Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
[ Mark one ]
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For quarter ended December 31, 2001
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 12-3258160
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 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 31, 2002
----- -------------------------------
Class A Common Stock
$0.01 par value 12,828,647
Class B Common Stock
$0.01 par value 2,185,883
BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at December 31,
2001 (unaudited) and June 30, 2001 1-2
Consolidated Statements of Income for the
three and six months ended December 31, 2001
(unaudited) and 2000 (unaudited) 3
Consolidated Statements of Changes in
Shareholders' Equity for the six months ended
December 31, 2001 (unaudited) and 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the
six months ended December 31, 2001 (unaudited)
and 2000 (unaudited) 5-6
Notes to Consolidated Financial Statements
(unaudited) 7-16
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-27
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 27
Part II Other Information
Item 4 Submission of Matters to a Vote of Security 28
Holders
Item 6 Exhibits and Reports on Form 8-K 28
Signatures 29
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
December 31, June 30,
2001 2001
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 7,852 $ 6,590
Accounts receivable trade, net of allowance for doubtful
accounts of $1,640 ($1,943 at June 30, 2001) 21,562 30,587
Notes receivable, trade 11,602 11,416
Inventories, net 30,813 33,051
Deferred taxes 5,263 5,196
Prepaid expenses and other 7,653 7,486
--------- ---------
Total Current Assets 84,745 94,326
--------- ---------
MARKETABLE SECURITIES:
Cost $547 ($564 at June 30, 2001) 476 558
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 2,561 2,532
Machinery and equipment 3,974 3,449
Furniture and fixtures 4,134 3,827
Leasehold improvements 211 218
Capital leases 347 651
--------- ---------
11,227 10,677
Less: Accumulated depreciation and amortization (5,683) (5,152)
--------- ---------
Net Property, Plant and Equipment 5,544 5,525
--------- ---------
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost,
less accumulated amortization of $3,251 ($3,010 at June
30, 2001) 1,971 1,888
GOODWILL, less accumulated amortization of $5,154
($5,284 at June 30, 2001) 14,258 14,295
DEFERRED TAXES 10,550 10,550
OTHER ASSETS 5,665 6,748
--------- ---------
TOTAL ASSETS $ 123,209 $ 133,890
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
1
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, June 30,
2001 2001
------------ ---------
(Unaudited)
CURRENT LIABILITIES:
Loans payable $ 4,418 $ 3,529
Current portion of long-term debt 15,859 10,531
Accounts payable, trade 10,313 12,761
Notes payable, trade 11,520 9,112
Accrued salaries, commissions, bonus and
profit-sharing 3,041 5,096
Customer deposits 6,067 6,861
Accrued and withheld taxes 1,368 1,625
Income taxes payable 3,334 5,345
Other accounts payable and accrued liabilities 15,005 17,057
--------- ---------
Total current liabilities 70,925 71,917
--------- ---------
LONG TERM LIABILITIES:
Long-term debt 518 8,428
Other long-term liabilities 7,148 8,085
--------- ---------
Total long-term liabilities 7,666 16,513
--------- ---------
Total liabilities 78,591 88,430
--------- ---------
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,
2,185,883 shares issued (2,000,000 at June 30, 2001)
21 20
Capital contributed in excess of par value 56,986 57,496
Retained Earnings 6,500 7,457
Accumulated other comprehensive loss (6,180) (6,334)
Less: Treasury stock, at cost:
Class A - 3,630,202 shares
(3,583,702 at June 30, 2001)
Class B - zero shares (189,117 at June 30, 2001) (12,199) (13,344)
Note receivable from key executive for common stock issuance
(675) 0
--------- ---------
Total shareholders' equity 44,618 45,460
--------- ---------
COMMITMENTS AND CONTINGENCIES
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 123,209 $ 133,890
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
2
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months For the six months
ended December 31, ended December 31,
--------------------------- ---------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net Sales $ 36,175 $ 45,758 $ 74,714 $ 90,718
Cost of goods sold 24,680 32,068 52,110 62,875
-------- -------- -------- --------
Gross Profit 11,495 13,690 22,604 27,843
-------- -------- -------- --------
Operating Expenses:
General and administrative 3,796 4,813 9,261 10,145
Selling 3,336 4,096 7,196 8,304
Engineering 2,246 2,761 4,704 5,751
Research and Development 1,488 1,490 3,095 2,697
Provision for loss on the disposition of pre-press
operations (86) 0 (86) 0
Restructuring charges 412 0 506 0
-------- -------- -------- --------
11,192 13,160 24,676 26,897
-------- -------- -------- --------
Operating income (loss) 303 530 (2,072) 946
-------- -------- -------- --------
Other (income) expense:
Interest expense 450 612 860 1,036
Interest income (108) (90) (149) (157)
Royalty income, net (777) (992) (2,016) (2,331)
Other (income) expense, net 442 (1,136) 386 (719)
-------- -------- -------- --------
7 (1,606) (919) (2,171)
-------- -------- -------- --------
Income (loss) before income taxes 296 2,136 (1,153) 3,117
Provision (benefit) for income taxes 137 966 (196) 1,310
-------- -------- -------- --------
Net income (loss) $ 159 $ 1,170 $ (957) $ 1,807
======== ======== ======== ========
Net income (loss) per share - basic $ 0.01 $ 0.08 $ (0.06)$ 0.12
======== ======== ======== ========
Net income (loss) per share - diluted $ 0.01 $ 0.08 $ (0.06)$ 0.12
======== ======== ======== ========
Weighted average shares outstanding:
Basic 14,953 14,723 14,816 14,871
======== ======== ======== ========
Diluted 14,953 14,723 14,816 14,871
======== ======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES) (UNAUDITED)
Note
Receivable
Accum- from key
ulated Executive
Class A Class B Capital Other for Comp-
Common Stock Common Stock Contributed Compre- Treasury Stock Common rehen-
--------------- -------------- in Excess Retained hensive ------------------ Stock sive
Shares Amount Shares Amount of Par Earnings Loss Shares Amount Issuance Loss
------- ------ ------ ------ ------ -------- ---- ------ ------ -------- ----
Balance at
June 30, 2001 16,458,849 $165 2,000,000 $20 $57,496 $ 7,457 $ (6,334) (3,772,819) $(13,344) $ 0
Net loss for the six
months ended
December 31, 2001
(957) $(957)
Translation adjustment
123 123
Unrealized loss on
available-for-sale
securities,
net of tax (38) (38)
Unrealized gain on
forward contracts 69 69
-----
Comprehensive
Loss $(803)
=====
Issuance of Class B
Common Stock to
key executive 185,883 1 (510) 189,117 1,184 (675)
Purchase of
treasury stock (46,500) (39)
---------- ---- --------- --- ------- ------- -------- ---------- -------- ------
Balance at
December 31, 2001 16,458,849 $165 2,185,883 $21 $56,986 $ 6,500 $ (6,180) (3,630,202) $(12,199) $ (675)
========== ==== ========= === ======= ======= ======== ========== ======== ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the six months
ended December 31,
--------------------------
2001 2000
------- --------
Cash Flows from operating activities:
Net (loss) income $ (957) $ 1,807
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 1,124 1,667
Accrued retirement pay 224 (99)
Provision for losses on accounts receivable 728 0
Loss from disposition of business 8 650
Restructuring charges 506 0
Deferred income taxes (67) 0
Write-off of deferred debt financing costs 255 0
Changes in assets and liabilities:
Accounts and notes receivable 3,277 (2,522)
Inventories (4,874) (2,437)
Prepaid expenses and other (1,692) (496)
Other assets 602 (637)
Customer deposits 1,418 926
Accrued compensation (1,653) (646)
Payments against restructuring charges (1,582) 0
Accounts and notes payable, trade 1,700 1,226
Income taxes payable (2,106) 992
Accrued and withheld taxes 41 (331)
Other accounts payable and accrued liabilities 585 498
Interest payable (135) (92)
------- --------
Net cash (used) provided by operating activities (2,598) 506
------- --------
Cash flows from investing activities:
Proceeds from disposition of businesses, net 6,828 3,985
Additions of property, net (599) (1,044)
Additions of patents, trademarks and drawings, net (310) (98)
------- --------
Net cash provided by investing activities 5,919 2,843
------- --------
Cash flows from financing activities:
Long-term and short-term debt borrowings 7,786 35,878
Long-term and short-term debt repayments (9,477) (37,595)
Principal payments under capital lease obligations (17) (3)
Payment of debt financing costs (100) 0
Other long-term liabilities (141) (310)
Treasury stock purchased (39) (109)
------- --------
Net cash used by financing activities (1,988) (2,139)
------- --------
Effects of exchange rate changes (71) (41)
------- --------
Net increase in cash and cash equivalents 1,262 1,169
Cash and cash equivalents at beginning of period 6,590 7,914
------- --------
Cash and cash equivalents at end of period $ 7,852 $ 9,083
======= ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the six months
ended December 31,
------------------
2001 2000
---- ----
Cash paid during the period for:
Interest $ 1,061 $ 944
Income Taxes $ 2,075 $ 855
The Company did not enter into any capital lease agreements for either of
the six months ended December 31, 2001 or 2000.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
6
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 controls and
accessories 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 accounting principles generally accepted in the United States of America
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 accounting principles generally accepted in the United States of
America 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, 2001.
