FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ Mark one ]
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For quarter ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For the transition period from to
Commission file number 1-9334
BALDWIN TECHNOLOGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3258160
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
One Norwalk West, 40 Richards Avenue, Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-838-7470
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X . NO .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 29, 1999
Class A Common Stock
$0.01 par value 13,953,947
Class B Common Stock
$0.01 par value 1,835,883
BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and June 30, 1999 1-2
Consolidated Statements of Income
for the three months ended
September 30, 1999 and 1998 3
Consolidated Statements of Changes in
Shareholders' Equity for the
three months ended September 30, 1999 4
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1999 and 1998 5-6
Notes to Consolidated Financial Statements 7-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-16
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
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, June 30,
1999 1999
(Unaudited)
CURRENT ASSETS:
Cash $ 12,121 $ 10,028
Short-term securities 652 645
Accounts receivable trade, net of allowance for
doubtful accounts of $1,866($1,740 at June 30, 1999) 39,075 37,387
Notes receivable, trade 9,588 9,511
Inventories 33,429 31,791
Prepaid expenses and other 9,339 8,821
Total current assets 104,204 98,183
MARKETABLE SECURITIES:
Cost $784 ($681 at June 30, 1999) 884 785
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 3,126 3,060
Machinery and equipment 6,429 6,430
Furniture and fixtures 5,651 5,313
Leasehold improvements 852 834
Capital leases 3,469 3,413
19,527 19,050
Less: Accumulated depreciation and amortization 12,542 12,122
Net property, plant and equipment 6,985 6,928
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS at cost,
less accumulated amortization of $6,122 ($5,912 at
June 30, 1999) 4,491 4,534
GOODWILL, less accumulated amortization of $9,717
($9,103 at June 30, 1999) 31,734 30,900
OTHER ASSETS 19,395 18,025
TOTAL ASSETS $167,693 $159,355
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, June 30,
1999 1999
(Unaudited)
CURRENT LIABILITIES:
Loans payable $ 4,338 $ 3,893
Current portion of long-term debt 6,502 6,397
Accounts payable, trade 11,140 10,691
Notes payable, trade 12,260 11,387
Accrued salaries, commissions, bonus and profit-sharing 6,568 6,946
Customer deposits 7,343 5,661
Accrued and withheld taxes 1,991 2,271
Income taxes payable 7,159 7,127
Other accounts payable and accrued liabilities 14,442 14,656
Total current liabilities 71,743 69,029
LONG-TERM LIABILITIES:
Long-term debt 17,816 16,515
Other long-term liabilities 8,116 7,271
Total long-term liabilities 25,932 23,786
Total liabilities 97,675 92,815
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares
authorized, 16,458,849 shares issued
(16,458,849 at June 30, 1999) 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 21,107 20,793
Cumulative translation adjustment 1,340 (2,313)
Unrealized gain on investments net of $42 of
deferred taxes ($43 at June 30, 1999) 58 61
Less: Treasury stock, at cost:
Class A - 2,104,902 shares (1,953,502 at June 30, 1999)
Class B - 164,117 shares (164,117 at June 30, 1999) (10,168) (9,682)
Total shareholders' equity 70,018 66,540
COMMITMENTS
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $167,693 $159,355
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except per share data)
(Unaudited)
For the three months
ended September 30,
1999 1998
Net sales $45,496 $55,319
Cost of goods sold 31,961 37,149
Gross Profit 13,535 18,170
Operating expenses:
General and administrative 5,002 6,177
Selling 4,289 4,569
Engineering 3,071 3,403
Research and development 943 1,184
13,305 15,333
Operating income 230 2,837
Other (income) expense:
Interest expense 525 563
Interest income (87) (160)
Other income, net (698) (662)
(260) (259)
Income before income taxes 490 3,096
Provision for income taxes 176 1,176
Net income $ 314 $ 1,920
Basic income per share $ 0.02 $ 0.11
Diluted income per share $ 0.02 $ 0.11
Weighted average number of
shares:
Basic 16,222 17,114
Diluted 16,222 17,505
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE>
BALDWIN TECHNOLOGY COMPANY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<CAPTION>
Capital
Class A Class B Contributed Cumulative Unrealized
Common Stock Common Stock in Excess Retained Translation Gain(Loss)on Treasury Stock Comprehensive
Shares Amount Shares Amount of Par Earnings Adjustment Investments Shares Amount Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1999 16,458,849 $165 2,000,000 $20 $57,496 $20,793 $(2,313) $61 (2,117,619) $(9,682)
Net income for
the three
months ended
September30,
1999 314 $ 314
Translation
adjustment 3,653 3,653
Unrealized
loss on
available-
for-sale
securities,
net of tax (3) (3)
Comprehensive
