(in thousands)
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 comply with requirements of credit agreements; the availability of funding under said agreements; the ability to maintain adequate liquidity in declining and challenging economic conditions impacting the Company as well as customers, (ii) general economic conditions, either in the U.S. and other foreign locations, (iii) 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, (iv) material changes in foreign currency exchange rates versus the U.S. Dollar, (v) changes in the mix of products and services comprising revenues, (vi) a decline in the rate of growth of the installed base of printing press units and the timing of new press orders,
(vii) the ultimate realization of certain trade receivables and the status of ongoing business levels with the Company's large OEM customers, and
(viii) competitive market influences. Additional factors are set forth in Item 1A "Risk Factors" in the Company's Annual Report and 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. There have been no material changes during the nine months ended March 31, 2009.
As a result of the deteriorating macro-economic environment, the continued market volatility and the Company's decreased market capitalization, the Company assessed the recoverability of its goodwill carrying value as required by Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142) during the interim period ended March 31, 2009.
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.
As a result of the assessment, the Company recorded a non-cash goodwill impairment charge of $5,658 related to its Japan reporting unit.

The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Due to the continued deteriorating macro-economic environment, a decision to transfer equipment manufacturing from the U.S. to Germany, general restructuring of the U.S. operations and the inability of the U.S. operation to reach target goals for inventory utilization during the quarter and nine months ended March 31, 2009, the Company recorded a $4,250 write down of inventory in the U.S. during the 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 manages its business as one reportable business segment built around its core competency in accessories and controls.
The global economic climate continued to deteriorate during the quarter ended March 31, 2009. 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. As a result of the slowing global economy, the Company has implemented cost reduction and restructuring programs designed to mitigate the impact of the continuing weak market for printing equipment. Highlights for Three and Nine Months ended March 31, 2009
• Revenues, excluding currency effects, declined 32% and 17% for the three and nine months ended March 31, 2009, respectively, versus the year ago comparable periods.

• Backlog of $39,798 at March 31, 2009 decreased 37% versus March 31, 2008 and 18% versus June 30, 2008.

• Order intake was down 49% and 29% for the three and nine months ended March 31, 2009, respectively, versus the comparable year ago periods.

• Cash flow provided by operations during the quarter ended March 31, 2009 was $2,745.

• The Company recorded year-to-date restructuring charges of $4,747 ($4,064 during the quarter ended March 31, 2009) and announced cost saving initiatives that will result in benefits in excess of $20,000.

• The Company completed its analysis of the recoverability of goodwill and the net realizable value of inventory and recorded a non-cash goodwill impairment charge of $5,658 and inventory reserve adjustment of $4,250.

• Due to the restructuring charges and other adjustments recorded by the Company during the third quarter ended March 31, 2009, the Company was not in compliance with certain provisions of its credit agreement. The Company entered into a Modification and Limited Waiver Agreement (the "Waiver Agreement") with its Lenders covering the period from March 31, 2009 through May 15, 2009, which has been extended through July 31, 2009. As a result the Company has classified the indebtedness as a current liability on its balance sheet dated March 31, 2009.

• The effective tax rates for the three and nine months ended March 31, 2009 differ from the statutory rate, reflecting the effect of the following factors: (i) no benefit recognized for losses incurred in certain jurisdictions, as the realization of any such benefit was not more likely than not; and (ii) the impairment of goodwill which has no associated tax benefit.

See discussion below related to consolidated results of operations, liquidity and capital resources.
Three Months Ended March 31, 2009 vs. Three Months Ended March 31, 2008 Consolidated Results
Net Sales
Net sales for the three months ended March 31, 2009, decreased by $23,113, or 39%, to $36,087 from $59,200 for the three months ended March 31, 2008. Currency rate changes attributable to the Company's overseas operations reduced recorded net sales by $3,926 in the current period; otherwise, net sales would have decreased $19,187 or 32%.
Net sales, excluding the effects of exchange rates, reflects decreased sales of $9,966 in Europe. Reduced order and sales activity by OEM press manufacturers, primarily in Germany, for new printing equipment, and lower level demand from end user customers account for the decline in sales in the commercial market. The decrease primarily reflects continued weakening of global demand for the Company's cleaning equipment.
In Asia, net sales decreased $5,748. The decrease reflects the impact of the slowing economy in the commercial and newspaper markets for the Company's cleaning equipment. Net Sales in the Americas decreased $3,473, primarily reflecting lower demand in the commercial market for cleaning systems. Gross Profit
Due to the continued deteriorating macro-economic environment, a decision to transfer equipment manufacturing from the U.S. to Germany, a general restructuring of the U.S. operations and the inability of the U.S. operation to reach target goals for inventory utilization during the quarter and nine months end March 31, 2009, the Company recorded a $4,250 write down of inventory in the U.S. for the quarter ended March 31, 2009 negatively impacting gross profit for the period. Gross profit for the three months ended March 31, 2009 was $6,021 (16.7% of net sales). Excluding the adjustment for inventory, gross profit for the three months ended March 31, 2009, was $10,271 (28.5% of net sales), compared to $18,491 (31.2% of net sales) for the three months ended March 31, 2008, a decrease of $8,220 or 44%. Currency rate fluctuations decreased gross profit by $1,544 in the current period. Gross profit as a percentage of net sales decreased as a result of the effect of the lower volume noted above

