1
FORM 10-Q/A
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, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 1-9334
BALDWIN TECHNOLOGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3258160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Twelve Commerce Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-402-1000
(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 and 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, 2000
----- -------------------------------
Class A Common Stock
$0.01 par value 12,914,647
Class B Common Stock
$0.01 par value 1,810,883
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BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements - Restated
Consolidated Balance Sheets at September 30, 2000
(unaudited) and June 30, 2000 1-2
Consolidated Statements of Income for the three
months ended September 30, 2000 (unaudited) and
1999 (unaudited) 3
Consolidated Statements of Changes in
Shareholders' Equity for the three months ended
September 30, 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the
three months ended September 30, 2000 (unaudited)
and 1999 (unaudited) 5 - 6
Notes to Consolidated Financial Statements
(unaudited) 7 - 11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 16
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
September 30, 2000 June 30, 2000
------------------ -----------------
(Unaudited)
(Restated-See
Note 1)
CURRENT ASSETS:
Cash and cash equivalents $ 10,728 $ 7,914
Accounts receivable trade, net of allowance for
doubtful accounts of $1,606
($1,705 at June 30, 2000) 34,613 36,369
Notes receivable, trade 8,520 9,449
Inventories 33,936 37,354
Prepaid expenses and other 8,513 7,312
--------- ---------
Total Current Assets 96,310 98,398
--------- ---------
MARKETABLE SECURITIES:
Cost $794 ($805 at June 30, 2000) 776 843
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 3,865 4,056
Machinery and equipment 3,705 5,064
Furniture and fixtures 4,613 4,991
Leasehold improvements 148 244
Capital leases 1,309 1,422
--------- ---------
13,640 15,777
Less: Accumulated depreciation and amortization (6,903) (8,305)
--------- ---------
Net Property, Plant and Equipment 6,737 7,472
--------- ---------
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost,
less accumulated amortization of $5,623 ($6,394 at
June 30, 2000) 3,155 3,873
GOODWILL, less accumulated amortization of $10,222
($10,352 at June 30, 2000) 28,144 29,561
DEFERRED TAXES 14,020 14,878
OTHER ASSETS 7,936 5,010
--------- ---------
TOTAL ASSETS $ 157,078 $ 160,035
========= =========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 2000 June 30, 2000
------------------ -------------
(Unaudited)
(Restated-See
Note 1)
CURRENT LIABILITIES:
Loans payable $ 6,759 $ 4,801
Current portion of long-term debt 139 6,515
Accounts payable, trade 11,203 14,188
Notes payable, trade 10,810 10,358
Accrued salaries, commissions, bonus and
profit-sharing 5,406 6,151
Customer deposits 8,671 8,965
Accrued and withheld taxes 1,667 2,195
Income taxes payable 4,322 2,168
Other accounts payable and accrued liabilities 16,746 14,836
--------- ---------
Total current liabilities 65,723 70,177
--------- ---------
LONG TERM LIABILITIES:
Long-term debt 15,228 11,882
Other long-term liabilities 7,289 7,607
--------- ---------
Total long-term liabilities 22,517 19,489
--------- ---------
Total liabilities 88,240 89,666
--------- ---------
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000
shares authorized, 16,458,849 shares issued 165 165
Class B Common Stock, $.01 par, 4,500,000 shares
authorized, 2,000,000 shares issued 20 20
Capital contributed in excess of par value 57,496 57,496
Retained Earnings 26,266 25,629
Cumulative translation adjustment (1,840) (380)
Unrealized gain (loss) on investments net of $8 of
deferred taxes ($15 at June 30, 2000) (10) 23
Less: Treasury stock, at cost:
Class A - 3,538,602 shares (3,191,302 at
June 30, 2000)
Class B - 189,117 shares (13,259) (12,584)
--------- ---------
Total shareholders' equity 68,838 70,369
--------- ---------
COMMITMENTS AND CONTINGENCIES
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 157,078 $ 160,035
========= =========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months
ended September 30,
--------------------
2000 1999
------- -------
(Restated-See
Note 1)
Net Sales $ 44,960 $ 45,496
Cost of goods sold 30,807 31,961
-------- --------
Gross Profit 14,153 13,535
-------- --------