income $3,964
Purchase of
treasury
stock (151,400) (486)
Balance at
September
30, 1999 16,458,849 $165 2,000,000 $20 $57,496 $21,107 $ 1,340 $58 (2,269,019) $(10,168)
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
(Unaudited)
For the three months
ended September 30,
1999 1998
Cash Flows from operating activities:
Net income $ 314 $1,920
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 958 974
Accrued retirement pay 170 109
Provision for losses on accounts receivable 9 14
Changes in assets and liabilities:
Accounts and notes receivable, net 1,040 3,257
Inventories (692) (8,025)
Prepaid expenses and other (151) (1,169)
Other assets (120) 39
Customer deposits 1,346 1,976
Accrued compensation (689) (411)
Accounts and notes payable, trade (893) (1,240)
Income taxes payable (126) (2,808)
Accrued and withheld taxes (371) (133)
Other accounts payable and accrued liabilities (632) 448
Interest payable 308 417
Net cash provided (used) by operating activities 471 (4,632)
Cash flows from investing activities:
Additions of property, net (454) (460)
Additions of patents, trademarks and drawings, net (118) (96)
Net cash used by investing activities (572) (556)
Cash flows from financing activities:
Long-term borrowings 6,305 0
Long-term debt repayment (5,064) (36)
Short-term borrowings 698 1,913
Short-term debt repayment (671) (1,666)
Principal payments under capital lease
obligations (64) (58)
Other long-term liabilities 385 (91)
Treasury stock purchased (486) (816)
Net cash provided (used) by financing activities 1,103 (754)
Effects of exchange rate changes 1,098 349
Net increase (decrease) in cash and cash equivalents 2,100 (5,593)
Cash and cash equivalents at beginning of year 10,673 22,026
Cash and cash equivalents at end of period $12,773 $16,433
The accompanying notes to consolidated financial statements
are an integral part of these statements.
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental disclosures of cash flow information:
For the three months
ended September 30,
1999 1998
(in thousands)
Cash paid during the period for:
Interest $ 217 $ 146
Income taxes $ 327 $ 3,732
The Company did not enter into any capital lease agreements for either of
the three month periods ended September 30, 1999 or 1998.
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.
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, 1999. Operating results for the three months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2000. All significant intercompany transactions have been
eliminated in consolidation. The Company has reclassified $39,000 from "Cash
flows from investing activities" to "Cash flows from operating activities" at
September 30, 1998 to conform to the current year's presentation, which
represents an increase in cash due to a decrease in "Other assets".
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 of 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 includes zero and 390,000
shares for the three months ended September 30, 1999 and 1998 respectively,
which represent outstanding options to purchase the Company's common stock.
Options to purchase the Company's common stock in the amount of 2,182,000 and
1,656,000 were not included in the computation of diluted earnings per share for
the three months ended September 30, 1999 and 1998 respectively, because the
exercise prices were greater than the average market price of the common stock
for the respective periods.
Note 3 - Inventories:
Inventories consist of the following:-
September 30, June 30,
1999 1999
(Unaudited)
Raw material $15,376,000 $12,314,000
In process 11,686,000 12,889,000
Finished goods 6,367,000 6,588,000
$33,429,000 $31,791,000
Inventories increased by $1,101,000 due to translation effects of foreign
currency from June 30, 1999 to September 30, 1999.
Note 4 - Common Stock:
Stock options:-
On August 10, 1999 the Board of Directors granted non-qualified options to
purchase 57,500 shares of the Company's Class A Common Stock to certain
executives and key personnel under the Company's 1996 Stock Option Plan at an
exercise price of $3.19 per share, the fair market value on the date of grant.
Stock repurchase program:-
On August 10, 1999 the Board of Directors terminated the Company's stock
repurchase program. Under the program, the Company spent $13,015,000 to
repurchase 2,821,656 shares of Class A Common Stock and 164,117 shares of Class
B Common Stock over the nine year period since the inception of the program.
Note 5 Provision for loss on disposition of pre-press operations:
During the third quarter of the fiscal year ended June 30, 1999, the Company
recorded a charge to earnings in the amount of $2,400,000 as a result of certain
unfunded guaranteed pension obligations of the Company's former pre-press
operations. At June 30, 1999, the remaining balance of $860,000 relating to
these potential obligations was included in "Other accounts payable and accrued
liabilities". The Company continues to carry this remaining balance as a
current liability at September 30, 1999.