Operating results for the three and six months ended December 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2002. All significant intercompany transactions have been eliminated in
consolidation.
NOTE 2 - ACCOUNTING CHANGES:
Effective July 1, 2001, the Company adopted the provisions of Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("FAS 141"). FAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. The adoption of FAS 141 did not have an impact on the consolidated results
of operations, the consolidated financial position or the liquidity of the
Company.
Effective July 1, 2001, the Company adopted the provisions of Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). As a result, the Company no
longer amortizes goodwill. Accordingly, net income and net income per share
(basic and diluted) would have been approximately $246,000 and $497,000 or $0.02
and $0.03 higher, respectively, had the provisions of FAS 142 been applied to
the results of operations for the three and six months ended December 31, 2000.
FAS 142 requires goodwill and intangible assets with indefinite useful lives to
no longer be amortized, but instead be tested for impairment at least annually.
FAS 142 provides a six-month transitional period from the effective date of
adoption to perform an assessment of whether there is an indication that
goodwill is impaired. To the extent that an indication of impairment exists, a
second test must be performed to measure the amount of the impairment. The
Company determined the fair value of each of its reporting units using a
discounted cash flow analysis and compared such values to the respective
reporting units' carrying amounts. The initial impairment analysis indicated
that goodwill was not impaired and therefore, no charge to earnings has been
reflected for the six months ended December 31, 2001. Goodwill will be required
to be reviewed for impairment at least on an annual basis, which the Company
will perform at the beginning of each fiscal year.
7
NOTE 3 - REVOLVING CREDIT FACILITY:
On October 31, 2000, the Company entered into a $35,000,000 Revolving
Credit Facility (the "Credit Facility") with Fleet National Bank and First Union
National Bank (collectively the "Banks"), which had an original scheduled
maturity date of October 31, 2003. The Credit Facility consisted of a
$25,000,000 Revolving credit line (the "Revolver") and a $10,000,000 credit line
to be utilized for acquisitions, (the "Acquisition Line"). On January 28, 2002,
the Credit Facility was amended (the "Amended Credit Facility"), which included
the removal of the Acquisition Line, a reduction in the Revolver to $21,000,000
(subject to a borrowing base described below), and a change in the maturity date
to October 1, 2002. In addition, $4,000,000 of the existing Revolver was
converted into a term loan (the "Term Loan"), which matures on June 30, 2002,
resulting in available borrowings under the Revolver from July 1, 2002 to
October 1, 2002 of $17,000,000. At December 31, 2001, the Company has
outstanding borrowings of $18,014,000 under the Revolver, including $2,264,000
under outstanding letters of credit and accordingly has classified the entire
outstanding balance under the Revolver as current. The Revolver has associated
commitment fees, which are calculated quarterly, at a rate of one-half of one
percent per annum of the unused portion of the Revolver.
The Amended Credit Facility provides for a new borrowing structure which
enables the Company to borrow a percentage of eligible domestic accounts
receivable, domestic inventory, the appraised value of the Company's Emporia,
Kansas facility, the net book value of domestic machinery and equipment and
certain royalty streams, as defined (collectively the "Borrowing Base") up to a
maximum of $21,000,000. The Amended Credit Facility also provides that
$5,000,000 (less outstanding letters of Credit) may be borrowed in addition to
the amounts available under the Borrowing Base. Interest on the Revolver is
charged at LIBOR plus 3.25% per annum or at an alternative base rate, as
defined, plus 1% per annum. Interest on the Term Loan is charged at LIBOR plus
4.25% per annum.
The Amended Credit Facility is collateralized by a pledge of the capital
stock and certain domestic assets of the Company's subsidiaries, includes
certain restrictions which limit the incurrence of debt and prohibit dividend
payments among other things, and requires the Company to maintain certain
financial covenants. These covenants include a minimum tangible net worth
covenant, beginning with the quarter ended December 31, 2001, and also require
minimum operating income covenants of $250,000 for the quarter ended December
31, 2001, $1,250,000 for the quarter ending March 31, 2002 and $1,750,000 for
the quarter ending June 30, 2002.
The ability to satisfy the above covenants depends in part on management's
successful execution of its restructuring plan as discussed in Note 9, and other
business factors outside of the control of management. There can be no guarantee
that such covenants will be met. If the covenants are not met, amounts
outstanding under the Amended Credit Facility will become payable on demand.
Management believes that alternative sources of financing are available to
refinance the existing facilities on a long-term basis, which the Company is
currently pursuing. However, if the loans become due on demand and alternative
financing sources are not available, management will be required to take
additional actions to reduce operating expenses or sell assets to meet liquidity
needs.
As a result of the reduction in available borrowings under the Amended
Credit Facility, and the revised maturity date, the Company was required to
write-down a portion of the related unamortized deferred financing costs
initially recorded in connection with obtaining the Credit Facility.
Accordingly, the Company took a charge against earnings of $255,000 during the
quarter ended December 31, 2001, which is included in "Other income and
expense." The Company incurred additional costs of approximately $160,000
associated with entering into the Amended Credit Facility of which $100,000 has
been paid by December 31, 2001. The Company will
8
amortize the remaining deferred financing costs through October 1, 2002, the
maturity date of the Amended Credit Facility.
The Company maintains relationships with both foreign and domestic banks,
which combined have extended credit facilities to the Company totaling
$24,517,000, including amounts available under the Revolver. As of December 31,
2001, the Company had $20,168,000 outstanding under these lines of credit
including $18,014,000 under the Revolver. The Revolver includes $2,264,000
associated with outstanding letter of credit, all of which is classified as
current. Total debt levels as reported on the balance sheet at December 31, 2001
are $3,000 lower than they would have been if June 30, 2001 exchange rates had
been used.
NOTE 4 - EARNINGS PER SHARE:
Basic earnings per share includes no dilution and is computed by dividing
net income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the earnings
of an entity. The weighted average shares outstanding used to compute diluted
income (loss) per share include zero additional shares for each of the three and
six months ended December 31, 2001 and 2000, which represent potentially
dilutive securities. Outstanding options to purchase 1,606,000 and 1,829,000
shares of the Company's common stock for the three and six months ended December
31, 2001 and 2000, respectively, are not included in the above calculation to
compute diluted income (loss) per share as they have an anti-dilutive effect.