Operating Expenses:
General and administrative 5,332 5,002
Selling 4,208 4,289
Engineering 2,990 3,071
Research and Development 1,207 943
-------- --------
13,737 13,305
-------- --------
Operating income 416 230
-------- --------
Other (income) expense:
Interest expense 424 525
Interest income (67) (87)
Royalty income (1,339) (957)
Other expense, net 417 259
-------- --------
(565) (260)
-------- --------
Income before income taxes 981 490
Provision for income taxes 344 176
-------- --------
Net income $ 637 $ 314
======== ========
Net income per share:
Basic and diluted $ 0.04 $ 0.02
======== ========
Weighted average shares outstanding:
Basic 15,019 16,222
======== ========
Diluted 15,019 16,222
======== ========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
(RESTATED - SEE NOTE 1)
Capital
Class A Class B Con-
Common Stock Common Stock tributed
------------ ------------ in Excess
Shares Amount Shares Amount Of Par
------- ------ ------ ------ ------
Balance at
June 30, 2000 16,458,849 $ 165 2,000,000 $ 20 $ 57,496
Net income for the
three months
ended September
30, 2000
Translation adjustment
Unrealized loss on
available-for-sale
securities,
net of tax
Comprehensive
loss
Purchase of
treasury stock
---------- ------- --------- --------- ---------
Balance at
September 30,
2000 16,458,849 $ 165 2,000,000 $ 20 $ 57,496
========== ======== ========= ========= =========
Unrealized
Cumulative Gain (Loss) Treasury Stock Comprehensive
Retained Translation on -------------- Income
Earnings Adjustment Investments Shares Amount (Loss)
-------- ---------- ----------- ------ ------ ------
Balance at
June 30, 2000 $ 25,629 $ (380) $ 23 (3,380,419) $ (12,584)
Net income for the
three months
ended September
30, 2000 637 $ 637
Translation adjustment (1,460) (1,460)
Unrealized loss on
available-for-sale
securities,
net of tax (33) (33)
-----------
Comprehensive
loss $ (856)
===========
Purchase of
treasury stock (347,300) (675)
---------- ----------- ---------- ---------- -----------
Balance at
September 30,
2000 $ 26,266 $ (1,840) $ (10) (3,727,719) $ (13,259)
========= ========== ========== ========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
For the three
months ended September 30,
------------------------------
2000 1999
(Restated-See
Note 1)
Cash Flows from operating activities:
Net Income $ 637 $ 314
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 871 958
Accrued retirement pay 188 170
Provision for losses on accounts receivable 0 9
Loss from disposition of business 650 0
Changes in assets and liabilities:
Accounts and notes receivables, net (1,199) 1,040
Inventories (1,823) (692)
Prepaid expenses and other (1,221) (151)
Other Assets (118) (120)
Customer deposits 1,765 1,346
Accrued compensation (60) (689)
Accounts and notes payable, trade (638) (893)
Income taxes payable 145 (126)
Accrued and withheld taxes (408) (371)
Other accounts payable and accrued liabilities 1,695 (632)
Interest payable (28) 308
------ ------
Net cash provided by operating activities 456 471
------- ------
Cash flows from investing activities:
Proceeds from disposition of business, net 3,985 0
Additions of property, net (350) (454)
Additions of patents, trademarks and drawings, net (67) (118)
------- ------
Net cash provided (used) by investing activities 3,568 (572)
------- ------
Cash flows from financing activities:
Long-term borrowings 11,005 6,305
Long-term debt repayments (13,676) (5,064)
Short-term borrowings 2,253 698
Short-term debt repayments (19) (671)
Principal payments under capital lease obligations (3) (64)
Other long-term liabilities (485) 385
Treasury stock purchased (65) (486)
------- -------
Net cash (used) provided by financing activities (990) 1,103
------- -------
Effects of exchange rate changes (220) 1,098
------- -------
Net increase in cash and cash equivalents 2,814 2,100
Cash and cash equivalents at beginning of year 7,914 10,673
------- -------
Cash and cash equivalents at end of period $10,728 $12,773
======= =======
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
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BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the three months ended
September 30,
--------------------------
2000 1999
---- ----
Cash paid during the period for:
Interest $396 $217
Income Taxes $458 $327
The Company did not enter into any capital lease agreements for either
of the three month periods ended September 30, 2000 or 1999.