Note 6 Restructuring charge and related reserves:
A restructuring reserve was charged against earnings for the year ended June
30, 1999 in the amount of $870,000. The reserve was established in order to
accrue the costs associated with planned workforce reductions at the Company's
German and Japanese operations, and certain costs associated with a scheduled
plant closing in the United States. As of June 30, 1999, $144,000 had been
charged against this reserve and the balance of $726,000 was included in "Other
accounts payable and accrued liabilities". As of September 30, 1999 this
balance has been reduced to $320,000 as $406,000, primarily severance costs,
have been appropriately charged against this reserve during the three months
ended September 30, 1999.
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 From 10-K
for the fiscal year ended June 30, 1999. 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, 1999, and 1998 (in thousands):
Three months ended September 30,
(Unaudited)
Net Sales: 1999 1998
Graphic Products and Controls Group $ 32,795 $ 36,949
Material Handling Group 13,789 18,460
All other 18 216
Total ongoing segments 46,602 55,625
Inter-segment sales (1,106) (306)
Total Net Sales $ 45,496 $ 55,319
Three months ended September 30,
(Unaudited)
Operating income (loss): 1999 1998
Graphic Products and Controls Group $ 1,456 $ 4,175
Material Handling Group 69 588
All other (137) (123)
Total ongoing segments 1,388 4,640
Corporate (1,158) (1,803)
Total operating income 230 2,837
Interest expense, net (438) (403)
Royalty income, net 957 859
Minority interest (5)
Other income (expense), net (254) (197)
Income before income taxes $ 490 $ 3,096
Note 8 - Subsequent events:
Stock repurchase program:-
On October 13, 1999, the Company repurchased 400,000 shares of Class A
Common Stock of the Company. In addition, on November 3, 1999, the Company
announced that the Board of Directors had approved a new stock repurchase
program. Under the new program, the Company is authorized to utilize up to
$5,000,000 to repurchase its Class A Common Stock.
BALDWIN TECHNOLOGY COMPANY, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain factors
which have affected the Company's financial position and consolidated financial
statements. During the fiscal year ended June 30, 1999, the Company acquired a
ninety percent (90%) interest in a distributor of consumables in Europe,
increased its ownership of a U.S. subsidiary from 80% to 100%, and divested its
former U.S. In-Line Finishing division ("In-Line"). As a result, the revenues
and corresponding expenses attributable to each of the operations associated
with these transactions is included in these consolidated financial statements
only for the period the operation is owned by the Company. None of these
transactions, either individually or in the aggregate, has had or is expected to
have a material impact on the financial statements when taken as a whole.
However, certain items may be affected more than others, and the effects of
these transactions on these items are discussed below.
Forward-looking Statements
Except for the historical information contained herein, the following
statements and certain other statements contained herein are based on current
expectations. Such statements are forward-looking statements that involve a
number of risks and uncertainties. Baldwin Technology Company, Inc.
(the "Company") cautions investors that any such forward-looking statements made
by the Company are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements. Some of the
factors that could cause actual results to differ materially include, but are
not limited to the following: (i) the ability to obtain, maintain and defend
challenges against valid patent protection on certain technology, primarily as
it relates to the Company's cleaning systems, (ii) material changes in foreign
currency exchange rates versus the U.S. Dollar, (iii) changes in the mix of
products and services comprising revenues, (iv) the Company's or its vendors' or
customers' ability to resolve the Year 2000 compliance issues, (v) a decline
in the rate of growth of the installed base of printing press units and the
timing of new press orders, (vi)general economic conditions, either
domestically or in foreign locations, (vii) the ultimate realization of
certain trade receivables and the status of ongoing business levels with one
of the Company's large OEM customers, and (viii) competitive market
influences. Additional factors are set forth in Exhibit 99 to Form 10-K for
the year ended June 30, 1999, which should be read in conjunction herewith.
Three Months Ended September 30, 1999 vs Three Months Ended September 30, 1998
Consolidated Results
Net sales for the three months ended September 30, 1999 decreased by
$9,823,000, or 17.8%, to $45,496,000 from $55,319,000 for the three months ended
September 30, 1998. Currency rate fluctuations attributable to the Company's
overseas operations increased net sales by $1,785,000 in the current period.
Otherwise, sales would have decreased by $11,608,000, of which $1,352,000
relates to the previously noted divestiture of In-Line. The remaining decrease
is primarily the result of reduced orders received during the second half of the
fiscal year ended June 30, 1999, including lower orders from one of the
Company's largest OEM customers. In terms of local currency, and as compared to
the same period in the prior year, net sales decreased by 35.6% in the Americas,
by 23.2% in the United Kingdom, by 17.4% in Japan, and by 15.3% in Germany.