NOTE 5 - OTHER COMPREHENSIVE INCOME/(LOSS):
Accumulated Other Comprehensive Income/(Loss) ("OCI") is comprised of
various items, which affect equity that result from recognized transactions and
other economic events other than transactions with owners in their capacity as
owners. Prior to December 31, 2000, OCI was reported on the Balance Sheet, and
the Statement of Changes in Shareholders' Equity, using accounts for cumulative
translation adjustment and unrealized gain on investments. These two accounts
are now being combined and shown together as one item in the Balance Sheet along
with the amounts reported in OCI for the effect of Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133").
OCI consists of the following:
December 31, 2001 June 30, 2001
----------------- -------------
(Unaudited)
Cumulative translation adjustment $(5,909,000) $(6,032,000)
Unrealized loss on investments,
net of deferred taxes of $30,000
($3,000 at June 30, 2001) (41,000) (3,000)
Unrealized loss on derivatives,
net of deferred taxes of $67,000
($0 at June 30, 2001) (230,000) (299,000)
----------- -----------
$(6,180,000) $(6,334,000)
=========== ===========
9
NOTE 6 - INVENTORIES:
Inventories consist of the following:
December 31, 2001 June 30, 2001
----------------- -------------
(Unaudited)
Raw materials $17,033,000 $18,801,000
In process 6,441,000 7,197,000
Finished Goods 7,339,000 7,053,000
----------- -----------
$30,813,000 $33,051,000
=========== ===========
Inventories increased by $199,000 due to translation effects of foreign
currency from June 30, 2001 to December 31, 2001.
NOTE 7 - DERIVATIVES:
The Company adopted the provisions of FAS 133 effective July 1, 2000.
During the three and six months ended December 31, 2001, the Company had
currency futures contracts and an interest rate swap agreement that qualified as
cash flow hedges; accordingly, the gain or loss was recorded in OCI and will be
recognized when the hedged item affects earnings. On April 27, 2001, the Company
entered into an interest rate swap agreement (the "Swap") with Fleet National
Bank to fix the LIBOR portion of its interest rate at 4.98% for a principal
amount of $15,000,000 with the maturity the same as the Credit Facility. The
effect of this Swap added $54,000 and $102,000, respectively to interest expense
for the three and six months ended December 31, 2001 and a $300,000 pre-tax
($233,000 after-tax) loss to OCI at December 31, 2001.
The fair value of the Swap at December 31, 2001 was a loss of $470,000. As
a result of entering into the Amended Credit Facility and changing various
provisions of the original agreement including the maturity date, a portion of
the Swap no longer qualifies as a hedge pursuant to FAS 133. Consequently, as
required by FAS 133, the Company transferred $170,000 of the loss previously
recorded in OCI against earnings in the quarter ended December 31, 2001, to
"Other income and expense" on the accompanying consolidated statement of income.
The remaining loss of approximately $300,000 recorded in OCI as of December 31,
2001, will be amortized to earnings through October 1, 2002, the maturity date
of the Amended Credit Facility. Future changes in the fair value of the portion
of the Swap which no longer qualifies as a hedge, will be recorded in earnings.
Hedging ineffectiveness, determined in accordance with FAS 133, had no
material impact on earnings for the three and six months ended December 31, 2001
and 2000. At July 1, 2000, the Company had a derivative that did not qualify as
a hedge pursuant to FAS 133. A $345,000 pre-tax gain related to this derivate
instrument, was recorded in other income in the first quarter of the fiscal year
ended June 30, 2001.
Unrealized net gains (losses) included in OCI are as follows:
December 31, 2001 December 31, 2000
----------------- -----------------
Balance at beginning of period $(299,000) $ 0
Additional gains (losses), net (453,000) 20,000
Amounts reclassified to earnings, net 522,000 0
--------- -------
Balance at end of period $(230,000) $20,000
========= =======
The unrealized net loss of $230,000 at December 31, 2001 is primarily
comprised of a loss on an interest rate swap of $233,000 and a gain on futures
contracts of $3,000. The net
10
unrealized gain associated with the currency futures contracts, which expire at
various times through July 31, 2002, is expected to be transferred against
earnings during the next twelve months. The net foreign currency transaction
losses in the current period include a $206,000 loss on certain derivative
financial instruments, which became speculative and no longer qualified as
hedges pursuant to FAS 133 as a result of the divestiture of the Roll Handling
Group ("RHG").
NOTE 8 -- ADJUSTMENT OF PROVISION FOR 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 Company's initial purchase of the PPO in July 1991, included a
liability for an unfunded pension obligation of approximately $4,309,000. This
obligation was adjusted annually in accordance with Statement of Financial
Accounting Standards No. 87, "Employer's Accounting for Pensions", until the PPO
was sold in June 1997.
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. The provisions and liabilities for
both the plan covered by the FPG surety bond and a group plan for the individual
retirees were assumed by the Buyer and resulted in no curtailment of either
plan. At the time that the PPO was sold to Kaber, management conducted due
diligence of Kaber and their financial backers and believed that they had the
financial ability to satisfy these guarantees.
Subsequent to the sale of the PPO, Kaber and related domestic
subsidiaries filed for protection in the United States 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 a liability for the estimated amount
of these obligations in its financial results by establishing a reserve in the
amount of $2,400,000 in the third quarter of the fiscal year ended June 30,
1999. To date, the Company has made payments to FPG of $1,567,000. The Company
further reduced the reserve by $472,000 during fiscal 2001 and by $86,000 in the
current period, to the estimated liability at December 31, 2001, which reflects
a settlement agreement with the remaining former employees reached in February
2002. The Company expects to pay $275,000 by March 31, 2002 in full settlement.
This reserve of $275,000 and $361,000 is included as a current liability in
"Other accounts payable and accrued liabilities" at December 31, 2001 and June
30, 2001, respectively.
11
NOTE 9 -- RESTRUCTURING CHARGE AND RELATED RESERVE:
During March 2000, the Company entered into a restructuring plan that
included the consolidation of production into certain facilities, and a
reduction in total employment. Accordingly, the Company recorded a restructuring
charge in the amount of $5,664,000 in the third quarter of the fiscal year ended
June 30, 2000. In June 2001, the Company expanded its restructuring efforts
under this restructuring plan and closed additional facilities. As a result of
expanding this restructuring plan, the Company recorded an additional
restructuring charge of $2,277,000 in the fourth quarter of the fiscal year
ended June 30, 2001. The additional restructuring charges in the current year
period, are primarily consulting costs associated with this restructuring plan.
These changes are expected to reduce the Company's worldwide cost base and
strengthen its competitive position as a leading global supplier of auxiliary
equipment to the printing and publishing industries. Prior to the restructuring
program, 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 reorganizing on a global basis,
management decided to restructure the Company along functional lines on a global
basis. Rather than have administration, sales, product development and
production activities at each decentralized business unit, the restructuring
plan included the centralization of these activities. Products that were
previously being produced at multiple facilities are being consolidated with
similar product lines at existing facilities. Management believes that the
nature and scope of these restructuring activities will be sufficient to restore
the Company's profitability and cash flow from operations. The following table
details the components of the restructuring charges and the remaining reserve
balances as of June 30, 2001 and December 31, 2001.