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments (cash and short term securities) with original
maturities of three months or less to be cash equivalents.
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
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BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Baldwin Technology Company, Inc. ("Baldwin", or the "Company") is engaged
primarily in the development, manufacture and sale of material handling,
accessory, and control equipment for the printing industry.
The accompanying unaudited consolidated financial statements include the
accounts of Baldwin and its subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in compliance with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements reflect all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim periods. These financial statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's latest annual report on Form 10-K for the year ended
June 30, 2000. Operating results for the three months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2001. All significant intercompany transactions have been
eliminated in consolidation.
This quarterly report on Form 10-Q/A is being filed as a result of an
error in the application of the newly issued Financial Accounting
Standards Board Statement No. 133 ("FAS 133") "Accounting for Derivative
Instruments and Hedging Activities". Effective July 1, 2000, the Company
adopted FAS 133 and had previously recognized a cumulative effect adjustment
increasing net income by $426,000. Upon reviewing this calculation, the Company
erred in calculating the effect of adopting FAS 133 and has now determined that
the adoption of FAS 133 did not result in a cumulative effect type adjustment
on income. Accordingly, the financial statements for the quarter ended September
30, 2000 have been restated to correct this error. The impact of this change is
to reduce the previously reported amounts of cumulative effect of a change in
accounting principle, net income, retained earnings and cumulative translation
adjustment by $426,000, and basic and diluted income per share by $0.03.
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share, is computed by dividing net income for the
period by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution securities
that could share in the earnings of an entity, and is computed by dividing net
income for the period by the weighted average number of common shares
outstanding plus potentially dilutive common stock equivalents. The weighted
average shares outstanding used to compute diluted income per share include zero
shares for each of the three months ended September 30, 2000 and 1999, which
represent outstanding options to purchase the Company's common stock. Options to
purchase the Company's common stock in the amount of 1,920,000 and 2,182,000
were not included in the computation of diluted earnings per share for the three
months ended September 30, 2000 and 1999 respectively, because the exercise
prices were greater than the average market price of the common stock for the
respective periods.
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NOTE 3 - INVENTORIES:
Inventories consist of the following:-
September 30, 2000 June 30, 2000
------------------ -------------
(Unaudited)
Raw material $17,645,000 $19,559,000
In process 8,193,000 9,633,000
Finished Goods 8,098,000 8,162,000
----------- -----------
$33,936,000 $37,354,000
=========== ===========
Inventories decreased by $1,144,000 due to translation effects of
foreign currency from June 30, 2000 to September 30, 2000.
NOTE 4 - DERIVATIVES:
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). The effective date of FAS 133 was July 1, 2000 for the Company. FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of FAS 133 will not have a
significant effect on the Company's results of operations in future periods. At
July 1, 2000, the adoption of FAS 133, did not result in a cumulative effect
type adjustment on income. A pre-tax gain of $345,000 was recognized during
the quarter related to a derivative which did not qualify as a hedge and was
settled after the end of the quarter for no additional material gain or loss.
The balance of the Company's derivative financial instruments are not material.
On occasion the Company holds certain derivative instruments that are
designated and qualify as hedging instruments pursuant to FAS 133. The objective
of these derivatives is to eliminate or minimize the impact of transaction
effects of currency rate fluctuations on the Company's consolidated financial
results.
