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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 September 30, 2005
-----------------------------------
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
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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 Identification No.)
incorporation or organization)
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 an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
YES NO 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 October 31, 2005
----- -------------------------------
Class A Common Stock
$0.01 par value 13,017,647
Class B Common Stock
$0.01 par value 1,935,419
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BALDWIN TECHNOLOGY COMPANY, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at September 30, 2005 (unaudited) and
June 30, 2005 1-2
Consolidated Statements of Income for the three
months ended September 30, 2005 (unaudited) and
2004 (unaudited) 3
Consolidated Statements of Changes in
Shareholders' Equity for the three months ended
September 30, 2005 (unaudited) 4
Consolidated Statements of Cash Flows for the
three months ended September 30, 2005 (unaudited)
and 2004 (unaudited) 5-6
Notes to Consolidated Financial Statements (unaudited) 7-12
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-16
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4 Controls and Procedures 16
Part II Other Information
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits 18
Signatures 19
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
September 30, 2005 June 30, 2005
------------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $ 15,411 $ 15,443
Accounts receivable trade, net of allowance for doubtful
accounts of $1,964 ($1,962 at June 30, 2005) 24,413 27,160
Notes receivable, trade 9,915 8,090
Inventories, net 23,152 22,755
Deferred taxes 385 416
Prepaid expenses and other 4,437 3,132
------------- -------------
Total Current Assets 77,713 76,996
------------- -------------
MARKETABLE SECURITIES:
Cost $605 ($610 at June 30, 2005) 772 678
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 944 936
Machinery and equipment 2,176 2,082
Furniture and fixtures 3,792 3,796
Capital leases 388 391
------------- -------------
7,300 7,205
Less: Accumulated depreciation and amortization (3,946) (3,790)
------------- -------------
Net Property, Plant and Equipment 3,354 3,415
------------- -------------
PATENTS, TRADEMARKS AND ENGINEERING DRAWINGS, at cost, less accumulated
amortization of $4,658 ($4,559 at June 30, 2005) 2,672 2,561
GOODWILL, less accumulated amortization of $3,392 ($3,456 at June 30, 2005) 10,756 10,922
DEFERRED TAXES 10,542 10,623
OTHER ASSETS 3,712 4,156
------------- -------------
TOTAL ASSETS $ 109,521 $ 109,351
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 2005 June 30, 2005
------------------ --------------
CURRENT LIABILITIES:
Loans payable $ 2,643 $ 2,705
Current portion of long-term debt 1,306 1,033
Accounts payable, trade 14,715 14,789
Notes payable, trade 9,535 9,278
Accrued salaries, commissions, bonus and
profit-sharing 5,778 7,641
Customer deposits 2,851 3,320
Accrued and withheld taxes 2,010 2,041
Income taxes payable 1,239 1,204
Other accounts payable and accrued liabilities 9,775 9,486
---------------- -------------
Total current liabilities 49,852 51,497
---------------- -------------
LONG TERM LIABILITIES:
Long-term debt 12,693 12,223
Other long-term liabilities 6,640 6,400
---------------- -------------
Total long-term liabilities 19,333 18,623
---------------- -------------
Total liabilities 69,185 70,120
---------------- -------------
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.01 par, 45,000,000 shares authorized,
16,617,849 shares issued at
September 30, 2005 and 16,575,349 shares
issued at June 30, 2005 167 166
Class B Common Stock, $.01 par, 4,500,000 shares authorized,
2,137,883 shares issued at September 30, 2005 and June 30, 2005 21 21
Capital contributed in excess of par value 57,149 57,065
Accumulated Deficit (6,439) (7,632)
Accumulated other comprehensive income 2,159 2,332
Less: Treasury stock, at cost:
Class A - 3,630,202 shares at September 30, 2005
and June 30, 2005
Class B - 172,464 shares at September 30, 2005
and June 30, 2005 (12,721) (12,721)
---------------- --------------
Total shareholders' equity 40,336 39,231
---------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 109,521 $ 109,351
================ =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months
ended September 30,
-------------------
2005 2004
---- ----
Net Sales $ 42,645 $ 39,997
Cost of goods sold 28,589 27,906
----------- -----------
Gross Profit 14,056 12,091
----------- -----------
Operating Expenses:
General and administrative 4,688 3,991
Selling 3,434 3,342
Engineering and development 3,780 3,358
----------- -----------
11,902 10,691
----------- -----------
Operating income 2,154 1,400
----------- -----------
Other (income) expense:
Interest expense 298 952
Interest income (28) (23)
Royalty income, net (200) (754)
Other (income) expense, net 67 (13)
----------- -----------
137 162
----------- -----------
Income before income taxes 2,017 1,238
Provision for income taxes 824 519
----------- -----------
Net income $ 1,193 $ 719
=========== ===========
Net income per share - basic and diluted
Income per share - basic $ 0.08 $ 0.05
