<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 1-9334
BALDWIN TECHNOLOGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C>
DELAWARE 13-3258160
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE NORWALK WEST 06854
40 RICHARDS AVENUE, NORWALK, CONNECTICUT (Zip Code)
(Address of principal executive offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-838-7470
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange
on Which Registered
CLASS A COMMON STOCK AMERICAN STOCK EXCHANGE
PAR VALUE $.01
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 for 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 31, 1999 was $32,910,600.
Number of shares of Common Stock outstanding at August 31, 1999:
<TABLE>
<S> <C>
Class A Common Stock............... 14,353,947
Class B Common Stock............... 1,835,883
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Total............................ 16,189,830
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 are incorporated by reference from the Baldwin
Technology Company, Inc. Proxy Statement for the 1999 Annual Meeting of
Stockholders to be held on November 16, 1999, into Part III of this Form 10-K.
(A definitive proxy statement will be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year covered by this
Form 10-K.)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 49
Item 10. Directors, Executive Officers and Key Employees of the
Registrant.................................................. 49
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13. Certain Relationships and Related Transactions.............. 49
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 49
</TABLE>
CAUTIONARY STATEMENT -- This Form 10-K may contain statements which constitute
"forward-looking" information as that term is defined in the Private Securities
Litigation Reform Act of 1995 or by the Securities and Exchange Commission
("SEC") in its rules, regulations and releases. Baldwin Technology Company, Inc.
(the "Company") cautions investors that any such forward-looking statements made
by the Company are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements. Some of the
factors that could cause actual results to differ materially from estimates
contained in the Company's forward-looking statements are set forth in Exhibit
99 to this Report on Form 10-K for the year ended June 30, 1999.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Baldwin Technology Company, Inc. ("Baldwin" or the "Company") is the
leading international manufacturer of material handling, accessory and control
equipment for the printing industry. The Company offers its customers a broad
range of products designed to enhance the quality of printed products and
increase the productivity and cost-efficiency of the print manufacturing process
while addressing the environmental concerns and safety issues involved in the
printing process. Baldwin's products include cleaning systems, fountain solution
and ink control systems, web control and press protection systems, drying
systems, web and material handling systems and newspaper inserter equipment.
The Company sells its products both to printers to upgrade the quality and
capability of existing and new printing presses and to printing press
manufacturers who incorporate the Company's products with their own equipment
for sale to printers. The Company has product development and manufacturing
facilities, as well as sales and service operations, in all major markets
worldwide.
INDUSTRY OVERVIEW
Baldwin operates in a highly fragmented market. The Company defines its
business as that of providing material handling, accessory and control equipment
for the printing industry. The Company believes that it produces the most
complete line of material handling, accessory and control equipment for the
printing industry.
The Company's products are used by printers engaged in all printing
processes including lithography, flexography and digital printing. The largest
share of its business is in offset (lithographic) printing. Offset printing is
the largest segment of the domestic printing market and is used primarily for
printing books, magazines, business forms, catalogs, greeting cards, packaging
and newspapers. The Company's products are designed to improve the printing
process in terms of both the quality of the finished product as well as its cost
efficiency.
Offset printing represents a significant segment of the U.S. commercial
printing industry, and is becoming dominant in the international printing
market. The Company believes that the future growth of its international markets
will be attributable in large part to the increased use of offset printing. The
Company has established operations in strategic geographic locations to take
advantage of growth opportunities in these markets. Baldwin's worldwide
operations enable it to closely monitor new product developments in different
printing markets and to introduce new products, or adapt existing ones, to meet
the printing equipment requirements of specific local markets throughout the
world.
PRINCIPAL PRODUCTS
The Company manufactures and sells more than 200 different products to
printers and printing press manufacturers. The Company's product development is
focused on the needs of the printer. Typically, it takes a new product several
years after its introduction to make a significant contribution to the Company's
net sales. Initially, after the introduction of a new product, the Company's
marketing efforts usually focus on printers. With the exception of the Company's
Baldwin Kansa product line, as a product progresses through its life cycle, the
percentage of sales to printing press manufacturers generally increases as the
product's acceptance by the industry increases and printers begin to specify
certain of the Company's products as part of their accessory or material
handling equipment package selected when ordering new presses. The Company's
Baldwin Kansa product line is
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primarily marketed to newspaper printers. Historically, the Company's products
have had a long life cycle as the Company continually upgrades and refines its
product lines to meet customer needs and changes in printing press technology.
The Company's products help printers address increasingly demanding requirements
for print quality and environmental and safety issues, as well as enhance
productivity and reduce materials waste. The Company's sales have historically
increased about equally through both internal product development and
acquisitions of product lines and companies.
The Company's products range in unit price from under $100 to approximately
$500,000. Baldwin's principal products by business group are described below:
GRAPHIC PRODUCTS AND CONTROLS GROUP
CLEANING SYSTEMS. The Company's oldest Cleaning Systems product is the
Press Washer which cleans the ink train of an offset press. Additional Cleaning
Systems products include the Automatic Blanket Cleaner, Newspaper Blanket
Cleaner, Chill Roll Cleaner and Guide Roll Cleaner, which all reduce paper
waste, volatile organic compound ("VOC") emissions and press downtime, as well
as improve productivity, print quality and safety of operation for the press
operator. In the fiscal years ended June 30, 1999, 1998 and 1997, net sales of
Cleaning Systems represented approximately 30.2%, 29.1% and 29.7% of the
Company's net sales, respectively.
FOUNTAIN SOLUTION CONTROL SYSTEMS. The Company's Fountain Solution Control
Systems control the supply, temperature, cleanliness, chemical composition and
certain other characteristics of the water used in the offset printing process.
Among the most important of these products are the Company's Refrigerated
Circulators and Spray Dampening Systems. In the fiscal years ended June 30,
1999, 1998 and 1997, net sales of Fountain Solution Control Systems represented
approximately 16.5%, 14.5% and 14.1% of the Company's net sales, respectively.
WEB CONTROL AND PRESS PROTECTION SYSTEMS. The Company's Web Control
Systems improve print quality by precisely controlling the flow of paper through
a web offset press which reduces waste and increases press productivity. The
Company's Press Protection Systems, designed in response to the increasing
number of web leads used in printing today's colorful newspapers, provide an
auto-arming electronic package offering high quality press protection in the
event of a web break.
OTHER ACCESSORY AND CONTROL EQUIPMENT. The Company's Ink Control Systems
control and regulate many aspects of the ink feed system on a printing press.
These products include Ink Agitators, Ink Mixers and Ink Level Systems which
reduce ink and paper waste and allow for the use of recyclable ink containers.
Other products include Ultra-Violet and Infra-Red Dryers and Gluing Systems. In
the fiscal years ended June 30, 1999, 1998 and 1997, net sales of Other
Accessory and Control Equipment represented approximately 11.6%, 14.9% and 14.0%
of the Company's net sales, respectively.
MATERIAL HANDLING GROUP
WEB HANDLING SYSTEMS. The Company's Web Handling Systems unwind, rewind
and splice paper and other materials supplied to presses in webs and also
control the tension and position of web materials. This equipment eliminates
unnecessary press stoppages and allows an efficient work flow. In the fiscal
years ended June 30, 1999, 1998 and 1997, net sales of Web Handling Systems
represented approximately 23.5%, 21.3% and 13.0% of the Company's net sales,
respectively.
MATERIAL HANDLING/STACKING SYSTEMS. The Company's Material
Handling/Stacking Systems automate the handling of the printed product. The
efficient counting, stacking, packing and compressing of printed materials helps
to increase press utilization and productivity, reduce and control waste and
decrease pressroom labor requirements.
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NEWSPAPER INSERTER EQUIPMENT AND MAILING MACHINE SYSTEMS. The Company's
Newspaper Inserter Equipment collates and inserts sections and advertising
material into newspapers. Rising newsprint costs in the printing industry have
increased pressure on printers to reduce other costs, particularly labor costs.
When manual processes are replaced by newspaper inserters, payback periods as
low as six months have been realized by some purchasers of this equipment. The
Company's Mailing Machine Systems fold, label and prepare newspapers for
mailing.
PRE-PRESS GROUP
The Company disposed of its pre-press business on June 30, 1997 (see
Note -- 3 Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"). In
the fiscal year ended June 30, 1997, net sales of the pre-press group
represented approximately 10.0% of the Company's net sales.
PRINT ON-DEMAND GROUP
The Company entered the short-run, print on-demand market in January of
1997 with the formation of a business venture of which the Company now owns
100%. The venture, now named Baldwin Document Finishing Systems, Inc., markets
and distributes finishing equipment for the digital printing market. The
Company's strategy is focused on providing highly efficient finishing systems to
this rapidly growing market. Results of operations for the Print on-Demand Group
were not material for all periods presented.
WORLDWIDE OPERATIONS
The Company believes that it is the only manufacturer of material handling
and accessory and control equipment for the printing industry which has complete
product development, manufacturing and marketing capabilities in the Americas,
Europe and Asia Pacific.
The following table sets forth the percentages of the Company's net sales
attributable to its geographic regions for the fiscal years ended June 30, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Americas................................................ 44.2% 44.5% 39.3%
Europe.................................................. 31.4 28.9 35.4
Asia Pacific............................................ 24.4 26.6 25.3
----- ----- -----
Total........................................ 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
In the Americas, the Company operates in North, Central and South America
through its U.S. subsidiaries. In Europe, the Company operates through its
subsidiaries in Germany, Sweden, France, England and the Netherlands. In Asia
Pacific, the Company operates through its subsidiaries in Japan, Hong Kong,
China and Australia. All of the Company's subsidiaries are wholly owned except
for one subsidiary in which the Company holds a 90% interest.
For additional information relating to the Company's segments and
operations in its three geographic regions, see Note 5 -- Notes to Consolidated
Financial Statements.
ACQUISITION STRATEGY
An element of the Company's growth strategy is to make strategic
acquisitions of companies and product lines in related business areas. The
Company's acquisition strategy involves: (i) acquiring new
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material handling, accessory, control and print on-demand products which can be
sold through the Company's own distribution network; (ii) entering new end-user
market segments and extending existing markets; and (iii) acquiring companies
which contribute new products to the Company and which can benefit from the
Company's manufacturing and marketing expertise and financial support.
Subsequent to an acquisition, the Company typically supports the existing
management of the acquired entity and participates actively with that management
in implementing operational strategies with a view to enhancing the entity's
sales, productivity and operating results.
MARKETING, SALES AND SUPPORT
MARKETING. The Company markets its products in almost all developed
countries throughout the world. Although Baldwin markets similar lines of
products in many of these countries, its product mix and distribution channels
vary from country to country. The Company has approximately 107 employees
devoted to marketing and sales activities in its three principal markets and
approximately 70 dealers worldwide. The Company markets its products to printing
press manufacturers ("OEM's") and to printers. For the fiscal year ended June
30, 1999 approximately 45% of the Company's net sales were to printing press
manufacturers and approximately 55% were directly to printers.
In the Americas and Europe, the Company markets its products both through
direct sales representatives and an extensive dealer network. In Asia Pacific,
the Company markets its products through direct sales representatives in Japan,
Hong Kong, China and Australia and through dealers throughout the rest of Asia.
SUPPORT. The Company is committed to after-sales service and support of
its products throughout the world. Baldwin employs approximately 125 service
technicians, who are complemented by product engineers, to provide field service
for the Company's products on a global basis.
BACKLOG. The Company's backlog was $57,491,000 as of June 30, 1999,
$87,381,000 as of June 30, 1998 and $72,727,000 as of June 30, 1997. Included in
the June 30, 1998 and 1997 backlog was $3,459,000 and $830,000, respectively, of
backlog relating to the Company's former in-line finishing operations, which
were disposed of in November 1998. Backlog represents unfilled product orders
which Baldwin has received from its customers under valid contracts or purchase
orders.
CUSTOMERS. The Company has a diverse customer base. For the current fiscal
year ended June 30, 1999, one customer, Goss Graphic Systems, Inc. ("Goss")
accounted for approximately 11% of the Company's net sales (see "Liquidity and
Capital Resources" in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 13 of the Notes to Consolidated
Financial Statements for a further discussion of Goss). For the fiscal years
ended June 30, 1998 and 1997, no customer accounted for 10% or more of the
Company's net sales. The ten largest customers of Baldwin (including Goss)
accounted for approximately 46% of the Company's net sales for the fiscal year
ended June 30, 1999. Sales of Baldwin's products are not seasonal. However,
sales have traditionally been greater in the second six months of its fiscal
year than in the first six months of its fiscal year (see Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"). The
only recent exception to this trend has been in the current year which was
primarily due to lower sales to Goss and a lower level of activity in the
Japanese market during the second six months of the current fiscal year.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company believes its research, development and engineering efforts have
been an important factor in establishing and maintaining its leadership position
in the field of material handling,
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accessory and control equipment for the printing industry. The Company has won
six Intertech Awards from the Graphic Arts Technical Foundation. The Intertech
Award was established in 1978 to recognize technologies that are predicted to
have a major impact on the graphic communications industry, but are not yet in
widespread use in the marketplace. Baldwin has devoted substantial efforts to
adapt its products to almost all models and sizes of printing presses in use
worldwide.
The Company has product development facilities at each of its manufacturing
locations. The Company believes that this decentralized approach to research and
development helps the Company to react quickly to meet the needs of its
customers. Coordination of the Company's product development activities is
accomplished within each of the major product groups of Graphic Products and
Controls for accessories and controls, and Material Handling for roll and
material handling equipment. The organization by product/market groups ensures
focused attention on opportunities within their respective markets, while
avoiding duplicative efforts within the Company.
Baldwin employs approximately 172 persons whose primary function is new
product development or modification of existing products. The Company's total
expenditures for research, development and engineering for the fiscal years
ended June 30, 1999, 1998 and 1997 were $19,408,000, $18,514,000 and
$21,425,000, respectively, representing approximately 8% of the Company's net
sales in each year. Included in the 1997 amount was $2,156,000, attributable to
the Company's former pre-press operations.
PATENTS
The Company owns or licenses a number of patents and patent applications
relating to a substantial number of Baldwin's products. These products
represented a substantial portion of the Company's net sales for the fiscal year
ended June 30, 1999. The Company's patents expire at different times during the
next twenty years; however, the expiration of patents in the near future is not
expected to have a material adverse effect on the Company's sales. The Company
has also relied upon and intends to continue to rely upon unpatented proprietary
technology, including the proprietary engineering required to adapt its products
to a wide range of models and sizes of printing presses. The Company believes
its rights under, and interests in, its patents and patent applications, as well
as its proprietary technology, are sufficient for its business as currently
conducted.
MANUFACTURING
The Company conducts its manufacturing operations through a number of
operating subsidiaries. In North America, the Company has subsidiaries with
manufacturing facilities located on the East Coast, in the Midwest and on the
West Coast of the United States.
In Europe, the Company has subsidiaries with manufacturing and assembly
facilities in Germany and Sweden. These facilities manufacture and assemble
complete lines of products that are in demand by printers worldwide and by
printing press manufacturers in Europe for shipment throughout the world. In
Asia, Baldwin has manufacturing and assembly facilities in Japan and China.
In general, raw materials required by the Company can be obtained from
various sources in the quantities desired. The Company has no long-term supply
contracts and does not consider itself dependent on any individual supplier.
The nature of most operations of the Company is such that there is little,
if any, negative effect upon the environment, and the Company has not
experienced any serious problems in complying with environmental protection laws
and regulations.
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COMPETITION
Within the highly fragmented printing press accessory industry, the Company
produces and markets what it believes to be the most complete line of material
handling and accessory and control equipment. Numerous companies, including
vertically integrated printing press manufacturers, manufacture and sell
products which compete with one or more of the Company's products. These
printing press manufacturers generally have larger staffs and greater financial
resources than the Company.
The Company competes by offering customers a broad product line, coupled
with a well-known reputation for the reliability of its products and its
commitment to service and after-sale support. The Company's ability to compete
effectively in the future will depend upon the continued reliability of its
products, after-sale support, ability to keep its market position as its patents
expire and its ability to develop new products which meet the demands of the
printing industry.