Remaining Additional Charges Remaining
Reserve Restructuring Against Reserve
June 30, 2001 Charges Reserve December 31, 2001
------------- ------- ------- -----------------
(in thousands)
Severance $3,489 $ 0 $(1,001) $2,488
Facility lease
termination costs 2,178 0 (76) 2,102
Other costs 0 506 (506) 0
------ ---- ------- ------
Total Program $5,667 $506 $(1,583) $4,590
====== ==== ======= ======
Severance costs will be paid through June 30, 2002. Facility lease
termination costs will be paid through April 30, 2006. As of December 31, 2001,
$2,968,000 of the reserve is included in "Other accounts payable and accrued
liabilities" and the remaining $1,622,000 is included in "Other long-term
liabilities".
NOTE 10 - SALE OF BUSINESSES:
During the fourth quarter of fiscal 2001, the Company committed to a plan to
dispose of the RHG. On September 26, 2001, the Company sold substantially all of
the assets of the RHG. The consideration received for the transaction, subject
to certain post-closing adjustments, amounted to approximately $6,800,000. The
Company received $1,808,000 at closing and $4,992,000 in October 2001. During
the fourth quarter of fiscal 2001, the Company recorded an impairment charge of
approximately $14,831,000 relating primarily to the write-off of goodwill and
certain assets of the RHG, including $961,000 of cumulative translation
adjustments related to the foreign operations of the RHG, which were
reclassified and reflected as part of the impairment charge. The RHG was
included in the Material Handling Group segment.
12
Net assets held for disposal related to the RHG were included in the
following categories as of June 30, 2001:
Cash .................................................. $ 74,000
Accounts receivable, net of allowance of $12,000 ...... 7,124,000
Inventory, net ........................................ 5,992,000
Prepaid expenses and other current assets ............. 690,000
Accounts payable ...................................... (2,832,000)
Accrued salaries, commissions, bonus and profit-sharing (812,000)
Customer deposits ..................................... (1,691,000)
Accrued and withheld taxes ............................ (386,000)
Income taxes payable .................................. (64,000)
Other accounts payable and accrued liabilities ........ (1,361,000)
-----------
Net assets held for disposal as of June 30, 2001 ...... $ 6,734,000
===========
Not included in the above net assets were $11,192,000 of goodwill,
$989,000 of patents and $1,549,000 of property, plant and equipment, which were
written-off as of June 30, 2001. These assets were considered impaired, as the
carrying value of these assets would not be recovered as a result of the sale of
the RHG.
Also during the fourth quarter of fiscal 2001, the Company decided to exit
the Print On-Demand ("POD") business, which resulted in a write-off of $687,000
of goodwill, which was included as part of the impairment charge. The Company
completed the sale of this business in November 2001, and recorded an additional
loss on the sale of $8,000 during the quarter ended December 31, 2001.
On September 27, 2000, the Company sold substantially all of the assets of
its Baldwin Stobb Division ("BSD") to Systems Technology, Inc., a new company
formed by the management of BSD. The consideration received for the transaction,
subject to certain post-closing adjustments, was 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 during the three months ended September 30, 2000, which was later
adjusted to $831,000 as the associated disposition costs, as a result of this
transaction, were greater than initially estimated.
Net sales and operating income (loss) of BSD, the RHG, and the POD
businesses combined, were as follows for the three and six months ended December
31:
Three months ended Six months ended
December 31, December 31,
--------------------------------- -----------------------------------
2001 2000 2001 2000
--------- ----------- ----------- -----------
Net Sales $ 0 $10,871,000 $ 4,791,000 $22,055,000
Operating (loss) income $(277,000) $ 526,000 $ (754,000) $ 1,934,000
In January 2002, the Company received a proposed Final Statement from the
purchaser of the RHG setting forth certain potential purchase price adjustments.
The Company is reviewing the proposed Final Statement and potential adjustments
and will respond to the purchaser as required under the contract by the end of
March if it disputes the proposed Final Statement.
13
NOTE 11 - BUSINESS SEGMENT INFORMATION:
On September 27, 2000, the Company sold substantially all of the assets of
BSD and on September 26, 2001 the Company sold substantially all of the assets
of the RHG. Both BSD and the RHG accounted for approximately 91% of net sales
and 113% of operating loss of the Material Handling and Controls Group ("MHG")
for the fiscal year ended June 30, 2001. Additionally, certain production
facilities have been consolidated, and the production of inserters, which had
previously been reported in the MHG, is now reported in the Accessories and
Controls segment. The Company also completed the sale of the POD business in
November 2001. As a result of the divestitures of these businesses and the
consolidation of certain production facilities, the Company has realigned its
segment structure into one segment, the Accessories and Controls segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001. A segment's financial
performance is primarily evaluated based on the operating profit of the segment.
The Accessories and Controls segment is presented below for the three and
six months ended December 31, 2001, and 2000 (in thousands): All prior periods
have been restated to conform to the current period's presentation.
Three months ended Six months ended
December 31 December 31
-------------------------- --------------------------
(Unaudited)
-----------
2001 2000 2001 2000
------- ------- ------- -------
Net Sales:
Accessories and Controls $36,175 $34,887 $69,923 $68,663
Divested operations 0 10,871 4,791 22,055
------- ------- ------- -------
Total Net Sales . $36,175 $45,758 $74,714 $90,718
------- ------- ------- -------
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
(Unaudited)
2001 2000 2001 2000
------- ------- ------- -------
Operating (loss) income:
Accessories and Controls $ 2,760 $ 1,646 $ 2,997 $ 2,561
Corporate (2,180) (1,642) (4,315) (3,549)
Divested operations (277) 526 (754) 1,934
------- ------- ------- -------
Total operating (loss) income 303 530 (2,072) 946
Interest expense, net (342) (522) (711) (879)
Royalty income, net 777 992 2,016 2,331
Other income (expense), net (442) 1,136 (386) 719
------- ------- ------- -------
(Loss) income before income taxes $ 296 $ 2,136 $(1,153) $ 3,117
======= ======= ======= =======
14
December 31, June 30,
2001 2001
-------- --------
(Unaudited)
Identifiable assets:
Accessories and Controls $107,522 $ 98,084
Corporate 15,687 21,926
Divested operations 0 13,880
-------- --------
Total identifiable assets $123,209 $133,890
======== ========
NOTE 12 - PROFIT SHARING PLAN
During the current year period, the Company had three domestic profit
sharing plans. The Enkel Corporation Retirement Plan (the "Enkel Plan"), the
Kansa Corporation Profit-Sharing/401K Plan and Trust (the "Kansa Plan") and the
Baldwin Technology Profit-Sharing and Savings Plan (the "Baldwin Plan"). The
Enkel Plan, covering the domestic employees of the divested RHG, is in the
process of being terminated in accordance with the provisions of the Enkel Plan.
The Company combined the remaining two plans effective January 1, 2002 into one
plan, the Baldwin Plan. The Company is currently in the process of amending the
Baldwin Plan. The amendments include a change in both the vesting terms and
timing of the Company contribution to the Baldwin Plan. Previously, the
Company's contribution was discretionary and made on an annual basis, based on
the profitability of the Company and the participants vested in the Company's
contribution according to a 7-year vesting schedule. The changes will enable the
Company to match up to 5% of eligible compensation and the participants to vest
in the Company's contribution immediately. Participant contributions are being
made on a weekly basis, while the Company match contributions are being made on
a quarterly basis. During the second quarter ended December 31, 2001, the
Company's management decided not to make a discretionary contribution to the
Baldwin Plan for the plan year ended December 31, 2001, which was previously
provided for. As a result, during the quarter ended December 31, 2001, the
Company reversed to earnings approximately $300,000, which had been previously
accrued and was unfunded in connection with the Baldwin Plan.