on overhead absorption, and higher material and technical service costs, partially offset by lower warranty costs. Selling, General, and Administrative Expenses Selling, general and administrative expenses (SG&A) were $8,570, including a $465 write off of a customer account receivable. Excluding the account receivable write off, (SG&A) was $8,105 (22% of net sales) for the three months ended March 31, 2009, compared to $11,249 (19% of net sales) for the same period in the prior fiscal year, a decrease of $3,144 or 28%. Currency rate fluctuations reduced these expenses by $743 in the current period; otherwise, SG&A would have decreased $2,401. This decrease primarily reflects reduced salary and benefits costs associated with the reductions in headcount, reduced incentive compensation accruals, coupled with lower spending on trade shows, advertising and subcontractor costs in the current- year period. Engineering and Development Expenses
Engineering and development expenses decreased by $1,132 over the three months ended March 31, 2009. Currency rate fluctuations reduced these expenses by $350 in the current period. Excluding the effects of currency rate fluctuations, engineering and development expenses would have decreased $783 primarily as a result of lower salary and benefits associated with the lower headcount. As a percentage of net sales, engineering and development expenses, as reported, increased to approximately 10% for the three months ended March 31, 2009 compared to 8% the three months ended March 31, 2008. Restructuring
In response to sustained weak market conditions, the Company recorded $4,066 of restructuring costs during the three months ended March 31, 2009, versus $0 in the comparable prior year period. The plan primarily includes consolidation of production facilities and employment reductions in Germany. Interest and Other
Interest expense for the three months ended March 31, 2009 was $438 as compared to $846 for the three months ended March 31, 2008. Currency rate fluctuations reduced interest expense by $62 in the current period. Otherwise, interest expense would have decreased by $346. The decrease reflects lower debt levels and interest rates.
Other income (expense), net, amounted to expense of $(311) for the three months ended March 31, 2009 compared to income of $17 for the three months ended March 31, 2008. Other income (expense), net, for the three months ended March 31, 2009 and 2008, respectively, primarily reflects net foreign currency transaction (losses) of $(328) and $(120). Income Taxes
The Company recorded an income tax benefit of $3,094 for the three months ended March 31, 2009 as compared to tax benefit of $219 for the three months ended March 31, 2008. The tax benefit primarily reflects the underlying third quarter loss excluding the impairment of goodwill which is not tax deductable. The effective tax rate of 19% differs from the statutory rate primarily as a result of the non deductibility of the impairment charge coupled with no benefit recognized for losses incurred in certain jurisdictions, as the realization of such benefits was not more likely than not.
The Company recorded an income tax benefit of $219 for the three months ended March 31, 2008. During the third quarter of fiscal year 2008, the Company reversed a portion of its valuation allowance associated with its U.S. operations (approximately $1,200) which resulted in the recording of a net tax benefit of $219 for the quarter ended March 31, 2008. The reversal of a portion of the U.S. operations deferred tax valuation allowance is based upon the U.S. operations