If a derivative is designated as a fair value hedge, the changes in the
fair value of the derivative and the hedged item attributable to the hedged risk
are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in fair value of the derivative are
recorded in other comprehensive income ("OCI") and are recognized in the income
statement when the hedged item affects earnings. Ineffectiveness related to
cash flow hedges is recognized in earnings.
When deemed necessary, the Company uses forward contracts to manage the
above objectives, whenever forward purchase and sale contracts or firm
commitments designated in a currency other than the functional currency, may
have a material impact on the cash flow from the transaction due to exchange
rate fluctuations. When they qualify under FAS 133, these forward contracts are
designated as cash flow hedging instruments.
Hedge ineffectiveness, determined in accordance with FAS 133 had no
material impact on earnings for the three months ended September 30, 2000. The
entire $345,000 pre-tax gain was the result of a derivative instrument, that did
not qualify as a hedge pursuant to FAS 133.
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NOTE 5 -- PROVISION FOR LOSS ON THE DISPOSITION OF PRE-PRESS OPERATIONS:
In June 1997, the Company sold all of the outstanding shares of its former
Pre-Press Operations ("PPO") to Kaber Imaging, Inc. ("Kaber" or "Buyer"). The
Company recorded a loss on this disposition in the amount of $42,407,000 in the
fiscal year ended June 30, 1997. When the Company acquired the PPO, in July
1991, the Company assumed the existing guarantees that were being provided by
the previous owner. The guarantees consisted of two parts: 1.) a guarantee to
Forsakring Pensiongaranti ("FPG"), a Swedish pension obligation surety bond
firm, in the form of a guarantee bond covering the quasi Swedish government
retirement plan, and 2.) a direct guarantee to a group of individual employees
who were members of a separate plan. The assumption by Kaber of the pension
obligations was unconditional.
The purchase and sale agreement for the sale of the PPO to Kaber, in
June, 1997 included provisions for the Buyer to assume all pension liabilities
related to the PPO, to use their best efforts to gain the release of the Company
from the guarantees and to reimburse the Company for any and all costs incurred
by the Company associated with the guarantees. At the time that PPO was sold to
Kaber, management conducted due diligence of Kaber and believed that Kaber had
the financial ability to satisfy these guarantees.
Subsequent to the sale of the PPO to Kaber, Kaber and related domestic
subsidiaries filed for protection in the U.S. under Chapter 11 of the bankruptcy
code in February 1999 which caused similar filings in Kaber's foreign
subsidiaries including Sweden. During the period of July, 1997 through February,
1999, Kaber failed to gain the release of the Company from the guarantees which
remained in place. In March 1999, The Company was contacted by FPG, the surety
bond holder, to fulfill the Company's guarantee of the pension obligation.
Neither Kaber, nor their Swedish subsidiaries, which were in liquidation,
possessed the financial capability to fulfill its obligation. Based on the
demands from FPG, and representatives of the members of the separate plan and
Kaber's bankruptcy, the Company recognized the liability in its financial
results by establishing a reserve in the amount of $2,400,000 in the third
quarter of fiscal year ended June 30, 1999. The Company has made payments to FPG
of $1,567,000 and is in the process of resolving the amount of the benefits due
to the members of the separate group, for which the remaining $833,000 accrual
was established. Accordingly, the remaining balance of $833,000 is included as a
current liability in "Other accounts payable and accrued liabilities".
NOTE 6 -- RESTRUCTURING CHARGE AND RELATED RESERVE:
For the year ended June 30, 2000, the Company recorded a pre-tax
restructuring charge in the amount of $5,664,000. This charge was recorded in
order to account for the estimated costs associated with the planned
consolidation of production into certain facilities, resulting in a reduction in
total employment, primarily in the United States. Prior to the restructuring,
the Company was managed in a decentralized manner through geographically
dispersed autonomous business units. Given that many of the Company's
significant customers have been consolidating on a global basis, management
decided to restructure the Company along functional lines on a global basis.
