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 December 31, 1998
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 January 29, 1999
Class A Common Stock
$0.01 par value 14,919,547
Class B Common Stock
$0.01 par value 1,835,883
BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
Part I Financial Information
Consolidated Balance Sheet -
December 31, 1998 and June 30, 1998 1-2
Consolidated Statement of Income -
Three months and six months ended
December 31, 1998 and 1997 3
Consolidated Statement of Changes in
Shareholders' Equity - Six months
ended December 31, 1998 4
Consolidated Statement of Cash Flows -
Six months ended December 31, 1998 and 1997 5-6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-15
Part II Other Information
Item 4 Submission of Matters to a Vote of
Security Holders 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
December 31, June 30,
1998 1998
(Unaudited)
CURRENT ASSETS:
Cash $ 10,877 $ 15,054
Short-term securities 367 6,972
Accounts receivable trade, net of allowance for
doubtful accounts of $1,927($1,713 at June 30, 1998) 40,888 39,839
Notes receivable, trade 14,178 13,323
Inventories 39,651 35,166
Prepaid expenses and other 8,451 8,086
Total current assets 114,412 118,440
MARKETABLE SECURITIES:
Cost $702 ($586 at June 30, 1998) 823 738
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 3,104 3,123
Machinery and equipment 6,967 7,210
Furniture and fixtures 6,091 5,539
Leasehold improvements 897 1,028
Capital leases 5,649 5,339
22,708 22,239
Less: Accumulated depreciation and amortization 15,707 15,241
Net property, plant and equipment 7,001 6,998
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost,
less accumulated amortization of $5,552 ($5,410 at
June 30, 1998) 4,608 4,935
GOODWILL, less accumulated amortization of $8,748
($8,033 at June 30, 1998) 32,522 29,394
OTHER ASSETS 16,432 14,523
TOTAL ASSETS $175,798 $175,028
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, June 30,
1998 1998
(Unaudited)
CURRENT LIABILITIES:
Loans payable $ 3,428 $ 4,481
Current portion of long-term debt 6,292 6,330
Accounts payable, trade 12,529 15,962
Notes payable, trade 11,348 9,707
Accrued salaries, commissions, bonus and profit-sharing 8,003 9,351
Customer deposits 11,599 14,180
Accrued and withheld taxes 2,457 2,282
Income taxes payable 7,465 10,478
Other accounts payable and accrued liabilities 16,008 17,104
Total current liabilities 79,129 89,875
LONG-TERM LIABILITIES:
Long-term debt 21,281 17,072
Other long-term liabilities 6,185 4,624
Total long-term liabilities 27,466 21,696
Total liabilities 106,595 111,571
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares
authorized, 16,435,849 shares issued
(16,431,683 at June 30, 1998) 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 57,372 57,359
Retained earnings 19,685 15,168
Cumulative translation adjustment 5 (3,423)
Unrealized gain on investments net of $23 of
deferred taxes ($73 at June 30, 1998) 48 79
Less: Treasury stock, at cost:
Class A - 1,514,402 shares (1,102,802 at June 30, 1998)
Class B - 164,117 shares (164,117 at June 30, 1998) (8,091) (5,910)
Total shareholders' equity 69,203 63,457
COMMITMENTS
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $175,798 $175,028
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands of dollars except per share data)
(Unaudited)
For the three months For the six months
ended December 31, ended December 31,
1998 1997 1998 1997
Net sales $65,169 $55,618 $120,488 $103,665
Cost of goods sold 44,321 36,761 81,470 68,781
Gross Profit 20,848 18,857 39,018 34,884
Operating expenses:
General and administrative 6,464 5,995 12,641 11,565
Selling 4,986 4,863 9,555 9,148
Engineering 3,776 3,164 7,179 6,170
Research and development 1,442 1,177 2,626 2,501
16,668 15,199 32,001 29,384
Operating income 4,180 3,658 7,017 5,500
Other (income) expense:
Interest expense 578 769 1,141 1,504
Interest income (110) (107) (270) (314)
Other income, net (411) (439) (1,073) (1,197)
57 223 (202) (7)
Income before income taxes 4,123 3,435 7,219 5,507
Provision for income taxes 1,526 1,332 2,702 2,203
Net income $ 2,597 $ 2,103 $ 4,517 $ 3,304
Basic income per share $ 0.15 $ 0.12 $ 0.27 $ 0.19
Diluted income per share $ 0.15 $ 0.12 $ 0.26 $ 0.19
Weighted average number of
shares:
Basic 16,887 17,135 17,001 17,129
Diluted 17,285 17,528 17,395 17,562