Income per share - diluted $ 0.08 $ 0.05
=========== ==========
Weighted average shares outstanding:
Basic 14,923 14,873
=========== ===========
Diluted 15,474 15,351
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES) (UNAUDITED)
Capital Accumulated
Class A Class B Contributed Other
Common Stock Common Stock In Excess Retained Comprehensive
------------ ------------
Shares Amount Shares Amount of Par Deficit Income
------- ------ ------ ------ ------ ------- ------
Balance at
June 30, 2005 16,575,349 $166 2,137,883 $21 $57,065 $ (7,632) $ 2,332
Net income for the
three months ended
September 30, 2005 1,193
Translation
adjustment (310)
Unrealized gain on
available-for-sale
securities, net of
tax 57
Unrealized loss on
forward contracts,
net of tax 80
Comprehensive
Income
Shares issued
under Stock
Option Plan 42,500 1 84
---------- ----- --------- --- ------- -------- -------
Balance at
September 30, 2005 16,617,849 $167 2,137,883 $21 $57,149 $ (6,439) $ 2,159
========== ===== ========= === ======= ======== =======
Treasury Stock Comprehensive
--------------
Shares Amount Income
------ ------ ------
Balance at
June 30, 2005 (3,802,666) $(12,721)
Net income for the
three months ended
September 30, 2005 $ 1,193
Translation
adjustment (310)
Unrealized gain on
available-for-sale
securities, net of
tax 57
Unrealized loss on
forward contracts,
net of tax 80
-------
Comprehensive
Income $ 1,020
=======
Shares issued
under Stock
Option Plan
---------- --------
Balance at
September 30, 2005 (3,802,666) $(12,721)
========== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the three months ended
September 30,
--------------------------------------
2005 2004
-------------- --------------
Cash flows from operating activities:
Net income $ 1,193 $ 719
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 349 464
Accrued retirement pay 323 (165)
Provision for losses on accounts receivable 30 13
Stock option expense 41 --
Deferred income taxes 30 (60)
Changes in assets and liabilities
Accounts and notes receivable 449 (302)
Inventories (560) (2,493)
Prepaid expenses and other (1,310) 1,094
Other assets 335 (415)
Customer deposits (457) 27
Accrued compensation (1,815) (1,279)
Payments against restructuring charges -- (175)
Accounts and notes payable, trade 574 2,094
Income taxes payable 67 (1,081)
Accrued and withheld taxes (31) (97)
Other accounts payable and accrued liabilities 394 1,597
Interest payable (40) (229)
-------------- --------------
Net cash (used for) operating activities (428) (288)
-------------- --------------
Cash flows from investing activities:
Additions of property, plant and equipment (163) (157)
Additions of patents and trademarks (215) (216)
-------------- --------------
Net cash used by investing activities (378) (373)
-------------- --------------
Cash flows from financing activities:
Long-term and short-term debt borrowings 899 --
Long-term and short-term debt repayments (29) (34)
Principal payments under capital lease obligations (28) (24)
Payment of debt financing costs -- (259)
Proceeds of stock option exercise 85 26
Other long-term liabilities 14 120
-------------- --------------
Net cash used by financing activities 941 (171)
-------------- --------------
Effects of exchange rate changes (167) 80
-------------- --------------
Net (decrease) in cash and cash equivalents (32) (752)
Cash and cash equivalents at beginning of period 15,443 12,008
-------------- --------------
Cash and cash equivalents at end of period $ 15,411 $ 11,256
============== ==============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
BALDWIN TECHNOLOGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the three months
ended September 30,
---------------------
2005 2004
---- ----
Cash paid during the period for:
Interest $338 $1,181
Income taxes $766 $1,552
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
BALDWIN TECHNOLOGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Baldwin Technology Company, Inc. 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, 2005.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS:
On June 1, 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, "Accounting Changes and Error Corrections - a replacement of
APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). SFAS 154 changes the
requirements for the accounting and reporting of a change in accounting
principle. SFAS 154 applies to all voluntary changes in accounting principle as
well as changes required by an accounting pronouncement that do not otherwise
include specific transition provisions. Previously, most changes in accounting
principle were required to be recognized by including in net income of the
period of the change the cumulative effect of changing to the new accounting
principle. SFAS 154 requires retrospective application in prior periods'
financial statements of a change in accounting principle as if that principle
had always been used. In addition, SFAS 154 requires that retrospective
application of a change in accounting principle be limited to the direct effects
of the change while indirect effects should be recognized in the period of the
accounting change. SFAS 154 will be effective for fiscal years beginning after
December 15, 2005. The impact of the adoption of SFAS 154 will depend upon the
nature of accounting changes the Company may initiate in future periods, if any.
