UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[Mark one]
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For quarter ended March 31, 2007
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission file number 1-9334
BALDWIN TECHNOLOGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3258160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Trap Falls Road, Suite 402, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-402-1000
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2007
----- -----------------------------
Class A Common Stock
$0.01 par value 14,130,054
Class B Common Stock
$0.01 par value 1,212,555
BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
-----
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at March 31, 2007 (unaudited) and
June 30, 2006 1-2
Consolidated Statements of Income for the three and
nine months ended March 31, 2007 (unaudited) and 2006
(unaudited) 3
Consolidated Statement of Changes in Shareholders'
Equity for the nine months ended March 31, 2007 (unaudited) 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2007 (unaudited) and 2006 (unaudited) 5-6
Notes to Consolidated Financial Statements (unaudited) 7-13
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-21
Item 3 Quantitative and Qualitative Disclosures About Market Risk 21
Item 4 Controls and Procedures 21
Part II Other Information
Item 1A Risk Factors 21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 5 Other Information 22
Item 6 Exhibits 22
Signatures 23
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
March 31, 2007 June 30, 2006
-------------- -------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 15,278 $ 14,986
Accounts receivable trade, net of allowance for doubtful
accounts of $1,916 ($1,452 at June 30, 2006) 40,284 32,602
Notes receivable, trade 8,870 7,260
Inventories 30,669 22,657
Deferred taxes, net 2,438 475
Prepaid expenses and other 4,371 4,799
-------- --------
Total Current Assets 101,910 82,779
-------- --------
MARKETABLE SECURITIES:
Cost $582 ($573 at June 30, 2006) 819 760
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 1,058 1,024
Machinery and equipment 6,469 2,674
Furniture and fixtures 5,544 4,023
Capital leases 250 287
-------- --------
13,321 8,008
Less: Accumulated depreciation and amortization (7,788) (4,391)
-------- --------
Net property, plant and equipment 5,533 3,617
-------- --------
INTANGIBLES, at cost, less accumulated amortization of $5,438
($4,996 at June 30, 2006)
9,532 2,690
GOODWILL, less accumulated amortization of $3,384 ($3,419 at
June 30, 2006)
20,742 11,059
DEFERRED TAXES, NET 7,551 8,109
OTHER ASSETS 5,736 3,749
-------- --------
TOTAL ASSETS $151,823 $112,763
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
1
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2007 June 30, 2006
-------------- -------------
(unaudited)
CURRENT LIABILITIES:
Loans payable $ 3,394 $ 2,622
Current portion of long-term debt 2,224 853
Accounts payable, trade 17,422 16,809
Notes payable, trade 8,755 7,987
Accrued salaries, commissions, bonus and
profit-sharing 8,587 7,998
Customer deposits 5,564 4,113
Accrued and withheld taxes 1,660 2,036
Income taxes payable 2,703 1,015
Other accounts payable and accrued liabilities 18,377 9,581
-------- --------
Total current liabilities 68,686 53,014
-------- --------
LONG TERM LIABILITIES:
Long-term debt 25,610 7,080
Other long-term liabilities 6,924 6,736
-------- --------
Total long-term liabilities 32,534 13,816
-------- --------
Total liabilities 101,220 66,830
-------- --------
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares
authorized, 17,655,791 shares issued at
March 31, 2007 and 17,376,215 shares
issued at June 30, 2006 177 174
Class B Common Stock, $.01 par, 4,500,000 shares
authorized, 1,506,825 shares issued at
March 31, 2007 and 1,537,681 shares issued at
June 30, 2006 15 15
Capital contributed in excess of par value 58,937 57,943
Accumulated earnings/(deficit) 1,650 (1,374)
Accumulated other comprehensive income 3,294 2,626
Less: Treasury stock, at cost:
Class A - 3,634,070 shares at March 31, 2007
and 3,630,202 shares at June 30, 2006
Class B - 294,270 shares at March 31, 2007
and June 30, 2006 (13,470) (13,451)
-------- --------
Total shareholders' equity 50,603 45,933
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $151,823 $112,763
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
2
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months For the nine months
ended March 31, ended March 31,
-------------------- -------------------
2007 2006 2007 2006
------- ------- -------- --------
Net sales $53,211 $45,477 $144,586 $131,918
Cost of goods sold 35,774 30,384 97,269 88,013
------- ------- -------- --------
Gross profit 17,437 15,063 47,317 43,905
------- ------- -------- --------
Operating expenses:
General and administrative 6,439 4,912 16,333 14,551
Selling 3,589 3,694 10,829 10,780
Engineering and development 4,247 3,537 12,173 11,135
Restructuring -- -- 994 --
------- ------- -------- --------
14,275 12,143 40,329 36,466
------- ------- -------- --------
Operating income 3,162 2,920 6,988 7,439
------- ------- -------- --------
Other (income) expense:
Interest expense 749 256 1,532 803
Interest income (44) (31) (132) (92)
Royalty income, net -- -- -- (200)
Other (income) expense, net 220 (43) 169 36
------- ------- -------- --------
925 182 1,569 547
------- ------- -------- --------
Income before income taxes 2,237 2,738 5,419 6,892
Provision for income taxes 941 993 2,395 2,571
------- ------- -------- --------
Net income $ 1,296 $ 1,745 $ 3,024 $ 4,321
======= ======= ======== ========
Net income per share - basic and diluted
Income per share - basic $ 0.09 $ 0.12 $ 0.20 $ 0.29
Income per share - diluted $ 0.08 $ 0.11 $ 0.19 $ 0.28
======= ======= ======== ========
Weighted average shares outstanding:
Basic 15,203 14,966 15,100 14,947
======= ======= ======== ========
Diluted 15,697 15,806 15,705 15,649
======= ======= ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
3
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES) (UNAUDITED)
Class A Class B Capital Accumulated
Common Stock Common Stock Contributed Accumulated Other Treasury Stock
------------------ ----------------- In Excess Earnings/ Comprehensive -------------------- Comprehensive
Shares Amount Shares Amount of Par (Deficit) Income Shares Amount Income
---------- ------ --------- ------ ----------- ----------- ------------- ---------- -------- -------------
Balance at
June 30,
2006 17,376,215 $174 1,537,681 $15 $57,943 $(1,374) $2,626 (3,924,472) $(13,451)
Net income for
the nine
months ended
March 31,
2007 3,024 $3,024
Translation
adjustment 674 674
Unrealized gain
on available
-for-sale
securities,