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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 Comprehensive
Shares Amount Shares Amount of Par Earnings Adjustment Investments Shares Amount Income
Balance at June
30, 1998 16,431,683 $164 2,000,000 $20 $57,359 $15,168 $(3,423) $79 (1,266,919) $(5,910)
Net income for
the six months
ended December
31, 1998 4,517 $4,517
Translation
adjustment 3,428 3,428
Unrealized loss
on available
for sale
securities, net
of tax (31) (31)
Comprehensive income $7,914
Stock options
exercised 4,166 13
Purchase of
treasury stock (411,600) (2,181)
Balance at
December 31, 1998 16,435,849 $164 2,000,000 $20 $57,372 $19,685 $ 5 $48 (1,678,519) $(8,091)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
(Unaudited)
For the six months
ended December 31,
1998 1997
Cash Flows from operating activities:
Net income $ 4,517 $3,304
Adjustments to reconcile net income to net cash
used by operating activities -
Depreciation and amortization 1,793 1,643
Accrued retirement pay 156 307
Provision for losses on accounts receivable 14 89
Changes in assets and liabilities:
Accounts and notes receivable, net 1,530 (6,081)
Inventories (6,952) (7,833)
Prepaid expenses and other 394 (472)
Customer deposits (1,701) 1,444
Accrued compensation (1,592) (1,164)
Accounts and notes payable, trade (3,370) 2,922
Income taxes payable (3,372) (289)
Accrued and withheld taxes 59 (2)
Other accounts payable and accrued liabilities (1,237) (1,800)
Interest payable (89) (71)
Net cash used by operating activities (9,850) (8,003)
Cash flows from investing activities:
Proceeds from disposition of business 2,287 5,925
Additions of property, net (1,112) (865)
Additions of patents, trademarks and drawings, net (168) (183)
Acquisitions of businesses, net of cash acquired (2,999)
Other assets 54 347
Net cash (used) provided by investing activities (1,938) 5,224
Cash flows from financing activities:
Long-term borrowings 14,000 8,226
Long-term debt repayment (10,097) (7,105)
Short-term borrowings 3,076 1,136
Short-term debt repayment (4,611) (3,710)
Principal payments under capital lease
obligations (114) (126)
Other long-term liabilities (97) (129)
Treasury stock purchased (2,181)
Stock options exercised 13 88
Net cash used by financing activities (11) (1,620)
Effects of exchange rate changes 1,017 (560)
Net decrease in cash and cash equivalents (10,782) (4,959)
Cash and cash equivalents at beginning of year 22,026 13,453
Cash and cash equivalents at end of period $ 11,244 $ 8,494
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Supplemental disclosures of cash flow information:
For the six months
ended December 31,
1998 1997
(in thousands)
Cash paid during the period for:
Interest $ 1,230 $ 1,575
Income taxes $ 5,693 $ 2,872
The Company did not enter into any capital lease agreements for the six
months ended December 31, 1998. The Company entered into capital lease
agreements totaling $67,314 for the six months ended December 31, 1997.
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.
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 six month periods ended December 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1999. All significant inter-company transactions have been
eliminated in consolidation.
Note 2 - Earnings per share:
In fiscal 1998, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings per Share" (FAS 128). FAS 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. The
weighted average number of shares outstanding used to compute basic earnings per
share amounted to 16,887,000 and 17,001,000 for the three and six month periods
ended December 31, 1998 as compared to 17,135,000 and 17,129,000 for the three
and six month periods ended December 31, 1997, respectively. The weighted
average number of shares outstanding used to compute diluted earnings per share
amounted to 17,285,000 and 17,395,000 for the three and six month periods ended
December 31, 1998 as compared to 17,528,000 and 17,562,000 for the three and six
month periods ended December 31, 1997, respectively, which include the weighted
average shares of potentially dilutive securities, primarily outstanding options
to purchase the Company's common stock, of 398,000 and 394,000 shares for the
1998 periods ended, and 393,000 and 433,000 for the 1997 periods ended,
respectively. The Company has restated the prior periods and has presented
basic and diluted income per share for each period.