Sales increased by 28.4% in Sweden.
Gross profit for the three month period ended September 30, 1999 was
$13,535,000 (29.7% of net sales), as compared to $18,170,000 (32.8% of net
sales) for the three month period ended September 30, 1998, a decrease of
$4,635,000 or 25.5%. Currency rate fluctuations increased gross profit by
$458,000 in the current period. Otherwise gross profit would have decreased by
$5,093,000 in the current period. Gross profit was lower due primarily to
decreased fixed cost absorption rates resulting from the lower sales volumes,
and to continuing pricing pressures in the market.
Selling, general and administrative expenses amounted to $9,291,000 (20.4% of
net sales), for the three month period ended September 30, 1999 as compared to
$10,746,000 (19.4% of net sales) for the same period in the prior year, a
decrease of $1,455,000 or 13.5%. Currency rate fluctuations increased these
expenses by $266,000 in the current period. Otherwise, selling, general and
administrative expenses would have decreased by $1,721,000. Selling expenses
decreased by $407,000 which primarily related to reduced sales commissions
resulting from lower sales volumes and lower trade show costs, while general and
administrative expenses decreased by $1,314,000 due primarily to reduced
incentive compensation costs as a result of the lower profitability of the
Company, and expenses of In-Line.
Engineering and research and development expenses decreased by $573,000 over
the same period in the prior year. Currency rate fluctuations increased these
expenses by $134,000 in the current period. Otherwise, these expenses would
have decreased by $707,000. The decrease in these expenses relates primarily to
the previously noted divestiture of In-Line and reduced costs in Japan
attributable to reduced subcontracting and consulting costs. As a percentage of
net sales, engineering and research and development expenses increased by 0.5%
to 8.8% for the three months ended September 30, 1999 compared to 8.3% for the
same period in the prior year.
Interest expense for the three month period ended September 30, 1999 was
$525,000 as compared to $563,000 for the three month period ended September 30,
1998. This decrease was primarily due to the replacement of higher rate long-
term debt by lower rate short-term borrowings. Currency rate fluctuations
decreased interest expense by $15,000 in the current period. Interest income
amounted to $87,000 and $160,000 for the three month periods ended September 30,
1999 and September 30, 1998, respectively. This reduction in interest income is
primarily due to decreased cash balances during the period. Currency rate
fluctuations increased interest income by $7,000 in the current period.
Other income and expense includes net foreign currency transaction (losses)
and gains of $(353,000) and $85,000 for the three months ended September 30,
1999 and 1998 respectively. Currency rate fluctuations increased other income
by $20,000 in the current period.
The Company's effective tax rate on income before taxes was 35.9% for the
three month period ended September 30, 1999 as compared to 38.0% for the three
month period ended September 30, 1998. Currency rate fluctuations increased the
provision for income taxes by $36,000 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 $314,000 for the three month period
ended September 30, 1999, as compared to $1,920,000 for the three month period
ended September 30, 1998. This decrease of $1,606,000 or 83.6%, is primarily
due to the previously noted overall reduction in sales volumes and gross profit
margins on the reduced volumes. Currency rate fluctuations increased net income
by $64,000 in the current period. Net income per share amounted to $0.02 basic
and diluted for the three months ended September 30, 1999, as compared to $0.11
basic and diluted for the three months ended September 30, 1998.
Segment Results
Graphic Products and Controls Group
Net sales for the three months ended September 30, 1999 decreased by
$4,154,000, or 11.2%, to $32,795,000 from $36,949,000 for the three months ended
September 30, 1998. Currency rate fluctuations attributable to the Company's
overseas operations increased net sales for the current period by $1,864,000,
otherwise, net sales would have decreased by $6,018,000 in the current period.
This decrease is primarily the result of reduced sales levels of on-press
accessories and controls in the United States and Europe. In Japan, decreases
in sales of in-line finishing equipment were largely offset by increased sales
of cleaning and spray dampening systems.
Operating income amounted to $1,456,000 (4.4% of net sales) for the
three months ended September 30, 1999, as compared to $4,175,000 (11.3% of net
sales) for the same period in the prior year, a decrease of $2,719,000.
Currency rate fluctuations increased the current year's operating income by
$126,000, otherwise operating income would have decreased by $2,845,000. This
decrease is primarily the result of the overall decrease in sales levels
discussed above, coupled with continuing pricing pressures in the market.
