, 1997 1996 Net sales $48,047 $57,541 Cost of goods sold 32,020 38,959 Gross Profit 16,027 18,582 Operating expenses: General and administrative 5,570 6,529 Selling 4,285 5,355 Engineering 3,006 3,611 Research and development 1,324 1,830 14,185 17,325 Operating income 1,842 1,257 Other (income) expense Interest expense 735 910 Interest income (207) (112) Minority interest (97) Other income, net (661) (570) (230) 228 Income before taxes 2,072 1,029 Provision for income taxes 871 473 Net income $ 1,201 $ 556 Net income per common and common equivalent share $ 0.07 $ 0.03 Weighted average number of shares outstanding 17,158 17,359 The accompanying notes to consolidated financial statements are an integral part of these statements. - 2 - [CAPTION] 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(Loss)on Treasury Stock Shares Amount Shares Amount of Par Earnings Adjustment Investments Shares Amount Balance at June 30, 1997 16,391,683 $164 2,000,000 $20 $57,185 $6,152 $538 $113 (1,266,919) $(5,910) Net income for the three months 1,201 Unrealized loss on available for sale securities, net of tax (36) Translation adjustment (889) Balance at September 30, 1997 16,391,683 $164 2,000,000 $20 $57,185 $7,353 $(351) $77 (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 three months ended September 30, 1997 1996 Cash Flows from operating activities: Income from operations $ 1,201 $ 556 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 790 1,282 Accrued retirement pay 153 209 Provision for losses on accounts receivable 121 99 Changes in assets and liabilities net of effects from subsidiary purchase - Accounts and notes receivable, net (2,197) 464 Inventories (6,179) 926 Prepaid expenses and other (288) (484) Customer deposits 3,252 (524) Accrued compensation (82) (939) Accounts and notes payable, trade 1,882 (3,406) Income taxes payable (1,365) (1,681) Accrued and withheld taxes (84) (123) Other accounts payable and accrued liabilities (1,004) 327 Interest payable 536 521 Net cash used by operating activities (3,264) (2,773) Cash flows from investing activities: Proceeds from pre-press disposition 4,000 Additions of property, net (470) (415) Additions of patents, trademarks and drawings, net (75) (187) Other assets (36) 20 Net cash provided (used)by investing activities 3,419 (582) Cash flows from financing activities: Long-term borrowings 3,026 Long-term debt repayment (45) (6,099) Short-term borrowings 377 4,858 Short-term debt repayment (486) (1,103) Principal payments under capital lease obligations (60) (65) Treasury stock purchased (256) Other long-term liabilities 81 (77) Net cash (used) provided by financing activities (133) 284 Effects of exchange rate changes (139) (9) Net decrease in cash and cash equivalents (117) (3,080) Cash and cash equivalents at beginning of year 13,453 9,794 Cash and cash equivalents at end of period $13,336 $ 6,714 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 three months ended September 30, 1997 1996 (in thousands) Cash paid during the period for:- Interest $ 199 $ 389 Income taxes $2,331 $2,273 Supplemental schedule of non-cash investing and financing activities: For the three months ended September 30, 1997:- There were no significant non-cash transactions for the three months ended September 30, 1997. The Company entered into capital lease agreements of $66,390 for the three months ended September 30, 1997. For the three months ended September 30, 1996:- There were no significant non-cash transactions for the three months ended September 30, 1996. The Company did not enter into any capital lease agreements for the three months ended September 30, 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 and print on demand industries. 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 period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending June 30, 1998. All significant intercompany transactions have been eliminated in consoli- dation. 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 month periods ended September 30, 1997 and 1996, net income was divided by the total of the weighted average number of common shares outstanding and common stock equivalents, which consisted of 33,398 shares for stock options (0 shares in 1996), in order to calculate net income per share. The weighted average number of common equivalent shares outstanding for the three month periods ended September 30, 1997 and 1996 were 17,158,162 and 17,359,039, respectively. Common stock equivalents calculated for fully diluted earnings per share were not significantly different from those calculated for primary earnings per share. The Company has adopted Statement of Financial Account- ing Standards No. 128 "Earnings per Share" (FAS 128) and will compute and disclose Basic and Diluted earnings per share as required by that statement starting with the quarter ending December 31, 1997. If Basic and Diluted earnings per share had been calculated for the current quarter as prescribed by FAS 128 there would have been $0.00 (no) difference from earnings per share as reported. Note 2 - Inventories: Inventories consist of the following:- September 30, June 30, 1997 1997 Raw material $14,768,000 $11,383,000 In process 11,622,000 8,833,000 Finished goods 7,178,000 7,617,000 $33,568,000 $27,833,000 Inventories decreased by $444,000 due to translation rates in effect at September 30, 1997 when compared to rates at June 30, 1997. Note 3 - Restructuring Charge and Reserves: A restructuring reserve was charged to income during 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 reduction at 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. The Company also has $119,000 remaining from a fiscal 1992 restructuring charge, all of which relates to an excess facility sublease subsidy. The following schedule shows the use of restructuring reserves for payments of severance and sublease subsidies for the three months ended September 30, 1997. Restructuring reserves consist of the following:- September 30, June 30, 1997 1997 Severance and dealer claims $ 828,000 $1,144,000 Excess facility sublease subsidy 119,000 160,000 $ 947,000 $1,304,000 - 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. Three Months Ended September 30, 1997 vs Three Months Ended September 30, 1996. Net sales for the three months ended September 30, 1997 decreased by $9,494,000, or 16.5%, to $48,047,000 from $57,541,000 for the three months ended September 30, 1996. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales by $3,752,000 for the current period. Included in the prior year net sales amount was $6,155,000 related to the Company's Pre-press operations which were disposed of on June 30, 1997. In terms of local currency and after removing the net sales of the Pre-press operations from the prior year's results, sales changes were as follows. In Europe, sales were down 10.8% in Germany and decreased by 6.8% in Sweden. Sales increased by 9.5% in the United Kingdom and were up 55.9% in France. In Asia, sales increased by 17.4% in Japan. In the Americas, net sales decreased by 3.8%. Gross profit for the three month period ended September 30, 1997 was $16,027,000 (33.4% of net sales), as compared to $18,582,000 (32.3% of net sales) for the three month period ended September 30, 1996, a decrease of $2,555,000 or 13.7%. Currency rate fluctuations decreased gross profit by $1,267,000 in the current period. Gross profit of the Pre-press group, included in the prior year, was $2,064,000. Gross profit was higher as a percentage of sales when compared to the prior year due primarily to a decrease in manufacturing costs at the Company's German operation and a higher percentage of sales of products that carry higher gross profit rates. Selling, general and administrative expenses were $9,855,000 (20.5% of net sales), for the three month period ended September 30, 1997 as compared to $11,884,000 (20.7% of net sales) for the same period of the prior year, a decrease of $2,029,000 or 17.1%. Currency rate fluctuations decreased these expenses by $612,000 in the current period. Selling, general and administrative expenses of the Pre-press operations included in the prior year were $2,086,000. The acquisition of the Print-On-Demand Group, which occurred in January of 1997, added $286,000 to these expenses in the current period. Other operating expenses decreased by $1,111,000 over the same period of the prior year. Currency rate fluctuations decreased these expenses by $352,000 in the current period. Other operating expenses of the Pre-press operations included in the prior year were $686,000. Interest expense for the three month period ended September 30, 1997 was $735,000 as compared to $910,000 for the three month period ended September 30, 1996. Currency rate fluctuations decreased interest expense by $136,000. Interest expense for the prior year included $52,000 for the Pre-press operations. Interest income was $207,000 and $112,000 for the three month periods ended September 30, 1997 and September 30, 1996, respectively. Interest income increased primarily due to interest earned on the proceeds from the disposition of the Company's Pre-press operations. Other income and expense includes net foreign currency transaction losses of $78,000 and $92,000 for the three months ended September 30, 1997 and 1996, respectively. Currency rate fluctuations increased other income by $20,000 for the current period. Other income increased primarily due to net royalty income in the current period. The Company's effective tax rate on income before taxes was 42% for the three month period ended September 30, 1997 as compared to 46% for the three month period ended September 30, 1996. Currency rate fluctuations decreased tax expense by $65,000 for the current period. The current period's effective rate reflects the impact of foreign source income which is generally taxed at substantially higher rates than domestic income. The decrease in the current period's effective tax rate is primarily due to increased income in tax jurisdictions for which there are available tax loss carryforwards. Net income for the three month period ended September 30, 1997 