The following is management's discussion and analysis of certain factors, which have affected the consolidated financial statements of Baldwin. 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, and (vii) competitive market influences. Additional factors are set forth in Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008, which should be read in conjunction herewith. 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, 2008.
The Company normally performs the required testing of goodwill on an annual basis in May of each year. As a result of the deteriorating macro-economic environment, the continued market volatility and the Company's decreased market capitalization, the Company is undergoing an interim analysis of its goodwill carrying value as required by Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142).
In accordance with SFAS 142, a two step process is used to test goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its carrying value including goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon indication of impairment a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill with its carrying value.
To estimate the fair value of its reporting units for step one, the Company utilizes a combination of income and market approaches. The income approach, specifically a discounted cash flow methodology and a market approach applying the use of multiples of revenues and earnings associated with comparable companies was used.
The Company completed step one of the analysis and determined that several of its reporting units may be impaired. The goodwill related to these reporting units is approximately $19,000.
Due to the complexity of estimating the fair value of the identifiable tangible and intangible assets of the reporting units in the step two analysis, the

Company was not able to complete the interim impairment test by the filing deadline for its Form 10-Q for the three-month period ended December 31, 2008.
The Company anticipates having the analysis completed during the third quarter. However, the Company has estimated that the potential loss from the step two analysis will be between $0 and $19,000. The Company has not recorded a charge in the second quarter due to the fact that it is not sure at this time what the amount of the impairment will be within this range. A non-cash impairment charge, if any, will be recorded in the third quarter. Overview
Baldwin Technology Company, Inc. is a leading global supplier of press automation equipment and related consumables for the printing and publishing 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 currently manages its business as one reportable business segment built around its core competency in press automation equipment. The Company monitors compliance with the disclosure requirement of Statement of Financial Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and Related Information" for the purpose of defining its reportable segments.
The global economic climate continued to deteriorate during the quarter ended December 31, 2008. The market for printing equipment faces significant challenges due to the current economic environment. In addition, several of the Company's largest customers (major OEM press manufacturers) have reported weakness in orders and sales, particularly for commercial presses. These events have translated into a lower level of business activity for the Company and have been reflected in lower order intake and reduced shipment levels of the Company's equipment. See discussion below related to consolidated results of operations.
As a result of the slowing global economy, the Company has implemented previously announced cost reduction and restructuring programs designed to mitigate the impact of the continuing weak market for printing equipment. See discussion below related to liquidity and capital resources.
Six Months Ended December 31, 2008 vs. Six Months Ended December 31, 2007 Consolidated Results
Net Sales
Net sales for the six months ended December 31, 2008 decreased by $9,664,000, or 9%, to $102,196,000 from $111,860,000 for the six months ended December 31, 2007. Currency rate fluctuations attributable to the Company's overseas operations increased net sales by $647,000 in the current period.
Net sales, excluding the effects of exchange rates, reflects decreased sales in Europe of $5,949,000. The decrease is attributable to weakening global demand for the Company's equipment reflecting reduced order and sales activity by OEM press manufacturers in Germany for new printing equipment. In addition, deliveries to end users in the U.K. and