EMPLOYEES
The Company employs approximately 1,057 persons, 498 of whom are production
employees and approximately 124 of whom are management and administrative
employees. Of the Company's 192 employees in its Baldwin Graphic Products
Division in the United States, 47 are represented by the International
Association of Machinists and Aerospace Workers under a contract which expires
on November 9, 1999. In Europe, employees are represented by various unions
under contracts with indefinite terms. In Sweden, 11, 49, and 44 of the
Company's 152 employees are represented by Ledarna (SALF), Lundsorganisationen,
Metall and Tjanstemannene Central Organisation, and Svenska Industritjanstemanna
Forbundet, respectively. In Germany, approximately 45 of the Company's 239
employees are represented by the IG Metall (Metalworker's Union). The Company
considers relations with its employees and with its unions to be good.
ITEM 2. PROPERTIES
The Company owns and leases various manufacturing and office facilities of
approximately 672,000 square feet at June 30, 1999. The table below presents the
locations and ownership of these facilities:
<TABLE>
<CAPTION>
SQUARE SQUARE TOTAL
FEET FEET SQUARE
OWNED LEASED FEET
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<S> <C> <C> <C>
North America......................................... 57,000 348,000 405,000
Germany............................................... 104,000 104,000
Sweden................................................ 66,000 32,000 98,000
England............................................... 10,000 10,000
Japan................................................. 43,000 43,000
All other, foreign.................................... 12,000 12,000
------- ------- -------
Total square feet owned and leased......... 123,000 549,000 672,000
======= ======= =======
</TABLE>
The Company believes that its facilities are adequate to carry on its
business as currently conducted.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending to which either the Company is a
party or to which any of its property is subject, which would have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders since November 12,
1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "BLD". The following chart sets forth, for the
calendar periods indicated, the range of closing prices for the Class A Common
Stock on the AMEX, as reported by the AMEX.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1997
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First Quarter............................................... 3.2500 2.3750
Second Quarter.............................................. 3.1875 2.5625
Third Quarter............................................... 5.5000 2.8125
Fourth Quarter.............................................. 5.7500 4.3750
1998
- -----
First Quarter............................................... 6.4375 4.9375
Second Quarter.............................................. 6.3750 5.5000
Third Quarter............................................... 6.1875 4.2500
Fourth Quarter.............................................. 5.7500 4.6250
1999
- -----
First Quarter............................................... 6.0000 2.8750
Second Quarter.............................................. 3.6250 2.8750
Third Quarter (through September 10)........................ 3.4375 2.3750
</TABLE>
(b) Class B Common Stock
The Company's Class B Common Stock has no established public trading
market.
(c) Approximate Number of Equity Security Holders
As of August 31, 1999, the approximate number of record holders (excluding
those listed under a nominee name) of the Company's Class A and Class B Common
Stock totaled 376 and 27, respectively. The Company believes, however, that
there are in excess of 2,000 beneficial owners of its Class A Common Stock.
(d) Dividends
Declarations of dividends depend upon the earnings and financial position
of the Company and are within the discretion of the Company's Board of
Directors. No dividend in cash or property can be declared or paid on shares of
Class B Common Stock unless simultaneously therewith there is declared or paid,
as the case may be, a dividend in cash or property on shares of Class A Common
Stock of at least 105% of the dividend on shares of Class B Common Stock (see
Note 10 -- Notes to Consolidated Financial Statements). See Note 8 -- Notes to
Consolidated Financial Statements and "Liquidity and Capital Resources" within
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for restrictions on dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The Company's income statement and balance sheet data as they relate to the
years ended June 30, 1999, 1998, 1997, 1996 and 1995, have been derived from the
Company's audited financial statements (including the Consolidated Balance Sheet
of the Company at June 30, 1999 and 1998 and the related Consolidated Statement
of Income of the Company for the years ended June 30, 1999, 1998 and 1997
appearing elsewhere herein). The following information should be read in
conjunction with the aforementioned financial statements and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $232,771 $231,408 $244,146 $259,301 $222,341
Cost of goods sold...... 158,780 155,151 163,791 173,271 146,727
-------- -------- -------- -------- --------
Gross profit............ 73,991 76,257 80,355 86,030 75,614
-------- -------- -------- -------- --------
Selling, general and
administrative
expenses.............. 42,510 43,357 50,435 52,799 45,847
Research, development
and engineering
expenses.............. 19,408 18,514 21,425 21,022 17,296
Provision for loss on
the disposition of
Pre-press
operations............ 2,400 42,407
Restructuring charge.... 870 3,000
-------- -------- -------- -------- --------
Operating income
(loss)................ 8,803 14,386 (33,912) 9,209 12,471
-------- -------- -------- -------- --------
Interest expense........ 2,301 2,792 3,516 4,032 3,436
Interest income......... 453 521 414 552 577
Minority interest
(income) loss......... 15 (97) (190)
Other income, net....... 3,199 2,330 1,617 1,490 1,130
-------- -------- -------- -------- --------
Income (loss) before
taxes................. 10,139 14,542 (35,207) 7,219 10,742
-------- -------- -------- -------- --------
Provision for income
taxes................. 4,514 5,526 2,790 4,701 5,091
-------- -------- -------- -------- --------
Net income (loss)....... $ 5,625 $ 9,016 $(37,997) $ 2,518 $ 5,651
======== ======== ======== ======== ========
Basic income (loss) per
share................. $ 0.33 $ 0.53 $ (2.21) $ 0.14 $ 0.32
======== ======== ======== ======== ========
Diluted income (loss)
per share............. $ 0.33 $ 0.52 $ (2.21) $ 0.14 $ 0.32
======== ======== ======== ======== ========
Weighted average number
of shares:
Basic................. 16,801 17,145 17,228 17,720 17,830
======== ======== ======== ======== ========
Diluted............... 17,148 17,480 17,228 17,817 17,967
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 29,154 $ 30,066 $ 29,696 $ 46,050 $ 53,575
Total assets............ 159,355 175,028 162,123 217,340 209,770
Short-term debt......... 10,290 10,811 14,737 10,196 9,348
Long-term debt.......... 6,515 17,072 20,256 33,576 29,868
Shareholders' equity.... 66,540 63,457 58,262 97,056 98,888
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL. The Company does not consider its business to be seasonal;
however, except for the current year, its sales have traditionally been greater
in the second six months of its fiscal year than in the first six months of its
fiscal year. The following schedule shows the Company's net sales for such six
month periods over the last five fiscal years to reflect the comparison.
<TABLE>
<CAPTION>
FIRST SIX SECOND SIX
FISCAL YEAR MONTHS MONTHS
----------- ------------ ------------
<S> <C> <C>
1999.................................................. $120,488,000 $112,283,000
1998.................................................. 103,665,000 127,743,000
1997.................................................. 118,635,000 125,511,000
1996.................................................. 118,651,000 140,650,000
1995.................................................. 100,352,000 121,989,000
</TABLE>
The terms "net acquisitions" and "net dispositions" as they are used
throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations relate to the formation of Baldwin Document Finishing
Systems, Inc., in January, 1997, and the acquisition of a 90% interest in a
distributor in Europe in October, 1998, as well as dispositions of the Company's
former pre-press operations in June, 1997, and former in-line finishing division
in November, 1998. For the fiscal year ended June 30, 1999, the first six months
net sales include net dispositions sales of $1,863,000 and the second six months
include net acquisitions sales of $804,000. For the fiscal year ended June 30,
1998, the first six months net sales include net acquisitions sales of $747,000
and the second six months include net acquisitions sales of $581,000. For the
fiscal year ended June 30, 1997, the first six months net sales include net
dispositions sales of $6,626,000 and the second six months include net
dispositions sales of $13,825,000.
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 are set forth in Exhibit 99 to this Report on Form 10-K for
the fiscal year ended June 30, 1999.
9
<PAGE> 12
SEGMENT DISCUSSIONS
Effective June 30, 1999, the Company implemented the new segment
disclosures required by the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" (See Note 5 -- Notes to Consolidated
Financial Statements). This statement addresses presentations and disclosure
matters and therefore had no impact on the Company's financial position or
results of operations.
RESULTS OF OPERATIONS
The following table sets forth certain of the items (expressed as a
percentage of net sales) included in the Selected Financial Data and should be
read in connection with the Consolidated Financial Statements of the Company
including the notes thereto, presented elsewhere in this report.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of goods sold..................................... 68.2 67.1 67.1
----- ----- -----
Gross profit........................................... 31.8 32.9 32.9
Selling, general and administrative expenses........... 18.3 18.7 20.7
Research, development and engineering expenses......... 8.3 8.0 8.7
Provision for loss on the disposition of pre-press
operations........................................... 1.0 17.4
Restructuring charge................................... .4
----- ----- -----
Operating income (loss)................................ 3.8 6.2 (13.9)
----- ----- -----
Interest expense....................................... (1.0) (1.2) (1.4)
Interest income........................................ .2 .2 .2
Other income, net...................................... 1.4 1.1 .7
----- ----- -----
Income (loss) from operations before taxes............. 4.4 6.3 (14.4)
Provision for income taxes............................. 2.0 2.4 1.2
----- ----- -----
Net income (loss)...................................... 2.4% 3.9% (15.6)%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1999 VERSUS FISCAL YEAR ENDED JUNE 30, 1998
CONSOLIDATED RESULTS
NET SALES. Net sales for the fiscal year ended June 30, 1999 increased by
$1,363,000, or 0.6%, to $232,771,000 from $231,408,000 for the fiscal year ended
June 30, 1998. Currency rate fluctuations attributable to the Company's overseas
operations increased net sales for the current period by $1,071,000. Changes in
both product volume and mix were primarily responsible for the remainder of the
change. In terms of local currency, sales generally increased in Europe and
decreased in Asia. Sales increased by 24.6% in Sweden, by 20.5% in France and by
8.2% in the United Kingdom. Sales decreased by 13.8% in Japan, by 0.6% in
Germany and by 0.4% in the Americas.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1999 was
$73,991,000 (31.8% of net sales), compared to $76,257,000 (32.9% of net sales)
for the fiscal year ended June 30, 1998, a decrease of $2,266,000 or 3.0%. Gross
profit increased by $123,000 on fluctuations in currency rates and decreased by
$801,000 due to net dispositions. Gross profit was lower as a percentage of
sales when
10
<PAGE> 13
compared to the prior year due primarily to the effects of increased sales of
lower margin material handling equipment, mainly in the Americas, and lower
sales levels in Japan, and increased implementation costs for Year-2000
compliant information systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $42,510,000 (18.3% of net sales) for the fiscal
year ended June 30, 1999, compared to $43,357,000 (18.7% of net sales) for the
prior year, a decrease of $847,000. Currency rate fluctuations increased the
current year's expenses by $151,000 and net dispositions reduced expenses by
$369,000. General and administrative expenses decreased primarily as a result of
reductions in personnel due to the Company's consolidation of facilities and
restructuring efforts and reduced incentive and deferred compensation expenses
as a result of the lower profitability of the Company. These reductions more
than offset increases in consulting and subcontract costs as well as general
insurance costs and costs associated with the Company's Year-2000 system
implementation effort. Selling expense decreased $310,000 as a result of lower
staffing levels and volume related decreases in sales commissions and related
travel expenses, which have more than offset increased trade show and
advertising expenses.
Other operating expenses increased by $4,164,000 over the same period of
the prior year. Fluctuations in currency rates increased these expenses by
$105,000 and the additional provision for loss on the disposition of the
pre-press operations added $2,400,000, while the restructuring charge in the
fourth quarter added $870,000 to these expenses. The remaining increase in these
expenses relates to increased engineering project costs.
INTEREST AND OTHER. Interest expense for the fiscal year ended June 30,
1999 decreased by $491,000 to $2,301,000, compared to $2,792,000 for the fiscal
year ended June 30, 1998. Currency rate fluctuations increased interest expense
by $35,000 in the current period. The remainder of the decrease was due
primarily to reductions in the amount of long-term, fixed-rate indebtedness
outstanding during the current period which was replaced by short term
borrowings. Such short term borrowings carried a lower interest rate. Interest
income was $453,000 and $521,000 for the fiscal years ended June 30, 1999 and
June 30, 1998, respectively. Currency rate fluctuations increased interest
income by $12,000 in the current period. Other income was $3,184,000 and
$2,427,000 for the fiscal years ended June 30, 1999 and June 30, 1998,
respectively, and includes foreign currency transaction (losses) gains of
$(176,000) and $111,000 for the current and prior period, respectively. The
remaining net increase in other income is primarily due to increased royalty
income. Currency rate fluctuations increased other income by $67,000 for the
current period.
INCOME TAXES. The Company's effective tax rate for the fiscal year ended
June 30, 1999 was 44.5%, compared to 38.0% for the fiscal year ended June 30,
1998. This increase is primarily the result of the $2,400,000 special charge
related to the disposition of the former pre-press operations for which no tax
benefit was recorded. Otherwise, the Company's effective tax rate would have
been 36.0%. Currency rate fluctuations decreased the provision for income taxes
by $37,000 during the current period. The remaining decrease in the current
period's effective tax rate, excluding the effect of the special charges, is
primarily due to increased income in tax jurisdictions for which there are tax
loss carryforwards available.
NET INCOME. Net income for the fiscal year ended June 30, 1999 was
$5,625,000 as compared to $9,016,000 for the fiscal year ended June 30, 1998, or
$.33 basic and $.33 diluted, and $.53 basic and $.52 diluted per share,
respectively. For the current period, currency rate fluctuations and net
dispositions decreased net income by $66,000 and $24,000, respectively. The
provision for loss on the disposition of pre-press operations of $2,400,000 and
the after-tax impact of $557,000 for restructuring charges reduced net income
per share by $.18 basic and $.17 diluted in the current year.
11
<PAGE> 14
SEGMENT RESULTS
GRAPHIC PRODUCTS AND CONTROLS GROUP
Net sales for the fiscal year ended June 30, 1999 increased by $792,000, or
0.5%, to $153,128,000 from $152,336,000 for the fiscal year ended June 30, 1998.
Currency rate fluctuations attributable to the Company's overseas operations
increased net sales for the current period by $1,398,000 and acquisitions added
$1,184,000, otherwise, net sales would have decreased by $1,790,000 in the
current period. This decrease is primarily the result of reduced sales levels in
Japan of cleaning systems, which was partially offset by increased sales in
Sweden of spray dampening systems.
Operating income amounted to $14,219,000 (9.3% of net sales) for the fiscal
year ended June 30, 1999, as compared to $15,544,000 (10.2% of net sales) for
the prior year, a decrease of $1,325,000. Currency rate fluctuations decreased
the current year's operating income by $8,000 and acquisitions added $255,000,
otherwise operating income would have decreased by $1,572,000. This decrease is
primarily the result of the overall decrease in sales levels discussed above as
well as a restructuring charge of $845,000 in the fourth quarter of the current
period.
MATERIAL HANDLING GROUP
Net sales for the fiscal year ended June 30, 1999 decreased by $1,818,000,
or 2.2%, to $79,453,000 from $81,271,000 for the fiscal year ended June 30,
1998. Currency rate fluctuations attributable to the Company's overseas
operations decreased net sales for the current period by $617,000, otherwise net
sales would have decreased by $1,201,000. This decrease is primarily the result
of the disposition of the Company's former in-line finishing division during the
current year, which was partially offset by increased sales of roll handling
systems.
Operating income amounted to $4,640,000 (5.8% of net sales) for the fiscal
year ended June 30, 1999, as compared to $7,121,000 (8.8% of net sales) for the
prior year, a decrease of $2,481,000. Currency rate fluctuations decreased the
current year's operating profit by $83,000 and net dispositions accounted for a
decrease of $179,000. The remaining decrease is primarily the result of lower
gross margins associated with the Company's roll handling systems.
FISCAL YEAR ENDED JUNE 30, 1998 VERSUS FISCAL YEAR ENDED JUNE 30, 1997
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
consolidated financial statements.