Note 3 - Inventories:
Inventories consist of the following:-
December 31, June 30,
1998 1998
Raw material $12,405,000 $14,158,000
In process 17,295,000 11,732,000
Finished goods 9,951,000 9,276,000
$39,651,000 $35,166,000
Inventories decreased by $1,211,000 due to translation effects of foreign
currency from June 30, 1998 to December 31, 1998.
Note 4 - Common Stock:
Stock Options:-
At the Annual Meeting of Stockholders held on November 12, 1998, the
Stockholders approved the adoption of the Baldwin Technology Company, Inc. 1998
Non-Employee Directors' Stock Option Plan (the "1998 Plan") which provides for
the issuance of options to purchase up to an aggregate of 250,000 shares of the
Company's Class A Common Stock to non-employee Directors of the Company. Under
the 1998 Plan, each year, each eligible Director would receive a grant of
options to purchase 3,000 shares of the Company's Class A Common Stock. The
options would be granted at the fair market value on the date of grant, and
would vest one-third per year on each succeeding anniversary of the date of
grant. The 1990 Directors' Stock Option Plan (the "1990 Plan") was terminated
in connection with the approval of the 1998 Plan, provided however, that
outstanding options under the 1990 Plan will continue to be subject to the
terms thereof.
Pursuant to the adoption of the 1998 Plan, on November 13, 1998, six (6)
eligible non-employee Directors of the Company were automatically granted non-
qualified options to purchase 3,000 shares each (for a total of 18,000 shares)
of Class A Common Stock at an exercise price of $5.50 per share, the fair
market value on the date of grant.
On August 11, 1998 the Board of Directors granted non-qualified options to
purchase 200,000 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 $5.50 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.
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 Company's financial position and consolidated financial
statements. During the quarter ended December 31, 1998, 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 these transactions is
included in these consolidated financial statements only for the period 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.
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. 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 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) material changes in foreign
currency exchange rates versus the U.S. Dollar, (iii) changes in the mix of
products and services comprising revenues, (iv) the Company's or its vendors' or
customers' ability to resolve the Year 2000 compliance issues, (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, and (vii) competitive market influences. Additional factors
are set forth in Exhibit 99 to Form 10-K for the year ended June 30, 1998, which
should be read in conjunction herewith.
Six Months Ended December 31, 1998 vs Six Months Ended December 31, 1997
Net sales for the six months ended December 31, 1998 increased by
$16,823,000, or 16.2%, to $120,488,000 from $103,665,000 for the six months
ended December 31, 1997. Currency rate fluctuations attributable to the
Company's overseas operations decreased net sales by $1,414,000 in the current
period. In terms of local currency, and as compared to the same period in the
prior year, sales increased by 10.6% in Germany, by 67.9% in Sweden, by 26.7%
in France, and by 24.3% in the United Kingdom. In Japan, sales decreased by
16.1%. In the Americas, sales increased by 31.9%.
Gross profit for the six month period ended December 31, 1998 was
$39,018,000 (32.4% of net sales), as compared to $34,884,000 (33.7% of net
sales) for the six month period ended December 31, 1997, an increase of
$4,134,000 or 11.9%. Currency rate fluctuations decreased gross profit by
$436,000 in the current period. Gross profit was lower as a percentage of net
sales when compared to the prior year due primarily to increased sales of lower
margin material handling equipment and, to a lesser extent, to decreased sales
volumes in Japan.