France in fiscal year 2008 were not repeated in fiscal year 2009. Partially offsetting these declines were increased equipment shipments in the newspaper market.
In Asia net sales decreased $4,130,000. In the newspaper market lower demand for spray dampening equipment, coupled with the slow economy which additionally reduced demand in the commercial market for cleaning equipment and water systems, more than offset the increased demand for consumables and higher service related projects. Net sales in the Americas decreased $231,000 and primarily reflects higher demand in the commercial market for water systems, particularly temperature control equipment, offset by the decline in demand in the newspaper market.
Gross Profit
Gross profit for the six months ended December 31, 2008 of $31,708,000 (31.0% of net sales) as compared to $35,214,000 (31.5% of net sales) for the six months ended December 31, 2007, a decrease of $3,506,000 or 10%. Currency rate fluctuations had virtually no impact on the increased gross profit in the current period.
Gross profit as a percentage of net sales decreased as a result of continued pricing pressures from OEM and end users, higher material costs primarily in Japan, product revenue mix which included a higher portion of products sourced from alliance partners and unfavorable overhead absorption related to the reduced volumes.
Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) amounted to $19,348,000 (18.9% of net sales) for the six months ended December 31, 2008 as compared to $20,301,000 (18.1% of net sales) for the same period in the prior fiscal year, a decrease of $953,000 or 5%. Currency rate fluctuations had virtually no effect on the SG&A decrease. Selling expenses decreased $305,000. The decrease is primarily driven by lower trade show, advertising and commission expenses. General and administrative expenses decreased approximately $648,000 and reflects reduced outside service consultants, lower travel and other employee expenses.
Engineering and Development Expenses
Engineering and development expenses amounted to $8,549,000 (8.4% of net sales) for the six months ended December 31, 2008, compared to $9,329,000 (8.3% of net sales) for the same period in the prior fiscal year, a decrease of $780,000 or 8.4%. Currency rate fluctuations increased expenses $100,000. The decrease relates primarily to lower salaries, benefits and other employee related costs associated with lower headcount. Restructuring
The Company recorded $681,000 of restructuring costs during the six months ended December 31, 2008 versus $960,000 in the comparable prior year period. The restructuring plans were designed to achieve operational efficiencies in Germany and consisted entirely of employee terminations. Interest and Other
Interest expense for the six months ended December 31, 2008 was $1,250,000, compared to $1,564,000 for the six months ended December 31, 2007. Currency rate fluctuations had no impact on interest expense in the current period. This decrease reflects the lower average debt and interest rates versus the period ended December 31, 2007. Interest income amounted to $18,000 and $137,000 for the six months ended December 31, 2008 and 2007, respectively.

Other (income) expense, net amounted to income of $1,249,000 for the six months ended December 31, 2008 compared to expense of $45,000 for the six months ended December 31, 2007. These amounts are primarily comprised of net foreign exchange gains in fiscal year 2009 and losses in fiscal year 2008.

Income Taxes
The Company recorded an income tax provision of $ 1,474,000 or 46.8% for the six months ended December 31, 2008, compared to $1,849,000 or 58.7% for the six months ended December 31, 2007. The tax provision for the six months ended December 31, 2007 has been negatively impacted by approximately $380,000 as a result of a reduction in tax rates in Germany and the associated effects on the Company's deferred tax assets in that country. Excluding the impact of the discrete change the effective rate for the six months ended December 31, 2007 was 46.6%.
The effective tax rates of 46.8% and 46.6% for fiscal 2009 and 2008, respectively, differ from the statutory rate and reflect, a) no benefit recognized for losses incurred in certain jurisdictions, as the realization of such benefits was not more likely than not b) the effect of certain foreign income items on U.S. taxable income, c) foreign and domestic permanent adjustments. 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 would be recorded in the income statement of the period that the adjustment was determined to be required. Net Income
The Company's net income was $1,673,000 for the six months ended December 31, 2008, compared to net income of $1,303,000 for the six months ended December 31, 2007. Currency rate fluctuations decreased net income by $220,000 in the current period. Net income per basic and diluted share was to $0.03 for the six months ended December 31, 2008, compared to net income per basic and diluted share of $0.02 basic and diluted for the six months ended December 31, 2007. Three Months Ended December 31, 2008 vs. Three Months Ended December 31, 2007 Consolidated Results
Net Sales
Net sales for the three months ended December 31, 2008 decreased by $11,672,000, or 20%, to $46,259,000 from $57,931,000 for the three months ended December 31, 2007. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales by $2,481,000 in the current period. Excluding the impact of unfavorable currency, net sales decreased $9,191,000 or 16% versus the comparable three month period.
Net sales, excluding the effects of exchange rates, reflects decreased sales in Europe $4,919,000. The decrease is attributable to continued weakening of global demand for the Company's equipment reflecting reduced order and sales activity by OEM press manufacturers in Germany for new printing equipment.
In Asia, net sales decreased $3,153,000. The decrease reflects the impact of the slowing economy in the commercial and newspaper market for the Company's cleaning equipment. Net Sales in the Americas decreased $1,120,000 and primarily reflects lower demand in the commercial market for cleaning systems. Gross Profit
Gross profit for the three months ended December 31, 2008 was $14,373,000 (31.1% of net sales), compared to $17,968,000 (31.0% of net sales) for the three months ended December 31, 2007, a decrease of $3,595,000 or 20%. Currency rate fluctuations decreased gross profit by $1,043,000, in the current period. Excluding the effects of currency rate fluctuations gross profit declined $2,552,000.