The Company's disposition of its former pre-press operations on June 30,
1997 results in significant distortions when comparing operating performance of
the current and prior year periods. The following condensed Consolidated
Statement of Income of the Company sets forth the actual 1998 and 1997 results
together with 1997 proforma results which reflect the removal of the Company's
former pre-press operations and the provision for loss on the disposal of those
operations. The proforma 1997 amounts will be used in the following discussion
of the year ended June 30, 1998 actual results as compared to the prior year.
12
<PAGE> 15
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------
LESS
ACTUAL ACTUAL PRE-PRESS PROFORMA
1998 1997 1997 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales................................ $231,408 $244,146 $ 28,327 $215,819
-------- -------- -------- --------
Gross profit............................. 76,257 80,355 9,260 71,095
Selling, general and administrative
expenses............................... 43,357 50,435 8,742 41,693
Other operating expenses................. 18,514 21,425 2,156 19,269
Provision for loss on the disposition of
pre-press operations................... 42,407 42,407
-------- -------- -------- --------
Operating income (loss).................. 14,386 (33,912) (44,045) 10,133
Other (income) expense................... (156) 1,295 (64) 1,359
-------- -------- -------- --------
Income (loss) before taxes............... 14,542 (35,207) (43,981) 8,774
Provision (benefit) for income taxes..... 5,526 2,790 (292) 3,082
-------- -------- -------- --------
Net income (loss)........................ $ 9,016 $(37,997) $(43,689) $ 5,692
======== ======== ======== ========
Basic income (loss) per share............ $ 0.53 $ (2.21) $ (2.54) $ 0.33
======== ======== ======== ========
Diluted income (loss) per share.......... $ 0.52 $ (2.21) $ (2.54) $ 0.33
======== ======== ======== ========
</TABLE>
CONSOLIDATED RESULTS
NET SALES. Net sales for the fiscal year ended June 30, 1998 increased by
$15,589,000, or 7.2%, to $231,408,000 from $215,819,000 for the fiscal year
ended June 30, 1997. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales for the current period by $12,588,000
and acquisitions added $747,000 to net sales. Product volume changes were
primarily responsible for the remainder of the change. In terms of local
currency and after excluding the impact of acquisitions and divestitures, sales
generally increased in Europe. Sales increased in Germany by 3.9% and were up
10.3% in Sweden and 12.9% in the United Kingdom. In Asia, local currency sales
increased by 9.9% in Japan. In the Americas, net sales increased by 19.1%.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1998 was
$76,257,000 (32.9% of net sales), as compared to $71,095,000 (32.9% of net
sales) for the fiscal year ended June 30, 1997, an increase of $5,162,000, or
7.3%. Gross profit decreased by $4,084,000 on fluctuations in currency rates and
increased by $351,000 due to acquisitions with the remainder of the change due
to volume, product mix and other factors. Gross profit rates were lower in the
Americas, primarily due to higher sales of lower margin material handling
systems. Gross profit rates were also lower in Asia reflecting the difficult
economic conditions in that market. Gross margin rates were higher in Europe,
primarily the result of the Company's continuing cost reduction and cost control
efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $43,357,000 (18.7% of net sales) for the fiscal
year ended June 30, 1998, as compared to $41,693,000 (19.3% of net sales) for
the prior fiscal year, an increase of $1,664,000. Currency rate fluctuations
decreased the current year's expenses by $2,000,000 and acquisitions added
$615,000. General and administrative expenses increased primarily due to
increased consulting fees associated with certain strategic initiatives
undertaken during the fiscal year ended June 30, 1998 and incentive compensation
expenses. These increases were partially offset by reduced charges for severance
and cost savings achieved through the consolidation of facilities and reduced
staff. Selling expense increases of
13
<PAGE> 16
$1,875,000 were due to volume related increases in sales commissions, offset by
lower trade show and advertising expenses and reduced staffing levels.
Other operating expenses decreased by $755,000 over the same period of the
prior year. Fluctuations in currency rates decreased these expenses by
$1,080,000 and acquisitions increased these expenses by $25,000. The remaining
increase in these expenses relates to increased engineering personnel and
project costs.
INTEREST AND OTHER. Interest expense for the fiscal year ended June 30,
1998 was $2,792,000, as compared to $3,320,000 for the fiscal year ended June
30, 1997. Currency rate fluctuations decreased interest expense by $327,000. The
remainder of the decrease was due primarily to a decrease in the amount of
outstanding working capital related indebtedness used by the Company's European
operations and a reduction in long-term debt. Interest income was $521,000 and
$357,000 for the fiscal years ended June 30, 1998 and June 30, 1997,
respectively. Currency rate fluctuations decreased interest income by $108,000.
Other income was $2,427,000 and $1,414,000 for the fiscal years ended June 30,
1998 and June 30, 1997, respectively, and includes foreign currency transaction
gains (losses) of $111,000 and $(182,000) for the current and prior period,
respectively. The remaining net increase in other income is primarily due to
increased royalty income offset by currency rate fluctuations which decreased
other income by $51,000 for the current period.
INCOME TAXES. The Company's effective tax rate for the fiscal year ended
June 30, 1998 was 38.0% versus the effective rate of 35.1% for the fiscal year
ended June 30, 1997. Currency rate fluctuations decreased the provision for
income taxes by $254,000 during the current period. The effective rate for the
prior fiscal year included a benefit of $854,000 due to the favorable settlement
of certain tax matters in Germany.
NET INCOME. The net income for the fiscal year ended June 30, 1998 was
$9,016,000 versus net income for the fiscal year ended June 30, 1997 of
$5,692,000. For the current period, currency rate fluctuations and acquisitions
decreased net income by $415,000 and $426,000, respectively.
SEGMENT RESULTS
GRAPHIC PRODUCTS AND CONTROLS GROUP
Net sales for the fiscal year ended June 30, 1998 decreased by $2,214,000,
or 1.4%, to $152,336,000 from $154,550,000 for the fiscal year ended June 30,
1997. Currency rate fluctuations attributable to the Company's overseas
operations reduced net sales for the current period by $12,860,000, otherwise
net sales would have increased by $10,646,000 or 6.9%. Product volume changes
were primarily responsible for the remainder of the change, the result of
increased sales of cleaning systems in both Sweden and Japan.
Operating income amounted to $15,554,000 (10.2% of net sales) for the
fiscal year ended June 30, 1998, as compared to $13,194,000 (8.5% of net sales)
for the prior fiscal year, an increase of $2,360,000. Currency rate fluctuations
decreased the current year's operating income by $142,000, otherwise operating
profit would have increased by $2,502,000. This increase in operating income is
primarily attributable to reduced engineering costs in 1998 as a result of a
reorganization in the Company's German operation during 1997.
MATERIAL HANDLING GROUP
Net sales for the fiscal year ended June 30, 1998 increased by $17,539,000,
or 27.5%, to $81,271,000 from $63,732,000 for the fiscal year ended June 30,
1997. Currency rate fluctuations attributable to the Company's overseas
operations decreased net sales for the current period by $1,326,000, otherwise
net sales would have increased by $18,865,000. This increase is primarily the
result of increased sales of roll handling systems.
14
<PAGE> 17
Operating income amounted to $7,121,000 (8.8% of net sales) for the fiscal
year ended June 30, 1998, as compared to $5,686,000 (8.9% of net sales) for the
prior fiscal year, an increase of $1,435,000. Currency rate fluctuations
decreased the current year's operating profit by $142,000, otherwise operating
profit would have increased by $1,577,000, primarily as a result of the
increased sales of roll handling systems.
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.
LIQUIDITY AND CAPITAL RESOURCES
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., formerly NationsBank of North Carolina, 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 June 30, 1999, this ratio was
1.65 to 1.00. In addition, the Revolver requires the Company to maintain a
specified fixed charges ratio (as defined in the agreement). During the fourth
quarter ended June 30, 1999, the Company did not meet this covenant and received
a waiver for such period.
The Company's working capital decreased by $912,000 or 3.0% from
$30,066,000 at June 30, 1998, to $29,154,000 at June 30, 1999. Foreign currency
rate fluctuations accounted for an increase of $557,000, while net dispositions
and treasury stock repurchases accounted for a decrease of $1,167,000 and
$3,800,000 respectively. Working capital was further decreased by reductions in
inventories, accounts and notes receivable, particularly due to the lower sales
volumes in the last six months of the current fiscal year, and reduced cash and
equivalents. Offsetting these items were reductions in accounts and notes
payable, customer deposits, and accrued expenses and other current liabilities
resulting primarily from reduced compensation and profit sharing costs.
The Company utilized $3,055,000 for investing activities for the fiscal
year ended June 30, 1999, and generated $3,526,000 from investing activities for
the fiscal year ended June 30, 1998. This negative differential of $6,581,000
resulted primarily from the collection of the receivable associated with the
sale of the former pre-press operations in the prior period. The net cash used
by financing activities was $5,190,000 for the fiscal year ended June 30, 1999
as compared to $6,656,000 for the fiscal year ended June 30, 1998. The
difference was primarily caused by larger debt reductions on the Company's
long-term debt in the prior period which was largely offset by purchases of
treasury stock in the current period.
The Company maintains relationships with foreign and domestic banks which
have extended credit facilities to the Company totaling $36,039,000, including
amounts available under the Revolver. As of June 30, 1999, the Company had
outstanding $13,058,000 under these lines of credit, of which $9,165,000 is
classified as long-term debt. Total debt levels as reported on the balance sheet
at June 30, 1999 are $27,000 higher than they would have been if June 30, 1998
exchange rates had been used.
15
<PAGE> 18
Net capital expenditures made to meet the normal business needs of the
Company for the fiscal years ended June 30, 1999 and June 30, 1998, including
commitments for capital lease payments, were $2,854,000 and $2,399,000,
respectively.
At June 30, 1999 the Company's balance sheet included approximately
$6,091,000 of trade receivables related to one large OEM customer, Goss Graphic
Systems, Inc. ("Goss"). Offsetting these receivables is approximately $1,229,000
in advance payments (customer deposits) received from this customer. Due to a
slow-down in payments early in 1999, the Company notified Goss that future
shipments of the Company's equipment and systems required payment in full prior
to shipment. At June 30, 1999, 26% of the Company's total trade receivables from
this customer were more than 90 days overdue. 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 generally continues to receive timely
payments from the foreign subsidiaries of Goss. Goss' bankruptcy plan as filed,
anticipates that payments to trade creditors will 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 June
30, 1999, the Company has not established any additional allowance for doubtful
accounts regarding the receivables from Goss. The Company has however,
classified one-third of its domestic receivable balance from Goss, or
$1,717,000, as long term which is included in "Other assets" at June 30, 1999.
Of the Company's $57,491,000 in backlog at June 30, 1999, approximately
$11,822,000 represented orders from Goss which were supported by an inventory
balance of approximately $4,794,000. For the fiscal year ended June 30, 1999,
this customer represented approximately 11% of the Company's total net sales.
The Company believes its cash flow from operations and available 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 and installing 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 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
16
<PAGE> 19
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 August 31, 1999, the Company had either
completed or scheduled the implementation 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 will continue to test the affected information systems, and
such testing is expected to be virtually 100% complete by October 31, 1999.
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 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 European countries (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
17
<PAGE> 20
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company operates internationally and is exposed to certain market risks
arising from transactions, that in the normal course of business, include
fluctuations in interest rates and currency exchange rates. While the Company
uses derivative financial instruments in order to manage or reduce these risks,
typically currency futures contracts, the Company does not enter into derivative
or other financial instruments for trading or speculative purposes.
INTEREST RATE AND DEBT SENSITIVITY
As of June 30, 1999, the Company had debt totaling $26,805,000, most of
which bears interest at floating rates. The Company did not have any interest
rate swaps in effect at June 30, 1999. Interest rate swaps act as a hedge of the
underlying debt instruments to effectively change the characteristics of the
interest rate without actually changing the debt instruments.
The Company performed a sensitivity analysis as of June 30, 1999, assuming
a hypothetical one percentage point increase in interest rates. Holding other
variables constant (such as foreign exchange rates, swaps and debt levels), a
one percentage point increase in interest rates would not have a material effect
on the Company's results of operations. However, actual increases or decreases
in earnings in the future could differ materially from this analysis based on
the timing and amount of both interest rate changes and amounts borrowed by the
Company.
CURRENCY EXCHANGE RATE SENSITIVITY
The Company derived approximately 56% of its revenues from countries
outside of the United States for the fiscal year ended June 30, 1999. Results
were and continue to be affected by fluctuations in foreign currency exchange
rates. The Company's policy is to hedge the impact of currency rate fluctuations
which could have a material impact on the Company's financial results. The
Company utilizes foreign currency exchange forward contracts to hedge these
exposures. The Company also maintains certain levels of cash denominated in
various currencies which acts as a natural overall hedge. Open foreign currency
exchange forward contracts were not material at June 30, 1999.
The Company performed a sensitivity analysis as of June 30, 1999 assuming a
hypothetical 10% adverse change in foreign currency exchange rates. Holding all
other variables constant, the analysis indicated that such a market movement
would not have a material adverse effect on the Company's results of operations.
However, actual gains and losses in the future could differ materially from this
analysis based on the timing and amount of both foreign currency exchange rate
movements and the Company's actual exposures and hedges.
18
<PAGE> 21
[This page intentionally left blank]
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... 21
Consolidated Balance Sheets at June 30, 1999 and June 30,
1998...................................................... 22
Consolidated Statements of Income for the years ended June
30, 1999, June 30, 1998 and June 30, 1997................. 24
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 1999, June 30, 1998 and June
30, 1997.................................................. 25
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, June 30, 1998 and June 30, 1997............ 26
Notes to Consolidated Financial Statements.................. 28
</TABLE>
20
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
BALDWIN TECHNOLOGY COMPANY, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Baldwin Technology Company, Inc. and its subsidiaries at June 30,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
August 6, 1999
21
<PAGE> 24
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................... $ 10,028 $ 15,054
Short-term securities.................................. 645 6,972
Accounts receivable trade, net of allowance for
doubtful accounts of $1,740 ($1,713 at June 30,
1998)............................................... 37,387 39,839
Notes receivable, trade................................ 9,511 13,323
Inventories............................................ 31,791 35,166
Prepaid expenses and other............................. 8,821 8,086
-------- --------
Total current assets.......................... 98,183 118,440
-------- --------
MARKETABLE SECURITIES :
(Cost $681 at June 30, 1999 and $586 at June 30,
1998)............................................... 785 738
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings..................................... 3,060 3,123
Machinery and equipment................................ 6,430 7,210
Furniture and fixtures................................. 5,313 5,539
Leasehold improvements................................. 834 1,028
Capital leases......................................... 3,413 5,339
-------- --------
19,050 22,239
Less: Accumulated depreciation and amortization.......... 12,122 15,241
-------- --------
Net property, plant and equipment........................ 6,928 6,998
-------- --------
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS, at cost,
less accumulated amortization of $5,912 ($5,410 at June
30, 1998).............................................. 4,534 4,935
GOODWILL, less accumulated amortization of $9,103 ($8,033
at June 30, 1998)...................................... 30,900 29,394
OTHER ASSETS............................................. 18,025 14,523
-------- --------
TOTAL ASSETS.................................. $159,355 $175,028
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
22
<PAGE> 25
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Loans payable.......................................... $ 3,893 $ 4,481
Current portion of long-term debt...................... 6,397 6,330
Accounts payable, trade................................ 10,691 15,962
Notes payable, trade................................... 11,387 9,707
Accrued salaries, commissions, bonus and
profit-sharing...................................... 6,946 9,351
Customer deposits...................................... 5,661 14,180
Accrued and withheld taxes............................. 2,271 2,282
Income taxes payable................................... 7,127 10,478
Other accounts payable and accrued liabilities......... 14,656 15,603
-------- --------
Total current liabilities..................... 69,029 88,374
-------- --------
LONG-TERM LIABILITIES:
Long-term debt......................................... 16,515 17,072
Other long-term liabilities............................ 7,271 6,125
-------- --------
Total long-term liabilities................... 23,786 23,197
-------- --------
Total liabilities............................. 92,815 111,571
-------- --------
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares
authorized, 16,458,849 shares issued (16,431,683 at
June 30, 1998)...................................... 165 164
Class B Common Stock, $.01 par, 4,500,000 shares
authorized, 2,000,000 shares issued................. 20 20
Capital contributed in excess of par value............. 57,496 57,359
Retained earnings...................................... 20,793 15,168
Cumulative translation adjustment...................... (2,313) (3,423)
Unrealized gain on investments net of $43 of deferred
taxes ($73 at June 30, 1998)........................ 61 79
Less: Treasury stock, at cost:
Class A -- 1,953,502 shares (1,102,802 at June 30,
1998)
Class B -- 164,117 shares (164,117 at June 30,
1998)............................................... (9,682) (5,910)
-------- --------
Total shareholders' equity.................... 66,540 63,457
-------- --------
COMMITMENTS..............................................