Material Handling Group
Net sales for the three months ended September 30, 1999 decreased by
$4,671,000, or 25.3%, to $13,789,000 from $18,460,000 for the three months ended
September 30, 1998. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $133,000,
otherwise net sales would have decreased by $4,538,000. This decrease is
primarily the result of reduced orders from one of the Company's largest OEM
customers, and the effect of the disposition of In-line during the prior year.
Operating income amounted to $69,000 (0.5% of net sales) for the three
months ended September 30, 1999, as compared to $588,000 (3.2% of net sales) for
the same period in the prior year, a decrease of $519,000. Currency rate
fluctuations decreased the current year's operating profit by $14,000. The
remaining decrease is primarily the result of lower fixed cost absorption rates
associated with the decreased sales levels.
Liquidity and Capital Resources at September 30, 1999
Liquidity and Working Capital
The Company's long-term debt includes $12,500,000 of 8.17% senior
notes (the "Senior Notes") due October 29, 2000. The Company also maintains a
$25,000,000 Revolving Credit Agreement (the "Revolver") with Bank of America,
N.A., as agent which matures on December 31, 2000.
The Senior Notes and the Revolver require the Company to maintain
certain financial covenants and have certain restrictions regarding the payment
of dividends, limiting them throughout the terms of the Senior Notes and the
Revolver to $1,000,000 plus 50% of the Company's net income after January 1,
1997. In addition, the Company was required to pledge certain of the shares of
its domestic subsidiaries as collateral for both the Senior Notes and the
Revolver.
Both the Senior Notes and the Revolver require the Company to maintain
a ratio of current assets to current liabilities, as those terms are defined in
the agreements, of not less than 1.40 to 1.00. At September 30, 1999, this
ratio was 1.65 to 1.00. These agreements have been amended from time to time to
revise certain covenants.
The Company's working capital increased by $3,307,000 or 11.3% from
$29,154,000 at June 30, 1999 to $32,461,000 at September 30, 1999. Currency
rate fluctuations increased working capital by $2,016,000 in the current period.
The primary reasons for the remaining increase in working capital were increases
in cash, increases in inventory due to increased purchases of raw materials and
components associated with increases in orders and backlog, reductions in
accrued incentive compensation costs due to the lower profitability of the
Company and decreases in trade accounts payable. These increases in working
capital were partially offset by a decrease in accounts and notes receivable and
an increase in customer deposits.
Net cash used by investing activities amounted to $572,000 for the
three months ended September 30, 1999 as compared to $556,000 for the three
months ended September 30, 1998 and resulted from normal additions to property,
plant and equipment, as well as patents.
Net cash provided by financing activities amounted to $1,103,000 for
the three months ended September 30, 1999 as compared to net cash used by
financing activities of $754,000 for the three months ended September 30, 1998.
The increase in cash provided by financing activities was primarily due to the
increased borrowings under the Revolver, which were used to fund increases in
working capital and the purchase of treasury stock by the Company.
The Company maintains relationships with foreign and domestic banks
which have extended credit facilities to the Company. As of September 30, 1999,
these credit facilities total $36,719,000 including amounts available under the
Revolver. The Company had outstanding $14,868,000 under these lines of credit,
of which $10,530,000 is classified as long-term debt. Total debt levels as
reported on the balance sheet at September 30, 1999 are $582,000 higher than
they would have been if June 30, 1999 exchange rates had been used.
At September 30, 1999 the Company's balance sheet included approximately
$7,770,000 of trade receivables related to one large OEM customer, Goss Graphic
Systems, Inc. ("Goss"). Offsetting these receivables is approximately
$1,040,000 in advance payments (customer deposits). On July 30, 1999, 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 continues to receive timely
payments from the foreign subsidiaries of Goss. Goss' bankruptcy plan was
confirmed on October 19, 1999 and calls for payments to trade creditors to be
made in three equal payments commencing three months following Goss' emergence
from bankruptcy with no reduction in the amounts to be received by the trade
creditors. As of September 30, 1999, the Company has not established any
additional allowance for doubtful accounts regarding the receivables from Goss,
as Goss continues to make timely post-petition payments.
Should Goss emerge from bankruptcy prior to December 31, 1999, the Company would
expect to receive payments for 100% of the receivables from Goss within one year
from the balance sheet date. The Company has however, classified one-third of
its domestic receivable balance from Goss, or $2,168,000, as long term which is
included in "Other assets" at September 30, 1999.
Of the Company's $68,034,000 in backlog at September 30, 1999,
approximately $9,947,000 represented orders from Goss which were supported by an
inventory balance of approximately $2,438,000. For the three months ended
September 30, 1999, Goss represented approximately 12% of the Company's total
net sales.