net of tax 28 28
Amortization of
stock based
compensation 558
Unrealized gain
on forward
contracts,
net of tax (39) (39)
Minimum pension
Liability 5 5
------
Comprehensive
Income $3,692
======
Shares
converted
Class B to
Class A 30,856 (30,856)
Shares issued
under stock
option and
restricted
stock plans 248,720 3 436 (3,868) (19)
---------- ---- --------- --- ------- ------- ------ ---------- --------
Balance at
March 31,
2007 17,655,791 $177 1,506,825 $15 $58,937 $ 1,650 $3,294 (3,928,340) $(13,470)
========== ==== ========= === ======= ======= ====== ========== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the nine months
ended March 31,
-------------------
2007 2006
-------- -------
Cash flows from operating activities:
Net income $ 3,024 $ 4,321
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,399 1,053
Accrued retirement pay 167 600
Provision for losses on accounts receivable 159 74
Stock based compensation 558 332
Write off of fixed assets -- 55
Deferred income taxes 7 57
Restructuring 994 --
Changes in assets and liabilities:
Accounts and notes receivable (1,875) (3,352)
Inventories (1,391) (1,221)
Prepaid expenses and other 1,240 4
Other assets 184 443
Customer deposits (918) 1,775
Accrued compensation (803) (487)
Payments against restructuring and integration accruals (737) --
Accounts and notes payable, trade (135) 1,367
Income taxes payable 1,496 608
Accrued and withheld taxes (386) (523)
Other accounts payable and accrued liabilities (1,900) (924)
Interest payable 35 (37)
-------- -------
Net cash provided by operating activities 1,118 4,145
-------- -------
Cash flows from investing activities:
Acquisition of Oxy-Dry, net of acquired cash (18,242) --
Additions of property, plant and equipment (619) (630)
Additions of patents and trademarks (511) (296)
-------- -------
Net cash (used for) investing activities (19,372) (926)
-------- -------
Cash flows from financing activities:
Long-term and short-term debt borrowings 66,491 899
Long-term and short-term debt repayments (46,364) (2,230)
Capitalized finance costs (2,135) --
Principal payments under capital lease obligations (102) (74)
Proceeds of stock option exercises 439 127
Other long-term liabilities 61 (6)
-------- -------
Net cash provided by (used in) financing activities 18,390 (1,284)
-------- -------
Effects of exchange rate changes 156 (319)
-------- -------
Net increase in cash and cash equivalents 292 1,616
Cash and cash equivalents at beginning of period 14,986 15,443
-------- -------
Cash and cash equivalents at end of period $ 15,278 $17,059
======== =======
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
5
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the nine months
ended March 31,
-------------------
2007 2006
------ ------
Cash paid during the period for:
Interest $1,497 $ 840
Income taxes $ 389 $1,921
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
6
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Baldwin Technology Company, Inc. and its subsidiaries ("Baldwin" or the
"Company") are engaged primarily in the development, manufacture and sale of
accessories and controls for the printing industry.
The accompanying unaudited consolidated financial statements include the
accounts of Baldwin and its subsidiaries and have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and in compliance with the rules and
regulations of the Securities and Exchange Commission. These financial
statements reflect all adjustments of a normal recurring nature, which are in
the opinion of management, necessary to present a fair statement of the results
for the interim periods. These financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's latest Annual Report on Form 10-K for the fiscal year
ended June 30, 2006.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS:
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements", which established a framework for measuring fair value and will
be effective beginning July 1, 2008. The Company is evaluating the impact, if
any, that SFAS 157 will have on the financial statements.
In September 2006, the FASB issued SFAS 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans". SFAS 158 requires
companies to recognize the over-funded and under-funded status of defined
benefit pension and other postretirement plans as assets or liabilities on their
balance sheets and to recognize changes in that funded status, in the year in
which changes occur, through other comprehensive income in shareholders' equity.
As of June 30, 2006, the unrecognized defined benefit pension plan assets,
consisting primarily of unrecognized actuarial gains, totaled $166,000. The
Company will adopt SFAS 158 as of the end of the current fiscal year.
In September 2006, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements." SAB 108 established an approach that requires quantification of
financial statement errors based on the effects of an error on a company's
balance sheet and income statement and related disclosures. The Company is
required to apply the provisions of SAB 108 in connection with the preparation
of its annual financial statements for the fiscal year ended June 30, 2007.
7
NOTE 3 - LONG TERM DEBT:
(IN THOUSANDS)
-----------------------------------------
MARCH 31, 2007 JUNE 30, 2006
------------------- -------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
Revolving Credit Facility due November 21,
2011, interest rate three-month LIBOR
rate 5.35% plus 2.25% ..................... $ -- $11,300 $ -- $ --
Revolving Credit Facility due November 21,
2011, interest rate three-month EURIBOR
rate 3.62% plus 2.25% ..................... -- 1,160 -- --
Term loan payable by foreign subsidiary due
November 21, 2011, with quarterly payments
interest rate three-month EURIBOR rate
3.62% plus 2.25% .......................... 1,812 12,944 -- --
Revolving Credit Facility due October 1, 2008,
interest rate three-month EURIBOR rate
3.775% plus 3.233% ........................ -- -- -- 6,560
Term loan payable by foreign subsidiary
due September 2008, interest rate 1.81% ... 283 142 291 364
Term Loan payable by foreign subsidiary
due December 8, 2006, interest rate 1.5% .. -- -- 437 --
Note payable by foreign subsidiary
through 2008, interest rate 6.70% ......... 129 64 125 156
------ ------- ---- ------
$2,224 $25,610 $853 $7,080
====== ======= ==== ======
On November 21, 2006 the Company entered into a credit agreement (the
"Agreement") with LaSalle Bank National Association ("LaSalle"). Under the terms
of the Agreement, the Company received a $35,000 bridge loan, the proceeds of
which were used to repay the Company's previously existing obligations with
Maple Bank GmbH and fund the acquisition of Oxy-Dry and associated closing cost.