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $159,355 $175,028
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
23
<PAGE> 26
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales...................................... $232,771 $231,408 $244,146
Cost of goods sold............................. 158,780 155,151 163,791
-------- -------- --------
Gross profit................................... 73,991 76,257 80,355
-------- -------- --------
Operating expenses:
General and administrative................... 23,985 24,634 27,627
Selling...................................... 18,525 18,723 22,808
Engineering.................................. 13,715 13,136 14,604
Research and development..................... 5,693 5,378 6,821
Provision for loss on the disposition of
pre-press operations...................... 2,400 42,407
Restructuring charge......................... 870
-------- -------- --------
65,188 61,871 114,267
-------- -------- --------
Operating income (loss)........................ 8,803 14,386 (33,912)
-------- -------- --------
Other (income) expense:
Interest expense............................. 2,301 2,792 3,516
Interest (income)............................ (453) (521) (414)
Minority interest............................ 15 (97) (190)
Other (income), net.......................... (3,199) (2,330) (1,617)
-------- -------- --------
(1,336) (156) 1,295
-------- -------- --------
Income (loss) from operations before taxes..... 10,139 14,542 (35,207)
-------- -------- --------
Provision (benefit) for income taxes:
Domestic:
Federal................................... 2,148 4,641 (707)
State..................................... 504 345 344
Foreign................................... 1,862 540 3,153
-------- -------- --------
Total income taxes.................. 4,514 5,526 2,790
-------- -------- --------
Net income (loss).............................. $ 5,625 $ 9,016 $(37,997)
======== ======== ========
Basic income (loss) per share.................. $ 0.33 $ 0.53 $ (2.21)
======== ======== ========
Diluted income (loss) per share................ $ 0.33 $ 0.52 $ (2.21)
======== ======== ========
Weighted average shares outstanding:
Basic........................................ 16,801 17,145 17,228
======== ======== ========
Diluted...................................... 17,148 17,480 17,228
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
24
<PAGE> 27
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CLASS A CLASS B CAPITAL UNREALIZED
COMMON STOCK COMMON STOCK IN EXCESS CUMULATIVE GAIN
------------------- ------------------ OF PAR RETAINED TRANSLATION (LOSS) ON
SHARES AMOUNT SHARES AMOUNT VALUE EARNINGS ADJUSTMENTS INVESTMENTS
---------- ------ --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 16,391,683 $164 2,000,000 $20 $57,185 $44,149 $ 49 $118
Year ended June 30, 1997:
Net loss for the year (37,997)
Unrealized loss on
available-for-sale
securities, net of
tax (5)
Translation adjustment 489
Comprehensive loss
Purchase of treasury
stock
Stock received in the
settlement of an
indemnification claim
made under the
Acrotec Stock
Purchase Agreement
---------- ---- --------- --- ------- -------- ------- ----
Balance at June 30, 1997 16,391,683 164 2,000,000 20 57,185 6,152 538 113
Year ended June 30, 1998:
Net income for the year 9,016
Unrealized loss on
available-for-sale
securities, net of
tax (34)
Translation adjustment (3,961)
Comprehensive income
Stock options exercised 40,000 174
---------- ---- --------- --- ------- -------- ------- ----
Balance at June 30, 1998 16,431,683 164 2,000,000 20 57,359 15,168 (3,423) 79
Year ended June 30, 1999:
Net income for the year 5,625
Unrealized loss on
available-for-sale
securities, net of
tax (18)
Translation adjustment 1,110
Comprehensive income
Stock options exercised 27,166 1 137
Purchase of treasury
stock
---------- ---- --------- --- ------- -------- ------- ----
Balance at June 30, 1999 16,458,849 $165 2,000,000 $20 $57,496 $20,793 $(2,313) $ 61
========== ==== ========= === ======= ======== ======= ====
<CAPTION>
TREASURY
STOCK
-------------------- COMPREHENSIVE
SHARES AMOUNT INCOME (LOSS)
---------- ------- -------------
<S> <C> <C> <C>
Balance at June 30, 1996 (982,273) $(4,629)
Year ended June 30, 1997:
Net loss for the year $(37,997)
Unrealized loss on
available-for-sale
securities, net of
tax (5)
Translation adjustment 489
--------
Comprehensive loss $(37,513)
========
Purchase of treasury
stock (156,400) (481)
Stock received in the
settlement of an
indemnification claim
made under the
Acrotec Stock
Purchase Agreement (128,246) (800)
---------- -------
Balance at June 30, 1997 (1,266,919) (5,910)
Year ended June 30, 1998:
Net income for the year $ 9,016
Unrealized loss on
available-for-sale
securities, net of
tax (34)
Translation adjustment (3,961)
--------
Comprehensive income $ 5,021
========
Stock options exercised
---------- -------
Balance at June 30, 1998 (1,266,919) (5,910)
Year ended June 30, 1999:
Net income for the year $ 5,625
Unrealized loss on
available-for-sale
securities, net of
tax (18)
Translation adjustment 1,110
--------
Comprehensive income $ 6,717
========
Stock options exercised
Purchase of treasury
stock (850,700) (3,772)
---------- -------
Balance at June 30, 1999 (2,117,619) $(9,682)
========== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
25
<PAGE> 28
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from operations..................... $ 5,625 $ 9,016 $(37,997)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization.................. 3,662 3,985 4,321
Accrued retirement pay......................... 338 569 228
Provision for losses on accounts receivable.... 35 303 429
Provision for loss on the disposition of
pre-press operations........................ 2,400 42,407
Restructuring charge........................... 870
Changes in assets and liabilities net of
effects from the acquisitions and
disposition:
Accounts and notes receivable............... 5,611 (5,060) (164)
Inventories................................. (426) (9,101) 3,678
Prepaid expenses and other.................. (738) (921) 61
Other assets................................ 67 (5,964) (2,106)
Customer deposits........................... (7,433) 8,408 631
Accrued compensation........................ (2,258) 1,883 (826)
Accounts and notes payable, trade........... (4,417) 1,509 2,533
Income taxes payable........................ (3,435) 5,539 2
Accrued and withheld taxes.................. 24 427 38
Other accounts payable and accrued
liabilities.............................. (3,559) 2,735 (143)
Interest payable............................ (11) (86) (31)
-------- -------- --------
Net cash (used) provided by operating activities.... (3,645) 13,242 13,061
-------- -------- --------
Cash flows from investing activities:
Proceeds from the disposition of businesses....... 2,798 5,925
Acquisitions of subsidiaries, net of cash
acquired....................................... (2,999) (538)
Additions of property, net........................ (2,334) (1,967) (1,395)
Additions of patents, trademarks and drawings,
net............................................ (520) (432) (742)
-------- -------- --------
Net cash (used) provided by investing activities.... (3,055) 3,526 (2,675)
-------- -------- --------
Cash flows from financing activities:
Long-term borrowings.............................. 16,704 9,806 3,776
Short-term borrowings............................. 4,536 3,619 8,802
Long-term debt repayment.......................... (16,963) (12,896) (9,052)
Short-term debt repayment......................... (5,383) (6,899) (8,381)
Stock options exercised........................... 138 174
Principal payments under capital lease
obligations.................................... (288) (282) (273)
Other long-term liabilities....................... (162) (178) (332)
Treasury stock purchased.......................... (3,772) (481)
-------- -------- --------
Net cash used by financing activities............... (5,190) (6,656) (5,941)
-------- -------- --------
Effect of exchange rate changes..................... 537 (1,539) (786)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents....................................... (11,353) 8,573 3,659
Cash and cash equivalents at beginning of year...... 22,026 13,453 9,794
-------- -------- --------
Cash and cash equivalents at end of year............ $ 10,673 $ 22,026 $ 13,453
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
26
<PAGE> 29
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period for:
Interest........................................... $2,312 $2,878 $3,547
Income taxes....................................... $8,500 $5,917 $3,078
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FISCAL YEAR ENDED JUNE 30, 1999.
The Company did not enter into any capital lease agreements for the year
ended June 30, 1999.
FISCAL YEAR ENDED JUNE 30, 1998.
The Company entered into capital lease agreements of $78,000 for the year
ended June 30, 1998.
FISCAL YEAR ENDED JUNE 30, 1997.
The Company reclassified $6,250,000 of its 8.17% Senior Notes to "Current
portion of long-term debt" from "Long-term debt" as the first scheduled
installment became current.
All previously capitalized patent costs that had been recorded in "Other
assets" have been realized as royalties.
The Company entered into capital lease agreements of $62,000 for the year
ended June 30, 1997.
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.
27
<PAGE> 30
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION OF BUSINESS:
Baldwin Technology Company, Inc. and its subsidiaries ("Baldwin" or the
"Company") are engaged primarily in the development, manufacture and sale of
material handling, accessory and control equipment for the printing industry.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following are the significant accounting policies followed by the
Company:
CONSOLIDATION. The consolidated financial statements include the accounts
of Baldwin, its wholly owned subsidiaries and its 90% owned subsidiary
(Globaltec Limited). All significant intercompany transactions have been
eliminated in consolidation.
TRANSLATION OF FOREIGN CURRENCIES. All assets and liabilities of foreign
subsidiaries are translated into dollars at year-end (current) exchange rates
and components of revenue and expense are translated at average rates for the
year. The resulting translation adjustments are included in shareholders'
equity. Gains and losses on foreign currency exchange transactions are reflected
in the statement of income. Net transaction gains (losses) credited or charged
to income for the years ended June 30, 1999, 1998 and 1997 were $(176,000),
$111,000 and $(182,000), respectively.
HEDGING. The Company operates internationally and is exposed to certain
market risks arising from transactions, that in the normal course of business,
include fluctuations in interest rates and currency exchange rates. While the
Company uses derivative financial instruments in order to manage or reduce these
risks, typically currency futures contracts, the Company does not enter into
derivative or other financial instruments for trading or speculative purposes.
The Company's policy is to hedge the impact of currency rate fluctuations which
could have a material impact on the Company's financial results. The Company
utilizes foreign currency exchange forward contracts to hedge these exposures.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
trade accounts receivable. The Company controls this risk through credit
approvals, customer limits and monitoring procedures. The Company can, however,
limit the amount of support provided to its customer in the event of customer
non-payment. The Company's ten largest customers accounted for approximately 46%
(including the Company's largest customer who accounted for approximately 11%)
of the Company's net sales for the fiscal year ended June 30, 1999.
MARKETABLE SECURITIES. The Company classifies all of its marketable
securities as available-for-sales securities. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses net of income taxes,
reported as a component of stockholders' equity.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined on the last-in, first-out (LIFO) method for domestic inventories
and the first-in, first-out (FIFO) method for foreign inventories. If the FIFO
method had been used for all inventories, the total stated amount for
inventories would have been $911,000 and $754,000 greater as of June 30, 1999
and 1998, respectively.
28
<PAGE> 31
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PLANT AND EQUIPMENT. The Company depreciates its assets over their
estimated useful lives. Plant and equipment are depreciated using primarily the
straight-line method. Repair and maintenance expenditures are expensed as
incurred. Depreciation expense amounted to $1,893,000, $2,263,000 and $2,077,000
for the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
PATENT, TRADEMARKS AND ENGINEERING DRAWINGS. The cost of patents,
trademarks and engineering drawings are being amortized on a straight-line basis
over the estimated useful lives of the related assets. Amortization expense
amounted to $774,000, $761,000 and $783,000 for the fiscal years ended June 30,
1999, 1998 and 1997, respectively.
GOODWILL. Goodwill represents the excess of purchase price over the fair
market value of net assets acquired and is being amortized over 40 years on a
straight-line basis. Goodwill is measured for possible impairment, as of each
balance sheet date, based upon undiscounted future cash flows from the related
operations. Should such undiscounted future cash flows be less than the carrying
value, a charge to operations for the shortfall would be recorded. Goodwill
increased $175,000 in fiscal 1999 (decreased $1,509,000 in fiscal 1998) due to
the impact of foreign exchange fluctuations. Amortization expense amounted to
$995,000, $961,000 and $1,461,000 for the fiscal years ended June 30, 1999, 1998
and 1997, respectively.
INCOME TAXES. Deferred taxes are determined under the asset and liability
approach. Deferred tax assets and liabilities are recognized on differences
between the book and tax basis of assets and liabilities using presently enacted
tax rates.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS. The Company's financial
instruments consist of cash, short-term securities, accounts receivable, notes
receivable, marketable securities, capital lease obligations, accounts payable,
notes payable and other short and long term borrowings. The current carrying
amount of these instruments approximates fair market value.
DEFERRED LOAN ORIGINATION COSTS. At June 30, 1999, these costs were
$1,252,000 less $1,127,000 of accumulated amortization ($1,641,000 less
$1,397,000 of accumulated amortization at June 30, 1998) and were included in
"Other assets".
WARRANTY AND CUSTOMER SUPPORT. Estimated future warranty and customer
support obligations related to certain products are provided by charges to
operations in the period in which the related revenue is recognized. The Company
has accrued estimated future warranty and customer support obligations of
$4,545,000 and $4,495,000 at June 30, 1999 and 1998 respectively, which is
included in "Other accounts payable and accrued liabilities".
NET INCOME (LOSS) 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, similar to fully diluted earnings per
share. The weighted average shares outstanding used to compute diluted income
(loss) per share includes 347,000, 335,000 and 0 (none) shares, for the years
ended June 30, 1999, 1998 and 1997, respectively, which represent potentially
dilutive securities. These include primarily outstanding options to purchase the
Company's common stock.
COMPREHENSIVE INCOME (LOSS). As shown in the Statement of Changes in
Shareholders' Equity, comprehensive income (loss) is a measure of net income
(loss) and all other changes in equity of
29
<PAGE> 32
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company that result from recognized transactions and other events of the
period other than transactions with shareholders.
BUSINESS SEGMENT INFORMATION. The Company has adopted Statement of
Financial Accounting Standard No. 131 ("FAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", for the period ended June 30, 1999,
and has restated the prior periods presented to conform to the new standard. FAS
131 requires that business segment financial information be reported in the
financial statements utilizing the management approach. The management approach
is defined as the manner in which management organizes the segments within the
enterprise for making operating decisions and assessing performance.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). The effective date of FAS 133 has been
delayed, and is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (July 1, 2000 for the Company). FAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company anticipates that, due to its limited use
of derivative instruments, the adoption of FAS 133 will not have a significant
effect on the Company's results of operations or its financial position.
RECLASSIFICATIONS. The Company has reclassified $1,501,000 from "Other
accounts payable and accrued liabilities" to "Other long-term liabilities" at
June 30, 1998, to conform to the current year's presentation, which represents
the long-term portion of certain deferred compensation arrangements.
NOTE 3 -- PROVISION FOR LOSS ON THE DISPOSITION OF PRE-PRESS OPERATIONS:
In June 1997, the Company sold all of the outstanding shares of its former
pre-press operations to Kaber Imaging, Inc. (the "Purchaser"). The Company
recorded a loss on this disposition in the amount of $42,407,000 in the fiscal
year ended June 30, 1997. As a result of the original purchase of the former
pre-press operations by the Company in July 1990, the Company guaranteed certain
unfunded pension liabilities. In conjunction with the sale of the pre-press
operation in June 1997, the Purchaser contractually agreed to have the Company
removed from these guarantee obligations and further, to reimburse the Company
for any claims brought against the Company regarding these pension liabilities.