NOTE 13 - RELATED PARTIES
In accordance with Mr. Heald's employment agreement, in October 2001, the
Company issued Mr. Heald 375,000 shares of Class B Common Stock of the Company
at $1.80 per share in exchange for a non-recourse promissory note in the amount
of $675,000. The promissory note bears interest, payable annually, at a rate of
5% per annum. Of the 375,000 shares issued, 189,117 shares were from previously
acquired treasury shares, and the balance of 185,883 shares, were from newly
issued shares. The promissory note is secured by the shares, and is due on the
earlier of six months following termination or twelve months following
termination, if termination is caused by the death of Mr. Heald. In the event
that Mr. Heald sells any of these shares, a respective portion of the note is
due five days following the sale of any of these shares.
On November 30, 1993, the Company entered into a loan and pledge agreement
and promissory note with Gerald A. Nathe, President and Director of the Company,
which was amended and restated on November 25, 1997. The loan was made to enable
Mr. Nathe to purchase shares of the Company's Class B Common Stock from
non-employee shareholders. Mr. Nathe was loaned $1,817,000 to purchase 315,144
shares of the Company's Class B Common Stock. All of the shares purchased were
pledged as collateral for the demand promissory notes and each of the notes bear
interest payable on the anniversary dates at
15
LIBOR rates plus 1.25% reset on the first day of each succeeding January, April,
July and October.
At June 30, 2001, the balance of the note receivable from Mr. Nathe,
including interest, was $1,556,000. In November 2001, the Board of Directors of
the Company forgave an interest payment due from Mr. Nathe in the amount of
$112,000 on the above loan, and included such amount as compensation expense to
Mr. Nathe, recorded in "General and administrative expenses".
NOTE 14 - CUSTOMER BANKRUPTCY
On September 10, 2001, one large OEM customer, Goss Graphic Systems, Inc.
("Goss") filed for bankruptcy protection under a prearranged Chapter 11
proceeding in the U.S. Bankruptcy Court. Goss' European and Asian subsidiaries
are not included in this proceeding, and furthermore, the Company has continued
to receive timely payments, on a post petition basis, from the foreign
subsidiaries of Goss, and continues to monitor the status of all Goss payments.
At December 31, 2001, the Company's balance sheet included approximately
$1,473,000 of trade receivables from Goss, of which approximately $975,000 is
reserved. As a result of this bankruptcy filing, the Company increased its bad
debt reserve related to Goss by $536,000 and $634,000 during the quarters ended
June 30, 2001 and September 30, 2001, respectively. Further, the Company
received $195,000 of these previously recorded amounts during the quarter ended
December 31, 2001. As a result, the Company reversed $195,000 of the previously
recorded reserves to earnings as a recovery of a previously recorded bad debt
charge.
16
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 financial position and consolidated financial statements
of Baldwin Technology Company, Inc. ("Baldwin" or the "Company"). On September
27, 2000, the Company sold substantially all the assets of its Baldwin Stobb
Division ("BSD"). As a result, the revenues and corresponding expenses
attributable to BSD are included in these consolidated financial statements only
for the period owned by the Company. The effects of this transaction on
financial statement amounts are discussed below where significant.
On September 26, 2001, the Company sold substantially all of the assets of
its Roll Handling Group ("RHG"). All periods presented include the revenues and
corresponding expenses attributable to the RHG. The Company recorded an
impairment charge during the fiscal year ended June 30, 2001 of approximately
$14,831,000 as a result of the write-off of assets, primarily patents and
goodwill, associated with this business. The Company recorded a similar
write-off of goodwill of approximately $687,000 in the fourth quarter of the
fiscal year ended June 30, 2001, associated with the Company's Print on Demand
Group ("POD") as the Company decided to exit this business and sell the assets
of this business. The Company completed the sale of the POD business in November
2001.
Net sales and operating income (loss) of BSD, the RHG and the POD
businesses combined, were as follows for the three and six months ended December
31:
Three months ended Six months ended
December 31, December 31,
2001 2000 2001 2000
--------- ----------- ----------- -----------
Net Sales $ 0 $10,871,000 $ 4,791,000 $22,055,000
Operating (loss) income $(277,000) $ 526,000 $ (754,000) $ 1,934,000
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. 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 the Company's
Annual Report on Form 10-K for the year ended June 30, 2001 which should be read
in conjunction herewith.
17
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Baldwin's discussion and analysis of its financial condition and
results of operations are based on the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires Baldwin to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
Baldwin evaluates its estimates, including those related to product returns, bad
debts, inventories, investments, intangible assets, income taxes, financing
operations, warranty obligations, restructuring, pensions and other
post-retirement benefits, and contingencies and litigation. Baldwin bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Baldwin believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. Baldwin maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of Baldwin's customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances could be required. Baldwin provides for the estimated cost
of product warranties at the time revenue is recognized. While Baldwin engages
in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of its component suppliers, Baldwin's
warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ from
Baldwin's estimates, revisions to the estimated warranty liability would be
required. Baldwin writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required. Baldwin records
a valuation allowance to reduce its deferred tax assets to the amount that is
more likely than not to be realized. While Baldwin has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event Baldwin were to determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination is made. Likewise, should Baldwin
determine that it would not be able to realize all or part of its net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination is made. Baldwin's financial
covenants are based, in part by management's estimates of future revenues and
expenses. If actual results are negatively impacted, the Company may not meet
its financial covenants. Should the Company not meet its financial covenants,
amounts outstanding associated with these covenants would become payable on
demand.
18
SIX MONTHS ENDED DECEMBER 31, 2001 VS. SIX MONTHS ENDED DECEMBER 31, 2000
CONSOLIDATED RESULTS
Net sales for the six months ended December 31, 2001 decreased by
$16,004,000, or 17.6%, to $74,714,000 from $90,718,000 for the six months ended
December 31, 2000. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales by $4,305,000 in the current period.
Excluding the effects of currency rate fluctuations and the previously noted
divestitures of BSD, the RHG and the POD businesses, net sales would have
increased by $5,233,000, which is primarily the result of increased sales levels
of spray dampening equipment, fluid management products and consumables, offset
by decreased sales levels of inserters.
Gross profit for the six months ended December 31, 2001 was $22,604,000
(30.3% of net sales), as compared to $27,843,000 (30.7% of net sales) for the
six months ended December 31, 2000, a decrease of $5,239,000 or 18.8%. Currency
rate fluctuations decreased gross profit by $1,428,000 in the current period.
Otherwise, gross profit would have decreased by $3,811,000. Gross profit as a
percentage of net sales decreased primarily due to increased margins associated
with the divested BSD products included the in first quarter of the prior year
period, and decreased margins associated with the divested RHG products included
in the first quarter of the current fiscal year period. Additionally, gross
profit was impacted by decreased sales volumes of inserters, offset by increased
volumes of spray dampening equipment, cleaning products, and consumables.
Excluding the effects of currency rate fluctuations and the previously noted
divestitures of BSD, the RHG and the POD businesses, gross profit would have
increased by $1,598,000 in the current period.
Selling, general and administrative expenses amounted to $16,457,000
(22.0% of net sales), for the six months ended December 31, 2001, as compared to
$18,449,000 (20.3% of net sales) for the same period in the prior year, a
decrease of $1,992,000 or 10.8%. Currency rate fluctuations decreased these
expenses by $571,000 in the current period. Otherwise, selling, general and
administrative expenses would have decreased by $1,421,000. Selling expenses
decreased by $803,000, which primarily relates to the exclusion of costs
associated with the divested RHG for the three months ended December 31, 2001,
and to decreased travel costs, offset by increased marketing and trade show
costs. General and administrative expenses decreased by $618,000 primarily due
to the exclusion of costs associated with the divested RHG for the three months
ended December 31, 2001, to decreased compensation and commission costs, the
reversal of approximately $300,000 of prior accruals associated with the
Company's profit-sharing contribution and to decreased goodwill amortization
expense of $497,000 due to the adoption of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). These decreases were primarily offset by an
additional $439,000 bad debt charge related to accounts receivable from a major
OEM customer, interest forgiveness of $112,000 related to a loan to an officer
of the Company, and increased consulting costs in the current period. Excluding
the effects of currency rate fluctuations and the previously noted divestitures
of BSD, the RHG and the POD businesses, selling, general and administrative
expenses would have increased by $53,000 in the current period.
