challenges &opportunities - Baldwin Technology Company, Inc.

CHALLENGES&OPPORTUNITIESBaldwin Technology Company, Inc. | Fiscal 2010 Report to Shareholders and Form 10-K

About BaldwinBaldwin has been a leading global supplier of processautomation equipment for many years. Our leadership inthe graphic arts marketplace is a direct result of our steadfastpresence and our ability to listen to and respond tothe critical needs of press manufacturers, commer cialprinters, newspaper publishers and packaging companies,all of whom use our equipment to add value to their businesses.Baldwin combines its broad range of technologyand support solutions with those of key alliance partnersto provide current and future customers with proven waysto increase the productivity and profitability of their printingoperations. In fact, since the founding of our Companymore than 90 years ago, we have always emphasized that“We Listen to Printers” and we encourage our customersmore than ever to “Just Ask” Baldwin whenever they seean unmet need or opportunity to enhance print quality,reduce waste and lower pressroom VOCs.

Baldwin Technology Company, Inc. Page 1Dear ShareholdersThe character of a company in demanding economictimes is defined by its ability to anticipate challenges,act to avoid both known and unknown consequencesand position itself to succeed in a changed environment.On October 1, the Board appointed me to therole of President and Chief Executive Officer, and withthe continued support and commitment of the leadershipteam, I take on this challenge enthusiastically.Your company began resetting its cost structure andadjusting its business model in the fall of 2008 when acombination of financial-world missteps expandedinto a steep global recession that affected almostevery industry. The contraction had a severe effecton demand for printed product and on our customerbase—total-year orders and revenues for some ofour major customers during this period declined byas much as 40%. In anticipation of the contraction,we acted quickly and consistently to reduce cost andinvestment.During the 2009 and 2010 fiscal years, the Companyeliminated over $15 million (26%) of operating expenses,over $20 million (42%) from accounts and notesreceivable and $11 million (34%) from inventory toestablish a cost and capital structure that can continueto generate profits and cash flow in a smaller universe.Our margin improvement initiatives have enabled us tomaintain reasonable margins in spite of the pressureon revenues. We also seized the opportunity to settlethe long-outstanding patent infringement lawsuit withour German competitor and to acquire a company withnew technology at attractive terms. As a result, in fiscal2010 the Company reported $5 million net income forthe year, or $.32 per share, and operating cash flow of$11.5 million.The patent infringement settlement provided $9.6 millionin cash which was used to repay $7.7 million of theCompany’s term loan. As a result of that repaymentand additional term loan payments from the Company’soperating cash flow, total debt with the Company’sbanks was reduced to $18.4 million from $28 million atJune 30, 2009. We added $2.5 million of subordinateddebt payable to the seller for the acquisition of theNordson UV business. Thus, net debt decreased from$14.2 million at June 30 last year to $5.3 million atJune 30, 2010.In addition to the effects of the global recession, thegraphic arts industry has undergone a level of secularretrenchment due to increased use of other media foradvertisement. Karl Puehringer’s guidance during thistime brought the Company through that repositioningperiod, and we are ready to transition into the nextphase of growth with new leadership.We believe that printed communication is integral andcomplementary to other—traditional and new—mediaand will continue to be an essential and powerful componentof the integrated communication mix. In the contextof that challenge, we recognize that industrygrowth is an inadequate engine for Company growth.To supplement market share gains, the Company hasbeen resourceful in identifying strategic growth opportunitiesin the graphic arts industry. We are extendingour press cleaning offerings into the flexographic printingsector, which is predominant in the growing packagingsector of print and represents a new growth areausing adaptations of the Company’s proven superiorcleaning capabilities. We anticipate successful resultsfrom two installations where our new flexo press cleaningproducts are undergoing production testing, withexciting growth prospects for future installations.Our acquisition on June 30 of the UV drying businessof Nordson Corporation accomplished two things: itbrought a new technology to the Company’s broadproduct portfolio, and it provided an entry for theCompany into the fast-growing digital printing sector.As an ancillary benefit, because we acquired the companyat attractive terms, we were able to record a $3million gain on the purchase. We have renamed thecompany Baldwin UV and have fully integrated it intothe Baldwin group.Baldwin UV designs, builds and installs systems andthe related parts and UV (ultraviolet) lamps that cureinks designed to react upon exposure to the lamps.Printers and publishers use UV inks to provide specialeffects on a variety of substrates, such as glossy finish,highlights and special textures on the printed surfacewith little effect on the environment. The global Baldwinorganization and our relationships with OEMs andprinters and publishers around the world provideattractive package-selling opportunities for the UVproducts with the Baldwin traditional IR (infra-red) dryingsystems and other process improvement products.We are very excited about the attractive growth potentialof this addition to the Baldwin line.