NOTE 3 - LONG TERM DEBT:
Effective July 1, 2005, the Company amended its primary source of
outside financing, the revolving credit agreement with Maple Bank GmbH (the
"Maple Credit Agreement"). Borrowings under the credit facility are subject to a
borrowing base and bear interest at a rate equal to the three-month Euribor rate
(as defined in the Credit Agreement) plus (i) 3.375%, (5.125% for the period
ended September 30, 2004) for loans denominated in U.S. Dollars or (ii) 3.775%
(5.525% for the period ended September 30, 2004) for loans denominated in Euros.
The amended credit agreement does not require the Company to meet any financial
covenants, except for the limitation on annual capital expenditures; however, it
contains a material adverse effect clause, which provides that Maple Bank would
not be obligated to fund any loan, convert or continue any loan as a LIBOR loan
or issue any new letters of credit in the event of a material
7
adverse effect. Management does not anticipate that such an event will occur;
however, there can be no assurance that such an event will not occur.
(IN THOUSANDS)
SEPTEMBER 30, 2005 JUNE 30, 2005
CURRENT LONG-TERM CURRENT LONG-TERM
Revolving Credit Facility due October 1, 2008,
interest rate 5.525% plus three-month $ -- $ -- $ -- $11,504
euribor rate (2.153% at June 30)
Revolving Credit Facility due October 1, 2008,
interest rate 3.775% plus three-month -- 11,426 -- --
euribor rate (2.108% at September 30)
Term loan payable by foreign subsidiary
due September 2008, interest rate 1.81%(a) 294 588 -- --
Term Loan payable by foreign subsidiary
due December 8, 2006, interest rate 1.5% 881 440 902 450
Note payable by foreign subsidiary
through 2008, interest rate 5.95% 116 232 115 259
Note payable by foreign subsidiary
through February 2007, interest rates
ranging from 4.58% to 4.67% 15 7 16 10
------- ------- ------- -------
$ 1,306 $12,693 $ 1,033 $12,223
======= ======= ======= =======
(a) Yen 100,000,000 3-year term loan (approximately $882,000). Quarterly
principal payments of Yen 8,333,000, interest rate at Tokyo Inter Bank
offered rate (TIBOR) plus .075%. The interest rate swap converts
variable rate to fixed rate of 1.81% and has the same maturity date as
the term loan.