The Company believes its cash flow from operations and bank lines of
credit are sufficient to finance its working capital and other capital
requirements for the near and long-term future.
Year 2000 Compliance
The Company is aware of the issues associated with the limitations of
programming code in existing computer systems whereby the computer systems may
not properly recognize date sensitive information as the year 2000 approaches.
The inability to properly recognize dates and related potential date sensitive
problems are referred to as the Year-2000 situation.
The Year-2000 situation could potentially have an adverse impact on
the Company's internal information systems infrastructure, Company products
which either contain or utilize digital devices and the internal information
systems of suppliers to the Company.
The Company has completed a study, utilizing external consultants, to
evaluate the Company's internal information systems infrastructure as it relates
to the Year-2000 situation and it has identified processes which require
updating to operate properly subsequent to the year 1999. The Company has
undertaken projects to update and replace all known non-compliant internal
information systems and processes to ensure that the Year-2000 situation will
not have a detrimental impact on the internal operations of the Company. The
cost to update and replace these systems is expected to be approximately
$2,400,000 consisting of the cost of purchasing andinstalling hardware and
software, including certain systems, whose scheduled replacement has been
accelerated due to the Year-2000 situation. The majority of such costs were
incurred during fiscal 1999. The cost of Year-2000 compliance is not
projected to have a significant negative impact on the Company's financial
results in subsequent fiscal years.
A continuous review is ongoing for those products of the Company that
utilize microprocessors in the operation of the products which could be
adversely affected by the Year-2000 date change. At the present time, the
Company has not identified any products where Year-2000 non-compliance would
have a detrimental impact on the operation of the products. The Company has and
continues to survey its suppliers and service providers to determine potential
exposure from external, non-compliant sources. No material exposures have been
identified, to date, from external sources. As a precaution however, the
Company is seeking additional vendors to protect the Company from a potential
inability of a particular vendor to supply material to the Company.
State of Readiness
As of October 31, 1999, the Company had either completed or scheduled
the implementation prior to January 1, 2000 of the required updates on all known
non-compliant internal information systems. The Company's products do not rely
on date sensitive information in order to operate, and therefore, such
information is not considered critical to the performance of such products. The
date sensitive information utilized by the Company's products is for
informational purposes which does not reduce the effectiveness of such products.
The Company has developed and made available to its customers, updated date
sensitive routines that are Year-2000 compliant.
The Company will continue to test the affected information systems,
however, as of October 31, 1999, the Company is virtually 100% complete with all
known Year-2000 compliant system implementations.
Contingency planning
The Company is continually addressing its Year-2000 exposures. Should
an unforeseeable Year-2000 situation arise that poses a severe threat to the
Company however, the Company expects to be able to revert to PC and manual
backup of internal processes until the situation can be resolved. The Company
maintains service and engineering personnel who would be available to remediate
those unforeseen Year-2000 non-compliance situations related to a product of the
Company which would require immediate resolution. The Company does not
utilize single source providers or vendors and therefore, may change to other
providers and vendors in the case of Year-2000 non-compliance.
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 currently expects to have new systems and
processes in place by July, 2000 to accommodate the recording of all business
transactions in the euro for the affected countries.
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 Year-2000 compliance
and euro conversion, and those of its significant customers and suppliers,
including financial institutions may, at some time in the future, reveal as yet
unidentified or not fully understood issues that may not be addressable in a
timely fashion, or that may cause unexpected competitive or market effects, all
contrary to the foregoing statements.
These issues, if not resolved favorably, could have a material adverse effect on
the Company's results of operations or financial condition in any year.
Impact of Inflation
The Company's results are affected by the impact of inflation on
manufacturing and operating costs. Historically, the Company has used selling
price adjustments, cost containment programs and improved operating efficiencies
to offset the otherwise negative impact of inflation on its operations.
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, 1999. There have been no
material changes during the three months ended September 30, 1999.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.27 Eighth Amendment to Amended and Restated Revolving Credit
Agreement by and among Baldwin Americas Corporation and Baldwin
Technology Limited (as "Borrowers") and Baldwin Technology
Company, Inc., together with the Borrowers (as "Credit Parties")
and Bank of America, N.A. (as "Agent") and BankBoston, together
with Agent (as "Lenders") (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
three months ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALDWIN TECHNOLOGY COMPANY, INC.