Selling, general and administrative expenses amounted to $22,196,000
(18.4% of net sales), for the six month period ended December 31, 1998 as
compared to $20,713,000 (20.0% of net sales) for the same period in the prior
year, an increase of $1,483,000 or 7.2%. Currency rate fluctuations decreased
these expenses by $131,000 in the current period. Otherwise, selling, general
and administrative expenses would have increased by $1,614,000. Selling
expenses increased by $469,000 which primarily related to increased sales
commissions resulting from higher sales volumes and higher trade show costs,
while general and administrative expenses increased by $1,145,000 due primarily
to increased costs related to the previously noted divestiture of In-Line, and
increased compensation costs primarily related to increased incentive
compensation in Europe. As a percentage of net sales, however, selling general
and administrative expenses decreased by 1.6%.
Engineering and research and development expenses increased by $1,134,000
over the same period of the prior year. Currency rate fluctuations decreased
these expenses by $89,000 in the current period. Otherwise, these expenses
would have increased by $1,223,000. The increase in these expenses relates
primarily to increased engineering costs in the Americas and Japan attributable
to design changes intended to make the Company's products less costly to
manufacture, install and support. As a percentage of net sales, engineering and
research and development expenses decreased by 0.3% to 8.1% for the six months
ended December 31, 1998 compared to 8.4% for the same period in the prior year.
Interest expense for the six month period ended December 31, 1998 was
$1,141,000 as compared to $1,504,000 for the six month period ended December 31,
1997. This decrease was primarily due to lower long-term debt levels
outstanding in the current period, which was replaced by short-term borrowings
during December. Currency rate fluctuations increased interest expense by
$24,000 in the current period. Interest income amounted to $270,000 and
$314,000 for the six month periods ended December 31, 1998 and December 31,
1997, respectively. Currency rate fluctuations decreased interest income by
$1,000 in the current period.
Other income and expense includes net foreign currency transaction (losses)
and gains of $(74,000) and $100,000 for the six months ended December 31, 1998
and 1997 respectively. Currency rate fluctuations increased other income by
$25,000 in the current period.
The Company's effective tax rate on income before taxes was 37.4% for the
six month period ended December 31, 1998 as compared to 40.0% for the six month
period ended December 31, 1997. Currency rate fluctuations decreased the
provision for income taxes by $81,000 in the current period. 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 six month period ended December 31, 1998 increased by
$1,213,000 or 36.7% to $4,517,000 from $3,304,000 for the six month period ended
December 31, 1997. Net income per share amounted to $0.27 basic and $0.26
diluted for the six months ended December 31, 1998, as compared to $0.19 basic
and diluted for the six months ended December 31, 1997. Currency rate
fluctuations decreased net income by $135,000 in the current period.
Three Months Ended December 31, 1998 vs Three Months Ended December 31, 1997
Net sales for the three months ended December 31, 1998 increased by
$9,551,000, or 17.2%, to $65,169,000 from $55,618,000 for the three months ended
December 31, 1997. Currency rate fluctuations attributable to the Company's
overseas operations increased net sales by $586,000 in the current period. In
terms of local currency, and as compared to the same period in the prior year,
sales increased by 12.2% in Germany, by 83.3% in Sweden, by 41.7% in France, and
by 28.3% in the United Kingdom. In Japan, sales decreased by 22.2%. In the
Americas, sales increased by 25.9%.
Gross profit for the three month period ended December 31, 1998 was
$20,848,000 (32.0% of net sales), as compared to $18,857,000 (33.9% of net
sales) for the three month period ended December 31, 1997, an increase of
$1,991,000 or 10.6%. Currency rate fluctuations increased gross profit by
$133,000 in the current period. Gross profit was lower as a percentage of net
sales when compared to the prior year due primarily to increased sales of lower
margin material handling equipment and, to a lesser extent, to decreased sales
volumes in Japan.
Selling, general and administrative expenses amounted to $11,450,000 (17.6%
of net sales), for the three month period ended December 31, 1998 as compared to
$10,858,000 (19.5% of net sales) for the same period in the prior year, an
increase of $592,000 or 5.5%. Currency rate fluctuations increased these
expenses by $139,000 in the current period. Otherwise, selling, general and
administrative expenses would have increased by $453,000. Selling expenses
increased by $60,000 which primarily related to increased sales commissions
resulting from higher sales volumes and higher trade show costs, while general
and administrative expenses increased by $393,000 due primarily to costs
relating to the previously noted divestiture of In-Line, and increased
compensation costs primarily related to incentive compensation in Europe. As
a percentage of net sales, however, selling general and administrative expenses
decreased by 1.9%.