The Company maintains relationships with both foreign and domestic
banks, which combined have extended short and long term credit facilities to the
Company totaling $34,096 including $28,000 available under the Maple GmbH Credit
Agreement. As of September 30, 2005, the Company had $18,130 outstanding under
these credit facilities, including $12,915 under the Maple GmbH 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. For the three months ended September 30, 2005 and 2004, the
weighted average shares outstanding used to compute diluted net income per share
include potentially dilutive securities of 551,000 and 478,000 shares,
respectively. Outstanding options to purchase 197,000 and 640,000 shares,
respectively, of the Company's common stock for the three months ended September
30, 2005 and 2004, respectively, are not included in the above calculation to
compute diluted net income per share as their exercise price exceeded their
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:
8
(in thousands)
September 30, 2005 June 30, 2005
------------------ -------------
(Unaudited)
Cumulative translation adjustments $ 2,097 $ 2,407
Unrealized gain on investments,
net of tax 97 40
Unrealized gain (loss) on forward
contracts, net of tax 45 (35)
Minimum pension liability, net of tax (80) (80)
------- -------
$ 2,159 $ 2,332
======= =======
NOTE 6 - INVENTORIES:
Inventories consist of the following:
(in thousands)
September 30, 2005 June 30, 2005
------------------ -------------
(Unaudited)
Raw materials $11,752 $11,453
In process 4,377 4,409
Finished goods 7,023 6,893
------- -------
$23,152 $22,755
======= =======
Foreign currency translation effects decreased inventories by $163 from
June 30, 2005 to September 30, 2005.
NOTE 7 -- GOODWILL AND OTHER INTANGIBLE ASSETS:
The changes in the carrying amount of goodwill for the three months
ended September 30, 2005 are as follows:
(in thousands)
Gross
Carrying Accumulated Net
Amount Amortization Book Value
------ ------------ ----------
Balance as of July 1, 2005 $ 14,378 $ 3,456 $ 10,922
Effects of currency translation (230) (64) (166)
-------- ------- --------
Balance as of September 30, 2005 $ 14,148 $ 3,392 $ 10,756
======== ======= ========
Intangible assets subject to amortization are comprised of the following:
(in thousands)
As of September 30, 2005 As of June 30, 2005
Gross Gross
Carrying Accumulated Carrying Accumulated
Intangible Assets: Amount Amortization Amount Amortization
------------------ ------ ------------ ------ ------------
Patents and trademarks $7,330 $4,658 $7,120 $4,559
Other 923 742 937 746
------ ------ ------ ------
Total $8,253 $5,400 $8,057 $5,305
====== ====== ====== ======
Amortization expense associated with these intangible assets was $121
and $161, respectively, for the three months ended September 30, 2005 and 2004.
The other category is included in "Other assets" on the accompanying
consolidated balance sheets.
9
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 months ended
September 30, 2005 and 2004:
(in thousands)
Pension Benefits
For the three months
Ended September 30,
2005 2004
---- ----
Service cost $ 64 $ 67
Interest cost 12 15
Expected return on plan assets (4) (1)
Amortization of transition obligation 3 3
Amortization of net actuarial gain (3) -
---- ----
Net periodic benefit cost $ 72 $ 84
==== ====
During the three months ended September 30, 2005 and 2004 the Company
made no contributions to the plans.
NOTE 9 - STOCK OPTIONS:
Effective July 1, 2005 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), (SFAS 123(R)) "Share Based
Payment". The statement focuses primarily on accounting for transactions in
which an entity obtains employee services in shared-based payment transactions.
SFAS 123(R) eliminates the ability to account for share-based compensation
transactions using APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees", and generally requires that such transactions be accounted for using
a fair-value-based method. The Company had previously accounted for its stock
option plans under the recognition and measurement principals of APB 25. As all
previously issued stock option awards granted under the plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant, no compensation costs related to stock option grants was reflected in net
income. The effect of initially applying SFAS 123(R) is recognized as of the
effective date using a modified prospective method. Under the modified
prospective method the Company recognized stock-based compensation expense from
July 1, 2005 as if the fair value based accounting method had been used to
account for all outstanding unvested employee awards granted in prior years. The
Company's stock option plans, which are shareholder approved, permits the grant
of share options and shares of which 428,833 are available for future grants at
September 30, 2005. Option awards, which when exercised would represent newly
issued shares, are generally granted with an exercise price equal to the market
price at the date of grant; generally vest in three equal annual installments
commencing on the second anniversary date of grant and have a ten year
contractual terms. The fair value of each option award is estimated on the date
of grant using the Black-Scholes option pricing model at the grant date.