Rather than have product development and production activities at each
decentralized business unit, the restructuring plan included the centralization
of these activities into single product line development and production
facilities. Products that were previously being produced at multiple facilities,
are being consolidated with similar product lines at existing facilities. The
corporate headquarters were vacated and relocated to the Shelton facility in
order to take advantage of the space created by the downsizing previously noted.
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Remaining Charge Remaining
Reserve Against Reserve
June 30, 2000 Reserve September 30, 2000
------------- ------- ------------------
(In thousands)
Severance $ 2,886 $ 128 $ 2,758
Facility lease termination 1,132 79 1,053
Other costs 500 500
------- ------- -------
TOTAL PROGRAM $ 4,518 $ 207 $ 4,311
======= ======== =======
Severance costs will be paid out through December 2001, the majority of
which will be paid by July 2001. Facility lease termination costs will be paid
out through July 2003. The category other costs are expected to be paid out by
December 31, 2000. As of September 30, 2000, $3,546,000 is included in "Other
accounts payable and accrued liabilities" and $765,000 is included in "Other
long-term liabilities".
NOTE 7 - BUSINESS SEGMENT INFORMATION:
The Company's two reportable segments are the Graphic Products and
Controls Group ("GPC"), and the Material Handling Group ("MHG"). The GPC segment
includes products such as cleaning systems, water systems and other equipment
designed to enhance the quality of the printed material and improve the
productivity of the printing process. The MHG segment includes products which
handle the materials supplied to the press and automate the handling of the
printed material. The all other category is comprised of the Print On-Demand
Group, which operates in the short-run digital printing market, and other
activities.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Annual Report on Form
10-K for the fiscal year ended June 30, 2000. A segment's financial performance
is primarily evaluated based on the operating profit of the segment, which
include inter-segment sales.
The tables below present information about reportable segments for the
three months ended September 30, 2000, and 1999 (in thousands):
Three months ended
September 30,
------------------
Net sales: 2000 1999
---- ----
Graphic Products and Control Groups $31,326 $32,795
Material Handling Group 13,900 13,789
All other 74 18
------- -------
Total segments 45,300 46,602
Inter-segment sales (340) (1,106)
------- -------
Total Net Sales $44,960 $45,496
======== =======
Three months ended
September 30,_
------------------
Operating income (loss): 2000 1999
---- ----
Graphic Products and Controls Group $ 970 $1,456
Material Handling Group 1,468 69
All other (115) (137)
------ ------
Total segments 2,323 1,388
Corporate (1,907) (1,158)
------ ------
Total operating income 416 230
Interest expense, net (357) (438)
Royalty income, net 1,339 957
Other income (expense), net (417) (259)
------ -------
Income before income taxes $ 981 $ 490
====== ======
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September 30, June 30,
2000 2000
------------- -----------
Identifiable assets:
Graphic Products and Control Groups $90,557 $92,285
Material Handling Group 38,636 45,526
All other 1,061 1,150
-------- --------
Total segments 130,254 138,961
Corporate 26,824 21,074
-------- --------
Total identifiable assets $157,078 $160,035
========= ========
NOTE 8 - SALE OF BUSINESS:
On September 27, 2000, the Company sold substantially all the assets of
its Baldwin Stobb Division ("BSD") to Systems Technology, Inc., a new company
formed by the management of BSD. The consideration paid for the transaction,
subject to certain post-closing adjustments, is the sum of (i) $6,750,000; minus
(ii) all payments received (net of disbursements paid) on behalf of BSD for the
period July 1, 2000 through September 27, 2000 amounting to $2,155,000; plus
(iii) $175,000 in consideration for income tax obligations to be received at a
later date. The total consideration received by the Company included 307,000
shares of the Company's Class A Common Stock valued at the average fair market
price of the Company's Class A Common Stock for the ten days immediately prior
to closing ($1.9875 per share). The Company recorded a pre-tax loss of $650,000,
including associated costs, as a result of this transaction.