The Agreement provided for the bridge loan to be converted to a permanent
facility, consisting of a $15,000 term loan (the "Term Loan") and $35,000 of
revolving lines of credit. On January 19, 2007, the Company initiated a draw on
this permanent financing facility using the proceeds to repay the aforementioned
bridge loan and associated interest. The term of the permanent facility is five
years maturing on November 21, 2011.
In addition, on April 19, 2007 the Company entered into a $5,000 credit
facility with a foreign lender. The interest rate for Euro-based borrowings is
7.5%; the interest rate for U.S. dollar-based borrowings is 8.75%.
The Company maintains relationships with both foreign and domestic banks,
which combined have extended short and long term credit facilities to the
Company totaling $54,861 including $50,000 available under the LaSalle Credit
Agreement. As of March 31, 2007, the Company had $33,705 outstanding (including
letters of credit) under these credit facilities, including $29,693 under the
LaSalle Credit Agreement.
NOTE 4 - NET INCOME PER SHARE:
Basic net income per share includes no dilution and is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted net income per share reflects
the potential dilution of securities that could share in the earnings of an
entity. The weighted average shares outstanding used to compute diluted net
income per share includes 494,000 and 605,000 of potentially dilutive shares,
respectively, for the three and nine months ended March 31, 2007 and 840,000 and
702,000 of potentially dilutive shares, respectively, for the three and nine
months ended March 31, 2006. Outstanding options to purchase 99,000 and 179,000
shares of the Company's
8
common stock for the nine months ended March 31, 2007 and 2006, respectively,
are not included in the above calculation to compute diluted net income per
share as their exercise prices exceeded the current market value of these
shares.
NOTE 5 -OTHER COMPREHENSIVE INCOME (LOSS):
Accumulated Other Comprehensive Income (Loss) ("AOCI") is comprised of
various items, which affect equity that result from recognized transactions and
other economic events other than transactions with owners in their capacity as
owners. AOCI is included in stockholders' equity in the consolidated balance
sheets. AOCI consists of the following:
(in thousands)
------------------------------
March 31, 2007 June 30, 2006
-------------- -------------
Cumulative translation adjustments $3,262 $2,588
Unrealized gain on investments,
net of tax 137 109
Unrealized gain (loss) on forward
contracts, net of tax -- 39
Minimum pension liability, net of tax (105) (110)
------ ------
$3,294 $2,626
====== ======
NOTE 6 - INVENTORIES:
Inventories consist of the following:
(in thousands)
------------------------------
March 31, 2007 June 30, 2006
-------------- -------------
Raw materials $14,594 $11,285
In process 4,689 4,236
Finished goods 11,386 7,136
------- -------
$30,669 $22,657
======= =======
Foreign currency translation effects increased inventories by $432 from
June 30, 2006 to March 31, 2007.
NOTE 7 -- GOODWILL/OTHER INTANGIBLE ASSETS:
The changes in the carrying amount of goodwill for the nine months ended
March 31, 2007 are as follows:
(in thousands)
------------------------------------
Gross
Carrying Accumulated Net
Amount Amortization Book Value
-------- ------------ ----------
Balance as of July 1, 2006 $14,478 $3,419 $11,059
Purchase of Oxy-Dry 9,480 -- 9,480
Effects of currency translation 168 (35) 203
------- ------- -------
Balance as of March 31, 2007 $24,126 $3,384 $20,742
======= ====== =======
9
Intangible assets subject to amortization are comprised of the following:
(in thousands)
-------------------------------------------------
As of March 31, 2007 As of June 30, 2006
----------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Intangible Assets: Amount Amortization Amount Amortization
------------------ -------- ------------ -------- ------------
Patents and trademarks $ 8,225 $5,302 $7,686 $4,996
Customer relationship 528 12 -- --
Trademark 1,645 20 -- --
Existing product technology 4,499 100 -- --
Non-compete/solicitation agreements 73 4 -- --
Other 1,636 935 1,397 778
------- ------ ------ ------
Total $16,606 $6,373 $9,083 $5,774
======= ====== ====== ======
Amortization expense associated with these intangible assets was $307 and
$599, respectively, for the three and nine months ended March 31, 2007 and $118
and $360, respectively, for the three and nine months ended March 31, 2006. The
Other category is included in "Other Assets" on the accompanying consolidated
balance sheets.
NOTE 8 - PENSION AND OTHER POST-RETIREMENT BENEFITS:
The following table sets forth the components of net periodic benefit costs
for the Company's defined benefit plans for the three and nine months ended
March 31, 2007 and 2006:
(in thousands)
------------------------------------------
Pension Benefits Pension Benefits
For the three months For the nine months
ended March 31, ended March 31,
-------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----
Service cost $71 $64 $213 $192
Interest cost 12 12 36 36
Expected return on plan
assets (4) (4) (12) (12)
Amortization of transition
obligation (1) 3 (3) 9
Amortization of net
actuarial gain (1) (3) (3) (9)
--- --- ---- ----
Net periodic benefit cost $77 $72 $231 $216
=== === ==== ====
During the nine months ended March 31, 2007 and 2006 the Company made
contributions to the plans of $531 and $307, respectively. During the nine
months ended March 31, 2007, the Company recognized $147 of income before tax,
in Other Income, related to the cancellation of an insurance contract in Japan
used to fund a supplemental retirement obligation. Of the $147 of income before
tax recognized, $143 ($83 after tax) is related to income earned in prior
periods.
NOTE 9 - CUSTOMERS:
During the three and nine months ended March 31, 2007, one customer
accounted for more than 10% of the Company's net sales. Koenig and Bauer
Aktiengesellschaft ("KBA") accounted for approximately 15% and 18% of the
Company's net sales for the three and nine months ended March 31, 2007,
respectively, and 17% for both the three and nine months ended March 31, 2006.