The following table illustrates the effect on net income and income per
share applying the fair value recognition provisions of SFAS 123 (R) for the
three months ended September 30, 2005 and as if the fair value recognition
provisions had been applied for the three months ended September 30, 2004:
10
(in thousands, except share and per share data)
Three months ended
September 30,
2005 2004
------ ----
Net income as reported 1,193 719
Add: stock-based employee compensation
included in reported net income, net of related
tax effects ($41K pre-tax) 27 --
Deduct: stock-based employee compensation
expense determined as if the fair value method
was used for all years presented (27) (13)
------ ----
As Reported Net Income/Pro Forma Net Income 1,193 706
====== ====
Income per share:
Basic and diluted as reported 0.08 0.05
Basic and diluted pro forma 0.08 0.05
The following table summarizes activity under the plans for the first quarter of
2006:
THE 1986 PLAN THE 1990 PLAN
------------- -------------
WEIGHTED WEIGHTED
OPTION PRICE AVERAGE PRICE OPTION PRICE AVERAGE PRICE
------------- -------------
CLASS A CLASS B RANGE A B CLASS A CLASS B RANGE A B
------- ------- ----- - - --------------- ----- - -
Outstanding at June 30, 2005...... 183,000 105,000 $3.00-$6.72 $4.21 $6.72 8,055 945 $2.56-$6.88 $ 4.40 $5.48
Granted...........................
Canceled.......................... (80,000) (105,000) $5.38-$6.72 $5.38 $6.72
Exercised......................... (5,000) $3.00 $3.00
Outstanding at September 30, 2005. 98,000 0 $3.00-$5.62 $3.32 8,055 945 $ 4.40 $5.48
Exercisable at September 30, 2005. 98,000 0 $3.00-$5.62 $3.32 8,055 945 $2.56-$6.88 $ 4.40 $5.48
THE 1996 PLAN THE 1998 PLAN
------------- -------------
WEIGHTED WEIGHTED
OPTION PRICE AVERAGE PRICE OPTION PRICE AVERAGE PRICE
------------- -------------
CLASS A CLASS B RANGE A B CLASS A CLASS B RANGE A B
------- ------- ----- - - ------- ------- ----- - -
Outstanding at June 30, 2005...... 1,275,667 $0.58-$5.50 $ 2.36 39,000 $1.13-$5.50 $ 2.48 $0.00
Granted........................... 105,000 $4.49 $4.49
Canceled..........................
Exercised......................... (37,500) $1.05-$3.19 $1.86
Outstanding at September 30, 2005.. 1,343,167 $0.58-$5.50 $ 2.54 39,000 $1.13-$5.50 $ 2.48
Exercisable at September 30, 2005.. 468,335 $0.58-$5.50 $2.04 39,000 $1.50-$5.50 $ 2.48
The shares under option at September 30, 2005 were in the following price
ranges:
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
------ ------- ---------------- ----- ------- -----
$0.58 -- $3.75 1,397,167 6.3 years $2.41 522,335 $1.75
$3.88 -- $6.88 92,000 2.4 years $5.51 92,000 $5.51
11
NOTE 10 - CUSTOMERS:
During the three months ended September 30, 2005, one customer accounted
for more than 10% of the Company's net sales. Koenig and Bauer
Aktiengesellschaft ("KBA") accounted for approximately 17% and 18% of the
Company's net sales for the three months ended September 30, 2005 and 2004,
respectively.
NOTE 11 - WARRANTY COSTS:
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 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 Amount
2005 2004
------- -------
Warranty reserve at June 30, 2005 and 2004 $ 2,840 $ 2,714
Additional warranty expense accruals 943 987
Payments against reserve (1,005) (888)
Effects of currency rate fluctuations (7) 56
------- -------
Warranty reserve at September 30, 2005 and 2004 $ 2,771 $ 2,869
======= =======
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the following
statements and certain other statements contained herein are based on current
expectations. Such statements are forward-looking statements that involve a
number of risks and uncertainties. The Company cautions investors that any such
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements. Some of the factors that could cause actual results
to differ materially include, but are not limited to the following: (i) the
ability to obtain, maintain and defend challenges against valid patent
protection on certain technology, primarily as it relates to the Company's
cleaning systems, (ii) material changes in foreign currency exchange rates
versus the U.S. Dollar, (iii) changes in the mix of products and services
comprising revenues, (iv) a decline in the rate of growth of the installed base
of printing press units and the timing of new press orders, (v) general economic
conditions, either domestically or in foreign locations, (vi) the ultimate
realization of certain trade receivables and the status of ongoing business
levels with the Company's large OEM customers, (vii) competitive market
influences. Additional factors are set forth in Exhibit 99 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2005 which should
be read in conjunction herewith.