As a result of the Purchaser's and the former pre-press operations' bankruptcy
filings in February 1999, the Company became required to fulfill its guarantee
obligation with respect to these pension liabilities. Accordingly, the Company
has recorded a charge to earnings in the current period in the amount of
$2,400,000, the estimated amount of these obligations. As of June 30, 1999, the
Company has paid $1,540,000, and the remaining balance of $860,000, is included
as a current liability in "Other accounts payable and accrued liabilities".
30
<PAGE> 33
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RESTRUCTURING CHARGE AND 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 Americas. As of June 30, 1999, $144,000 has been charged
against this reserve and the balance of $726,000 is included in "Other accounts
payable and accrued liabilities".
NOTE 5 -- BUSINESS SEGMENT INFORMATION:
Effective June 30, 1999, the Company adopted FAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which requires the
Company to redefine its operating segments using a management approach and to
restate all prior years' segment information on the same basis. Operating
segments are defined as material components of an enterprise about which
separate information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and assess performance.
The Company has two reportable operating segments, 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 printed material and improve productivity.
The MHG segment includes products which handle the materials supplied to the
press, and automates the handling of the finished printed material. The all
other category is comprised of the Print On-Demand Group which operates in the
short-run digital printing market.
The accounting policies of the operating segments are the same as those
described in Note 2. An operating segment's performance is primarily evaluated
based on operating profit. Sales are determined based on the country in which
the subsidiary is legally domiciled. Long-lived assets are principally comprised
of net property, plant and equipment; patents and trademarks; goodwill; and
certain other assets.
The tables below present information about reported segments for the years
ended June 30, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
NET SALES: -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $153,128 $152,336 $154,550
Material Handling Group........................ 79,453 81,271 63,732
All other...................................... 1,900 928 141
-------- -------- --------
Total ongoing segments........................... 234,481 234,535 218,423
Inter-segment sales.............................. (1,710) (3,127) (2,605)
Divested operations.............................. 28,328
-------- -------- --------
Total Net Sales....................... $232,771 $231,408 $244,146
======== ======== ========
</TABLE>
31
<PAGE> 34
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
OPERATING INCOME (LOSS): (a) -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $ 14,219 $ 15,554 $ 13,194
Material Handling Group........................ 4,640 7,121 5,686
All other...................................... 144 (1,169) (348)
-------- -------- --------
Total ongoing segments........................... 19,003 21,506 18,532
Corporate........................................ (7,800) (7,120) (10,037)
Divested operations.............................. (2,400) (42,407)
-------- -------- --------
Total operating income (loss).................... 8,803 14,386 (33,912)
Interest expense, net............................ (1,848) (2,271) (3,102)
Other income, net (b)............................ 3,184 2,427 1,807
-------- -------- --------
Income (loss) before income taxes..... $ 10,139 $ 14,542 $(35,207)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
IDENTIFIABLE ASSETS: -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $ 86,920 $ 89,563 $ 95,853
Material Handling Group........................ 51,145 60,416 54,691
All other...................................... 286 1,121 786
-------- -------- --------
Total ongoing segments........................... 138,351 151,100 151,330
Corporate........................................ 21,004 23,928 10,793
-------- -------- --------
Total identifiable assets............. $159,355 $175,028 $162,123
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
CAPITAL EXPENDITURES: -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $ 1,710 $ 1,361 $ 1,143
Material Handling Group........................ 1,071 953 761
All other...................................... 11 11 0
-------- -------- --------
Total ongoing segments........................... 2,792 2,325 1,904
Corporate........................................ 62 74 107
Divested operations.............................. 126
-------- -------- --------
Total capital expenditures............ $ 2,854 $ 2,399 $ 2,137
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
DEPRECIATION AND AMORTIZATION: -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $ 1,733 $ 1,483 $ 1,745
Material Handling Group........................ 2,021 2,287 1,573
All other...................................... 26 18 0
-------- -------- --------
Total ongoing segments........................... 3,780 3,788 3,318
Corporate and eliminations....................... (118) 197 260
Divested operations.............................. 743
-------- -------- --------
Total depreciation and amortization... $ 3,662 $ 3,985 $ 4,321
======== ======== ========
</TABLE>
32
<PAGE> 35
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
GEOGRAPHIC INFORMATION: -------- -------- --------
<S> <C> <C> <C>
Sales by major country
United States.................................. $102,566 $102,579 $ 95,833
Japan.......................................... 52,633 59,565 59,904
Germany........................................ 36,368 35,990 43,543
Sweden......................................... 23,075 19,169 23,344
All other -- foreign........................... 18,129 14,105 21,522
-------- -------- --------
Total sales by major country.......... $232,771 $231,408 $244,146
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
LONG-LIVED ASSETS BY MAJOR COUNTRY:
<S> <C> <C> <C>
United States.................................. $ 24,813 $ 25,707 $ 26,386
Japan.......................................... 5,017 4,511 5,690
Germany........................................ 3,570 3,703 3,937
Sweden......................................... 6,488 7,270 8,118
All other -- foreign........................... 2,849 379 393
-------- -------- --------
Total long-lived assets by major
country............................ $ 42,737 $ 41,570 $ 44,524
======== ======== ========
</TABLE>
- ---------------------
(a) Operating income (loss) has been reduced by the following special charges:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
RESTRUCTURING CHARGES: -------- -------- --------
<S> <C> <C> <C>
Graphic Products and Controls Group............ $ 845 $ 0 $ 0
Material Handling Group........................
All other......................................
-------- -------- --------
Total ongoing segments........................... 845 0 0
Corporate........................................ 25
-------- -------- --------
Total restructuring charges........... $ 870 $ 0 $ 0
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
PROVISION FOR LOSS ON DISPOSITION OF PRE-PRESS OPERATIONS: -------- -------- --------
<S> <C> <C> <C>
Divested operations.................................. $ 2,400 $ 0 $ 42,407
-------- -------- --------
Total provision for loss on disposition of
pre-press operations................... $ 2,400 $ 0 $ 42,407
======== ======== ========
</TABLE>
(b) Other income (expense) is comprised of the following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
OTHER INCOME (EXPENSE): -------- -------- --------
<S> <C> <C> <C>
Royalty income, net.............................. $ 3,468 $ 1,884 $ 1,652
Minority interest................................ (15) 97 190
Other income (expense), net...................... (269) 446 (35)
-------- -------- --------
Total other income, net............... $ 3,184 $ 2,427 $ 1,807
======== ======== ========
</TABLE>
33
<PAGE> 36
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------
DOMESTIC FOREIGN TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
Raw materials............................. $ 4,868,000 $ 7,446,000 $12,314,000
In process................................ 7,503,000 5,386,000 12,889,000
Finished goods............................ 4,556,000 2,032,000 6,588,000
----------- ----------- -----------
$16,927,000 $14,864,000 $31,791,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------
DOMESTIC FOREIGN TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
Raw materials............................. $ 7,404,000 $ 6,754,000 $14,158,000
In process................................ 5,374,000 6,358,000 11,732,000
Finished goods............................ 6,429,000 2,847,000 9,276,000
----------- ----------- -----------
$19,207,000 $15,959,000 $35,166,000
=========== =========== ===========
</TABLE>
Foreign inventories decreased $123,000 (decreased $1,513,000 in 1998) due
to translation rates in effect at June 30, 1999 when compared to rates at June
30, 1998.
NOTE 7 -- LOANS PAYABLE:
<TABLE>
<CAPTION>
RATE AMOUNT
--------------- ----------
<S> <C> <C>
SHORT-TERM INDEBTEDNESS AT JUNE 30, 1999:
Foreign subsidiaries.................................. 2.91% (average) $3,893,000
==========
SHORT-TERM INDEBTEDNESS AT JUNE 30, 1998:
Foreign subsidiaries.................................. 3.09% (average) $4,481,000
==========
</TABLE>
The maximum amount of loans payable outstanding during the year ended June
30, 1999 was $6,624,000 ($8,297,000 in 1998). Average rates are weighted by
month and reflect the monthly amount of short-term borrowing in use and the
respective rates of interest thereon. Loans payable increased by $259,000
(decreased by $551,000 in 1998), due to translation rates in effect at June 30,
1999 when compared to rates at June 30, 1998.
34
<PAGE> 37
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------------------ ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Notes payable in equal annual
installments through October,
2000, interest rate 8.17%....... $6,250,000 $ 6,250,000 $6,250,000 $12,500,000
Note payable December, 2000,
interest rate (1.25% over LIBOR)
6.25%........................... 6,000,000
Note payable December, 2000,
interest rate (1.25% over LIBOR)
3.99%........................... 3,165,000 3,320,000
Note payable by foreign subsidiary
through 2008, interest rate
5.00%........................... 106,000 877,000 1,130,000
Industrial revenue bond payable in
annual installments through
October, 1998, interest rate
9%.............................. 28,000
Notes payable by foreign
subsidiary through 2002,
interest rate 9.9%.............. 32,000 47,000 34,000 83,000
Notes payable by foreign
subsidiary through March, 2000,
interest rate 6.25%............. 175,000 28,000
Note payable by foreign subsidiary
through August, 2000, interest
rate 6.75%...................... 9,000 1,000 18,000 11,000
---------- ----------- ---------- -----------
$6,397,000 $16,515,000 $6,330,000 $17,072,000
========== =========== ========== ===========
</TABLE>
Notes payable, denominated in currencies other than the U.S. dollar,
decreased by $232,000 (decreased by $189,000 in 1998), due to translation rates
in effect at June 30, 1999 when compared to rates at June 30, 1998. The foreign
note due through 2008, with an interest rate of 5.00%, is collateralized by
buildings as outlined in the indenture relating thereto. Approximately $265,000
of the loans included above are collateralized by assets of foreign subsidiaries
of the Company. The notes payable through October, 2000 (the "Senior Notes") and
the note payable December, 2000 (the "Revolver", a $25,000,000 credit facility)
are collateralized by a pledge of the capital stock of the Company's domestic
subsidiaries. The Senior Notes and the Revolver require the Company to maintain
certain financial covenants and have certain restrictions regarding the payments
of dividends, limiting them to $1,000,000 plus 50% of the Company's net income
after January 1, 1997.
Both the Senior Notes and the Revolver require the Company to maintain a
ratio of current assets to current liabilities (as these terms are defined in
the agreements) of not less than 1.40 to 1.00. At June 30, 1999, this ratio was
1.65 to 1.00. In addition, the Revolver requires the Company to maintain a
specified fixed charges ratio (as defined in the agreement). During the fourth
quarter ended June 30, 1999, the Company did not meet this covenant and received
a waiver for such period.
35
<PAGE> 38
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt in each fiscal year ending after June 30, 1999
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30,
- ---------------------------
<S> <C>
2000........................................................ $ 6,397,000
2001........................................................ 15,691,000
2002........................................................ 160,000
2003........................................................ 106,000
2004........................................................ 106,000
2005 and thereafter......................................... 452,000
-----------
$22,912,000
===========
</TABLE>
At June 30, 1999, the Company had available lines of credit of $36,039,000
upon which $13,058,000 had been drawn and of which $9,165,000 is included in
long-term debt. Only the Revolver has associated commitment fees. The commitment
fees, which are calculated quarterly, range from one-quarter to one-half of one
percent per annum of the unused portion of the Revolver. Commitment fees for the
years ended June 30, 1999, 1998 and 1997 were $41,000, $71,000 and $61,000,
respectively.
NOTE 9 -- TAXES ON INCOME:
Income (loss) from operations before taxes and the provision (benefit) for
income taxes are comprised of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Income (loss) from operations before
taxes:
Domestic........................... $ 7,379,000 $11,378,000 $ 346,000
Foreign............................ 2,760,000 3,164,000 (35,553,000)
----------- ----------- ------------
$10,139,000 $14,542,000 $(35,207,000)
=========== =========== ============
Provision (benefit) for income taxes:
Currently payable:
Domestic........................ $ 1,578,000 $ 6,486,000 $ (363,000)
Foreign......................... 2,612,000 4,571,000 3,522,000
----------- ----------- ------------
4,190,000 11,057,000 3,159,000
----------- ----------- ------------
(Prepaid) deferred:
Domestic........................... (1,500,000)
Foreign............................ 324,000 (4,031,000) (369,000)
----------- ----------- ------------
324,000 (5,531,000) (369,000)
----------- ----------- ------------
Total income tax
expense................ $ 4,514,000 $ 5,526,000 $ 2,790,000
=========== =========== ============
</TABLE>
36
<PAGE> 39
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are provided on temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities.
The principal temporary differences which give rise to deferred tax assets and
liabilities at June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Foreign tax credit
carryforwards................ $ 6,505,000 $ 1,916,000
Foreign net operating loss
carryforwards................ 17,969,000 18,667,000
Capital loss carryforwards..... 3,475,000 3,021,000
Inventories.................... 2,258,000 1,847,000
Pension........................ 1,718,000 1,563,000
Other, individually less than
5% of "Net Deferred Tax
Asset'....................... 2,723,000 $1,078,000 2,583,000 $935,000
----------- ---------- ----------- --------
Net Deferred Tax Asset and
Liability.................... $34,648,000 $1,078,000 $33,570,000 $29,597,000 $935,000 $28,662,000
=========== ========== =========== ========
Valuation Allowance............ (24,733,000) (19,868,000)
----------- -----------
Total Net Deferred Tax
Assets.............. $ 8,837,000 $ 8,794,000
=========== ===========
</TABLE>
At June 30, 1999, net operating loss carryforwards of $66,933,000 are
available to reduce future foreign taxable income. The Company also has capital
loss carryforwards in the amount of $10,292,000 ($9,674,000 of which is domestic
and expires in fiscal year 2002 and 2003 and the remainder in England having an
indefinite carryforward period) available at June 30, 1999. The Company also has
$1,408,000 in domestic net operating loss carryforwards subject to separate
return limitation year rules ("SRLY"). Total net deferred tax assets of
$8,837,000 and $8,794,000 are included in "Other assets" as of June 30, 1999 and
1998, respectively
The Company has not had to provide for income taxes on $12,256,000 of
cumulative undistributed earnings of subsidiaries outside the United States
because of the Company's intention to reinvest those earnings. In the event that
earnings were remitted, the tax effect on the results of operations after
considering available tax credits would not be significant.
The total income tax expense allocated to operations exceeded the computed
"expected" (benefit) tax (determined by applying the United States Federal
statutory income tax rate of 34% to
37
<PAGE> 40
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(loss) income from operations before taxes) by $1,067,000, $582,000 and
$14,760,000 for the years ended June 30, 1999, 1998 and 1997, respectively. The
reasons for the difference are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------
1999 1998 1997
---------- ---------- ------------
<S> <C> <C> <C>
Computed "expected" tax (benefit)............ $3,447,000 $4,944,000 $(11,970,000)
State income taxes, net of federal income tax
benefit.................................... 332,000 228,000 227,000
Foreign income taxed at higher (lower) than
the U.S. statutory rate.................... (441,000) 5,047,000 309,000
Change in deferred tax asset valuation....... (5,500,000)
SRLY NOL..................................... 338,000
Pre-press divestiture........................ 816,000 14,418,000
Goodwill write-off not deductible for
taxes...................................... 196,000 255,000 213,000
Foreign Sales Corporation.................... (256,000) (335,000) (368,000)
Other reconciling items, individually less
than 5% of the "expected" tax.............. 420,000 549,000 (39,000)
---------- ---------- ------------
Total income tax expense.......... $4,514,000 $5,526,000 $ 2,790,000
========== ========== ============
</TABLE>
NOTE 10 -- COMMON STOCK:
The holders of the Company's Class A Common Stock, voting as a separate
class, are entitled to elect 25% of the members of the Board of Directors.
Holders of Class B Common Stock, voting as a separate class, are entitled to
elect the remaining Directors, so long as the number of outstanding shares of
Class B Common Stock is equal to at least 12.5% of the number of outstanding
shares of both classes of Common Stock as of the record date of the Company's
Annual Meeting. If the number of outstanding shares of Class B Common Stock is
less than 12.5% of the total number of outstanding shares of both classes of
Common Stock as of the record date of the Annual Meeting, the holders of Class A
Common Stock, voting as a separate class, continue to elect a number of
Directors equal to 25% of the total number of Directors constituting the entire
Board of Directors and the remaining directors are elected by the holders of
both classes of Common Stock, with the holders of Class A Common Stock having
one vote per share and the holders of Class B Common Stock having ten votes per
share. As of June 30, 1999, the number of outstanding shares of Class B Common
Stock constituted 11.2% (10.7% in 1998) of the total number of outstanding
shares of both classes of Common Stock.