Engineering, and research and development expenses decreased by $649,000
over the same period in the prior year. Currency rate fluctuations decreased
these expenses by $395,000 in the current period. Otherwise, these expenses
would have decreased by $254,000. The decrease in these expenses relates
primarily to the exclusion of costs associated with the divested RHG for the
three months ended December 31, 2001, and to increased research and development
labor and project costs, offset by reduced engineering consulting costs. As a
percentage of net sales, engineering and research and development expenses
increased by 1.1% to 10.4% for the six months ended December 31, 2001 compared
to 9.3% for the same period
19
in the prior year. Excluding the effects of currency rate fluctuations and the
previously noted divestitures of BSD, the RHG and the POD businesses,
engineering and research and development expenses would have increased by
$546,000 in the current period.
The Company recorded a restructuring charge of $506,000 for the six months
ended December 31, 2001. This restructuring charge represents additional
charges, primarily consulting costs, incurred related to the restructuring plan
announced in March 2000.
Interest expense for the six months ended December 31, 2001 was $860,000
as compared to $1,036,000 for the six months ended December 31, 2000. Currency
rate fluctuations decreased interest expense by $9,000 in the current period.
Otherwise, interest expense would have decreased by $167,000. This decrease was
primarily due to lower long-term debt levels and interest rates during the
current period primarily as a result of the use of proceeds from the divestiture
of the RHG, to reduce outstanding debt. Interest income amounted to $149,000 and
$157,000 for the six months ended December 31, 2001 and December 31, 2000,
respectively. This reduction in interest income is primarily due to lower
interest rates in the current period. Currency rate fluctuations increased
interest income by $26,000 in the current period.
Other income and expense includes net foreign currency transaction
(losses) gains of $(55,000) and $527,000 for the six months ended December 31,
2001 and 2000, respectively. Currency rate fluctuations positively impacted
other income and expense by $14,000 in the current period. The net foreign
currency transaction losses in the current period include a $206,000 loss on
certain derivative financial instruments which no longer qualified as hedges
pursuant to Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133") as a result of the divestiture of the RHG and a $38,000
loss on the ineffective portions of derivative financial instruments which
qualify as cash flow hedges. Other income and expense in the current period also
includes a $170,000 charge for an interest rate swap which no longer qualifies
as a hedge pursuant to FAS 133 and a $255,000 write-down of deferred financing
costs, both were recorded as a result of the renegotiation of the Amended Credit
Facility. The net foreign currency transaction gains in the prior year period
included a $345,000 pre-tax gain on a derivative financial instrument that did
not qualify as a hedge pursuant to FAS 133, and a $51,000 loss on the
ineffective portions of derivative financial instruments, which qualify as cash
flow hedges pursuant to FAS 133. Other income and expense in the prior year
period also includes a pre-tax gain of $1,213,000 related to a favorable
settlement of a patent litigation suit and a $650,000 pre-tax loss on the sale
of BSD.
The Company's effective tax rate on income before taxes was 17.0% for the
six months ended December 31, 2001, compared to 42.0% for the six months ended
December 31, 2000. Currency rate fluctuations decreased the provision for income
taxes by $84,000 in the current period. The decrease in the current period's
effective tax rate is primarily due to a reduction in valuation allowances in
foreign tax jurisdictions and decreased income in high tax jurisdictions.
The Company's net loss amounted to $957,000 for the six months ended
December 31, 2001, compared to net income of $1,807,000 for the six months ended
December 31, 2000. This decrease of $2,764,000 is primarily due to higher net
income associated with the divested companies in the prior year period, a
favorable settlement related to a patent litigation suit, a gain on a derivative
financial instrument which ceased to qualify as a hedge pursuant to FAS 133 in
the prior year period and restructuring and other one-time net charges, and the
bad debt charge related to a receivable from a major OEM customer in the current
period. These decreases were offset by the loss on the sale of the BSD and
goodwill amortization in the prior year period. Currency rate fluctuations
decreased net income by $409,000 in the current period. Net (loss) income per
share amounted to a loss of $(0.06) basic and diluted for the six months ended
December 31, 2001, as compared to income of $0.12 basic and diluted for the
20
six months ended December 31, 2000. Excluding the effects of currency
translation and the one-time items noted above, pro forma net income would have
increased by $898,000 to $1,137,000 ($0.08 per diluted share) for the six months
ended December 31, 2001 from $239,000 ($0.02 per diluted share) for the six
months ended December 31, 2000.
SEGMENT RESULTS
ACCESSORIES AND CONTROLS GROUP
Net sales for the six months ended December 31, 2001 increased by
$1,260,000, or 1.8%, to $69,923,000 from $68,663,000 for the six months ended
December 31, 2000. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $4,572,000,
otherwise, net sales would have increased by $5,832,000 in the current period.
This increase is primarily the result of increased sales levels of spray
dampening equipment, fluid management products, consumables and cleaning
products, particularly in the Company's Japanese and Swedish entities, offset by
reduced sales levels of inserters.
Operating income amounted to $2,997,000 (4.3% of net sales) for the six
months ended December 31, 2001, as compared to $2,561,000 (3.8% of net sales)
for the same period in the prior year, an increase of $436,000. Currency rate
fluctuations decreased the current year's operating income by $414,000,
otherwise operating income would have increased by $850,000 in the current
period. This increase is primarily the result of the overall increase in sales
levels discussed above, and decreased compensation and commission costs and
goodwill amortization in the current period. The increase in operating income
was offset by, increased marketing and trade show costs, and higher research and
development labor and project costs, and a $251,000 bad debt charge related to a
large OEM customer in the current period.
THREE MONTHS ENDED DECEMBER 31, 2001 VS. THREE MONTHS ENDED DECEMBER 31, 2000
CONSOLIDATED RESULTS
Net sales for the three months ended December 31, 2001 decreased by
$9,583,000, or 20.9%, to $36,175,000 from $45,758,000 for the three months ended
December 31, 2000. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales by $1,912,000 in the current period.
Excluding the effects of currency rate fluctuations and the previously noted
divestitures of BSD, the RHG and the POD businesses, net sales would have
increased by $3,157,000, which is primarily the result of increased sales of
spray dampening equipment, fluid management products and consumables, offset by
decreased sales levels of inserters.
Gross profit for the three months ended December 31, 2001 was $11,495,000
(31.8% of net sales), as compared to $13,690,000 (29.9% of net sales) for the
three months ended December 31, 2000, a decrease of $2,195,000 or 16.0%.
Currency rate fluctuations decreased gross profit by $736,000 in the current
period, otherwise, gross profit would have decreased by $1,459,000. Gross profit
as a percentage of net sales increased primarily due to the decreased margins
associated with the RHG products not included in the current period and to
increased volumes of spray dampening equipment, cleaning products and
consumables offset by decreased sales volumes of inserters in the current
period. Excluding the effects of currency rate fluctuations and the previously
noted divestitures of BSD, the RHG and the POD businesses, gross profit would
have increased by $888,000 in the current period.