12
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For further information regarding the Company's critical accounting
policies, please refer to the Management's Discussion and Analysis section of
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2005. There have been no material changes during the three months ended
September 30, 2005.
THREE MONTHS ENDED SEPTEMBER 30, 2005 VS. THREE MONTHS ENDED SEPTEMBER 30, 2004
CONSOLIDATED RESULTS
Net sales for the three months ended September 30, 2005 increased by
$2,648,000, or 6.6%, to $42,645,000 from $39,997,000 for the three months ended
September 30, 2004. Currency rate fluctuations attributable to the Company's
overseas operations decreased net sales by $249,000 in the current period.
Excluding the effects of currency translation net sales increased $2,896,000 or
7.2%.
The net sales increase reflects increased sales in Europe, $2,100,000. Increased
demand, particularly in Germany, for the Company's cleaning systems, water
systems and web controls account primarily for the increased revenue in Europe.
In the Americas, primarily the U.S., sales increased $900,000 on the strength of
increased commercial cleaning systems, web controls and parts and service
revenues. In Asia, net sales were relatively flat. Softness in the Japanese
newspaper market was offset by newspaper shipments from the markets served by
the Company's Australian subsidiary.
Gross profit for the three months ended September 30, 2005 was $14,056,000
(33.0% of net sales) as compared to $12,091,000 (30.2% of net sales) for the
three months ended September 30, 2004, an increase of $1,965,000 or 16.3%.
Currency rate fluctuations decreased gross profit by $115,000 in the current
period. Excluding the effects of currency rate fluctuation, gross profit would
have increased by $2,080,000. Gross profit as a percentage of net sales
increased primarily due to improvements in volume noted above, lower material
costs, and favorable absorption of fixed overhead costs.
Selling, general and administrative expenses amounted to $8,122,000 for
the three months ended September 30, 2005 as compared to $7,333,000 for the same
period in the prior fiscal year, (amounts representing 19.0% and 18.3% of
respective period sales) an increase of $789,000 or 10.8%. Currency rate
fluctuations decreased these expenses by $46,000 in the current period.
Otherwise, selling, general and administrative expenses would have increased by
$837,000. Selling expenses increased by $117,000, which primarily relates to
increased marketing costs in Japan, as the Company seeks to develop new
opportunities in the Asia/Pacific region. General and administrative expenses
increased by $720,000 primarily in the U.S. due to increased compensation costs
commensurate with improved business performance, vesting associated with
deferred compensation plans and higher consulting costs associated with
Sarbanes-Oxley compliance implementation.
Engineering and development expenses increased by $422,000 over the same
period in the prior fiscal year. Currency rate fluctuations decreased these
expenses by $32,000 in the current period. Excluding the effects of currency
rate fluctuations, engineering and development expenses would have increased by
$453,000 in the current period. This increase relates primarily to planned
investment and increased activity in product development in Europe. As a
percentage of net sales, engineering and development expenses increased to 8.9%
for the three months ended September 30, 2005 compared to 8.3% for the same
period in the prior fiscal year.
13
Interest expense for the three months ended September 30, 2005 was
$298,000 as compared to $952,000 for the three months ended September 30, 2004.
Currency rate fluctuations had a negligible effect in the current period. This
decrease reflects the lower debt level of approximately $8.6 million versus the
period ended September 30, 2004 coupled with lower interest rates in effect for
the quarter ended September 30, 2005 as a result of the amended loan agreement
with Maple GmbH and lower amortization of debt financing costs. Interest income
remained generally flat and amounted to $28,000 and $23,000 for the three months
ended September 30, 2005 and 2004, respectively.
Net royalty income for the three months ended September 30, 2005 was
$200,000 as compared to $754,000 for the three months ended September 30, 2004.
The decline in royalty income relates to the expiration of a group of patents,
which were the source of the royalty income stream, in February 2005.
Other income (expense), net amounted to expense income of $67,000 for
the three months ended September 30, 2005 compared to income of $13,000 for the
three months ended September 30, 2004. Other income (expense), net includes net
foreign currency transaction losses of $111,000.