The Class A Common Stock has no conversion rights, however, Class B Common
Stock is convertible into Class A Common Stock on a one-for-one basis. In
addition, no dividend in cash or property may be declared or paid on shares of
Class B Common Stock without a dividend being declared or paid on shares of
Class A Common Stock of at least 105% of that on the Class B Common Stock.
In November of 1998, the Company's stock repurchase program was increased
from $10,000,000 to $15,000,000 of Class A Common Stock and 500,000 shares of
Class B Common Stock. As of June 30, 1999, 2,670,256 shares of Class A Common
Stock (1,819,556 at June 30, 1998) and 164,117 shares of Class B Common Stock
(164,117 at June 30, 1998) had been repurchased for $12,528,000, of which
$11,407,000 represents Class A Common Stock, ($8,756,000 at June 30, 1998 of
which $7,635,000 represents Class A Common Stock) under this program.
38
<PAGE> 41
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- STOCK OPTIONS:
The 1986 Stock Option Plan, as amended and restated (the "1986 Plan"),
allowed for the granting, at fair market value on the date of grant, of
incentive stock options, non-qualified stock options, and tandem stock
appreciation rights (SARS) for up to a total of 2,220,000 and 590,000 shares of
Class A and Class B Common Stock, respectively. Options to purchase shares of
the Company's Class B Common Stock were granted at a price per share of no less
than 125% of the fair market value of a share of Class A Common Stock on the
date of grant. All options become exercisable in three equal annual installments
commencing on the second anniversary of the date of grant. Unexercised options
terminate no later than ten years from the date of grant and canceled shares
become available for future grants. On October 14, 1996 the 1986 Plan
terminated.
The 1990 Directors' Stock Option Plan (the "1990 Plan") provides for the
granting, at fair market value on the date of grant, of up to 100,000 shares of
the Company's Class A and Class B Common Stock as non-qualified stock options to
members of the Company's Board of Directors who are not employees ("Eligible
Directors") of the Company or any of its subsidiaries. Grants are made on the
third business day subsequent to each Annual Meeting of Stockholders, including
the 1990 meeting, to each Eligible Director for 1,000 shares of Class A and
Class B Common Stock in proportion to the number of shares of each such class
then outstanding. Options to purchase shares of the Company's Class B Common
Stock are granted at a price per share of no less than 125% of the fair market
value of a share of Class A Common Stock on the date of grant. Restrictions
under the 1990 Plan are similar to those under the 1986 Plan except with regard
to the exercise date, which is twelve months after the date of grant, and
termination of options, which is generally nine months after termination of
service as a director. The 1990 Directors' Stock Option Plan (the "1990 Plan")
was terminated on November 12, 1998 in connection with the approval of the 1998
Plan, provided however, that outstanding options under the 1990 Plan will
continue to be subject to the terms thereof.
The 1996 Stock Option Plan (the "1996 Plan") allows for the granting, at
fair market value on the date of grant, of incentive stock options,
non-qualified stock options, and tandem stock appreciation rights. Grants from
the 1996 Plan are limited to a maximum outstanding total of 875,000 and 125,000
shares of Class A and Class B Common Stock, respectively, at all times. Options
to purchase shares of the Company's Class B Common Stock are granted at a price
per share of no less than 125% of the fair market value of a share of Class A
Common Stock on the date of grant. Restrictions under the 1996 Plan are similar
to those under the 1986 Plan with regard to the exercise and termination of
options. Canceled shares become available for future grants.
The 1998 Non-Employee Directors' Stock Option Plan (the "1998 Plan")
provides for the issuance of options to purchase up to an aggregate of 250,000
shares of the Company's Class A Common Stock to non-employee Directors of the
Company. Under the 1998 Plan, each year, each eligible Director receives a grant
of options to purchase 3,000 shares of the Company's Class A Common Stock. The
options are granted at the fair market value on the date of grant, and vest
one-third per year on each succeeding anniversary of the date of grant.
Unexercised options terminate no later than ten years from the date of grant and
canceled shares become available for future grants.
39
<PAGE> 42
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THE 1986 PLAN THE 1990 PLAN
-------------------------------------------------- ------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRICE PRICE
OPTION ------------- OPTION -------------
CLASS A CLASS B PRICE RANGE A B CLASS A CLASS B PRICE RANGE A B
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at June 30,
1996..................... 1,309,000 470,000 $3.88-$9.84 $5.01 $7.30 20,463 2,893 $3.75-$6.88 $4.83 $5.92
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Granted................... 352,500 120,000 $3.00-$3.75 $3.00 $3.75 4,470 530 $2.56-$3.20 $2.56 $3.20
Canceled.................. (236,001) (61,667) $3.00-$8.13 $5.11 $6.55
Exercised.................
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Outstanding at June 30,
1997..................... 1,425,499 528,333 $3.00-$9.84 $4.50 $6.58 24,933 3,423 $2.56-$6.88 $4.42 $5.50
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Granted................... 4,465 535 $5.13-$6.41 $5.12 $6.41
Canceled.................. (111,499) (38,333) $3.00-$9.84 $5.20 $8.11 (5,328) (672) $3.75-$6.25 $4.58 $5.70
Exercised................. (40,000) $3.94-$4.00 $3.97
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Outstanding at June 30,
1998..................... 1,274,000 490,000 $3.00-$9.84 $4.46 $6.47 24,070 3,286 $2.56-$6.88 $4.48 $5.57
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Granted...................
Canceled.................. (82,002) $3.00-$5.63 $4.14
Exercised................. (27,166) $3.00-$5.50 $4.87
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Outstanding at June 30,
1999..................... 1,164,832 490,000 $3.00-$9.84 $4.47 $6.47 24,070 3,286 $2.56-$6.88 $4.48 $5.57
========= ======= ============= ===== ===== ======= ======= ============= ===== =====
Exercisable at June 30,
1999..................... 893,388 360,000 $3.00-$9.84 $4.69 $7.03 24,070 3,286 $2.56-$6.88 $4.48 $5.57
========= ======= ============= ===== ===== ======= ======= ============= ===== =====
Available for future
option grants at June 30,
1999..................... 0 0 0 0
========= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THE 1996 PLAN THE 1998 PLAN
-------------------------------------------------- ------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRICE PRICE
OPTION ------------- OPTION -------------
CLASS A CLASS B PRICE RANGE A B CLASS A CLASS B PRICE RANGE A B
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at June 30,
1998..................... 375,000 0 $3.00 $3.00 0 0 0 $0.00 $0.00 0
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Granted................... 200,000 $5.50 $5.50 18,000 $5.50 $5.50
Canceled.................. (67,500) $3.00-$5.50 $3.37
Exercised.................
--------- ------- ------------- ----- ----- ------- ------- ------------- ----- -----
Outstanding at June 30,
1999..................... 507,500 0 $3.00-$5.50 $3.94 0 18,000 0 $5.50 $5.50 0
========= ======= ============= ===== ===== ======= ======= ============= ===== =====
Exercisable at June 30,
1999..................... 0 0 $0.00 $0.00 0 0 0 $0.00 $0.00 $0.00
========= ======= ============= ===== ===== ======= ======= ============= ===== =====
Available for future
option grants at June 30,
1999..................... 367,500 125,000 232,000 0
========= ======= ======= =======
</TABLE>
The following table summarizes information regarding stock options
outstanding and exercisable at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------- ----------------------
WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER OF AVERAGE AVERAGE OF AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- ------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.56 -
$3.75...... 723,759 7.6 years $3.12 139,926 $3.21
$3.88 -
$5.63...... 1,035,884 5.4 years $4.95 742,773 $4.74
$5.88 -
$6.88...... 302,045 5.0 years $6.35 252,045 $6.28
$8.13 -
$9.84...... 146,000 1.8 years $8.85 146,000 $8.85
</TABLE>
40
<PAGE> 43
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (FAS 123), on July 1, 1996 electing
the disclosure only provisions of that statement. Accordingly, no charge for
compensation has been recorded for stock based employee awards. In accordance
with FAS 123, the fair value method of accounting has not been applied to
options granted prior to July 1, 1995. Due to the vesting schedule of options
granted under each of the Plans as well as the exclusion of the fair value of
options granted prior to July 1, 1995, the fair value of compensation cost
calculated to disclose pro forma financial information may not be representative
of that to be expected in future years. The fair value method of calculating the
value of each option granted subsequent to June 30, 1995 was estimated as of the
option grant date using the Black-Scholes option pricing model. Significant
assumptions were used to calculate the estimated fair value of the options by
the pricing model for the years ended June 30, 1999, 1998 and 1997. The
assumptions were that the forfeiture rates and dividend yields were 0% (none)
and the expected average lives were five years for each year, the weighted
average risk free rates were 5.21% for 1999 and 6.22% for 1998 and 6.29% for
1997, and the average volatility was 41.44% for 1999, 42.23% for 1998 and 41.31%
for 1997. If the Company had recorded compensation cost based upon the fair
values as calculated above, the effect on net income (loss) and earnings (loss)
per share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------------
1999 1998 1997
---------- ---------- ------------
<S> <C> <C> <C>
Net income (loss) as reported............ $5,625,000 $9,016,000 $(37,997,000)
Pro forma net income (loss) net of
$199,000 of tax benefit in 1999
(139,000 in 1998, $4,000 in 1997)...... $5,238,000 $8,745,000 $(38,005,000)
Earnings (loss) per share as reported
(basic)................................ $ 0.33 $ 0.53 $ (2.21)
Pro forma earnings (loss) per share
(basic)................................ $ 0.31 $ 0.51 $ (2.21)
Earnings (loss) per share as reported
(diluted).............................. $ 0.33 $ 0.52 $ (2.21)
Proforma earnings (loss) per share
(diluted).............................. $ 0.31 $ 0.50 $ (2.21)
</TABLE>
NOTE 12 -- SUPPLEMENTAL COMPENSATION:
Subsidiaries within the Americas maintain profit sharing, savings and
retirement plans. Amounts expensed under these plans were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------------
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
Baldwin Technology Corporation and Baldwin
Graphic Systems, Inc...................... $535,000 $ 713,000 $ 773,000
Baldwin Kansa Corporation................... 196,000 188,000 193,000
Baldwin Enkel Corporation................... 129,000 109,000 92,000
Misomex of North America, Inc............... 17,000
-------- ---------- ----------
Total expense.................... $860,000 $1,010,000 $1,075,000
======== ========== ==========
</TABLE>
41
<PAGE> 44
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company contributions to each of the above plans, except the Misomex of
North America, Inc. plan, are discretionary and are subject to approval by their
respective Boards of Directors.
Certain subsidiaries and divisions within Europe maintain pension plans.
Amounts expensed under these plans were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Baldwin Grafotec GmbH......................... $(10,000) $211,000 $ 394,000
Misomex AB.................................... 355,000
Amal AB....................................... 169,000 58,000 156,000
IVT Graphics.................................. 96,000 85,000 104,000
Jimek......................................... 184,000 79,000 93,000
Baldwin Europe Consolidated B.V............... 16,000 18,000 18,000
Misomex U.K................................... 107,000
-------- -------- ----------
Total expense...................... $455,000 $451,000 $1,227,000
======== ======== ==========
</TABLE>
The amount of expense relating to the European pension plans is determined
based upon, among other things, the age, salary and years of service of
employees within the plans. The Company's German, English, Swedish and Dutch
subsidiaries make annual contributions to the plans equal to the amounts accrued
for pension expense.
In Germany, at Baldwin Grafotec GmbH, there is currently one additional
pension plan covering 1 employee and 2 former employees. This defined benefit
plan provides for benefits, at maturity age, in lump sum payments on retirement
or death or as a disability pension in case of disability, and is partially
funded by insurance contracts.
Effective June 30, 1999, the Company adopted Financial Accounting Standards
Board Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", ("FAS 132"), which requires the Company to disclose
more detailed information than previously disclosed, and to reconcile beginning
and ending balances of projected benefit obligations and fair values of plan
assets. This statement addresses disclosure only. It does not address
measurement or recognition, and therefore had no impact on the Company's
financial position or results of operations. Accordingly, all prior periods
presented have been restated.
42
<PAGE> 45
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables set forth the components of net periodic benefit
costs, the funded status and key actuarial assumptions, and reconciliations of
projected benefit obligations and fair values of plan assets of the defined
benefit plans:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------
1999 1998 1997
COMPONENTS OF NET PERIODIC PENSION COST: --------- -------- ---------
<S> <C> <C> <C>
Service Cost -- benefits earned during the
period....................................... $ 5,000 $ 45,000 $ 6,000
Interest on projected benefit obligation....... 16,000 22,000 17,000
Annual return on plan assets................... (5,000) (5,000) (5,000)
Amortization of transition obligation.......... 29,000 30,000 32,000
Amortization of net actuarial (gain) loss...... (104,000) (97,000) (106,000)
--------- -------- ---------
Net periodic pension cost........... $ (59,000) $ (5,000) $ (56,000)
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 1998
FUNDED STATUS OF THE PLAN: --------- ---------
<S> <C> <C>
Funded status........................................ $(144,000) $(194,000)
Unrecognized net (gain) loss from past experience
different from changes in assumptions.............. (313,000) (487,000)
Unrecognized prior service cost...................... 0 0
Unrecognized transition obligation................... 187,000 238,000
--------- ---------
Prepaid (accrued) benefit cost............ $(270,000) $(443,000)
========= =========
WEIGHTED AVERAGE ACTUARIAL ASSUMPTIONS:
Discount rate........................................ 7.5% 7.5%
Rate of increase in compensation levels.............. 3.0% 3.0%
Expected rate of return on plan assets............... 7.0% 7.0%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
CHANGE IN PROJECTED BENEFIT OBLIGATION: -------- -------- --------
<S> <C> <C> <C>
Projected benefit obligation -- Beginning of
year......................................... $212,000 $295,000 $328,000
Service Cost -- benefits earned during the
period....................................... 5,000 45,000 6,000
Interest on projected benefit obligation....... 16,000 22,000 17,000
Actuarial (gain) loss.......................... (5,000) (83,000) (13,000)
Curtailments/settlements....................... 0 (57,000) 0
Foreign currency rate changes.................. (10,000) (10,000) (43,000)
-------- -------- --------
Projected benefit obligation -- End
of year.......................... $218,000 $212,000 $295,000
======== ======== ========
</TABLE>
43
<PAGE> 46
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
CHANGE IN FAIR VALUE OF PLAN ASSETS: -------- -------- --------
<S> <C> <C> <C>
Fair value of plan assets -- Beginning of
year......................................... $ 75,000 $ 74,000 $ 81,000
Actual return on plan assets................... 4,000 3,000 4,000
Foreign currency rate changes.................. (4,000) (2,000) (11,000)
-------- -------- --------
Fair value of plan assets -- End of
year............................. $ 75,000 $ 75,000 $ 74,000
======== ======== ========
</TABLE>
There are two retirement plans within Asia Pacific. The Company's Japanese
subsidiary maintains non-contributory retirement plans covering all employees,
excluding directors, and a separate plan for its directors. Amounts expensed
under these programs are determined based on participants' salary and length of
service. The programs are fully accrued and partially funded through insurance
contracts. Expenses relating to these programs were $512,000, $498,000 and
$623,000 for the years ended June 30, 1999, 1998 and 1997, respectively.