NOTE 9 - REVOLVING CREDIT FACILITY:
On October 31, 2000 the Company reached an agreement on a $35,000,000
revolving credit facility (the "Credit Facility") with Fleet National Bank and
First Union National Bank. Under this agreement the Company has $20,000,000
available with an additional $15,000,000 to become available upon obtaining
certain guarantees of some of the Company's wholly-owned subsidiaries which are
required to complete the entire agreement. The Credit Facility is subject to
certain financial covenants and is collateralized by a substantial portion of
the Company's assets. The Credit Facility allows the Company to borrow, subject
to certain limitations, at variable interest rates ranging from 1.50% to 2.50%
over LIBOR for a period of 3 years. The Company utilized $11,750,000 of the
initial borrowings under the Credit Facility to retire the previously existing
debt with Bank of America.
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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. On September 27, 2000, the Company sold a business in its
material handling group. As a result, the revenues and corresponding expenses
attributable to the divested operation are included in these consolidated
financial statements only for the period the operation is owned by the Company.
The effects of this transaction on financial statement amounts are discussed
below where significant.
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) a decline in the rate of growth
of the installed base of printing press units and the timing of new press
orders, (v) general economic conditions, either domestically or in foreign
locations, (vi) the ultimate realization of certain trade receivables and the
status of ongoing business levels with the Company's large OEM customers, and
(vii) competitive market influences. Additional factors are set forth in Exhibit
99 to Form 10-K for the year ended June 30, 2000, which should be read in
conjunction herewith.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS THREE MONTHS ENDED SEPTEMBER 30, 1999
CONSOLIDATED RESULTS
Net sales for the three months ended September 30, 2000
decreased by $536,000, or 1.2%, to $44,960,000 from $45,496,000 for the three
months ended September 30, 1999. Currency rate fluctuations attributable to the
Company's overseas operations decreased net sales by $1,313,000 in the current
period. Otherwise, sales would have increased by $777,000. This increase is
primarily the result of the increased sales levels of cleaning and water product
systems in Sweden and increased material handling sales from the operation sold
during the current period. In terms of local currency, and as compared to the
same period in the prior year, net sales decreased by 37.6% in Sweden and by
6.8% in Japan. Sales increased by 51.6% in the United Kingdom, by 13.9% in
Germany and by 9.1% in the United States.
Gross profit for the three month period ended September 30,
2000 was $14,153,000 (31.5% of net sales), as compared to $13,535,000 (29.7% of
net sales) for the three month period ended September 30, 1999, an increase of
$618,000 or 4.6%. Currency rate fluctuations decreased gross profit by $463,000
in the current period. Otherwise gross profit would have increased by $1,081,000
in the current period. Gross profit was higher due primarily to increased
efficiencies as a result of the Company's restructuring efforts, primarily
within the United States material handling group.
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Selling, general and administrative expenses amounted to $9,540,000
(21.2% of net sales), for the three month period ended September 30, 2000 as
compared to $9,291,000 (20.4% of net sales) for the same period in the prior
year, an increase of $249,000 or 2.7%. Currency rate fluctuations decreased
these expenses by $272,000 in the current period. Otherwise, selling, general
and administrative expenses would have increased by $521,000. Selling expenses
increased by $99,000 which primarily related to increased compensation and
travel costs, while general and administrative expenses increased by $422,000
due primarily to increased compensation costs.
Engineering and research and development expenses increased by
$183,000 over the same period in the prior year. Currency rate fluctuations
decreased these expenses by $142,000 in the current period. Otherwise, these
expenses would have increased by $325,000. The increase in these expenses
relates primarily to increased product development, compensation, and consulting
costs. As a percentage of net sales, engineering and research and development
expenses increased by 0.5% to 9.3% for the three months ended September 30, 2000
compared to 8.8% for the same period in the prior year.