21
Selling, general and administrative expenses amounted to $7,132,000 (19.7%
of net sales), for the three months ended December 31, 2001 as compared to
$8,909,000 (19.5% of net sales) for the same period in the prior year, a
decrease of $1,777,000 or 19.9%. Currency rate fluctuations decreased these
expenses by $202,000 in the current period. Otherwise, selling, general and
administrative expenses would have decreased by $1,575,000. Selling expenses
decreased by $648,000 which primarily relates to the exclusion of these expenses
associated with the divested RHG, to decreased travel costs, and to decreased
compensation and commission expenses associated with reduced sales volumes,
offset by increased marketing and trade show costs. General and administrative
expenses decreased by $927,000 primarily due to the exclusion of these costs
associated with the divested RHG, to decreased consulting costs, the reversal of
approximately $300,000 of prior accruals associated with the Company's
profit-sharing contribution, to decreased goodwill amortization of $246,000 due
to the adoption of FAS 142 and a $195,000 partial recovery of a previously
recorded bad debt of one of our large OEM customers. These decreases were
primarily offset by increased consulting costs and interest forgiveness of
$112,000 related to a loan to an officer of the Company. Excluding the effects
of currency rate fluctuations and the previously noted divestitures of BSD, the
RHG and the POD businesses, selling, general and administrative expenses would
have decreased by $833,000 in the current period.
Engineering, and research and development expenses decreased by $517,000
over the same period in the prior year. Currency rate fluctuations decreased
these expenses by $141,000 in the current period. Otherwise, these expenses
would have decreased by $376,000. This decrease relates primarily to the
exclusion of these expenses associated with the divested RHG, offset by
increased research and development labor and project costs. As a percentage of
net sales, engineering and research and development expenses increased by 1.0%
to 10.3% for the three months ended December 31, 2001 compared to 9.3% for the
same period in the prior year. Excluding the effects of currency rate
fluctuations and the previously noted divestitures of BSD, the RHG and the POD
businesses, engineering and research and development expenses would have
increased by $226,000 in the current period.
The Company recorded a restructuring charge of $412,000 for the three
months ended December 31, 2001. This restructuring charge represents additional
charges, primarily consulting costs incurred related to the restructuring plan
announced in March 2000.
Interest expense for the three months ended December 31, 2001 was $450,000
as compared to $612,000 for the three months ended December 31, 2000. Currency
rate fluctuations increased interest expense by $2,000 in the current period.
Otherwise, interest expense would have decreased by $164,000. This decrease was
primarily due to lower interest rates and lower long-term debt levels during the
period. Interest income amounted to $108,000 and $90,000 for the three months
ended December 31, 2001 and 2000, respectively. This increase in interest income
is primarily due to increased funds available for investment, due primarily to
the proceeds from the divestiture of the RHG, offset by lower interest rates in
the current period. Currency rate fluctuations decreased interest income by
$15,000 in the current period.
Other income and expense includes net foreign currency transaction
(losses) gains of $(5,000) and $213,000 for the three months ended December 31,
2001 and 2000, respectively. Currency rate fluctuations increased other expenses
by $12,000 in the current year period. The net foreign currency transaction
losses include $1,000 and $8,000 on the ineffective portions of derivative
financial instruments, which qualify as cash flow hedges. Other income and
expense in the current year period also includes a $170,000 charge for an
interest rate swap which no longer qualifies as a hedge in accordance with FAS
133 and a $255,000 write-down of deferred financing costs as more fully
described in Notes 3 and 7 of this report on Form 10-Q for the six months ended
December 31, 2001. Both of these charges resulted from the Company entering
22
into the Amended Credit Facility. Other income and expense in the prior year
period includes a pre-tax gain of $1,213,000 related to a favorable settlement
of a patent litigation suit.
The Company's effective tax rate on income before taxes was 46.3% for the
three months ended December 31, 2001, compared to 45.2% for the three months
ended December 31, 2000. Currency rate fluctuations decreased the provision for
income taxes by $68,000 in the current period. The increase in the current
period's effective tax rate is primarily due to a reduction in valuation
allowances in foreign tax jurisdictions and decreased income in high tax
jurisdictions.
The Company's net income amounted to $159,000 for the three months ended
December 31, 2001, compared to $1,170,000 for the three months ended December
31, 2000. This decrease of $1,011,000 is primarily due to higher net income
associated with the divested companies in the prior year period, a favorable
settlement related to a patent litigation suit offset by goodwill amortization,
also in the prior year and restructuring costs and other one-time net charges in
the current period. These decreases were offset by a partial recovery of a bad
debt charge related to a large OEM customer in the current year period. Currency
rate fluctuations decreased net income by $354,000 in the current period. Net
income per share amounted to $0.01 basic and diluted for the three months ended
December 31, 2001, as compared to $0.08 basic and diluted for the three months
ended December 31, 2000. Excluding the effects of currency translation and the
one-time items noted above, pro forma net income would have increased by
$658,000 to $454,000 ($0.03 per diluted share) for the three months ended
December 31, 2001, compared to a pro forma net loss of $204,000 ($0.01 per
diluted share) for the three months ended December 31, 2000.
SEGMENT RESULTS
ACCESSORIES AND CONTROLS GROUP
Net sales for the three months ended December 31, 2001 increased by
$1,288,000, or 3.7%, to $36,175,000 from $34,887,000 for the three months ended
December 31, 2000. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $2,097,000,
otherwise, net sales would have increased by $3,385,000 in the current period.
This increase is primarily the result of increased sales levels of spray
dampening equipment, fluid management products, consumables and cleaning
products, offset by decreased sales levels of inserters.
Operating income amounted to $2,760,000 (7.6% of net sales) for the three
months ended December 31, 2001, as compared to $1,646,000 (4.7% of net sales)
for the same period in the prior year, an increase of $1,114,000. Currency rate
fluctuations decreased the current year's operating income by $291,000.
Otherwise operating income would have increased by $1,405,000 in the current
period. This increase is primarily the result of the overall increase in sales
levels discussed above, and to the decreased consulting costs and goodwill
amortization, offset by increased research and development labor and project
costs in the current year period.
LIQUIDITY AND CAPITAL RESOURCES AT DECEMBER 31, 2001
LIQUIDITY AND WORKING CAPITAL
On October 31, 2000, the Company entered into a $35,000,000 Revolving
Credit Facility (the "Credit Facility") with Fleet National Bank and First Union
National Bank (collectively the "Banks"), which had an original scheduled
maturity date of October 31, 2003. The Credit Facility consisted of a
$25,000,000 Revolving credit line (the "Revolver") and a $10,000,000 credit line
to be utilized for acquisitions, (the "Acquisition Line"). On January 28, 2002,
the Credit Facility was
23
amended (the "Amended Credit Facility"), which included the removal of the
Acquisition Line, a reduction in the Revolver to $21,000,000 (subject to a
borrowing base described below), and a change in the maturity date to October 1,
2002. In addition, $4,000,000 of the existing Revolver was converted into a term
loan (the "Term Loan"), which matures on June 30, 2002, resulting in available
borrowings under the Revolver from July 1, 2002 to October 1, 2002 of
$17,000,000. At December 31, 2001, the Company has outstanding borrowings of
$18,014,000 under the Revolver, including $2,264,000 under outstanding letters
of credit and accordingly has classified the entire outstanding balance under
the Revolver as current. The Revolver has associated commitment fees, which are
calculated quarterly, at a rate of one-half of one percent per annum of the
unused portion of the Revolver.