Officers and key employees of the Company participate in various incentive
compensation plans. Amounts expensed under such plans were $710,000, $2,853,000
and $1,740,000 for the years ended June 30, 1999, 1998 and 1997, respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES:
Future minimum annual lease payments under capital leases, which consist of
buildings, and machinery and equipment with accumulated depreciation amounting
to $3,352,000 at June 30, 1999 and $5,144,000 at June 30, 1998, together with
the present value of the minimum lease payments are as follows at June 30, 1999:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING JUNE 30, AMOUNT
- ---------------------------- ---------
<S> <C>
2000........................................................ $ 424,000
2001........................................................ 97,000
2002........................................................ 7,000
2003........................................................ 2,000
2004........................................................ 0
2005 and thereafter......................................... 0
---------
Total minimum lease payments................................ 530,000
Amount representing interest................................ (197,000)
---------
Present value of minimum lease payments.......... $ 333,000
=========
</TABLE>
At June 30, 1999, $27,000 ($322,000 at June 30, 1998) is included in "Other
long-term liabilities" representing the long-term portion of the present value
of minimum lease payments.
44
<PAGE> 47
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rental expense amounted to approximately $4,565,000, $4,640,000 and
$5,603,000 for the years ended June 30, 1999, 1998 and 1997, respectively.
Aggregate future annual rentals under noncancellable leases for periods of more
than one year at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING JUNE 30, AMOUNT
- ---------------------------- ----------
<S> <C>
2000........................................................ $4,262,000
2001........................................................ $3,588,000
2002........................................................ $2,822,000
2003........................................................ $2,503,000
2004........................................................ $2,272,000
2005 and thereafter......................................... $4,852,000
</TABLE>
From time to time in the ordinary course of business, the Company is
subject to legal proceedings. While it is impossible to determine the ultimate
outcome of such matters, it is management's opinion that the resolution of any
pending issues will not have a material adverse effect on the financial position
or results of operations of the Company.
The Company has one customer that accounted for over 10% of net sales for
the year ended June 30, 1999. On July 30, 1999, this customer, Goss Graphic
Systems, Inc. ("Goss"), which accounted for approximately 11% of net sales for
the fiscal year ended June 30, 1999, filed for bankruptcy protection under a
prearranged Chapter 11 reorganization proceeding in the U.S. Bankruptcy Court.
Goss' European and Asian subsidiaries are not included in this proceeding, and
furthermore, the Company generally continues to receive timely payments from the
foreign subsidiaries of Goss. Goss' bankruptcy plan as filed, anticipates that
payments to trade creditors will 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 June 30, 1999, the Company
has not established any additional allowance for doubtful accounts regarding the
receivables from Goss. The Company has however, classified one-third of its
domestic receivable balance from Goss, or $1,717,000, as long term which is
included in "Other assets" at June 30, 1999.
At June 30, 1999 the Company's balance sheet includes approximately
$6,091,000 of trade receivables from Goss, of which 26% are more than 90 days
overdue. Offsetting these receivables is approximately $1,229,000 in advance
payments (customer deposits) received from this customer. The Company also has
order backlog of $11,822,000 and inventory on hand of $4,794,000 related to Goss
at June 30, 1999. Such inventory may however be modified for sale to other
customers. Should Goss not be able to successfully emerge from bankruptcy and
the Company does not replace such business with new orders, the Company's
financial results may be negatively affected in the future.
NOTE 14 -- RELATED PARTIES:
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. On March 11, 1994, the
Company entered into a loan and pledge agreement and promissory note with
William J. Lauricella, Chief Financial Officer and Treasurer of the Company. The
loans were made in order to enable the Company's officers to purchase shares of
the Company's Class B Common Stock from non-employee shareholders. Mr. Nathe was
loaned $1,817,000 to
45
<PAGE> 48
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase 315,144 shares of the Company's Class B Common Stock and Mr. Lauricella
was loaned $164,000 to purchase 25,000 shares of the Company's Class B Common
Stock. All of the shares purchased have been pledged as collateral for the
demand promissory notes and each of the notes are interest bearing, with
interest payable on the anniversary dates at LIBOR rates plus 1.25% reset on the
first day of each succeeding January, April, July and October.
The maximum amounts of the notes outstanding, including interest, during
the year ended June 30, 1999 were $1,605,000 and $176,000 for Mr. Nathe and Mr.
Lauricella, respectively. At June 30, 1999, the balances of the notes
receivable, including interest, were $1,556,000 and $167,000 for Mr. Nathe and
Mr. Lauricella, respectively.
The maximum amount of the notes outstanding, including interest, during the
year ended June 30, 1998 were $1,606,000 and $199,000 for Mr. Nathe and Mr.
Lauricella, respectively. At June 30, 1998, the balances of the notes
receivable, including interest, were $1,562,000 and $168,000 for Mr. Nathe and
Mr. Lauricella, respectively.
The Company employs the firm of Morgan, Lewis & Bockius LLP as its legal
counsel. Samuel B. Fortenbaugh III, a Director of the Company, is a partner in
the firm. During the fiscal years ended June 30, 1999, 1998, and 1997, the
Company incurred legal fees of approximately $279,000, $306,000 and $200,000
respectively, payable to Morgan, Lewis & Bockius LLP.
On July 1, 1990, Baldwin Technology Corporation and Baldwin Graphic
Systems, Inc., two subsidiaries of Baldwin Americas Corporation, entered into an
agreement with Harold W. Gegenheimer, Chairman Emeritus, guaranteed by the
Company, to replace various prior agreements including royalty and employment
agreements, retirement plans and bonus arrangements. The agreement guarantees a
compensation amount of $200,000 per year to Mr. Gegenheimer. Simultaneously, a
separate agreement was entered into by the Company and Mr. Gegenheimer whereby
the Company was released from certain prior agreements, as noted above, and
agreed to pay a minimum guaranteed amount of compensation of $200,000 per year
to Mr. Gegenheimer, not to exceed $350,000 per year, based on one and one-half
percent (1.5%) of the Company's annual net after tax profits. The amount
expensed under these two agreements was $400,000 for each of the years ended
June 30, 1999, 1998 and 1997.
On February 10, 1997, Wendell M. Smith resigned as Chairman of the Company.
Pursuant to his employment agreement, the Company made compensation payments in
fiscal 1997 to Mr. Smith in the amount of $890,000. In addition, the Company has
made deferred compensation payments to Mr. Smith in the amounts of $103,000,
$103,000 and $34,000 for the years ended June 30, 1999, 1998 and 1997,
respectively. During fiscal 1997, certain consulting agreements between the
Company and Polestar Limited ("Polestar"), a corporation controlled by Mr.
Smith, were canceled and renegotiated into a new agreement providing for
payments to Polestar of $60,000 per year for consulting services. The maximum
duration of the new agreement is 17 years.
46
<PAGE> 49
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for the fiscal years ended June 30,
1999 and 1998 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FISCAL YEAR ENDED JUNE 30, 1999 FIRST SECOND THIRD FOURTH
- ------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales............................... $55,319 $65,169 $58,048 $54,235
Costs and expenses:
Cost of goods sold.................... 37,149 44,321 39,629 37,681
Operating expenses.................... 15,333 16,668 15,510 14,407
Provision for loss on sale of
pre-press.......................... 2,400
Restructuring charge.................. 870
Interest, net......................... 403 468 520 457
Other (income).......................... (662) (418) (615) (1,504)
Minority interest....................... 7 7 1
------- ------- ------- -------
Income before taxes..................... 3,096 4,123 597 2,323
Provision for income taxes.............. 1,176 1,526 976 836
------- ------- ------- -------
Net income.............................. $ 1,920 $ 2,597 $ (379) $ 1,487
======= ======= ======= =======
Basic income per share.................. $ 0.11 $ 0.15 $ (0.02) $ 0.09
======= ======= ======= =======
Diluted income per share................ $ 0.11 $ 0.15 $ (0.02) $ 0.09
======= ======= ======= =======
Weighted average shares outstanding:
Basic................................. 17,114 16,887 16,719 16,478
======= ======= ======= =======
Diluted............................... 17,505 17,285 16,719 16,790
======= ======= ======= =======
</TABLE>
47
<PAGE> 50
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998 FIRST SECOND THIRD FOURTH
- ------------------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales.............................. $48,047 $ 55,618 $60,199 $67,544
Costs and expenses:
Cost of goods sold................... 32,020 36,761 41,193 45,177
Operating expenses................... 14,185 15,199 15,420 17,067
Provision for loss on sale of
pre-press.........................
Restructuring charge Interest, net... 528 662 591 490
Other (income)......................... (661) (439) (562) (668)
Minority interest...................... (97)
------- -------- ------- -------
Income before taxes.................... 2,072 3,435 3,557 5,478
Provision for income taxes............. 871 1,332 1,332 1,991
------- -------- ------- -------
Net income............................. $ 1,201 $ 2,103 $ 2,225 $ 3,487
======= ======== ======= =======
Basic income per share................. $ 0.07 $ 0.12 $ 0.13 $ 0.20
======= ======== ======= =======
Diluted income per share............... $ 0.07 $ 0.12 $ 0.13 $ 0.20
======= ======== ======= =======
Weighted average shares outstanding:
Basic................................ 17,125 17,135 17,157 17,165
======= ======== ======= =======
Diluted.............................. 17,601 17,528 17,531 17,699
======= ======== ======= =======
</TABLE>
NOTE 16 -- SUBSEQUENT EVENTS:
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.
On August 10, 1999 the Board of Directors terminated the stock repurchase
program, under which, the Company spent $13,015,000 to repurchase 2,821,656
shares of Class A and 164,117 shares of Class B since the inception of the
program.
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Form 8-K filed within 24 months prior to the date of the
most recent financial statements reporting a change of accountants and/or
reporting a disagreement on any matter of accounting principle or financial
statement disclosure.
PART III
ITEMS 10, 11, 12 AND 13.
Information required under these items is contained in the Company's 1999
Proxy Statement, which will be filed with the Securities and Exchange Commission
within 120 days after the close of the Company's fiscal year end; accordingly,
this information is therefore incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial statements required by Item 14 are listed in the index
included in Item 8 of Part II.
(a)(2) The following is a list of financial statement schedules filed as
part of this Report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants on Financial Statement
Schedules................................................. 54
Schedule II -- Valuation and Qualifying Accounts............ 55
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(a)(3) The following is a list of all exhibits filed as part of this
Report:
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of the Company as
filed with the Secretary of State of the State of Delaware
on November 4, 1986. Filed as Exhibit 3.1 to the Company's
registration statement (No. 33-10028) on Form S-1 and
incorporated herein by reference.
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on November 21, 1988. Filed as Exhibit 3.2
to the Company's Registration Statement (No. 33-26121) on
Form S-1 and incorporated herein by reference.
3.3 Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on November 20, 1990. Filed as Exhibit 3.3
to the Company's Report on Form 10-K for the fiscal year
ended June 30, 1991 and incorporated herein by reference.
3.4 By-Laws of the Company. Filed as Exhibit 3.2 to the
Company's Registration Statement (No. 33-10028) on Form S-1
and incorporated herein by reference.
</TABLE>
49
<PAGE> 52
<TABLE>
<C> <S>
10.1* Baldwin Technology Company, Inc. Amended and Restated 1986
Stock Option Plan. Filed as Exhibit 10.2 to the Company's
Registration Statement (No. 33-31163) on Form S-1 and
incorporated herein by reference.
10.2* Amendment to the Baldwin Technology Company, Inc. Amended
and Restated 1986 Stock Option Plan. Filed as Exhibit 10.2
to the Company's Report on Form 10-K for the fiscal year
ended June 30, 1991 and incorporated herein by reference.
10.3* Baldwin Technology Company, Inc. 1990 Directors' Stock
Option Plan. Filed as Exhibit 10.3 to the Company's Report
on Form 10-K for the fiscal year ended June 30, 1991 and
incorporated herein by reference.
10.4* Baldwin Technology Company, Inc. 1996 Stock Option Plan.
Filed as Exhibit A to the Baldwin Technology Company, Inc.
1996 Proxy Statement and incorporated by reference to the
Company's Report on Form 10-K for the fiscal year ended June
30, 1996 and incorporated herein by reference.
10.5* Baldwin Technology Corporation Profit Sharing Plan, as
amended and restated. Filed as Exhibit 10.2 to the Company's
Registration Statement (No. 33-10028) on Form S-1 and
incorporated herein by reference.
10.7 Agreement effective as of July 1, 1990 between Baldwin
Technology Corporation, Baldwin Graphic Systems, Inc. and
Harold W. Gegenheimer, as guaranteed by Baldwin Technology
Company, Inc. Filed as Exhibit 10.6 to the Company's Report
on Form 10-K for the fiscal year ended June 30, 1991 and
incorporated herein by reference.
10.8 Agreement effective as of July 1, 1990 between Baldwin
Technology Company, Inc. and Harold W. Gegenheimer. Filed as
Exhibit 10.7 to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1991 and incorporated herein by
reference.
10.9* Employment Agreement dated as of November 16, 1988 between
Baldwin-Japan Limited and Akira Hara. Filed as Exhibit 10.22
to the Company's Registration Statement (No. 33-26121) on
Form S-1 and incorporated herein by reference.
10.10 Agreement and Plan of Merger dated as of April 26, 1989
among Enkel Corporation, Bengt Kuller, Enkel Acquisition
Corporation and the Company. Filed as Exhibit I to the
Company's report on Form 8-K dated May 7, 1989 and
incorporated herein by reference.
10.11 Baldwin Technology Company, Inc. Dividend Reinvestment Plan.
Filed as Exhibit 10.49 to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1991 and incorporated
herein by reference.
10.12 Consulting Agreement dated as of June 30, 1989 between
Baldwin Asia Pacific Corporation and A-PLUS LTD. Filed as
Exhibit 10.51 to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1991 and incorporated herein by
reference.
10.13* Employment Agreement effective as of July 1, 1997 between
Baldwin Technology Company, Inc. and Gerald A. Nathe. Filed
as Exhibit 10.15 to the Company's Report on Form 10-Q for
the quarter ended December 31, 1997 and incorporated herein
by reference.
10.14 8.17% Senior Note Agreement dated October 29, 1993 between
Baldwin Technology Company, Inc. and its subsidiaries
Baldwin Americas Corporation and Baldwin Technology Ltd. and
John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company and John Hancock Life
Insurance Company. Filed as Exhibit 10.23 to the Company's
Report on Form 10-K for the fiscal year ended June 30, 1994
and incorporated herein by reference.
</TABLE>
50
<PAGE> 53
<TABLE>
<C> <S>
10.15 Amended and Restated $20,000,000 Revolving Credit Agreement
dated as of December 31, 1995 between Baldwin Technology
Company, Inc. and its subsidiaries, Baldwin Americas
Corporation and Baldwin Technology Ltd., and NationsBank of
North Carolina, National Association, as Agent filed as
Exhibit 10.23 to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by
reference.
10.16* Amendment to Employment Agreement between Baldwin-Japan
Limited and Akira Hara effective August 15, 1995. Filed as
Exhibit 10.25 to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by
reference.
10.17 Third Amendment to Amended and Restated Revolving Credit
Agreement dated as of February 14, 1997 by and among Baldwin
Technology Company, Inc. and its subsidiaries, Baldwin
Americas Corporation and Baldwin Technology Limited, and
NationsBank NA, as Agent and Lender, and Bank of Boston
Connecticut filed as Exhibit 10.26 on the Company's Form
10-Q dated February 14, 1997 and incorporated herein by
reference.
10.18 Amendment to Note Agreement dated as of February 14, 1997 by
and among Baldwin Technology Company, Inc. and its
subsidiaries, Baldwin Americas Corporation and Baldwin
Technology Limited, and John Hancock Mutual Life Insurance
Company, John Hancock Variable Life Insurance Company and
John Hancock Life Insurance Company of America. Filed as
Exhibit 10.27 on the Company's Form 10-Q dated February 14,
1997 and incorporated herein by reference.
10.19 Stock Purchase Agreement, (to sell all the shares of the
Misomex Group of Companies), dated as of June 9, 1997,
between Kaber Imaging, Inc. and the Company. Filed as
Exhibit 10.26 to the Company's Report on Form 8-K dated July
3, 1997 and incorporated herein by reference.
10.20 Amendment Number One, dated June 30, 1997, to the Stock
Purchase Agreement. Filed as Exhibit 10.27 to the Company's
Report on Form 8-K dated July 3, 1997 and incorporated
herein by reference.