Interest expense for the three month period ended September
30, 2000 was $424,000 as compared to $525,000 for the three month period ended
September 30, 1999. Currency rate fluctuations decreased interest expense by
$48,000 in the current period. The remainder of the decrease was primarily due
to reductions in the amount of long-term, fixed-rate indebtedness outstanding
during the current period which was offset slightly by rising interest rates on
variable-rate debt. Interest income amounted to $67,000 and $87,000 for the
three month periods ended September 30, 2000 and September 30, 1999,
respectively. This reduction in interest income is primarily due to decreased
cash balances during the period. Currency rate fluctuations decreased interest
income by $4,000 in the current period.
Other expense, net includes net foreign currency transaction
gains and (losses) of $314,000 and $(353,000) for the three months ended
September 30, 2000 and 1999 respectively. The current period's gain includes a
$345,000 gain on a derivative financial instrument that did not qualify as a
hedge pursuant to FAS 133 and a $650,000 pre-tax loss on the sale of the Baldwin
Stobb division.
The Company's effective tax rate on income before taxes was
35.0% for the three month period ended September 30, 2000 as compared to 35.9%
for the three month period ended September 30, 1999. Currency rate fluctuations
decreased the provision for income taxes by $208,000 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 tax loss carryforwards
available.
The Company's net income amounted to $637,000 for the three
months ended September 30, 2000, as compared to $314,000 for the three months
ended September 30, 1999. This increase of $323,000 is primarily due to the
previously noted derivative financial instrument, increased royalty income and
improved gross profit margins, offset by the loss on the sale of the Baldwin
Stobb division. Currency rate fluctuations decreased net income by $387,000 in
the current period. Net income per share amounted to $0.04 basic and diluted for
the three months ended September 30, 2000, as compared to $0.02 basic and
diluted for the three months ended September 30, 1999.
SEGMENT RESULTS
GRAPHIC PRODUCTS AND CONTROLS GROUP
Net sales for the three months ended September 30, 2000 decreased by
$1,469,000, or 4.5%, to $31,326,000 from $32,795,000 for the three months ended
September 30, 1999. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $1,631,000,
otherwise, net sales would have increased by $162,000 in the current period.
This increase is primarily the result of increased sales levels of cleaning and
spray dampening systems.
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Operating income amounted to $970,000 (3.1% of net sales) for the three
months ended September 30, 2000, as compared to $1,456,000 (4.4% of net sales)
for the same period in the prior year, a decrease of $486,000. Currency rate
fluctuations decreased the current year's operating income by $66,000, otherwise
operating income would have decreased by $420,000. This decrease is primarily
the result of the overall decrease in sales levels discussed above, coupled with
increased research and development expenses in the current period.
MATERIAL HANDLING GROUP
Net sales for the three months ended September 30, 2000 increased by
$111,000, or 0.80%, to $13,900,000 from $13,789,000 for the three months ended
September 30, 1999. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $313,000,
otherwise net sales would have increased by $424,000. This increase is primarily
the result of increased sales levels of post-press material handling equipment,
from $3,516,000 in the prior year to $5,107,000 in the current year period.
Operating income amounted to $1,468,000 (10.6% of net sales) for the
three months ended September 30, 2000, as compared to $69,000 (0.5% of net
sales) for the same period in the prior year, an increase of $1,399,000.
Currency rate fluctuations increased the current year's operating profit by
$16,000. The remaining increase is primarily the result of increased sales
volumes, principally from the Baldwin Stobb division sold during the current
period, and the increased efficiencies as a result of the Company's
restructuring efforts primarily in the United States.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 2000
LIQUIDITY AND WORKING CAPITAL
As of September 30, 2000, the Company maintained a $25,000,000
Revolving Credit Agreement (the "Revolver") with Bank of America, N.A., as agent
which matures on October 31, 2001. The Company had fully paid its 8.17% senior
notes (the "Senior Notes").