The Amended Credit Facility provides for a new borrowing structure which
enables the Company to borrow a percentage of eligible domestic accounts
receivable, domestic inventory, the appraised value of the Company's Emporia,
Kansas facility, the net book value of domestic machinery and equipment and
certain royalty streams, as defined (collectively the "Borrowing Base") up to a
maximum of $21,000,000. The Amended Credit Facility also provides that
$5,000,000 (less outstanding letters of Credit) may be borrowed in addition to
the amounts available under the Borrowing Base. Interest on the Revolver is
charged at LIBOR plus 3.25% per annum or at an alternative base rate, as
defined, plus 1% per annum. Interest on the Term Loan is charged at LIBOR plus
4.25% per annum.
The Amended Credit Facility is collateralized by a pledge of the capital
stock and certain domestic assets of the Company's subsidiaries, includes
certain restrictions which limit the incurrence of debt and prohibit dividend
payments among other things, and requires the Company to maintain certain
financial covenants. These covenants include a minimum tangible net worth
covenant, beginning with the quarter ended December 31, 2001, and also require
minimum operating income covenants of $250,000 for the quarter ended December
31, 2001, $1,250,000 for the quarter ending March 31, 2002 and $1,750,000 for
the quarter ending June 30, 2002.
The ability to satisfy the above covenants depends in part on management's
successful execution of its restructuring plan as discussed in Note 9, and other
business factors outside of the control of management. There can be no guarantee
that such covenants will be met. If the covenants are not met, amounts
outstanding under the Amended Credit Facility would become payable on demand.
Management believes that alternative sources of financing are available to
refinance the existing facilities on a long-term basis, which the Company is
currently pursuing. However, if the loans become due on demand and alternative
financing sources are not available, management will be required to take
additional actions to reduce operating expenses or sell assets to meet
liquidity needs.
As a result of the reduction in available borrowings under the Amended
Credit Facility, and the revised maturity date, the Company was required to
write-down a portion of the related unamortized deferred financing costs
initially recorded in connection with obtaining the Credit Facility.
Accordingly, the Company took a charge against earnings of $255,000 during the
quarter ended December 31, 2001, which is included in "Other income and
expense." The Company incurred additional costs of approximately $160,000
associated with entering into the Amended Credit Facility of which $100,000 has
been paid by December 31, 2001. The Company will amortize the remaining deferred
financing costs through October 1, 2002, the maturity date of the Amended Credit
Facility.
The Company maintains relationships with both foreign and domestic banks,
which combined have extended credit facilities to the Company totaling
$24,517,000, including amounts available under the Revolver. As of December 31,
2001, the Company had $20,168,000 outstanding under these lines of credit
including $18,014,000 under the Revolver. The Revolver includes $2,264,000
associated with outstanding letter of credit, all of which is classified as
24
current. Total debt levels as reported on the balance sheet at December 31, 2001
are $3,000 lower than they would have been if June 30, 2001 exchange rates had
been used.
The Company's working capital decreased by $8,589,000 or 38.3% from
$22,409,000 at June 30, 2001, to $13,820,000 at December 31, 2001. Foreign
currency rate fluctuations accounted for an increase of $147,000, and the effect
of the RHG divesture decreased working capital by $2,394,000. Excluding the
effects of the sale of the RHG and the impact of foreign currency, working
capital would have decreased by $6,342,000. Working capital decreased primarily
due to a portion of long-term debt being reclassified on a short-term basis.
Working capital also decreased due to increases in accounts payable and customer
deposits. Offsetting these items were increases in cash and inventories and
decreases in income taxes payable. On September 26, 2001, the Company divested
its RHG. The proceeds of $6,800,000 were utilized to reduce outstanding bank
debt by $4,500,000 in October 2001, for estimated transaction and other
associated costs of approximately $1,600,000 and for general working capital
purposes.
The Company generated $5,919,000 and $2,843,000 from investing activities
for the six months ended December 31, 2001 and 2000, respectively. The increase
in cash provided by investing activities is primarily the result of higher
proceeds on the sale of the RHG and POD in the current year period than from the
sale of BSD in the prior year period. Net capital expenditures made to meet the
normal business needs of the Company for the six months ended December 31, 2001
and 2000, respectively, including commitments for capital lease payments, were
$909,000 and $1,142,000, respectively.
The net cash used by financing activities was $1,988,000 for the six
months ended December 31, 2001 as compared to $2,139,000 for the six months
ended December 31, 2000. The difference was primarily caused by a payment of a
note payable and to reduced treasury stock purchases in the current period.
On September 10, 2001, one large OEM customer, Goss Graphic Systems, Inc.
("Goss") filed for bankruptcy protection under a prearranged Chapter 11
proceeding in the U.S. Bankruptcy Court. Goss' European and Asian subsidiaries
are not included in this proceeding, and furthermore, the Company has continued
to receive timely payments, on a post petition basis, from the foreign
subsidiaries of Goss, and continues to monitor the status of all Goss payments.
At December 31, 2001, the Company's balance sheet included approximately
$1,473,000 of trade receivables from Goss, of which approximately $975,000 is
reserved. As a result of this bankruptcy filing, the Company increased its bad
debt reserve related to Goss by $536,000 and $634,000 during the quarters ended
June 30, 2001 and September 30, 2001, respectively. Further, the Company
received $195,000 of these previously reserved accounts during the quarter ended
December 31, 2001. As a result, the Company reversed $195,000 of this previously
recorded allowance to earnings as a recovery of a bad debt charge.
The Company believes its cash flow from operations, available bank lines
of credit and alternative sources of borrowing 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" became 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 became the official functional currency for these 11 countries. During the
25
transition period from January 1, 1999 to January 1, 2002, payments could 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 were initially impacted by this dual currency requirement were
customer billing and receivables, payroll and cash management activities,
including cash collections and disbursements. To accomplish compliance, the
Company made the necessary systems and process changes and worked with its
financial institutions on various cash management issues. The Company's German
and French operations began recording all business transactions in the Euro
effective July 1, 2000 and July 1, 2001, respectively.
The costs associated with implementing and completing the Euro conversion,
as well as business and market implications, if any, associated with the Euro
conversion, were not 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. Any issue that may arise, 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.
26
RECENTLY ISSUED ACCOUNTING STANDARDS:
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("FAS 143"), which will be effective for the Company beginning with
the fiscal year ended June 30, 2003. FAS 143, addresses the financial accounting
and reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The adoption of FAS 143 is not
expected to have a material impact on the Company's financial statements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides new guidance on the
recognition of impairment losses on long-lived assets to be held and used or to
be disposed of and also broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are to be
measured and presented. FAS 144 is effective for the Company's fiscal year ended
June 30, 2003 and is not expected to materially change the methods used by the
Company to measure impairment losses on long-lived assets, but may result in
more dispositions being reported as discontinued operations than permitted under
current accounting principles.
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, 2001. There have been no
material changes during the six months ended December 31, 2001.
27
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 13, 2001.
(b) A brief description of matters voted upon and the results of the voting
follows:
Proposal 1 - To elect three 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 & B
Gerald A. Nathe 18,958,309 6,013,562
Henry F. McInerney 24,754,473 217,798
CLASS B
Mark T. Becker 11,318,643 212,398
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.48 Amended and Restated Credit Agreement among Baldwin Americas
Corporation, Baldwin Europe Consolidated, Inc. and Baldwin
Asia Pacific Corporation, as Borrowers, the other credit
parties signatory thereto, the Lenders (as defined in the
Credit Agreement), Fleet National Bank, as Administrative
Agent, and First Union National Bank, as Documentation Agent,
dated as of January 28, 2002. (filed herewith).
10.49 Employment Agreement dated September 19, 2001 and effective as
of November 1, 2001 between Baldwin Technology Company, Inc.
and Karl S. Puehringer (filed herewith).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended December 31, 2001.
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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/ Vijay C. Tharani
----------------------
Vice President, Chief Financial
Officer and Treasurer
Dated: February 13, 2002
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