historical operating performance and management's expectation that the U.S. operations will generate sufficient taxable income in future periods to realize a portion of the tax benefits associated with its U.S. net operating loss carry-forwards and utilization of its foreign tax credits.
The effective tax rate of 55.3% (excluding the effect of the reversal of valuation allowance) for the three months ended March 31, 2008 differs from the statutory rate and reflects the distribution of taxable income in higher tax jurisdictions, no recognition of tax benefit for losses incurred in certain countries as the realization of such benefits was not more likely than not and the effect of certain foreign income items on U.S. taxable income. Net Income (Loss)
The Company's net income (loss) amounted to $(13,447) for the three months ended March 31, 2009, compared to net income of $1,996 for the three months ended March 31, 2008. Currency rate fluctuations decreased net income by $609 in the current period. Net income (loss) per share amounted to $(0.88) basic and diluted for the three months ended March 31, 2009, compared to net income per share of $0.13 basic and diluted for the three months ended March 31, 2008. Nine Months Ended March 31, 2009 vs. Nine Months Ended March 31, 2008 Consolidated Results
Net Sales
Net sales for the nine months ended March 31, 2009 decreased $32,777, or 19%, to $138,283 from $171,060 for the nine months ended March 31, 2008. Currency rate fluctuations attributable to the Company's overseas operations decreased net sales by $3,279 for the current period; otherwise, net sales would have decreased by $29,498 or 17%.
Net sales, excluding the effects of exchange rates, reflects decreased sales in Europe of $15,909 and reflects continued weakening of global demand for the Company's cleaning equipment. Reduced order and sales activity by German OEM press manufacturers for new printing equipment and lower level demand from end user customers account for the decline in sales in the commercial market.
In Asia, net sales decreased $9,884. The decrease reflects the impact of the slowing economy in the commercial and newspaper markets for the Company's cleaning equipment. Net Sales in the Americas decreased $3,705 primarily reflecting lower demand in the commercial market for cleaning systems. Gross Profit
Due to the continued deteriorating macro-economic environment, a decision to transfer equipment manufacturing from the U.S. to Germany, a general restructuring of the U.S. operations and the inability of the U.S. operation to reach target goals for inventory utilization during the quarter and nine months ended March 31, 2009, the Company recorded a $4,250 inventory reserve adjustment in the U.S. during the quarter ended March 31, 2009, negatively impacting gross profit for the period. Gross profit for the nine months ended March 31, 2009 was 37,729 (27.3% of net sales). Excluding the adjustment to inventory, gross profit for the nine months ended March 31, 2009 was $41,979 (30.4% of net sales), compared to $53,705 (31.4% of net sales) for the nine months ended March 31, 2008, a decrease of $11,726 or 22%. Currency rate fluctuations decreased gross profit by $1,490. Excluding the effects of currency rate fluctuations gross profit would have decreased by $10,236. Gross profit as a percentage of net sales decreased primarily as a result of the lower sales volumes noted above, combined with higher material and technical costs and unfavorable cost absorption associated with the lower volume.

Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) amounted to $27,918 including the write off of $465 of a customer account receivable. Excluding the account receivable write off, SG&A amounted to $27,453 (19.8% of net sales) for the nine months ended March 31, 2009, compared to $31,550 (18.4% of net sales) for the same period in the prior fiscal year, a decrease of $4,097. Currency rate fluctuations reduced these expenses by $720 for the current period. Otherwise, SG&A would have decreased by $3,377. Selling expenses decreased by $1,134. This decrease is primarily driven by lower employee personnel and travel costs associated with lower headcount and reduced business activity, lower commission expenses, and reduced advertising and trade show expenses. General and administrative expenses decreased $2,243, primarily reflecting lower salary and benefit costs, lower incentive compensation accruals, and reduced travel and consultant costs.
Engineering and Development Expenses
Engineering and development expenses decreased by $1,912 over the same period in the prior fiscal year. Currency rate fluctuations reduced these expenses by $249 in the current period. Excluding the effects of currency rate fluctuations, engineering and development expenses would have decreased by $1,663 in the current period, primarily reflecting lower salaries and benefits associated with the lower headcount. As a percentage of net sales, engineering and development expenses as reported remained at approximately 8.5% for the nine months ended March 31, 2009 and March 31, 2008.
Restructuring
The Company recorded $4,747 of restructuring costs during the nine months ended March 31, 2009, versus $960 in the comparable prior year period. The current year restructuring plan, in response to continued weak market conditions, is designed to achieve operational efficiencies in Germany and consists primarily of employee terminations and the consolidation of production facilities in Germany. The FY 2008 Plan consisted primarily of reductions in employment levels in Germany in an effort to achieve operational efficiencies. Interest and Other
Interest expense for the nine months ended March 31, 2009 was $1,688 as compared to $2,410 for the nine months ended March 31, 2008. Currency rate fluctuations decreased interest expense for $64 in the current period. Otherwise, interest expense would have decreased by $658. This decrease reflects the lower debt level and interest rates versus the debt level and interest rates for the period ended March 31, 2008.
Other income (expense), net, amounted to income of $938 for the nine months ended March 31, 2009, compared to expense of ($28) for the nine months ended March 31, 2008. Other income (expense), net, for the nine months ended March 31, 2009 and 2008, respectively, included net foreign currency transaction gains of $997 and losses ($85).
Income Taxes
The Company recorded an income tax benefit of $1,620 for the nine months March 31, 2009 compared to an income tax provision of $1,630 for the nine months March 31, 2008. The tax benefit primarily reflects the underlying year-to-date loss excluding the impairment of goodwill which is not tax deductable. The effective tax rate of 12% differs from the statutory rate primarily as a result of the non-deductibility of the impairment charge coupled with no benefit recognized for losses incurred in certain jurisdictions, as the realization of such benefits was not more likely than not.
During the third quarter of fiscal year 2008, the Company reversed a portion of the valuation allowance associated with its U.S. operations (approximately $1,200). The reversal of a