10
NOTE 10 - WARRANTY RESERVE:
The Company's standard contractual warranty provisions are to repair or
replace, at the Company's option, product that is proven to be defective. The
Company estimates its warranty costs as a percentage of revenues on a product by
product basis, based on actual historical experience within the Company. Hence,
the Company accrues estimated warranty costs, included in other accounts payable
and accrued liabilities, at the time of sale. In addition, should the Company
become aware of a specific potential warranty claim, a specific charge is
recorded and accounted for separate from the percent of revenue discussed above.
(in thousands)
Warranty Reserve
-----------------
2007 2006
------- -------
Warranty reserve at June 30, 2006 and 2005 $ 3,049 $ 2,840
Additional warranty expense accruals 2,398 2,610
Payments against reserve (3,092) (2,685)
Acquired Oxy-Dry balance 1,983 0
Effects of currency rate fluctuations 84 (18)
------- -------
Warranty reserve at March 31, 2007 and 2006 $ 4,422 $ 2,747
======= =======
NOTE 11 - ACQUISITION:
On November 21, 2006 the Company completed its previously announced
acquisition of Oxy-Dry Corporation. Oxy-Dry is a global supplier of accessories
and controls to the printing industry. The acquisition strengthens the Company's
presence in its core market of accessories and controls by affording it the
ability to provide a broader range of product offerings to its customers.
Aggregate and preliminary consideration paid, in cash, at closing consisted of a
purchase price of approximately $18,000, working capital and other contract
related adjustments of $1,077, subject to post closing adjustments and $1,452 in
fees and expenses. Determination of the final purchase price is subject to the
completion of an audit of the closing consolidated balance sheet and income
statement of Oxy-Dry as stated in the calculation and payment adjustment section
of the stock purchase agreement.
The table below represents the preliminary allocation of the total
consideration to the Oxy-Dry tangible and identifiable intangible assets and
liabilities based on the Company's assessment of their respective fair values as
of the date of acquisition. The preliminary valuation, presented below, is
subject to change based upon finalization of the post closing adjustments.
(in thousands)
--------------
Cash $ 2,287
Accounts receivable 7,136
Inventory 5,960
Other assets 914
Property, plant and equipment 2,149
Identifiable intangible assets 6,745
Accounts payable (1,723)
Deposits (2,156)
Accrued expenses (7,360)
Liabilities assumed (3,000)
Deferred taxes 1,248
Other liabilities (1,151)
-------
Total fair value of net assets acquired 11,049
-------
Goodwill $ 9,480
11
Identifiable intangibles include product technology, $4,499 (15 year life),
trade name $1,645 (30 year life), customer relationships $528 (13 year life),
and non-compete agreements $73 (5 year life).
On December 20, 2006, the Company committed to the principal features of a
plan to restructure and integrate the operations of MTC Corporation and its
wholly-owned subsidiary Oxy-Dry Corporation. The objective is to achieve
operational efficiencies and eliminate redundant costs resulting from the
acquisition as well as to achieve greater efficiency in sales, marketing,
administrative and operational activities, primarily in Germany, the United
States and the United Kingdom. In particular, the U.S. and U.K. plan involves
consolidation of former Oxy-Dry leased locations into existing Company
locations. In addition, the plan in the U.S. and U.K. includes elimination of
redundant manufacturing and support personnel. In Germany, the plan consists of
consolidation and elimination of support functions while maintaining the former
Oxy-Dry manufacturing location. The actions under the plan commenced during
December 2006; and the Company expects to substantially complete the plan by the
end of the Company's current fiscal year. The liabilities recognized in
connection with the acquisition include $2,300 of employee termination and
associated costs and $700 of facilities and other one-time costs included in
other accounts payable and accrued liabilities.
The results of the acquisition of Oxy-Dry have been included in the
consolidated financial statements since the date of acquisition November 21,
2006.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the three and nine months ended March 31,
2007 and 2006 as if the acquisition of Oxy-Dry had occurred at the beginning of
each period, after giving effect to certain purchase accounting adjustments,
including assumed amortization of acquired intangibles and higher interest
expense due to higher debt level. These pro forma results are not necessarily
indicative of what the Company's operating results would have been had the
acquisition actually taken place at the beginning of each period.
(in thousands, except per share data)
------------------------------------------
For the three months For the nine months
ended March 31, ended March 31,
-------------------- -------------------
2007 2006 2007 2006
------- ------- -------- --------
Revenue 53,211 54,786 158,574 162,347
Net income 1,296 730 927 2,835
Income per share - basic $ 0.09 $ 0.05 $ 0.06 $ 0.19
Income per share - diluted $ 0.08 $ 0.05 $ 0.06 $ 0.18
NOTE 12 - STOCK BASED COMPENSATION:
Pursuant to SFAS123(R) "Share-Based Payment", companies must recognize the
cost of employee services received in exchange for awards of equity instruments
based on the grant date fair value of those awards.
12
Total share-based compensation for the three and nine months ended March
31, 2007 and 2006 are summarized in the following table:
(in thousands)
------------------------------------------
For the three months For the nine months
ended March 31, ended March 31,
-------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----
Share based compensation
Stock options $100 $153 $291 $256
Restricted stock 106 46 267 76
---- ---- ---- ----
Total share-based compensation $206 $199 $558 $332
==== ==== ==== ====
NOTE 13 - RESTRUCTURING:
On December 20, 2006, the Company committed to the principal features of a
plan to restructure some of its existing operations. The objective is to achieve
operational efficiencies and eliminate redundant costs resulting from the
acquisition of Oxy-Dry (See Note 11) as well as to achieve greater efficiency in
sales, marketing, administrative and operational activities, primarily in
Germany, the United States and the United Kingdom. The actions under the plan
commenced in December 2006; and the Company expects to substantially complete
the plan by the end of the Company's current fiscal year.
Activity related to the restructuring plan during the nine months ended
March 31, 2007 included in other accounts payable and accrued liabilities is as
follows:
Payment
Initial against Balance at
(in thousands) Reserve Reserve March 31, 2007
------- ------- --------------
Restructuring costs:
Employee termination costs $810 $260 $550
Contract termination costs 72 -- 72
Other associated costs 112 14 98
---- ---- ----
Total restructuring costs $994 $274 $720
==== ==== ====
NOTE 14 - SUBSEQUENT EVENT:
On April 11, 2007 the Company announced that it had acquired Hildebrand
Systeme GmbH, a leader in the field of high performance web cleaning systems,
for approximately $2.5 million in cash.