Gross profit as a percentage of net sales remained flat as a percentage of sales. Increased under absorption of labor and overhead costs associated with the lower volumes noted above and higher material costs were offset by reduced technical service requirements and favorable technical solutions reduced reserve requirements.
Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) were $9,191,000 (19.9% of net sales) for the three months ended December 31, 2008, compared to $10,623,000 (18.3% of net sales) for the same period in the prior fiscal year, a decrease of $1,432,000 or 13.5%. Excluding the effect of foreign currency translations of $452,000 SG&A decreased $978,000 or 9%. The decrease reflects lower trade show, advertising and commission expenses coupled with reduction in outside service consultants, lower travel and other employee expenses. Engineering and Development Expenses
Engineering and development expenses were $3,862,000 (8.3% of net sales) for the three months ended December 31, 2008, compared to $4,913,000 (8.5% of net sales) for the same period in the prior fiscal year, a decrease of $1,051,000 or 21.4%. Excluding the effects of currency rate fluctuations of $245,000, engineering and development expenses would have decreased $806,000 and primarily reflects lower salaries and benefits associated with lower headcount. Restructuring
The Company recorded $681,000 of restructuring costs during the three months ended December 31, 2008 versus $960,000 in the comparable prior year period. The restructuring plans were designed to achieve operational efficiencies in Germany and consist entirely of employee terminations. Interest and Other
Interest expense for the three months ended December 31, 2008 was $557,000 as compared to $794,000 for the three months ended December 31, 2007. Currency rate fluctuations increased interest expense by $42,000 in the current period. Otherwise, interest expense decreased by $195,000. The decrease reflects lower debt levels and interest rates versus the period ended December 31, 2007. Interest income amounted to $12,000 and $69,000 for the three months ended December 31, 2008 and 2007, respectively.
Other (income) expense, net, amounted to income of $846,000 for the three months ended December 31, 2008 compared to income of $27,000 for the three months ended December 31, 2007. Other income (expense), net, primarily includes net foreign currency transaction gains for the three months ended December 31, 2008 and 2007.
Income Taxes
The Company recorded an income tax provision of $477,000 for the three months ended December 31, 2008, compared to $510,000 for the three months ended December 31, 2007. The effective tax rate of 50.7% and 65.9% for the three months ended December 31, 2008 and 2007, respectively, differs from the statutory rate, as no benefit was recognized for losses incurred in certain countries, as the realization of such benefits was not more likely than not, foreign income tax at rates higher than the U.S. statutory rate and the effect of certain foreign income on U.S. taxable income. Net Income
The Company's net income was $463,000 for the three months ended December 31, 2008, compared to $264,000 for the three months ended December 31, 2007. Currency rate

fluctuations reduced net income $345,000 in the current period. Net income per basic and diluted share amounted to $0.03 for the three months ended December 31, 2008, compared to $0.02 per basic and diluted share for the three months ended December 31, 2007.
Liquidity and Capital Resources at December 31, 2008 The following table summarizes cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows for the six months ended December 31, 2008 and 2007:

                                                            2008             2007
 Cash provided by (used for):
 Operating activities                                   $     19,000     $ (7,224,000 )
 Investing activities                                     (1,177,000 )     (1,830,000 )
 Financing activities                                      5,718,000        1,157,000
 Effect of exchange rate changes on cash                     141,000          464,000

 Net increase (decrease) in cash and cash equivalents   $  4,701,000     $ (7,433,000 )