portion of the U.S. operations deferred tax valuation allowance is based upon the U.S. operations historical operating performance and management's expectation that the operations of the company will generate sufficient taxable income in future periods to realize a portion of the tax benefits associated with its net operating loss carryforwards and utilization of its foreign tax credits. In addition, the tax provision for the nine months ended March 31, 2008 was negatively impacted by approximately $380 as a result of a reduction in the tax rates in Germany and the associated effects on the Company's deferred tax assets in that country.
The effective tax rate of 49.7% for the nine months ended March 31, 2008 (excluding the reversal of the valuation allowance and the effect of the change in German tax rates) 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, no recognition of tax benefit for losses incurred in certain countries as the realization of such benefits was not more likely than not and the effect of certain foreign income items on U.S. taxable income.
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 statement of operations of the period that the adjustment was determined to be required.
Net Income (Loss)
The Company's net income (loss) was $(11,774) for the nine months ended March 31, 2009, compared to $3,299 for the nine months ended March 31, 2008. Currency rate fluctuations reduced net income by $954 in the current period. Net income (loss) per share amounted to $(0.77) basic and diluted for the nine months ended March 31, 2009, compared to net income per share of $0.21 basic and diluted for the nine months ended March 31, 2008.
Liquidity and Capital Resources at March 31, 2009 Cash flows from operating, investing and financing activities, reflected in the nine months ended March 31 in the Consolidated Statement of Cash Flows, are summarized as follows (in thousands):

                                                                2009         2008
     Cash provided by (used for):
     Operating activities                                   $  2,764     $ (2,912 )
     Investing activities                                     (1,721 )     (2,992 )
     Financing activities                                      4,964       (3,931 )
     Effect of exchange rate changes on cash                    (592 )      1,146

     Net increase (decrease) in cash and cash Equivalents   $  5,415     $ (8,689 )

Cash provided by operating activities increased $5,676 during the nine months ended March 31, 2009 versus the prior year period. The increase primarily reflects lower balances of accounts/notes receivable and inventory and an increase in customer deposits. The decreased balances in accounts/notes receivable and inventory reflect the lower revenue in fiscal 2009 versus fiscal 2008 as well as the Company's continued focus on cash management. Partially offsetting this improvement are lower levels of accounts/notes payable due to the timing of vendor payments, lower accrued compensation, as bonus payments in fiscal 2009 exceeded those in fiscal 2008, charges to vacation accruals during extended facility shut downs and higher restructuring payments.
The Company utilized $1,721 for investing activities for the nine months ended March 31, 2009. The amount utilized for investing includes additions to property, plant and

equipment and patents and trademarks for the nine months ended March 31, 2009 and 2008 of $1,721 and $2,546, respectively. In addition, the nine months ended March 31, 2008 included $446 of acquisition-related payments.
Cash from financing activities of $4,964 for the period ended March 31, 2009 primarily reflects borrowings in excess of repayment of $5,191. For the period ended March 31, 2008, financing activities primarily reflected debt repayments in excess of borrowings $3,459 and repurchases of common stock of $405. Restructuring and Cost Saving Initiatives During the three and nine months ended March 31, 2009 the Company announced restructuring and initiated cost saving plans in response to the significant challenges facing the market for printing equipment due to the current economic environment. The total restructuring charges of $4,747 ($681 during the quarter ended December 31, 2008 and $4,066 during the quarter ended March 31, 2009) are designed to reduce the Company's worldwide cost base and strengthen its competitive position as a leading global supplier of process automation equipment. The restructuring actions, primarily relate to employment reductions and facility consolidation in Germany. The Company anticipates cash payments from these plans of $2,739 in fiscal year 2009 and $2,008 through the second quarter of fiscal year 2010.
The restructuring actions, combined with other initiatives implemented during the year, in Europe, the U.S. and Japan will eliminate approximately 107 full-time positions by June 30, 2009. In addition, the Company has eliminated merit increases for all of the Company's workforce (except those covered by existing union contracts), temporarily suspended the Company's matching contribution to the U.S. 401 (k) plan, reduced U.S. based healthcare and has received voluntary salary reduction from senior managers. The Company estimates that annual savings from all of the above initiatives will be approximately $10 million.
The Company has also instituted cost reduction initiatives involving reduction in overtime, implementation of short-time work weeks, reduction of external service providers and extension of holiday shut down, reduced use of subcontractors and temporary labor and the related travel costs, and management of other variable costs, all of which are expected to provide additional annual savings of approximately $13.9 million.
Due to the restructuring charges and other adjustments recorded by the Company during the third quarter ended March 31, 2009, the Company was not in compliance with certain provisions of its credit agreement. The associated restructuring charges, recorded during the third quarter, would have caused the Company's trailing twelve month reported EBITDA to decrease to a level lower than the minimum level required by the Company's 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. On March 31, 2009, the Company . . .