<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHAnGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-9859
BANCTEC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1559633
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4851 LBJ FREEWAY, DALLAS, TX 75244
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE, 972/341-4000
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 Exchange Act of 1934 during
the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS NOVEMBER 9, 1998
----- -----------------
Common Stock, $.01 par value 19,606,044
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,319 $ 21,686
Short-term investments 330 308
Accounts receivable, less allowance for doubtful accounts of
$7,703 at September 30, 1998 and $8,100 at December 31, 1997 179,925 156,911
Inventories 78,062 86,847
Current deferred tax asset 17,133 17,133
Other 11,089 7,635
-------------- --------------
TOTAL CURRENT ASSETS 317,858 290,520
PROPERTY, PLANT AND EQUIPMENT - NET 128,739 111,303
GOODWILL, less accumulated amortization of
$33,869 at September 30, 1998 and $29,814 at December 31, 1997 86,677 89,147
OTHER ASSETS 14,068 11,069
-------------- --------------
TOTAL ASSETS $ 547,342 $ 502,039
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 4,183 $ 84,139
Current maturities of long-term debt 869 11,888
Trade accounts payable 22,585 19,793
Other accrued expenses and liabilities 71,469 71,243
Deferred revenue 30,203 27,278
Income taxes 18,784 9,185
-------------- --------------
TOTAL CURRENT LIABILITIES 148,093 223,526
LONG-TERM DEBT, less current maturities 150,618 11,854
OTHER LIABILITIES 5,573 6,136
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock-authorized, 1,000 shares of $.01 par value:
Series A - no shares issued and outstanding - -
Series B - no shares issued and outstanding - -
Common stock-authorized, 45,000,000 shares of $.01 par value:
issued 19,739,000 at September 30, 1998 and
21,808,000 at December 31, 1997 197 218
Treasury stock - 132,000 shares at September 30, 1998
and 200,000 shares at December 31, 1997 (1,780) (4,692)
Additional paid-in capital 174,954 221,234
Retained earnings 75,001 50,119
Foreign currency translation adjustments (3,561) (5,129)
Unearned compensation (1,753) (1,227)
-------------- --------------
Total Stockholders' Equity 243,058 260,523
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 547,342 $ 502,039
============== ==============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Equipment and software $ 85,681 $ 82,178 $ 232,037 $ 245,112
Maintenance and other services 71,803 68,352 213,782 199,070
--------- --------- --------- ---------
157,484 150,530 445,819 444,182
COST OF SALES:
Equipment and software 60,334 55,154 157,897 165,143
Maintenance and other services 55,437 49,062 162,934 145,087
--------- --------- --------- ---------
115,771 104,216 320,831 310,230
--------- --------- --------- ---------
GROSS PROFIT 41,713 46,314 124,988 133,952
OPERATING EXPENSES:
Product development 5,519 4,902 14,810 14,862
Selling, general & administrative 22,048 20,979 63,370 60,172
Goodwill amortization 1,479 1,328 4,392 4,049
--------- --------- --------- ---------
29,046 27,209 82,572 79,083
--------- --------- --------- ---------
INCOME FROM OPERATIONS 12,667 19,105 42,416 54,869
OTHER INCOME (EXPENSE):
Interest income 180 172 1,088 558
Interest expense (3,017) (2,021) (6,073) (5,657)
Sundry-net 1,487 (402) 1,447 (681)
--------- --------- --------- ---------
(1,350) (2,251) (3,538) (5,780)
--------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES 11,317 16,854 38,878 49,089
INCOME TAX PROVISION 4,067 6,067 13,996 17,672
--------- --------- --------- ---------
NET INCOME $ 7,250 $ 10,787 $ 24,882 $ 31,417
========= ========= ========= =========
NET INCOME PER SHARE:
Basic $ 0.36 $ 0.50 $ 1.19 $ 1.48
Diluted $ 0.36 $ 0.48 $ 1.19 $ 1.41
COMMON SHARES AND COMMON
SHARE EQUIVALENTS USED IN
COMPUTING PER SHARE AMOUNTS:
Basic 20,286 21,470 20,839 21,210
Diluted 20,190 23,473 20,861 23,278
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,882 $ 31,417
Adjustments to reconcile net income to cash flows
provided by operating activities
Depreciation and amortization 34,094 29,192
Disposition of property, plant and equipment 2,522 1,205
Other non-cash items (1,683) 1,053
Increase in accounts receivable (23,014) (15,131)
(Increase) decrease in inventories 119 (5,240)
Increase in other assets (6,453) (5,099)
Increase in trade accounts payable 2,792 2,109
Increase (decrease) in deferred revenue 2,925 (11,455)
Increase in other accrued expenses
and liabilities 8,833 3,908
------------ ------------
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES 45,017 31,959
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (40,158) (44,642)
Purchase of businesses, net of cash acquired (2,041) (724)
Other -- 53
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES (42,199) (45,313)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of current portion of long-term debt and
capital lease obligations (11,713) (8,929)
Net proceeds from long-term borrowings 139,442 2,294
Net (payments) proceeds from short-term borrowings (79,750) 4,591
Repurchase of common stock (46,311) --
Proceeds from sales and issuances of common stock 3,531 12,513
------------ ------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 5,199 10,469
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,616 (1,919)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,633 (4,804)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,686 22,872
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,319 $ 18,068