10.21 Fourth Amendment to Amended and Restated Revolving Credit
Agreement dated as of September 12, 1997 by and among
Baldwin Technology Company, Inc. and its subsidiaries,
Baldwin Americas Corporation and Baldwin Technology Limited,
and NationsBank NA as agent and Lender, and Bank of Boston
Connecticut. Filed as Exhibit 10.23 to the Company's report
on Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.
10.22 Fifth Amendment to Amended and Restated Revolving Credit
Agreement between Baldwin Americas Corporation and Baldwin
Technology Limited (as borrowers) and Nationsbank N.A. as
lender. Filed as Exhibit 10.24 to the Company's Report on
Form 10-Q for the quarter ended December 31, 1997 and
incorporated herein by reference.
10.23* Employment Agreement dated March 11, 1998 and effective as
of July 1, 1997 between Baldwin Technology Company, Inc. and
William J. Lauricella. Filed as Exhibit 10.25 to the
Company's Report on Form 10-Q for the quarter ended March
31, 1998 and incorporated herein by reference.
10.24* Baldwin Technology Company, Inc. Executive and Key Person
Cash Incentive Program Description. Filed as Exhibit 10.24
to the Company's report on Form 10-K for the fiscal year
ended June 30, 1998 and incorporated herein by reference.
</TABLE>
51
<PAGE> 54
<TABLE>
<C> <S>
10.25 Sixth Amendment to Amended and Restated Revolving Credit
Agreement and First Amendment to Loan Documents between
Baldwin Americas Corporation and Baldwin Technology Limited
(as "Borrowers") and Baldwin Technology Company, Inc.,
together with Borrowers (as "Credit Parties") and
Nationsbank N.A. and BankBoston (as "Lenders"). Filed as
Exhibit 10.25 to the Company's report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by
reference.
10.26 Seventh Amendment and Waiver 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
Borrowers (as "Credit Parties") and Bank of America, N.A.,
f/k/a NationsBank, N.A. and BankBoston, N.A. (as "Lenders")
(filed herewith).
10.27* Baldwin Technology Company, Inc. 1998 Non-Employee
Directors' Stock Option Plan. Filed as Exhibit A to the
Baldwin Technology Company, Inc. 1998 Proxy Statement and
incorporated herein by reference.
21. List of Subsidiaries of Registrant (filed herewith).
23. Consent of PricewaterhouseCoopers LLP (filed herewith).
27. Financial Data Schedule (filed herewith).
28. Post-effective Amendment to the Company's previously filed
Form S 8's, Nos. 33-20611 and 33-30455. Filed as Exhibit 28
to the Company's Report on Form 10-K for the fiscal year
ended June 30, 1991 and incorporated herein by reference.
99. Company statement regarding the Private Securities
Litigation Reform Act of 1995, "Safe Harbor for
Forward-Looking Statements" (filed herewith).
</TABLE>
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last quarter
of the period covered by this report.
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
--------------------------------------
(REGISTRANT)
By: /s/ GERALD A. NATHE
------------------------------------
GERALD A. NATHE
(CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER)
Dated: September 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GERALD A. NATHE Chairman of the Board, September 24, 1999
- --------------------------------------------------- President and Chief
GERALD A. NATHE Executive Officer
/s/ AKIRA HARA Vice President and September 24, 1999
- --------------------------------------------------- Director
AKIRA HARA
/s/ WILLIAM J. LAURICELLA Vice President, September 24, 1999
- --------------------------------------------------- Treasurer and Chief
WILLIAM J. LAURICELLA Financial Officer
/s/ RONALD F. RAHE Controller September 24, 1999
- ---------------------------------------------------
RONALD F. RAHE
/s/ JUDITH A. BOOTH Director September 24, 1999
- ---------------------------------------------------
JUDITH A. BOOTH
/s/ SAMUEL B. FORTENBAUGH III Director September 24, 1999
- ---------------------------------------------------
SAMUEL B. FORTENBAUGH III
/s/ JOHN T. HEALD, JR. Director September 24, 1999
- ---------------------------------------------------
JOHN T. HEALD, JR.
/s/ M. RICHARD ROSE Director September 24, 1999
- ---------------------------------------------------
M. RICHARD ROSE
/s/ WENDELL M. SMITH Director September 24, 1999
- ---------------------------------------------------
WENDELL M. SMITH
/s/ RALPH R. WHITNEY, JR. Director September 24, 1999
- ---------------------------------------------------
RALPH R. WHITNEY, JR.
</TABLE>
53
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
BALDWIN TECHNOLOGY COMPANY, INC.
Our audits of the consolidated financial statements of Baldwin Technology
Company, Inc. referred to in our report dated August 6, 1999 appearing in this
Annual Report to Shareholders of Baldwin Technology Company, Inc. (which report
and consolidated financial statements are included in the Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Stamford, Connecticut
August 6, 1999
54
<PAGE> 57
SCHEDULE II
BALDWIN TECHNOLOGY COMPANY, INC
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1999
Allowance for doubtful
accounts (deducted
from accounts
receivable).......... $ 1,713 $ 35 $ 8(1) $ 1,740
Valuation allowance for
deferred tax asset
(deducted from
prepaid and other
assets).............. $19,868 $4,865(4) $24,733
Year ended June 30, 1998
Allowance for doubtful
accounts (deducted
from accounts
receivable).......... $ 2,106 $302 $ 695(1) $ 1,713
Valuation allowance for
deferred tax asset
(deducted from
prepaid and other
assets).............. $22,774 $2,906(2) $19,868
Year ended June 30, 1997
Allowance for doubtful
accounts (deducted
from accounts
receivable).......... $ 2,503 $429 $ 826(1) $ 2,106
Valuation allowance for
deferred tax asset
(deducted from
prepaid and other
assets).............. $16,957 $5,817(3) $22,774
</TABLE>
- ---------------
(1) The decrease in the allowance for doubtful accounts for the year ended June
30, 1999 resulted from $113,000 of recoveries which was partially offset by
currency fluctuations of $105,000. The decrease in the allowance for
doubtful accounts for the year ended June 30, 1998 resulted from $476,000 of
recoveries and currency fluctuations of $219,000. The decrease in the
allowance for doubtful accounts for the year ended June 30, 1997 resulted
from $413,000 of recoveries, $228,000 of allowances as part of the pre-press
disposition and currency fluctuations of $185,000.
(2) The decrease in the amount of the valuation allowance is primarily the
result of a partial reversal of the reserve related to foreign net operating
loss carryforwards. See Note 9 -- Notes to Consolidated Financial
Statements.
(3) The increase in the amount of the valuation allowance is primarily the
result of increased foreign net operating loss carryforwards. See Note
9 -- Notes to Consolidated Financial Statements.
(4) The increase in the amount of the valuation allowance is primarily the
result of increased foreign tax credits and capital loss carryforwards. See
Note 9 -- Notes to Consolidated Financial Statements.
55
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
10.26 Seventh Amendment and Waiver 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 Borrowers (as "Credit
Parties") and Bank of America, N.A., f/k/a NationsBank, N.A. and
BankBoston, N.A. (as "Lenders") (filed herewith).
21. List of Subsidiaries of Registrant (filed herewith).
23. Consent of PricewaterhouseCoopers LLP (filed herewith).
27. Financial Data Schedule (filed herewith).
99. Company statement regarding the Private Securities Litigation
Reform Act of 1995, "Safe Harbor for Forward-Looking Statements"
(filed herewith).
</TABLE>
<PAGE> 1
SEVENTH AMENDMENT AND WAIVER TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS SEVENTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Amendment Agreement") is made and entered into as of
this 11th day of August, 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., f/k/a Bank of America National Trust
and Savings Association, successor by merger to Bank of America, N.A., f/k/a
NationsBank, N.A. ("Bank of America" or the "Agent"), BANK OF AMERICA, N.A., as
a Lender, and BANKBOSTON, N.A. (successor by merger 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 (i) informed the Agent that they have
violated Section 8.1(d) of the Credit Agreement for the four-quarter period
ended on June 30, 1999, which violation constitutes an Event of Default under
Section 9.1(c) of the Credit Agreement (the "Violation") and (ii) requested that
the Agent and the Lenders waive the Violation (the "Waiver");
WHEREAS, in consideration for the Borrowers' acknowledgment and
acceptance of the terms of this Amendment Agreement, the Agent and Lenders are
willing to grant the Waiver for the four-quarter period ended on June 30, 1999;
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
<PAGE> 2
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. Waiver Action. To the extent the Violation occurred because of the
incurrence of 1999 Special Charges (as defined in Section 3(a) below), Agent and
Lenders hereby grant to Borrowers the Waiver subject to the following
conditions:
(a) The Waiver is limited as specified herein and shall not
constitute an amendment or modification of the Credit Agreement or any
other Loan Document.
(b) The Waiver is granted only for the specific instance and
for the time period specified herein and in no event shall constitute a
waiver for any period other than the Borrowers' four quarter period
ended June 30, 1999 or in any manner create a course of dealing or
otherwise impair the future ability of the Agent and the Lenders to
declare a Default or Event of Default under or otherwise enforce the
terms of the Credit Agreement.
3. Credit Agreement Amendments. Subject to the conditions hereof, the
Credit Agreement is hereby amended, effective as of the date hereof, as follows:
(a) The definition of "1999 Special Charges" is hereby added
to Section 1.1 of the Credit Agreement as follows:
"1999 Special Charges" means special charges to income taken
by Borrowers during the four quarter period ending June 30, 1999 in an
aggregate amount not to exceed $3,300,000, which special charges relate
to (a) staff layoffs and plant closings or (b) claims associated with
Baldwin's former pre-press operations.
(b) The definition of "Consolidated Fixed Charge Ratio" in
Section 1.1 of the Credit Agreement is hereby amended by adding the
following to the end of such definition:
"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;"
4. 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;
2
<PAGE> 3
(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.
5. Conditions Precedent. The effectiveness of this Amendment Agreement
is subject to the receipt by the parties hereto of five (5) counterparts of this
Amendment Agreement duly executed by all signatories hereto.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.]
3
<PAGE> 4
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., f/k/a Bank of America
National Trust and Savings Association, successor
by merger to Bank of America, N.A., f/k/a
NationsBank, N.A., as Agent for the Lenders
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
4
<PAGE> 5
LENDERS:
BANK OF AMERICA, N.A., f/k/a Bank of America
National Trust and Savings Association, successor
by merger to Bank of America, N.A., f/k/a
NationsBank, N.A., as Lender
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
BANKBOSTON, N.A., successor by merger to Bank of
Boston Connecticut, as Lender
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
5
<PAGE> 1
EXHIBIT 21
to Registrant's Report on Form 10-K
for the year-ended June 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT Jurisdiction
------------------------------ ------------
<S> <C>
Baldwin Americas Corporation Delaware
Baldwin Europe Consolidated Inc. Delaware
Baldwin Asia Pacific Corporation Delaware
Baldwin Technology Limited Bermuda
Baldwin Document Finishing Systems, Inc. Delaware
SUBSIDIARIES OF BALDWIN AMERICAS CORPORATION
Baldwin Technology Corporation Connecticut
Baldwin Enkel Corporation Delaware
Baldwin Graphic Systems, Inc. Delaware
SUBSIDIARIES OF BALDWIN TECHNOLOGY CORPORATION
Baldwin Kansa Corporation Kansas
SUBSIDIARIES OF BALDWIN ENKEL CORPORATION
Enkel International Sales Corporation Illinois
Enkel Foreign Sales Corporation US Virgin Island
SUBSIDIARIES OF BALDWIN EUROPE CONSOLIDATED INC.
Baldwin Europe Consolidated BV Netherlands
SUBSIDIARIES OF BALDWIN EUROPE CONSOLIDATED BV
Baldwin Graphic Equipment BV Netherlands
Baldwin German Capital Holding GmbH Germany
Baldwin U.K. Holding Limited United Kingdom
BS Holding AB Sweden
Baldwin France Sarl France
SUBSIDIARIES OF BALDWIN GERMAN CAPITAL HOLDING GMBH
Baldwin Grafotec GmbH Germany
Baldwin Auslandsbeteiligungs Holding GmbH Germany
Baldwin International Products GmbH Germany
SUBSIDIARIES OF BALDWIN U.K. HOLDING LIMITED
Baldwin (UK) Ltd. United Kingdom
Acrotec UK Ltd. United Kingdom
SUBSIDIARIES OF BS HOLDING AB
Amal AB Sweden
IVT Graphics AB Sweden
Jimek AB Sweden
SUBSIDIARIES OF ACROTEC UK LTD.
Globaltec Ltd. United Kingdom
SUBSIDIARIES OF BALDWIN ASIA PACIFIC CORPORATION
Baldwin Asia Pacific Ltd. Hong Kong
Baldwin Japan Ltd. Japan
Baldwin Printing Control Equipment (Beijing) Company, Ltd. China
BAP VC Limited British Virgin Islands
SUBSIDIARIES OF BALDWIN ASIA PACIFIC LTD
Baldwin Graphic Equipment Pty. Ltd. Australia
Baldwin Printing Controls Ltd. Hong Kong
</TABLE>
<PAGE> 1
EXHIBIT 23
to Registrant's Report on Form 10-K
for the year-ended June 30, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (No. 33-20611, No.
33-30455, No. 33-58104, No. 33-58106 and No. 333-44631) and the Registration
Statements on Form S-3 (No. 33- 33104, No. 33-42265 and No. 33-41586) of our
report dated August 6, 1999 which appears in the 1999 Annual Report to
Shareholders of Baldwin Technology Company, Inc. on Form 10-K for the year ended
June 30, 1999. We also consent to the incorporation by reference of our report
on the Financial Statement Schedule, which appears in such Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Stamford, Connecticut
August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 10,028
<SECURITIES> 645
<RECEIVABLES> 48,638
<ALLOWANCES> 1,740
<INVENTORY> 31,791
<CURRENT-ASSETS> 98,183
<PP&E> 19,050
<DEPRECIATION> 12,122
<TOTAL-ASSETS> 159,355
<CURRENT-LIABILITIES> 69,029
<BONDS> 0
0
0
<COMMON> 185
<OTHER-SE> 66,355
<TOTAL-LIABILITY-AND-EQUITY> 159,355
<SALES> 232,771
<TOTAL-REVENUES> 232,771
<CGS> 158,780
<TOTAL-COSTS> 158,780
<OTHER-EXPENSES> 65,188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,301
<INCOME-PRETAX> 10,139
<INCOME-TAX> 4,514
<INCOME-CONTINUING> 5,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,625
<EPS-BASIC> .33
<EPS-DILUTED> .33
</TABLE>
<PAGE> 1
EXHIBIT 99
to Registrant's Report on Form 10-K
for the year-ended June 30, 1999
RISK FACTORS OR CAUTIONARY STATEMENTS PURSUANT TO "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, the report on Form 10-K for fiscal year ended
June 30, 1999, to which this exhibit is appended, the Company's quarterly
reports to the Securities and Exchange Commission on Form 10-Q and periodic
press releases, as well as other public documents and statements, may contain
"forward-looking statements" within the meaning of the federal securities laws.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by the
statements, including, among others:
<TABLE>
<S> <C>
- - 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.
- - Significant price reductions or improvements in competing imaging
technologies.
- - A decline in the rate of growth of the installed base of printing press
units and the timing of new press orders.
- - Material changes in foreign currency exchange rates versus the U.S.
Dollar.
- - Some dependence on a small number of large customers.
- - Competitive product offerings and pricing actions.
- - The availability and pricing of key raw materials.
- - The ability to generate productivity improvements in the Company's
product designing and manufacturing processes.
- - Dependence on key members of management.
- - Changes in the mix of products and services comprising revenues.
- - The Company's or its vendors' ability to resolve Year 2000 compliance
issues.
- - The ability of the Company's largest customer Goss Graphic Systems,
Inc. to (i) make timely payments on open accounts receivable, (ii) pay
for new shipments of backlog and inventory on hand, (iii) successfully
emerge from bankruptcy, and (iv) continue to place and pay for orders
of similar quantities and products.
</TABLE>
Readers are cautioned not to place undue reliance on forward-looking statements.
The Company undertakes no obligation to publish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrences of unanticipated events.