13
BALDWIN TECHNOLOGY COMPANY, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
OVERVIEW
Baldwin Technology Company, Inc. is a leading global manufacturer of press
accessories and controls for the commercial and newspaper printing industries.
Baldwin offers its customers a broad range of market-leading technologies,
products and systems that enhance the quality of printed products and improve
the economic and environmental efficiency of printing presses. Headquartered in
Shelton, CT, the Company has sales and service centers and product development
and manufacturing operations in the Americas, Asia and Europe. Baldwin's
technology and products include cleaning systems, fluid management and ink
control systems, web press protection systems and drying systems.
The Company manages its business as one reportable business segment built
around its core competency in accessories and controls.
On November 21, 2006 the company completed its previously announced
acquisition of the Oxy-Dry group of companies ("Oxy-Dry"). Aggregate and
preliminary consideration paid, in cash, at closing consisted of a purchase
price of approximately $18,000,000, working capital and other contract related
adjustments $1,077,000, subject to post closing adjustments and $1,452,000 in
fees and expenses. Oxy-Dry, a privately held company with annual sales of
approximately $38,000,000 produces accessories and controls for the printing
industry. The results of the acquired company are included in the financial
statements as reported and are addressed specifically in the discussion below.
In conjunction with the Oxy Dry transaction, and as previously announced,
the Company also negotiated a new credit facility consisting of a term loan of
$15,000,000 and a $35,000,000 revolving line of credit. Proceeds of the new
facility were used to finance the acquisition and extinguish the Company's
existing credit facility.
For the three and nine months ended March 31, 2007 net sales were
$53,211,000 and $144,586,000, respectively, representing approximately a 17% and
10% improvement, respectively, over the previous year's corresponding period as
reported. Revenues during the three and nine month periods, have been favorably
impacted by the acquisition of Oxy-Dry and currency exchange rates as more fully
described in the sections below. During the three and nine months periods, sales
have been negatively impacted by lower domestic demand in the newspaper and
commercial print markets in Japan and reduced newspaper project activity with
OEM customers particularly in the spray dampening product offering in Europe.
For the three and nine months ended March 31, 2007 and 2006, gross margins
as reported remained stable at approximately 33%, while operating income as
reported remained stable at about 5% to 6% of sales.
During the nine months ended March 31, 2007 the Company recorded a
restructuring charge of $994,000. In addition, the interest expense increased in
both the three and nine months ended March 31, 2007 versus the previous year's
corresponding periods as a result of higher debt levels associated with the
acquisition of Oxy-Dry.
14
Since the Company has made significant progress in its integration plans,
the numbers presented for the acquired entity exclude the numbers for the now
fully integrated U.S. accessories and control business of Oxy-Dry, except for
the discussion on net sales.
THREE MONTHS ENDED MARCH 31, 2007 VS. THREE MONTHS ENDED MARCH 31, 2006
CONSOLIDATED RESULTS
NET SALES
Net sales for the three months ended March 31, 2007, excluding the
acquisition of Oxy-Dry increased by $1,048,000, or 2.3%, to $46,495,000 from
$45,447,000 for the three months ended March 31, 2006. Currency rate
fluctuations attributable to the Company's overseas operations increased net
sales by $1,911,000 in the current period; otherwise, net sales would have
decreased by $863,000 or 1.9%. Sales of the acquired operations for the three
months ended March 31, 2007 of $6,716,000 brought reported sales to $53,211,000.
The net sales decrease (adjusted for currency effects) reflects lower sales
volumes in Europe $1,400,000 and the Americas $447,000 partially offset by
increased revenues in Asia $983,000. In Europe, the decrease in demand for the
Company's cleaning and spray dampening systems in the newspaper markets
primarily account for the decreased revenue. In the Americas decreased demand in
the commercial market for cleaning systems decreased shipments in the U.S.
Partially offsetting these declines were higher revenues in Asia, primarily due
to higher revenue for cleaning systems in the Japanese commercial printing
market.
GROSS PROFIT
Gross profit for the three months ended March 31, 2007, excluding the
effects of the acquisition, was $15,908,000 (34.2% of net sales) as compared to
$15,063,000 (33.1% of net sales) for the three months ended March 31, 2006, an
increase of $845,000 or 5.6%. Currency rate fluctuations increased gross profit
by $748,000 in the current period. Excluding the effects of currency rate
fluctuations, gross profit would have remained relatively flat for the quarter
as reduced volumes and under absorption of overhead in Germany and Sweden were
offset by higher volumes and lower material costs in Japan. Gross profit of
$1,529,000 of the acquired business brought reported gross profit to
$17,437,000.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, (SG&A), excluding the
acquired company were approximately $8,931,000 (19.2% of net sales) for the
three months ended March 31, 2007 as compared to $8,606,000 (18.9% of net sales)
for the same period in the prior fiscal year, an increase of $325,000 or 3.8%.
Currency rate fluctuations increased these expenses by $309,000 in the current
period; otherwise, selling, general and administrative expenses would have
remained relatively flat. Selling expenses decreased by $807,000. This decrease
is mainly due to lower commissions, trade show, advertising and subcontractor
costs in the current year period. General and administrative expenses increased
by $823,000. This increase is primarily due to higher severance, recruiting,
tax, audit, and compliance costs partially offset by lower incentive
compensation accruals. Selling, General and Administrative expenses of the
acquired company of $1,097,000 brought total reported SG&A expenses to
$10,028,000 as reported.
ENGINEERING AND DEVELOPMENT EXPENSES
Engineering and development expenses, excluding $243,000 for the acquired
company, increased by $466,000 over the three months ended March 31, 2007.
Currency rate fluctuations increased these expenses by $238,000 in the current
period. Excluding the
15
effects of currency rate fluctuations, engineering and development expenses
would have increased by $228,000 in the current period. This increase relates
primarily to higher product management costs in Japan. As a percentage of net
sales, engineering and development expenses as reported remained relatively flat
at approximately 8.0% for the three months ended March 31, 2007 compared to the
three months ended March 31, 2006.