============ ============
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest $ 2,898 $ 3,107
Income taxes 9,236 8,865
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION
The accompanying unaudited balance sheet at September 30, 1998, and
the consolidated statements of operations and cash flows for the
interim periods ending September 30, 1998 and September 30, 1997
should be read in conjunction with the consolidated financial
statements and notes set forth in the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission. In the
opinion of management, the accompanying consolidated financial
statements contain all material adjustments, consisting principally of
normal recurring adjustments, necessary for a fair presentation of the
results of operations.
Basic income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted income per share is computed by dividing net income by
the weighted average number of common shares outstanding adjusted to
reflect the assumed exercise of all outstanding stock options which
are dilutive and adjusted for the assumed conversion of convertible
debt. The Company adopted SFAS No. 128, "Earnings per Share" effective
December 31, 1997. As a result, the Company's reported net income per
share for all periods prior to December 31, 1997, was restated.
Certain amounts have been reclassified to conform with the current
year presentation.
2. INVENTORIES CONSISTED OF THE FOLLOWING:
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
(IN THOUSANDS)
Raw materials $ 38,859 $ 41,293
Work-in-progess 5,884 7,883
Finished goods 33,319 37,671
-------------- --------------
$ 78,062 $ 86,847
============== ==============
5
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT CONSISTED OF THE FOLLOWING:
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
Land $ 3,030 $ 3,030
Field support spare parts 105,773 110,297
Systems & software 55,057 38,995
Machinery and equipment 53,195 51,929
Furniture, fixtures and other 23,249 20,177
Building 28,892 27,488
-------------- --------------
269,196 251,916
Accumulated depreciation (140,457) (140,613)
-------------- --------------
$ 128,739 $ 111,303
============== ==============
4. OTHER ACCRUED EXPENSES AND LIABILITIES CONSISTED OF THE FOLLOWING:
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
Salaries, wages and other compensation $ 20,866 $ 18,878
Advances from customers 8,392 16,441
Accrued taxes, other than income taxes 5,235 9,219
Accrued invoices and costs 9,508 8,582
Accrued merger charges and other costs 591 2,902
Other 26,877 15,221
-------------- -------------
$ 71,469 $ 71,243
============== =============
6
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BASIC:
Net Income $ 7,250,000 $ 10,787,000 $ 24,882,000 $ 31,417,000
============ ============ ============ ============
Shares issued at beginning of period 21,162,208 21,282,169 21,807,678 20,796,935
Weighted average number of shares repurchased or held
in treasury stock during the period (877,096) -- (1,139,963) (29,936)
Weighted average number of shares issued during the period 1,278 188,143 171,105 442,798
------------ ------------ ------------ ------------
Weighted average number of shares outstanding,
as adjusted 20,286,390 21,470,312 20,838,820 21,209,797
============ ============ ============ ============
Basic income per common and common
equivalent share $ 0.36 $ 0.50 $ 1.19 $ 1.48
============ ============ ============ ============
DILUTED:
Net Income $ 7,250,000 $ 10,787,000 $ 24,882,000 $ 31,417,000
Add after tax interest expense applicable to
7 1/4% convertible subordinated debentures -- 507,000 -- 1,521,000
------------ ------------ ------------ ------------
Net Income as adjusted $ 7,250,000 $ 11,294,000 $ 24,882,000 $ 32,938,000
============ ============ ============ ============
Shares issued at beginning of period 21,162,208 21,282,169 21,807,678 20,796,935
Weighted average number of shares repurchased or held
in treasury stock during the period (877,096) -- (1,139,963) (29,936)
Weighted average number of shares issued during the period
and shares issuable from assumed exercise of stock
options reduced by the number of shares which could
have been purchased with the proceeds from
exercise of such options and unearned compensation
on restricted stock awards (95,609) 651,875 192,873 972,377
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding, as adjusted excluding 7 1/4%
convertible subordinated debentures 20,189,503 21,934,044 20,860,588 21,739,376
============ ============ ============ ============
Diluted income per common and common
equivalent share excluding 7 1/4% convertible
subordinated debentures $ 0.36 $ 0.49 $ 1.19 $ 1.45
============ ============ ============ ============
Weighted average shares issuable assuming conversion
of 7 1/4% convertible subordinated debentures -- 1,538,720 -- 1,538,720
Weighted average number of shares outstanding, as
adjusted 20,189,504 23,472,764 20,860,588 23,278,096
------------ ------------ ------------ ------------
Diluted income per common and common
equivalent share $ 0.36 $ 0.48 $ 1.19 $ 1.41
============ ============ ============ ============
</TABLE>
At September 30, 1998 and 1997, 1,387,154 stock options and 8,590 stock options,
respectively, were not considered to be common stock equivalents in the
computation of diluted weighted average shares outstanding because they were
antidilutive. Exercise prices on such antidilutive stock options ranged from
$21.75 to $27.00 per share and $24.75 to $27.00 per share, respectively, at
September 30, 1998 and 1997.