The Company recorded an income tax provision of $824,000 for the three
months ended September 30, 2005 as compared to $519,000 for the three months
ended September 30, 2004. The effective tax rate of 40.9% (41.9% for the quarter
ended September 30, 2004) for the three months ended September 30, 2005,
reflects taxable income in the higher tax jurisdictions in which tax loss
carryforwards are not available or are subject to limitations. The effective tax
rate for the three months ended September 30, 2005 differs from the statutory
rate as no benefit is recognized for losses incurred in certain countries as the
realization of such benefits was not more likely than not. The Company continues
to assess the need for its deferred tax asset valuation allowances 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., U.K. and France to determine if such trends could
possibly require a reversal of valuation allowances.
The Company's net income amounted to $1,193,000 for the three months
ended September 30, 2005, compared to net income of $719,000 for the three
months ended September 30, 2004. Currency rate fluctuations had a negligible
effect on net income in the current period. Net income per share amounted to
$0.08 basic and diluted for the three months ended September 30, 2005 as
compared to net income per share of $0.05 basic and diluted for the three months
ended September 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 2005
Cash flows from operating, investing and financing activities, as
reflected in the Consolidated Statement of Cash Flows, are summarized as
follows:
Cash provided by (used for): 2005 2004
--------- ---------
Operating activities $(428,000) $(288,000)
Investing activities (378,000) (373,000)
Financing activities 941,000 (171,000)
Effect of exchange rate changes on cash (167,000) 80,000
--------- ---------
Net (decrease) in cash and cash equivalents $ (32,000) $(752,000)
========= =========
14
Cash provided by operating activities decreased $140,000 during the
quarter ended September 30, 2005 versus the prior year period. Improvements in
asset management of accounts receivable (days sales outstanding improved to 51
days from 58 days) and inventory were offset by the timing of payments for
accounts payable, annual incentive compensation and customer deposits.
The Company utilized $378,000 and $373,00 for investing activities for
the three months ended September 30, 2005 and 2004 respectively, for additions
to property, plant and equipment and patents and trademarks.
During the quarter ended September 30, 2005 the Company obtained a
three-year term loan with Mizuho Bank of YEN 100,000,000, approximately $882,000
U.S. dollars which matures in September 2008. This term loan is subject to
quarterly principal payments of YEN 8,333,000 and bears interest at the Tokyo
Inter Bank Offered Rate ("TIBOR") plus 0.75%. Concurrently, the Company entered
into an interest swap agreement with maturity the same as the existing credit
facility with Mizuhao Bank which effectively converted the variable rate debt
into fixed rate debt with an interest rate of 1.81%.
Effective July 1, 2005, the Company amended its primary source of
outside financing, the revolving credit agreement with Maple Bank GmbH (the
"Maple Credit Agreement"). Borrowings under the amended credit facility are
subject to a borrowing base and bear interest at a rate equal to the three-month
Euribor rate (as defined in the Credit Agreement) plus (i) 3.375% (5.125% for
the period ended September 30,2004) for loans denominated in U.S. Dollars or
(ii) 3.775% (5.525% for the period ended September 30, 2004) for loans
denominated in Euros. The amended credit agreement does not require the Company
to meet any financial covenants, except for the limitation on annual capital
expenditures; however, it contains a material adverse effect clause, which
provides that Maple Bank would not be obligated to fund any loan, convert or
continue any loan as a LIBOR loan or issue any new letters of credit in the
event of a material adverse effect. Management does not anticipate that such an
event will occur; however, there can be no assurance that such an event will not
occur. Management also expects that as a result of the aforementioned amendment
and full amortization of debt financing costs during fiscal year 2005 interest
expense for the full year ending June 30, 2006 will be approximately $1,200,000
lower than fiscal year ended June 30, 2005.
The Company maintains relationships with both foreign and domestic
banks, which combined have extended credit facilities to the Company totaling
$34,096,000, including $28,000,000 available under the Maple GmbH Credit
Agreement. As of September 30, 2005, the Company had $18,130,000 outstanding
under these credit facilities including $12,915,000 under the Maple GmbH Credit
Agreement.
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 credit agreement with Maple.
At September 30, 2005 and June 30, 2005, 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.