BY s\ William J. Lauricella
Vice President, Chief Financial
Officer and Treasurer
Dated: November 3, 1999
EIGHTH AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Amendment Agreement") is made and entered into,
effective as of this 30th day of September, 1999, by and among BALDWIN AMERICAS
CORPORATION, a Delaware corporation ("BAM"), BALDWIN TECHNOLOGY
LIMITED, a Bermuda corporation ("BTL" and together with BAM, the "Borrowers"),
BALDWIN TECHNOLOGY COMPANY, INC., a Delaware corporation ("Baldwin" and
together with the Borrowers, the "Credit Parties"), BANK OF AMERICA, N.A.,
successor in interest to NationsBank, N.A., as Agent ("Bank of America" or the
"Agent"), BANK OF AMERICA, N.A., as a Lender, and BANKBOSTON, N.A. (successor
in interest to Bank of Boston Connecticut), as a Lender ("BankBoston").
W I T N E S S E T H:
WHEREAS, the Credit Parties, the Lenders and the Agent have entered into that
certain Amended and Restated Revolving Credit Agreement dated as of December
31, 1995 (as heretofore or hereafter amended, modified, supplemented, amended
and restated or replaced, the "Credit Agreement"), pursuant to which the Lenders
have agreed to make certain revolving credit loans to the Borrowers; and
WHEREAS, the parties hereto desire to further amend the Credit Agreement in the
manner herein set forth;
WHEREAS, the Borrowers have requested that the Agent and the Lenders make
certain amendments to the Credit Agreement (the "Amendments");
WHEREAS, in consideration for the Borrowers' acknowledgment and acceptance of
the terms of this Amendment Agreement, the Agent and Lenders are willing to make
the Amendments;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. The term "Credit Agreement" or "Agreement" (as the case may be)
as used herein and in the Loan Documents shall mean the Credit Agreement as
hereby amended and modified, and as further amended, modified, supplemented,
amended and restated or replaced from time to time as permitted thereby. Unless
the context otherwise requires, all terms used herein without definition shall
have the definitions provided therefor in the Credit Agreement.
2. Credit Agreement Amendments. Subject to the conditions hereof, the Credit
Agreement is hereby amended as set forth below. The amendments contained in
Sections 2(a), (c) and (d) hereof shall be effective as of September 30, 1999
and the amendment contained in Section 2(b) hereof shall be effective as of
November 4, 1999.
(a) The definition of "1999 Special Charges" in Section 1.1 is hereby deleted
in its entirety and the following is inserted in replacement thereof:
"1999 Special Charges" means special charges to income
taken by Borrowers during the four consecutive Fiscal Quarter
periods ending March 31, 1999 and June 30, 1999 in the amounts
not to exceed $2,400,000 and $900,000, respectively, which
special charges relate to (a) claims associated with Baldwin's
former pre-press operations or (b) staff layoffs and plant closings."
(b) The definition of "Applicable Margin" in Section 1.1 is hereby deleted in
its entirety and the following is inserted in replacement thereof:
"Applicable Margin" means the margin set forth below
opposite the applicable Consolidated Indebtedness for Money
Borrowed/Cash Flow Ratio with respect to the LIBOR Loans:
Consolidated Indebtedness for Applicable
Money Borrowed/Cash Flow Ratio Margin
Less than 2.00 to 1.00 1.375%
Less than or equal to 1.625%
2.50 to 1.00 and greater
than or equal to 2.00
to 1.00
Less than or equal to 1.875%
3.00 to 1.00 and greater
than 2.50 to 1.00
Less than or equal to 2.125%
3.50 to 1.00 and greater
than 3.00 to 1.00
Greater than 3.50 to 1.00 2.375%
The Applicable Margin shall be adjusted on each Rate Change
Date based upon the Consolidated Indebtedness for Money
Borrowed/Cash Flow Ratio for the period comprised of the four
consecutive Fiscal Quarters ended on the immediately preceding
Calculation Date, to be the margin set out above opposite the
applicable Consolidated Indebtedness for Money Borrowed/Cash
Flow Ratio. Such change in the Applicable Margin shall be
applicable to all LIBOR Loans extended, renewed, continued or
converted on or after such Rate Change Date. If Consolidated
Cash Flow shall be equal to or less than zero for any period of
calculation of the Consolidated Indebtedness for Money
Borrowed/Cash Flow Ratio, the Applicable Margin shall be the
highest percentage set forth above for such period."