Engineering and research and development expenses increased by $877,000
over the same period in the prior year. Currency rate fluctuations increased
these expenses by $77,000 in the current period. Otherwise, these expenses
would have increased by $800,000. The increase in these expenses relates
primarily to increased engineering costs in Japan and the Americas attributable
to design changes intended to make the Company's products less costly to
manufacture, install and support. As a percentage of net sales, engineering and
research and development expenses increased by 0.2% to 8.0% for the three months
ended December 31, 1998 compared to 7.8% for the same period in the prior year.
Interest expense for the three month period ended December 31, 1998 was
$578,000 as compared to $769,000 for the three month period ended December 31,
1997. This decrease was primarily due to lower long-term debt levels
outstanding in the current period, which was replaced by short-term borrowings
during December. Currency rate fluctuations increased interest expense by
$20,000 in the current period. Interest income amounted to $110,000 and
$107,000 for the three month periods ended December 31, 1998 and December 31,
1997, respectively. Currency rate fluctuations increased interest income by
$11,000 in the current period.
Other income and expense includes net foreign currency transaction (losses)
and gains of $(159,000) and $178,000 for the three months ended December 31,
1998 and 1997 respectively. Currency rate fluctuations increased other income
by $67,000 in the current period.
The Company's effective tax rate on income before taxes was 37.0% for the
three month period ended December 31, 1998 as compared to 38.8% for the three
month period ended December 31, 1997. Currency rate fluctuations decreased the
provision for income taxes by $8,000 in the current period. 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 December 31, 1998 increased by
$494,000 or 23.5% to $2,597,000 from $2,103,000 for the three month period ended
December 31, 1997. Net income per share amounted to $0.15 basic and diluted for
the three months ended December 31, 1998, as compared to $0.12 basic and diluted
for the three months ended December 31, 1997. Currency rate fluctuations
decreased net income by $17,000 in the current period.
Liquidity and Capital Resources at December 31, 1998
Liquidity and Working Capital
The Company's long-term debt includes $12,500,000 of 8.17% senior notes
(the "Senior Notes") due October 29, 2000. The Company also maintains a
Revolving Credit Agreement (the "Revolver") with NationsBank, N.A., as agent.
The Company and its lenders recently agreed to increase the amount available
under the Revolver to $25,000,000 from $20,000,000 and to extend the maturity
date to December 31, 2000.
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 1.40 to 1.00. At December 31, 1998, this ratio
was 1.59 to 1.00.
The Company's working capital increased from $33,122,000 at December 31,
1997, to $35,283,000 at December 31, 1998, an increase of $2,161,000 or 6.5%.
Currency rate fluctuations increased working capital by $1,358,000. The
remaining increase was primarily due to an increase in inventories and trade
accounts receivable, resulting from increased sales volumes, and decreases in
accounts, notes, and loans payable. These increases in working capital were
partially offset by increases in customer deposits, income taxes payable, and
other accrued liabilities.
The Company's working capital increased by $6,718,000 or 23.5% from
$28,565,000 at June 30, 1998 to $35,283,000 at December 31, 1998. Currency rate
fluctuations increased working capital by $2,292,000 in the current period. The
primary reasons for the increase in working capital resulted from the increase
in inventories and accounts receivable as discussed above, payments of accrued
incentive compensation costs, decreases in trade accounts payable and short term
loans, decreased customer deposits associated with lower orders, and payments of
income taxes payable. These increases in working capital were partially offset
by a decrease in cash and short term securities and an increase in trade notes
payable.
Net cash used by investing activities amounted to $1,938,000 for the six
months ended December 31, 1998 as compared to net cash provided by investing
activities of $5,224,000 for the six months ended December 31, 1997. This
difference is primarily due to the previously noted acquisitions during the
current period, and the fact that the prior period included the collection of
proceeds from the disposition of the Company's former pre-press operations.
Net cash used by financing activities amounted to $11,000 for the six
months ended December 31, 1998 as compared to $1,620,000 for the six months
ended December 31, 1997. The decrease in cash used by financing activities was
primarily due to the increased borrowings under the Revolver, which were used to
fund increases in working capital and the purchase of treasury stock by the
Company.