Page 2TO SUPPLEMENT MARKET SHARE GAINS, THE COMPANY HAS BEEN RESOURCEFUL IN IDENTIFYING STRATEGICGROWTH OPPORTUNITIES IN THE GRAPHIC ARTS INDUSTRY.Baldwin UV has also developed a LED curing systemthat is being prototype tested in the market. This systemwill provide instant curing of special inks with even lessheat and far less energy consumption than conventionaldrying and UV curing systems. Both systems areused in the digital printing sector and have introducedBaldwin to digital press OEMs that were previously notin the Baldwin universe. We have high expectations forthe products’ contributions to Baldwin’s revenues andprofitability and look forward to developing additionalopportunities with our new partners in the digital printingspace.Print has been forecast to grow at healthy levels indeveloping countries, albeit tempered by slower to negativegrowth in developed countries. Baldwin anticipatedthe healthier growth in emerging markets, and tocapitalize on that demand, we started a subsidiary inIndia earlier this decade that is now making inroads inthis market. In China, our assembly plant commencedoperations in 2008 to supplement our sales and servicelocations there. With those operations as a base, we haveworked closely with OEM press manufacturers in thosecountries to develop our COBRA line of spray dampeningand cleaning products specific to their presses. Weare also moving some of our product manufacturing toIndia and China to leverage lower production costs, aswell as increasing the amount of product sourced fromthose countries to maintain and improve margins in anincreasingly competitive market environment. We believewe are well-positioned with our global organization tomove with the market as it develops, and we anticipaterobust growth both from our local operations in thosemarkets, as well as through the traditional OEMs whoare also reporting increasing sales into those markets.Our product portfolio mix of approximately 50% recurringrevenues and the distribution of our customerbase among OEMs and printers and publishers positionsus to weather capital equipment cyclicality. Ourproprietary PREPAC ® products form the core of thatstrategy, supplemented with revenues from service,parts and our Food Blends operations. The Baldwin UVbusiness, with a similar ratio of recurring revenues, furtherstrengthens the recurring revenues balance, and ournew Clean-Pac products for hand cleaning and presscleaning are an extension using the patented PREPAC ®technology. The Clean-Pac products have been wellreceivedin the market and will make a modest additionalcontribution to recurring revenues.The dynamics of the market over the past two yearshave challenged the Company’s liquidity management.We have responded with working capital and cashmanagement disciplines and have worked with ourlenders to modify the Company’s credit agreement toaddress our operating requirements in the current marketconditions. We are confident that our current cashbalances and the availability under the credit agreementwill be adequate to support our current businessplan. Discussions are underway to put into place a longerterm lending agreement, as our current agreementexpires in November, 2011.Recent reports from the major printing press manufacturersand our recent order trends indicate that thelowest point on the demand curve may have beenreached during the last few months. If demandincreases from its current level, we should be able todeliver healthier operating income margins and netincome by leveraging our lean cost structure, andthereby create added value for our shareholders.Our employees have endured the pressure of the lasttwo years with resilience and tenacity. They have madethe personal and financial sacrifices to help the Companypersevere and succeed during a very challenging time,and we understand and appreciate everything they dofor the team. This Company is able to provide the superiormarket leading products and services to its customersand deliver value to its shareholders because oftheir efforts. We are grateful to them.The market challenge has also brought our customersand vendors together with us to collaborate on deliveringsuperior products within tight market constraints.We appreciate their willingness to partner with us tothat end.In closing, I want to emphasize that I am looking forwardto working with our customers, investors, employeesand suppliers in profitably leading Baldwin Technologyin its next phase of growth.Mark T. BeckerPresident and Chief Executive OfficerOctober 1, 2010