7
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
6. COMPREHENSIVE INCOME
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. The
Company has adopted this standard which requires disclosure of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income and foreign currency translation
adjustments. The components of comprehensive income for the quarter and nine
months ended September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income $ 7,250 $ 10,787 $ 24,882 $ 31,417
Foreign currency translation adjustments 657 (1,270) 1,568 (2,889)
--------------- --------------- --------------- ---------------
Total comprehensive income $ 7,907 $ 9,517 $ 26,450 $ 28,528
=============== =============== =============== ===============
</TABLE>
8
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
7. SUBSEQUENT EVENTS
On October 26, 1998, the Company announced plans to restructure into two primary
businesses--transaction processing/document management and desktop/network
services. The restructuring will allow the Company to reduce cost by
streamlining operations and focusing future investments in those areas that
offer the greatest potential to accelerate growth and profitability. The
restructuring will result in non-recurring charges estimated to be in the range
of $30.0 to $35.0 million in the fourth quarter of 1998. Non-recurring charges
may include costs related to consolidation of operational functions and
facilities, rationalization of product lines and other restructuring costs.
Additionally, the Company's Board of Directors has authorized the repurchase of
up to 1.0 million additional shares of the Company's common stock over the next
twelve months. Repurchases will be made from time to time in the open market
from operating cash flow.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED
SEPTEMBER 30, 1997
Total revenue of $157.5 million for the third quarter of 1998 increased $7.0
million or 4.6% compared to the third quarter of 1997. Revenue from sales of
equipment and software increased $3.5 million primarily due to increased sales
of large systems for international customers and increased Plexus software
sales, partially offset by the decreased sales of manufactured equipment to OEM
customers. Revenue from maintenance and other services increased $3.5 million
from the prior period due to continued strong growth in network services,
partially offset by the expiration of some maintenance contracts on older
document processing systems.
Total gross profit of $41.7 million for the third quarter of 1998 declined $4.6
million from the third quarter of 1997. Gross profit for equipment and software
of $25.3 million was $1.7 million lower than in the third quarter of 1997.
Gross margin for equipment and software declined due to sales of less profitable
equipment and systems upgrades rather than more profitable new integration
systems. Gross profit for maintenance and other services of $16.4 million
declined $2.9 million from the third quarter of 1997. Although revenue from
maintenance and other services increased from the prior period, the gross margin
percentage declined due to a change in the mix of the types of services being
provided and the effect of start-up costs on certain new long-term service
contracts.
Operating expenses in the third quarter of 1998 totaled $29.0 million, an
increase of $1.8 million from the third quarter of 1997. Product development
expenses of $5.5 million increased $0.6 million primarily due to development
work on new products during the third quarter of 1998. Sales and marketing
expenses of $13.0 million decreased by $0.6 million. General and administrative
expenses of $9.0 million increased $1.7 million due to the amortization of costs
incurred for the implementation of a new internal information system which was
started up in July 1998 and the cost incurred for a business study conducted in
the third quarter of 1998 by the management consulting firm of Booz Allen &
Hamilton of the Company's future market opportunities and business strategies.