The Company maintains relationships with foreign and domestic banks which
have extended credit facilities to the Company. As of December 31, 1998, these
credit facilities total $38,048,000 including amounts available under the
Revolver, and the Company had outstanding $17,279,000 under these lines of
credit, of which $13,851,000 is classified as long-term debt. Total debt levels
as reported on the balance sheet at December 31, 1998 are $750,000 higher than
they would have been if June 30, 1998 exchange rates had been used.
Net capital expenditures made to meet the normal business needs of the
Company for the six months ended December 31, 1998 and December 31, 1997,
including commitments for capital lease payments, were $1,280,000 and
$1,048,000, 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.
Year 2000 Compliance
The Company is aware of the issues associated with the limitations of
programming code in existing computer systems whereby the computer systems may
not properly recognize date sensitive information as the year 2000 approaches.
The inability to properly recognize dates and related potential date sensitive
problems are referred to as the Year-2000 situation.
The Year-2000 situation has a potential impact on the Company's internal
information systems infrastructure, Company products which either contain or
utilize digital devices and the internal information systems of suppliers to the
Company.
The Company has completed a study, utilizing external consultants, to
evaluate the Company's internal information systems infrastructure as it relates
to the Year-2000 situation and it has identified processes which require
updating to operate properly after the year 1999. The Company has undertaken
projects to update and replace all currently known non-compliant internal
information systems and processes to ensure that the Year-2000 situation will
not have a detrimental impact on the internal operations of the Company. The
cost to update and replace these systems is expected to be approximately
$2,400,000 consisting of the cost of purchasing and installing hardware and
software, the majority of which will be incurred through Fiscal 1999. The cost
of Year-2000 compliance is not projected to have a significant negative impact
on the Company's financial results in subsequent fiscal years.
A review is ongoing for those products of the Company that utilize
microprocessors in the operation of the products which could be adversely
affected by the Year-2000 date change. At the present time, no Company products
have been identified where Year-2000 non-compliance would have a detrimental
impact on the operation of the products.
The Company is surveying its suppliers and service providers to determine
potential exposure from external, non-compliant sources. No exposures have been
identified, to date, from external sources. However, the Company is seeking
additional vendors as a precaution to protect the Company from a potential
inability of a vendor to supply material to the Company.
The Company has or is addressing its Year-2000 exposures. Should an
unforeseeable Year-2000 situation arise that poses a severe threat to the
Company, however, the Company expects to be able to revert to PC and manual
backup internal processes until the situation can be resolved. The Company
maintains service and engineering personnel which would be able to remediate any
unforeseen Year-2000 non-compliance situations related to a product of the
Company which would require immediate resolution. The Company does not utilize
single source providers or vendors and as such, may change to other providers
and vendors in the case of non-compliance.
Euro Conversion
Effective January 1, 1999, the "euro" has become the new common currency
for 11 European countries (including Germany, France and the Netherlands where
the Company has operations). Other member states (including the United Kingdom
and Sweden where the Company also has operations) may join in years to come.
Beginning January 1, 1999, transactions in the euro are 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.
Management currently believes that the external costs associated with
implementing and completing the euro conversion will not be material in any year
and in the aggregate. Also, management currently believes that the business and
market implications, if any, of the euro conversion will not be material to its
results of operations or financial condition in any year and 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.
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on November 12, 1998.
(c) A brief description of matters voted upon and the results of the voting
follows:
Proposal 1 - To elect two Class II Directors to serve for three-year terms
or until their respective successors are elected and qualify.
SCHEDULE OF VOTES CAST FOR EACH DIRECTOR
Total Vote For Total Vote Withheld
Each Director From Each Director
Class A
M. Richard Rose 12,744,383 44,395
Class A & B
Gerald A. Nathe 29,343,293 36,395
Proposal 2 - To approve the Company's 1998 Non-Employee Directors' Stock
Option Plan.
For: 29,025,628 Against: 288,755 Abstain: 65,305
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended December 31, 1998.
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
Vice President, Chief Financial
Officer and Treasurer
Dated: February 3, 1999