increased by $645,000 or 116.0% to $1,201,000 from $556,000 for the three month period ended September 30, 1996, or to $0.07 from $0.03 per share. Currency rate fluc- tuations decreased net income by $76,000 for the current period. Losses associated with the Pre-press operation of $591,000 were included in net income for the three month period ended September 30, 1996. Weighted average equivalent shares outstanding during the three month periods ended September 30, 1997 and September 30, 1996 were 17,158,162 and 17,359,839, respectively. - 7 - Liquidity and Capital Resources at September 30, 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. The Company also has a three-year $20,000,000 Revolving Credit Agreement (the "Revolver") with NationsBank of North Carolina, National Association, 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 the 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 September 30, 1997, this ratio was 1.63 to 1. Net cash provided (used) by investing activities was $3,419,000 for the three months ended September 30, 1997 versus $(582,000) for the three months ended September 30, 1996. The change was primarily due to the fact that $4,000,000 of the proceeds from the disposition of the Company's Pre-press operations were collected on July 1, 1997. Net cash (used) by financing activities was $(133,000) for the period ended September 30, 1997 as compared to $284,000 of net cash provided by financing activities for the period ended September 30, 1996. The change was primarily due to repayment of borrowings in the current period versus net borrowings in the prior period. The Company's working capital decreased from $42,701,000 at September 30, 1996, to $30,530,000 at September 30, 1997, a decrease of $12,171,000 or 28.5%. Working capital of the disposed Pre-press business included in the September 30, 1996 total of working capital amounted to $12,096,000. Currency rate fluctuations further decreased working capital by $1,384,000. Cash and Short-term securities increased in the current period due to the collection of $4,000,000 of notes receivable related to the disposition of the Company's Pre-press operations. Cash and Short-term Securities were lower in the prior year due to the Acrotec acquisition. Prepaid expenses and other current assets increased primarily due to the $2,000,000 note receivable received in connec- tion with the disposition of the Pre-press business. Inventories and trade accounts receivable increased and bank loans for working capital decreased. These above increases in working capital were largely offset by a reclassifi- cation of long-term debt to current in accordance with the Company's debt amortization schedule, increases in trade accounts payable and customer deposits. The Company's working capital increased by $834,000 or 2.8% from $29,696,000 at June 30, 1997 to $30,530,000 at September 30, 1997. Currency rate fluctuations decreased working capital by $752,000 in the current period. The primary reasons for the increase in working capital resulted from the increase in inventories related to an increased order backlog and a decrease in income taxes payable resulting from a normal tax payment in Japan. The effects of the above working capital increases were largely offset by increases in customer deposits on orders related to the increase in backlog, the collection of a $4,000,000 note receivable related to the disposition of the Company's Pre-press operations and an increase in trade payables related to the increased level of inventory. The Company maintains relationships with foreign and domestic banks which have extended credit facilities to the Company totaling $30,675,000, including amounts available under the Revolver. As of September 30, 1997, the Company had outstanding $7,995,000 under these lines of credit. Total debt levels as reported on the balance sheet at September 30, 1997 are $177,000 lower than they would have been if June 30, 1997 exchange rates had been used. Net capital expenditures made to meet the normal business needs of the Company for the three months ended September 30, 1997 and September 30, 1996, including commitments for capital lease payments, were $545,000 and $602,000, 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. - 8 - BALDWIN TECHNOLOGY COMPANY, INC PART II OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K. On July 3, 1997 a Form 8-K was filed in connection with the sale to Kaber Imaging Inc. of the Misomex Group of Companies. Exhibits filed as part of that Form 8-K are listed below. Exhibits. 10.26 Stock Purchase Agreement, dated as of June 9, 1997, between Kaber Imaging, Inc. and the Company. 10.27 Amendment Number One, dated June 30, 1997, to the Stock Purchase Agreement. 99.1 Press Release of the Company, dated June 10, 1997, announcing the signing of the Stock Purchase Agreement. 99.2 Press Release of the Company, dated July 1, 1997, announcing that the transaction contemplated by the Stock Purchase Agreement had closed. - 9 - 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: October 24, 1997 - - 10 -