INTEREST AND OTHER
Interest expense for the three months ended March 31, 2007 was $749,000 as
compared to $256,000 for the three months ended March 31, 2006. Currency rate
fluctuations increased interest expense by $30,000 in the current period.
Otherwise, interest expense would have increased by $463,000. This increase
reflects the higher debt level of approximately $16,000,000 versus the debt
level for the period ended March 31, 2006. In addition, interest expense for the
three months ended March 31, 2007 included $105,000 amortization of capitalized
finance costs. As noted above, the increase in debt is primarily associated with
the acquisition of Oxy-Dry in late November 2006. Interest income amounted to
$44,000 and $31,000 for the three months ended March 31, 2007 and 2006,
respectively.
Other income (expense), net, amounted to expense of $220,000 for the three
months ended March 31, 2007 compared to income of $43,000 for the three months
ended March 31, 2006. Other income (expense), net, for the three months ended
March 31, 2007 and 2006, respectively, includes: net foreign currency
transaction (losses) of $(174,000) and gains of $5,000.
INCOME TAXES
The Company recorded an income tax provision of $941,000 for the three
months ended March 31, 2007 as compared to $993,000 for the three months ended
March 31, 2006. The effective tax rate of 42.1% for the three months ended March
31, 2007 differs from the statutory rate and the 36.3 % March 31, 2006 rate. The
rate differences reflect the distribution of taxable income in higher tax
jurisdictions and no recognition of tax benefit for losses incurred in certain
countries as the realization of such benefits was not more likely than not.
Additionally, the quarter ended March 31, 2007 includes a net benefit of
$265,000 related to several discrete items, including the reversal of valuation
allowance in the UK and France as realization of the deferred tax assets in
those countries was deemed to be more likely than not. The quarter ended March
31, 2006 was negatively impacted by discrete items totaling approximately
$200,000.
NET INCOME
The Company's net income amounted to $1,296,000 for the three months ended
March 31, 2007, compared to a net income of $1,745,000 for the three months
ended March 31, 2006. Currency rate fluctuations increased net income by
$150,000 in the current period. Net income per share amounted to $0.09 basic and
$0.08 diluted for the three months ended March 31, 2007, as compared to a net
income per share of $0.12 basic and $0.11 diluted for the three months ended
March 31, 2006.
NINE MONTHS ENDED MARCH 31, 2007 VS. NINE MONTHS ENDED MARCH 31, 2006
CONSOLIDATED RESULTS
NET SALES
Net sales for the nine months ended March 31, 2007, excluding the
acquisition of Oxy-Dry, increased by $1,627,000, or 1.2%, to $133,545,000 from
$131,918,000 for the nine months ended March 31, 2006. Currency rate
fluctuations attributable to the Company's overseas operations increased net
sales by $4,479,000 in the current period; otherwise, net
16
sales would have decreased by $2,852,000 or 2.2%. Sales of the acquired
operations for the nine months ended March 31, 2007 of $11,041,000 brought
reported sales to $144,586,000.
The net sales decrease, excluding the effects of the acquisition and
currency effects, reflects decreased sales in Europe, $1,826,000, particularly
in Germany, as a result of lower demand for cleaning systems in the commercial
market. In the Americas, particularly the U.S., sales decreased $650,000 again
driven by lower demand in the commercial market for cleaning systems. In Asia,
particularly Japan, net sales decreased $378,000 as softness in the Japanese
newspaper market for spray dampening equipment was partially offset by higher
cleaning systems sales and by the market served by the Company's Australian
subsidiary.
GROSS PROFIT
Gross profit for the nine months ended March 31, 2007, excluding the
acquisition was $44,800,000 (33.5% of net sales) as compared to $43,905,000
(33.2% of net sales) for the nine months ended March 31, 2006, an increase of
$895,000 or 2.0%. Currency rate fluctuations increased gross profit by
$1,882,000 in the current period. Excluding the effects of currency rate
fluctuation, gross profit would have decreased by $987,000. Gross profit as a
percentage of net sales decreased primarily as a result of the lower sales
volumes noted above, unfavorable cost absorption associated with the lower
volume coupled with higher technical service costs. Gross profit of $2,517,000
of the acquired business brought reported gross profit to $47,317,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A), excluding the
acquisition, amounted to $25,533,000 (19.1% of net sales) for the nine months
ended March 31, 2007 as compared to $25,331,000 (19.2% of net sales) for the
same period in the prior fiscal year, an increase of $202,000. Currency rate
fluctuations increased these expenses by $771,000 in the current period.
Otherwise, selling, general and administrative expenses would have decreased by
$569,000. Selling expenses decreased by $1,140,000. This decrease is primarily
driven by decreased travel costs, commissions, and trade show expenses. General
and administrative expenses increased by $571,000. This increase primarily
reflects increased cost for professional services (related to compliance, tax,
audit and other financial services), severance costs, stock-based compensation
costs, recruiting and relocation costs, partially offset by reduced incentive
compensation accruals. Selling, general and administrative expense of $1,629,000
of the acquired company brought reported SG&A expense to $27,162,000.
ENGINEERING AND DEVELOPMENT EXPENSES
Engineering and development expenses, excluding $257,000 of expenses of the
acquired company, increased $781,000 over the same period in the prior fiscal
year. Currency rate fluctuations increased these expenses by $509,000 in the
current period. Excluding the effects of currency rate fluctuations, engineering
and development expenses would have increased by $272,000 in the current period.
This increase related primarily to higher employee compensation and related
costs associated with product management activities. As a percentage of net
sales, engineering and development expenses as reported remained at
approximately 8.4% for the nine months ended March 31, 2007 and March 31, 2006.
RESTRUCTURING
The Company recorded $994,000 of restructuring costs during the nine months
ended March 31, 2007 versus $0 in the comparable prior year period. The
restructuring plan, designed to achieve efficiencies in sales, marketing,
administrative and operational activities primarily in Germany, the U.S and the
U.K., included employee termination costs of $710,000, facility and lease
termination costs of $175,000 and other associated cost of $109,000.
INTEREST AND OTHER
17
Interest expense for the nine months ended March 31, 2007 was $1,532,000 as
compared to $803,000 for the nine months ended March 31, 2006. Currency rate
fluctuations increased interest expense by $68,000 in the current period.