(c) The definition of "Consolidated Fixed Charge Ratio" in Section 1.1 of the
Credit Agreement is hereby amended by deleting the following clause:
"provided further that for the purposes of calculating the
Consolidated Fixed Charge Ratio for the period of the four
consecutive Fiscal Quarters ended June 30, 1999, the effect of the
1999 Special Charges shall also be excluded;"
and inserting the following in replacement thereof:
"provided further that for the purposes of calculating the
Consolidated Fixed Charge Ratio, the effect of the 1999 Special
Charges shall also be excluded;"
(d) Section 8.1(d) of the Credit Agreement is hereby deleted in its entirety
and the following is inserted in replacement thereof:
"(d) Fixed Charge Ratio. Permit the Consolidated
Fixed Charge Ratio for any period to be less than 1.15 to 1.00.
The foregoing notwithstanding, if at any time after
September 30, 1999, any current maturities of Funded Debt
related to the Senior Note Documents are prepaid, extended or
altered in any respect such that they no longer qualify or are no
longer categorized as current maturities of Funded Debt, then the
required minimum Consolidated Fixed Charge Ratio shall
thereafter be 2.50 to 1.00, provided that if all current maturities
with respect to the Senior Note Documents subsequently qualify,
and are categorized, as current maturities of Funded Debt, then
the required minimum Consolidated Fixed Charge Ratio shall
revert to the applicable level set forth above."
3. Representations and Warranties. Each Credit Party hereby certifies that:
(a) The representations and warranties made by each Credit Party in Article
VI of the Credit Agreement are true on and as of the date hereof, with the same
effect as though such representations and warranties were made on the date
hereof.
(b) There has been no material change in the condition, financial or
otherwise, of Baldwin, any Borrower or any of their respective Subsidiaries
since the date of the most recent financial reports of Baldwin and the Borrowers
received by each Lender under Section 7.1 of the Credit Agreement;
(c) The business and properties of each Credit Party and any of their
respective Subsidiaries are not, and since the date of the most recent financial
reports of Baldwin and the Borrowers received by each Lender under Section 7.1
of the Credit Agreement have not been, adversely affected in any substantial way
as the result of any fire, explosion, earthquake, accident, strike, lockout,
combination of workmen, flood, embargo, riot, activities of armed forces, war or
acts of God or the public enemy, or cancellation or loss of any major contracts;
and
(d) No event has occurred and no condition exists which, upon the
effectiveness of the amendments contemplated hereby, will constitute a Default
or an Event of Default on the part of any Credit Party under the Credit
Agreement or any other Loan Document either immediately or with the lapse of
time or the giving of notice, or both.
4. Conditions Precedent. The effectiveness of this Amendment Agreement is
subject to the receipt by the Agent of (a) five (5) counterparts of this
Amendment Agreement duly executed by all signatories hereto and (b) all fees
payable by the Borrowers to the Agent and the Lenders on or before the date
hereof.
5. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. None of the terms or conditions of
this Amendment Agreement may be changed, modified, waived or canceled orally or
otherwise, except in accordance with the terms of the
Credit Agreement.
6. Full Force and Effect of Agreement. Except as hereby specifically amended,
modified or supplemented, the Credit Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
7. Counterparts. This Amendment Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8. Credit Agreement and Other Loan Documents. All references in any of the
Loan Documents to the "Credit Agreement" shall mean the Credit Agreement as
amended hereby.
9. Reimbursement. The Borrowers agree to reimburse the Agent and the Lenders
for all costs and out-of-pocket expenses, including attorneys' fees, incurred in
connection with the preparation, execution, and delivery of this Amendment
Agreement.
[Signature pages follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.
BORROWERS AND CREDIT PARTIES:
BALDWIN AMERICAS CORPORATION, as Borrower
and Credit Party
By: ____________________________________________
Name: __________________________________________
Title:___________________________________________
BALDWIN TECHNOLOGY LIMITED, as Borrower and
Credit Party
By: ____________________________________________
Name: __________________________________________
Title: ___________________________________________
BALDWIN TECHNOLOGY COMPANY, INC., as Credit Party
By:_____________________________________________
Name: __________________________________________
Title:___________________________________________
AGENT:
BANK OF AMERICA, N.A., successor in interest to
NationsBank, N.A., as Agent for the Lenders
By: ____________________________________________
Name:__________________________________________
Title:___________________________________________
LENDERS:
BANK OF AMERICA, N.A., successor in interest to
NationsBank, N.A., as Lender
By: ___________________________________________
Name:_________________________________________
Title:__________________________________________
BANKBOSTON, N.A., successor in interest to Bank of
Boston Connecticut, as Lender
By: ____________________________________________
Name:__________________________________________
Title:___________________________________________
Doc. No.309979
5
SIGNATURE PAGE 1 OF 2
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS
</LEGEND>
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