Cash provided by operating activities increased $7,243,000 during the six months ended December 31, 2008 versus the prior year period. This increase reflects higher customer deposits, decreased inventory, notes and accounts receivable offset by the timing of payments for trade accounts payable.
The Company utilized $1,177,000 for investing activities for the six months ended December 31, 2008. Cash utilized for investing during the six months ending December 31, 2008 and 2007 includes additions to property, plant and equipment and patents and trademarks of $1,177,000 and $1,384,000, respectively. The amount utilized during the six months ended December 31, 2007 additionally include payments of $446,000 associated with fiscal year 2007 acquisitions.
Cash provided by financing activities of $5,718,000 and $1,157,000 for the periods ended December 31, 2008 and 2007, respectively, primarily reflects net borrowings in excess of debt repayments.
During the quarter ended December 31, 2008, the Company announced a restructuring plan in an effort to achieve operational efficiencies in Germany, and other cost savings initiatives. The Company expects to incur aggregate cash expenditures of approximately $681,000 under the restructuring plan, primarily during fiscal year 2008 in relationship to this action. Annual estimated savings from the second quarter actions is approximately $2.1 million.
In addition, in January 2009, the Company committed to the principal features of an additional plan to restructure some of its existing operations. The plan includes consolidation of production facilities and employment reductions in Germany. Actions under the plan commenced in January 2009 in response to weakening market conditions. The Company currently expects to substantially complete the plan by the end of the Company's current fiscal year.
The costs associated with this plan will be charged to the Company's results of operations during the third quarter of Fiscal 2009 and consist primarily of employee personnel costs. The Company expects to incur costs of approximately $3.0 million, anticipated to be paid in cash during the remainder of Fiscal 2009 and into the second quarter of Fiscal 2010.

This action, combined with other initiatives implemented during the third quarter, in Europe, the U.S. and Japan will eliminate 68 full-time positions and will reduce the Company's worldwide cost base and strengthen its competitive position as a leading global supplier of process automation equipment. In addition, the Company has eliminated merit increases for approximately 13% of the remaining workforce, temporarily suspended the Company's matching contribution to the U.S. 401 (k) plan, reduced U.S. based healthcare costs and has received voluntary salary reductions from approximately 49 senior managers. The Company estimates that annual savings from all of the above third quarter initiatives will be approximately $5.8 million.
The Company has additionally instituted cost reduction initiatives, related to reduction in overtime, implementation of short time work weeks, reduction of external service providers and extended holiday shutdown, all of which will provide additional annual savings of approximately $4.1 million.
As a result of Fiscal 2009 restructurings and other actions the Company's full time employment headcount will be reduced from the 655 at June 30, 2008 to approximately 575, a reduction of 80 employees or 12%.
The restructuring charge recorded during the third quarter will cause the Company's trailing twelve month reported EBITDA for the computation period to decrease to a level lower than the minimum level required by the credit agreement with Bank of America as lead bank. As a result, the Company has been conducting discussions with its banks to amend the credit agreement. Although there are no assurances, the Company fully expects to have a restructured credit agreement in place before the end of the third quarter.
The Company maintains relationships with both foreign and domestic banks, which combined, have extended credit facilities to the Company equivalent to $55,987,000 at December 31, 2008. As of December 31, 2008, the Company had $33,923,000 (including letters of credit) outstanding under these credit facilities.
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 Bank of America Agreement.
At December 31, 2008 and June 30, 2008, 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 December 31, 2008 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
                        December                                                                              2014 and
                        31, 2008        2009 *         2010         2011          2012          2013         thereafter
Contractual
obligations:
Loans payable          $    4,409       $ 4,409       $    -       $     -       $     -       $     -       $         -
Capital lease
obligations                   309            77          140            89             3             -                 -

                                                           Fiscal Years Ending June 30,
                       Total at
                       December                                                                                  2014 and
                       31, 2008         2009 *          2010          2011           2012          2013         thereafter
Long-term debt            25,406          1,624          3,519         4,332         15,931             -                 -
Non-cancelable
operating lease
Obligations               23,142          3,289          5,314         3,784          2,933         1,795             6,027
Purchase
commitments
(materials)               13,376         10,686          2,690             -              -             -                 -
Pension funding            3,865            531            212           372            382           387             1,981
Restructuring
payments                     619            565             54             -              -             -                 -
Interest expense
(1)                        4,144            674          1,482         1,291            544           153                 -

Total contractual
cash obligations       $  75,270       $ 21,855       $ 13,411       $ 9,868       $ 19,793       $ 2,335       $     8,008

* Includes only the remaining six months of the fiscal year ending June 30, 2009.

(1) the anticipated future interest payments are based on the Company's current indebtedness and interest rates at December 31, 2008, 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, 2008. There has been no material changes during the six months ended December 31, 2008. ITEM 4: Controls and Procedures:
Evaluation of Disclosure Controls and Procedures:
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports it files or submits under the Exchange act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive officer and Chief Financial Officer, as appropriate, to allow . . .