Baldwin Technology Company, Inc. Page 3baldwin—at a glanceCorporate Headquarters Manufacturing Locations Sales & Service OperationsBaldwin’s Global footprintThe Company has operations in strategic geographic locations that enable it to monitor and participate in all importantprint markets. With our broad global footprint, we can introduce new products, or adapt existing ones, to meet theprinting equipment and consumable requirements of specific local markets throughout the world.

PAGE 4BALDWIN AWARD WINNERSInnovation and Customer Satisfaction have been the corner stonesof Baldwin’s culture and strategic business plan for over 90 years.Through exceptional customer service/support and product innovation,we set a high standard when it comes to delivering serviceand quality products to our customers.CUSTOMER SATISFACTION AWARDBaldwin has established an annual practice that recognizes andrewards its employees who demonstrate excellence in the areas ofcustomer service and product innovation. Our Global CustomerSatisfaction Award recognizes employee efforts in servicing internal/external customers and demonstrating an exceptional commitmentto the Company’s long standing objective of “Customer First.” OurGlobal Innovation Award recognizes excellence in the developmentand/or improvement of Baldwin products that have been placedand accepted in the market and have improved quality and efficiencyfor our customers.Matthias Knoch, Key Account Manager at Baldwin Germany GmbH,was awarded the Global Customer Satisfaction Award for his outstandingcustomer relations with KBA, the Company’s largestcustomer, as well as his ongoing strategic internal partnershipswith new developments such as the successful Combiliner eco andCOBRA product lines. Matthias’s function as the “daily voice” ofcustomers within Baldwin Germany GmbH garnered A-supplierstatus for the Company. The Global Innovation Award was presentedto the project team of Michael Ridell, Jörgen Grahm, LarsBroberg and Joacim Wellander from Baldwin Jimek, Samir Guptafrom Baldwin India and Alfred Chan from Baldwin China for theirwork on the development and market introduction of the LithoSprayCOBRA system that has been successfully placed and accepted inthe marketplace and has resulted in the sales of several units inChina and India, as well as attracting serious interest from othercustomers globally.INNOVATION AWARDCongratulations to our Fiscal Year 2010 award recipients and allnominees for their accomplishments, hard work and contributionsto the success of Baldwin!

Corporate DirectoryOfficersGerald A. NatheChairman of the BoardMark T. BeckerPresident and Chief Executive OfficerJohn P. JordanVice President, Chief Financial Officer and TreasurerPeter HultbergVice PresidentSteffen WeisserVice PresidentLeon RichardsControllerHelen P. OsterSecretaryDirectorsMark T. BeckerRolf BergstromSamuel B. Fortenbaugh IIIGerald A. NatheRonald B. SalvagioClaes WarnanderCautionary StatementForward-looking statements made in this2010 Report to Shareholders are subject to theCompany’s “Cautionary Statement” contained inthe accompanying 2010 Report on Form 10-K.AuditorsGrant Thornton LLP666 Third Avenue13th FloorNew York, NY 10017Investor RelationsHawk Associates227 Atlantic Blvd.Key Largo, FL 33037Tel: 305.451.1888info@hawkassociates.comTransfer Agent and RegistrarRegistrar and Transfer Company10 Commerce DriveCranford, NJ 07016-3572Tel: 800.368.5948Fax: 908.497.2310www.rtco.comBaldwin is a registered trademark ofBaldwin Technology Company, Inc.© 2010 Baldwin Technology Company, Inc.Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com

Baldwin Technology Company, Inc.2 Trap Falls Road, Suite 402Shelton, CT 06484Tel: 203 402-1000 Fax: 203 402-5500www.baldwintech.com