15
The following summarizes the Company's contractual obligations at
September 30, 2005 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
September
30, 2005 2006* 2007 2008 2009 2010 2011
-------- ----- ---- ---- ---- ---- ----
and
thereafter
----------
Contractual Obligations:
Loans payable $ 2,643 $2,643 $ - $ - $ - $ - $ -
Capital lease obligations 136 58 38 23 16 1 -
Long-term debt 13,999 1,277 1,150 116 11,456 - -
Non-cancelable operating lease obligations 24,498 2,923 5,209 2,800 2,307 1,459 9,800
Interest expense (1) 3,416 985 1,112 1,093 226 - -
------- ------ ------- ------ ------- ------ ------
Total contractual cash obligations $44,692 $7,886 $ 7,509 $4,032 $14,005 $1,460 $9,800
======= ====== ======= ====== ======= ====== ======
* Includes only the remaining nine months of the fiscal year ending June 30,
2006.
(1) the anticipated future interest payments are based on the Company's current
indebtedness and interest rates at September 30, 2005, 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, 2005. There have
been no material changes during the three months ended September 30, 2005.
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
September 30, 2005, 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 September 30, 2005, that
have materially affected, or are reasonably likely to materially effect, the
Company's internal control over financial reporting.
16
PART II: OTHER INFORMATION
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 September 30, 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on November 8, 2005.
(b) A brief description of matters voted upon and the results of the voting
follows:
Proposal 1 - To elect two Class III Directors to serve for three-year terms or
until their respective successors are elected and qualify.
SCHEDULE OF VOTES CAST FOR EACH DIRECTOR
Total Vote for Total Vote Withheld
Each Director from Each Director
Class B
Akira Hara 18,684,830 0
Ralph R. Whitney, Jr. 18,684,830 0
Proposal 2 - To adopt the Company's 2005 Equity Compensation Plan. Total
affirmative votes 22,244,643; total negative votes 3,307,158.
ITEM 5. OTHER INFORMATION
On November 8, 2005, the Board of Directors of the Company approved the
following equity compensation awards to the Company's executive officers and
directors pertaining to shares of the Company's Class A Stock:
Name Position Award
---- -------- -----
Gerald A. Nathe Chairman of the Board, 25,000 restricted shares
Chief Executive Officer
and Director
Karl S. Puehringer President and Chief 20,000 restricted share units
Operating Officer
Vijay C. Tharani Vice President, Chief 15,000 restricted shares
Financial Officer and
Treasurer
Shaun J. Kilfoyle Vice President 10,000 restricted shares
Takayuki Miyaoku Vice President 10,000 restricted share units
Leon Richards Controller 5,000 restricted shares
Mark T. Becker Director 3,111 restricted shares
Rolf Bergstrom Director 3,111 restricted share units
Samuel B. Fortenbaugh III Director 3,111 restricted shares
Akira Hara Director 3,111 restricted share units
Judith A. Mulholland Director 3,111 restricted shares
Ralph R. Whitney, Jr. Director 3,111 restricted shares
17
The awards of restricted shares and restricted shares units described
above were made pursuant to the Company's 2005 Equity Compensation Plan (the
"Plan"), which was approved by the Company's shareholders at the 2005 Annual
Meeting of Shareholders held on November 8, 2005. Pursuant to the Plan, the
awards vest in three equal annual installments on the first, second and third
anniversaries of the date of their award.
In addition, the Board of Directors also approved (1) an increase from
$16,000 to $24,000 of the annual retainer paid to each of the Company's
directors who are not employees of the Company, and (2) an increase from $1,000
to $1,500 of the fee paid for each meeting of the Board of Directors, or a
Committee of the Board (except for Committee meetings held in conjunction with
Board Meetings) attended.
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).
10.73 Amendment to Employment Agreement between Baldwin Technology Company,
Inc. and Gerald A. Nathe, dated November 14, 2005 (filed herewith).
10.74 Amendment to Employment Agreement between Baldwin Technology Company,
Inc. and Karl Puehringer, dated November 14, 2005 (filed herewith).
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BALDWIN TECHNOLOGY COMPANY, INC.
BY /s/ Vijay C. Tharani
-------------------------------
Vice President, Chief Financial
Officer and Treasurer
Dated: November 14, 2005
19