Otherwise, interest expense would have increased by $661,000. This increase
reflects the higher debt level of approximately $16,000 versus the period ended
March 31, 2006. In addition, interest expense for the nine months ended March
31, 2007 included $142,000 amortization of capitalized finance costs. As noted
above, the increase in debt is primarily associated with the acquisition of
Oxy-Dry in late November 2006. Interest income amounted to $132,000 and $92,000
for the nine months ended March 31, 2007 and 2006, respectively.
Net royalty income for the nine months ended March 31, 2007 was $0 as
compared to $200,000 for the nine months ended March 31, 2006. The income in
fiscal year 2006 was as a result of final royalty payments and true ups for a
group of patents which were the source of the royalty income.
Other income (expense), net, amounted to expense of $169,000 for the nine
months ended March 31, 2007 compared to expense of $36,000 for the nine months
ended March 31, 2006. Other income (expense), net, for the nine months ended
March 31, 2007 and 2006, respectively, included: net foreign currency
transaction (losses) of ($324,000) and ($115,000). In addition, the nine months
ended March 31, 2007 includes income related to the cancellation of an insurance
contract in Japan of $147,000 of which $143,000 is related to income earned in
prior periods.
INCOME TAXES
The Company recorded an income tax provision of $2,395,000 for the nine
months ended March 31, 2007 as compared to $2,571,000 for the nine months ended
March 31, 2006. The effective tax rate of 44.4% for the nine months ended March
31, 2007 and 37.3 % for the nine months ended March 31, 2006 differs from the
statutory rate and is impacted by taxable income earned in higher tax
jurisdictions in which tax loss carry-forwards were not available and no
recognition of tax benefit for losses incurred in certain countries as the
realization of such benefits was not more likely than not. Additionally, the
nine months ended March 31, 2007 reflects reversal of the valuation allowance in
the U.K. and France as the realization of deferred tax assets in those countries
is more likely than not offset by charges related to international tax audits in
Germany and France. The Company continues to assess the need for its deferred
tax asset valuation allowance in the jurisdictions in which it operates. Any
adjustments to the deferred tax asset valuation allowance either positive or
negative would be recorded in the income statement of the period that the
adjustment was determined to be required. In particular, the Company is
monitoring positive earnings trends and other positive evidence in the U.S. to
determine if such trends could possibly require a reversal of the valuation
allowance in the U.S.
NET INCOME
The Company's net income amounted to $3,024,000 for the nine months ended
March 31, 2007, compared to $4,321,000 for the nine months ended March 31, 2006.
Currency rate fluctuations increased net income by $404,000 in the current
period. Net income per share amounted to $0.20 basic and $0.19 diluted for the
nine months ended March 31, 2007, as compared to net income per share of $0.29
basic and $0.28 diluted for the nine months ended March 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 2007
Cash flows from operating, investing and financing activities, as reflected
in the nine months ended March 31 in the Consolidated Statement of Cash Flows,
are summarized as follows:
18
Cash provided by (used for): 2007 2006
---------------------------- ------------ -----------
Operating activities $ 1,118,000 $ 4,145,000
Investing activities (19,372,000) (926,000)
Financing activities 18,390,000 (1,284,000)
Effect of exchange rate changes on cash 156,000 (319,000)
------------ -----------
Net increase in cash and cash equivalents $ 292,000 $ 1,616,000
============ ===========
Cash provided by operating activities decreased $3,027,000 during the nine
months ended March 31, 2007 versus the prior year period. This decrease
primarily reflects the timing of accounts payable, lower customer deposits and
restructuring payments partially offset by improved collections on accounts
receivable.
The Company utilized $19,372,000 for investing activities for the nine
months ended March 31, 2007. The amount utilized during the nine month period
ended March 31, 2007 primarily reflects the acquisition of Oxy-Dry, (net of
acquired cash) $18,242,000. In addition cash utilized for investing includes
additions to property, plant and equipment and patents and trademarks of
$1,130,000 and $926,000 for the nine months ended March 31, 2007 and 2006,
respectively.
On November 21, 2006 the Company entered into a credit agreement (the
"Agreement") with LaSalle Bank National Association ("LaSalle"). Under the terms
of the Agreement, the Company received a $35,000,000 bridge loan, the proceeds
of which were used to refinance the Company's previously existing obligations
with Maple Bank GmbH and fund the acquisition of Oxy-Dry and associated closing
cost. The Agreement provided for the bridge loan to be converted to a permanent
facility, consisting of a $15,000,000 term loan (the "Term Loan") and
$35,000,000 of revolving lines of credit. On January 19, 2007, the Company
initiated a draw on this permanent financing facility using the proceeds to
repay the aforementioned bridge loan and associated interest. The term of the
permanent facility is for a period of five years maturing on November 21, 2011.
Commencing on February 21, 2007, the Company must repay the Term Loan in
quarterly installments as defined in the Agreement through November 21, 2011.
Interest rates under the permanent facility, depending on which option the
Company exercises under the Agreement, are based on London Interbank Offering
Rates ("LIBOR") or, in the case of U.S., dollar loans at the prime rate. Loans
based on LIBOR bear interest at LIBOR plus i) 2.50% when total debt to EBITDA
ratio is greater than 3.00:1 ii) 2.25% when total debt to EBITDA ratio is
greater than 2.50:1 but less than or equal to 3.00:1 iii) 2.00% when total debt
to EBITDA ration is greater than 2.00:1 but less than or equal to 2.50:1 and,
iv) 1.75% when total debt to EBITDA ratio is less than or equal to 2.00:1. Loans
base on the prime rate bear interest at the prime rate plus i) 1.00% when total
debt to EBITDA ratio is greater than 3.00:1 ii) 0.75% when total debt to EBITDA
ratio is greater than 2.50:1 but less than or equal to 3.00:1 iii) 0.50% when
total debt to EBITDA ratio is greater than 2.00:1 but less than or equal to
2.50:1 and, iv) 0.25% when total debt to EBITDA ratio is less than or equal to
2.00:1.