On October 31, the Company entered into a new agreement with Fleet
National Bank and First Union National Bank for a $35,000,000 Revolving Credit
Facility (the "Credit Facility"). The Credit Facility replaced the Revolver, and
requires the Company to maintain certain financial covenants, and to obtain
guarantees from all of the Company's wholly-owned subsidiaries. Until all
guarantees have been obtained, the availability of the Credit Facility is
limited to $20,000,000. This is expected to occur by December 31, 2000.
The Company's working capital increased by $2,366,000 or 8.4% from
$28,221,000 at June 30, 2000 to $30,587,000 at September 30, 2000. Currency rate
fluctuations decreased working capital by $1,135,000 in the current period. The
primary reasons for the increase in working capital were increases in cash and
prepaid expenses and reductions in trade accounts payable and the current
portion of long-term debt. These increases in working capital were partially
offset by reductions in inventories and trade and notes receivable and increases
in loans payable and interest payable.
Net cash provided by investing activities amounted to $4,178,000 for
the three months ended September 30, 2000 as compared to net cash used by
investing activities of $572,000 for the three months ended September 30, 1999.
This increase is primarily the result of the sale of the business in the current
period.
Net cash used by financing activities amounted to $1,600,000 for the
three months ended September 30, 2000 as compared to net cash provided by
financing activities of $1,103,000 for the three months ended September 30,
1999. This decrease in cash provided by financing activities was primarily due
to the payoff of the Senior Notes during the current period.
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The Company maintains relationships with foreign and domestic banks,
which have extended credit facilities to the Company. As of September 30, 2000,
these credit facilities total $44,660,000 including amounts available under the
Revolver. The Company had outstanding $20,050,000 under these lines of credit,
of which $13,956,000 is classified as long-term debt. Total debt levels as
reported on the balance sheet at September 30, 2000 are $635,000 lower than they
would have been if June 30, 2000 exchange rates had been used.
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.
EURO CONVERSION
Effective January 1, 1999, the "Euro" has become the new common
currency for 11 countries of the European Community ("EC") (including Germany
and France where the Company has operations). Other member states (including the
United Kingdom and Sweden where the Company also has operations) may join in
future years. Beginning January 1, 1999, transactions in the Euro became
possible, with the national currencies continuing to circulate until January 1,
2002, when the Euro will become the functional currency for these 11 countries.
During the transition period from January 1, 1999 to January 1, 2002, payments
can be made using either the Euro or the national currencies at fixed exchange
rates.
Beginning January 1, 1999, the Company began conducting business with
customers in both the Euro and the respective national currency. Systems and
processes that are initially impacted by this dual currency requirement are
customer billing and receivables, payroll and cash management activities,
including cash collections and disbursements. To accomplish compliance, the
Company is making the necessary systems and process changes and is also working
with its financial institutions on various cash management issues. The Company's
German operations have begun recording all business transactions in the Euro
effective July 1, 2000. In France, the remaining affected country in which the
Company operates, the Company currently has new systems and processes in place
to accommodate the recording of all business transactions in the Euro, however,
the actual recording will not begin until July 1, 2001.
Management currently believes that the costs associated with
implementing and completing the Euro conversion, as well as business and market
implications, if any, associated with the Euro conversion, will not be material
to its results of operations or financial condition in any year or in the
aggregate. The competitive impact of increased cross-border price transparency,
however, is uncertain, both with respect to products sold by the Company, as
well as products and services purchased by the Company.
The Company's ongoing efforts with regard to the 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. This issue, if not resolved favorably, could have a
material adverse effect on the Company's results of operations or financial
condition in a future period.
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.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
A discussion of market risk exposures is included in Part II Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk" of the Company's
Annual Report on Form 10-K for the year ended June 30, 2000. There have been no
material changes during the three months ended September 30, 2000.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (Restated - filed herewith).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BALDWIN TECHNOLOGY COMPANY, INC.
BY \s\ James M. Rutledge
--------------------------------
Vice President, Chief Financial
Officer and Treasurer
Dated: February 20, 2001
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