The Agreement requires the Company to maintain minimum EBITDA, Fixed Charge
Coverage Ratio and Total Funded Debt Ratio. The Agreement provides that total
EBITDA, as defined in the Agreement, must not be less than i) $10,000,000 for
each of the computation periods ending on December 31, 2006 and March 31, 2007
ii) to not be less than $11,000,000 for each of the computation periods ending
on June 30, 2007 and September 30, 2007 and iii) any computation period ending
on December 31, 2007 and thereafter to not to be less than $12,000,000. The
Fixed Charge Coverage Ratio, as defined in the Agreement, shall not be less than
1.25 to 1.0 commencing with the computation period ending on December 31, 2006.
Total Funded Debt Ratio, as defined in the Agreement, i) shall not exceed 3.50
to 1.0 for any
19
computation period ending on or after December 31, 2006 and on or before March
31, 2009 and ii) shall not exceed 3.00 to 1.0 for any computation period on or
after June 30, 2009.
Borrowings under the Agreement in the U.S. are secured by substantially all
of the domestic assets and in Europe by a pledge of the stock of the Company's
European subsidiaries.
The Company incurred $2,100,000 of deferred financing costs in association
with the refinancing which are being amortized over the 60 months.
In addition, during the quarter ended December 31, 2006 the Company
announced a restructuring plan of some of its existing locations and integration
plan of the acquired company, in an effort to achieve operational efficiencies
and eliminate redundant costs in sales, marketing, administrative and
operational activities. The Company expects to incur aggregate cash expenditures
of approximately $4,600,000 primarily during fiscal year 2007 in relationship to
these actions. Annual estimate savings from these actions is approximately
$3,700,000.
The Company maintains relationships with both foreign and domestic banks,
which combined have extended credit facilities to the Company totaling
$54,861,000. As of March 31, 2007, the Company had $33,705,000 (including
letters of credit) outstanding under these credit facilities.
In addition, on April 19, 2007 the Company entered into a $5,000,000 credit
facility with a foreign lender. Interest under the agreement for Euro based
borrowings is at 7.50% and 8.75% for U.S. dollar based borrowings.
The Company believes that its cash flows from operations, along with the
available bank lines of credit and alternative sources of borrowings, if
necessary, are sufficient to finance its working capital and other capital
requirements through the term of the LaSalle Agreement.
At March 31, 2007 and June 30, 2006, the Company did not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance entities, special purpose
entities or variable interest entities, which would have been established for
the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, the Company is not exposed to
any financing, liquidity, market or credit risk that could arise if the Company
had engaged in such relationships.
The following summarizes the Company's contractual obligations at March 31,
2007 and the effect such obligations are expected to have on its liquidity and
cash flow in future periods (in thousands):
Fiscal Years ending June 30,
-------------------------------------------------------------------
Total at 2012
March and
31, 2007 2007* 2008 2009 2010 2011 thereafter
-------- ------ ------- ------ ------ ------ ----------
Contractual Obligations:
Loans payable $ 3,394 $3,394 $ -- $ -- $ -- $ -- $ --
Capital lease obligations 453 33 125 119 105 68 3
Long-term debt (1) 27,834 633 2,341 2,951 3,365 4,142 14,402
Non-cancelable operating lease obligations 25,050 1,565 4,806 3,735 2,576 2,068 10,300
Restructuring and integration payments 3,252 2,238 870 144 -- -- --
Interest expense (2) 8,466 707 2,121 1,932 1,691 1,406 609
------- ------ ------- ------ ------ ------ -------
Total contractual cash obligations $68,449 $8,570 $10,263 $8,881 $7,737 $7,684 $25,314
======= ====== ======= ====== ====== ====== =======
20
* Includes only the remaining three months of the fiscal year ending June
30, 2007.
(1) refer to Footnote 3 for additional information related to the long term
debt
(2) the anticipated future interest payments are based on the Company's current
indebtedness and interest rates at March 31, 2007, with consideration given
to debt reduction as the result of expected payments.
IMPACT OF INFLATION
The Company's results are affected by the impact of inflation on
manufacturing and operating costs. Historically, the Company has used selling
price adjustments, cost containment programs and improved operating efficiencies
to offset the otherwise negative impact of inflation on its operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
A discussion of market risk exposures is included in Part II Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk" of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2006. There have
been no material changes during the three months ended March 31, 2007.
ITEM 4: CONTROLS AND PROCEDURES:
The Company maintains disclosure controls and procedures designed to ensure
that the information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
these disclosure controls and procedures as of the end of our fiscal quarter
March 31, 2007, the period covered by this report. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are effective to achieve
their stated purpose. However, there is no assurance that the Company's
disclosure controls and procedures will operate effectively under all
circumstances. No changes were made to the Company's internal control over
financial reporting during the fiscal quarter ended March 31, 2007, that have
materially affected, or are reasonably likely to materially effect, the
Company's internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1A. RISK FACTORS
Information regarding risk factors is contained in Item 1A "Risk Factors"
and Exhibit 99 filed with the Company's Report on Form 10-K for the fiscal year
ended June 30, 2006. There have been no material changes in the Company's risk
factors from those disclosed in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2006.
21
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There has been no activity under the Company's stock repurchase program for
the quarter ended March 31, 2007.
22
ITEM 5: OTHER INFORMATION
Baldwin Technology Company, Inc. (the "Company") and various of its
subsidiaries entered into a Credit Agreement with the Baden-Wurttembergesche
Bank (the "Bank") effective April 19, 2007 under which the Bank agreed to make
available to the Company a credit facility in the amount of 5 million euro.
Unless sooner terminated, the Credit Agreement will terminate on February 28,
2008. Interest rates payable on loans are at 7.50% for euro based borrowings and
8.75% for U.S. dollar based borrowings.
ITEM 6. EXHIBITS
31.01 Certification of the Principal Executive Officer pursuant to Exchange
Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31.02 Certification of the Principal Financial Officer pursuant to Exchange
Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.01 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350 (filed herewith).
32.02 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350 (filed herewith).
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALDWIN TECHNOLOGY COMPANY, INC.
BY /s/ John P. Jordan
-------------------------------------
Vice President, Chief Financial
Officer and Treasurer
Dated: May 15, 2007
24