Interest expense of $3.0 million increased from $2.0 million in the third
quarter of 1997 due to an increase in debt outstanding and a higher interest
rate on the new Senior Notes than on the bank debt retired in May 1998.
Third quarter results included sundry income of $1.5 million primarily due to
foreign currency gains and the recognition of the equity income from the
Company's 33% equity interest in Servibanca S.A., a Chilean company. This
represents a $1.9 million increase over the prior period, a period that included
foreign currency losses.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS - (CONTINUED)
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED
SEPTEMBER 30, 1997 - (CONTINUED)
The income tax provision of $4.1 million decreased $2.0 million due to a
decrease in taxable income. The effective tax rate was 36% for both periods.
Net income of $7.3 million for the third quarter of 1998 decreased by $3.5
million compared to the third quarter of 1997. Diluted earnings per share were
$0.36 and $0.48, respectively for the quarters ended September 30, 1998 and
1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997
Total revenue of $445.8 million for the nine months ended September 30, 1998
increased by $1.6 million compared to the nine months ended September 30, 1997.
Revenue from sales of equipment and software decreased $13.1 million primarily
due to a decrease in demand for large software systems in the U.S. While the
Company's systems integration business has historically been somewhat variable,
the Company believes that additional factors contributing to lower revenues in
the nine months ended September 30, 1998 include spending commitments by its
customers to address year 2000 compliance, bank mergers and consolidations, and
on-going competitive pressures. Revenue from maintenance and other services
increased $14.7 million due to continued growth in network services, partially
offset by the expiration of some maintenance contracts on older document
processing systems.
Total gross profit of $125.0 million for the nine months ended September 30,
1998 decreased $9.0 million or 6.7% compared to the nine months ended September
30, 1997. Gross profit for equipment and software of $74.1 million was $5.8
million lower than the nine months ended September 30, 1997. The decline in the
gross profit of the equipment and software sales is primarily due to lower sales
and sales of less profitable equipment and system upgrades rather than more
profitable new integrated systems. Gross profit for maintenance and other
services of $50.8 million was $3.1 million lower due to a change in the mix of
the types of services being provided and the effect of start-up costs on certain
new long-term service contracts.
Operating expenses for the nine months ended September 30, 1998 totaled $82.6
million, an increase of $3.5 million from last year. Product development
expenses of $14.8 million were comparable to the prior year. Sales and marketing
expenses of $40.2 million increased by $1.1 million due to the higher level of
operating activities. General and administrative expenses of $23.2 million
increased $2.1 million due to the amortization of costs incurred for the
implementation of a new internal information system which was started up in July
1998 and the cost incurred for a business study in the third quarter of 1998 by
the management consulting firm of Booz Allen & Hamilton. Goodwill amortization
of $1.5 million increased $0.2 million due to a small acquisition during 1998.
Interest income of $1.1 million increased $0.5 million from the prior year due
to the investment of excess cash from the proceeds of the $150.0 million debt
offering in May 1998.
Interest expense of $6.1 million increased $0.4 million from the prior year
primarily due to an increase in the debt outstanding and a higher interest rate
on the new Senior Notes than on the bank debt retired in May 1998, partially
offset by gains on interest rate swaps and the capitalization of interest
expense on capital expenses incurred to implement a new internal information
system during the nine months ended September 30, 1998.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 - (CONTINUED)
The income tax provision of $14.0 million decreased $3.7 million from the prior
year due to a decrease in taxable income.
Sundry income of $1.5 million increased $2.1 million from the prior year
primarily due to foreign currency gains and the recognition of the equity income
from the Company's 33% equity interest in Servibanca S.A., a Chilean company, in
the current year.
Net income of $24.9 million for the nine months ended September 30, 1998
decreased $6.5 million compared to the prior year. Diluted earnings per share
fell to $1.19 from $1.41 per share in the prior year.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
(UNAUDITED)
BUSINESS SEGMENT DATA
As of December 31, 1998, BancTec will adopt FASB 131, which requires disclosure
of business segment data in accordance with the "management approach". The
management approach is based on the way segments are organized within the
company for making operating decisions and assessing performance. In the first
quarter of 1998, BancTec completed a reorganization of its business operations
into three business units - Service & Manufacturing, Worldwide Systems and
Plexus. Table 1 shows revenue by business segment, as it will be reported under
FASB 131. Table 2 shows revenue in the format that the company has previously
provided to investors as supplemental data.
TABLE 1. SUPPLEMENTAL REVENUE BREAKDOWN
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service & Manufacturing $ 79,864 $ 81,332 $ 236,088 $ 227,269
Worldwide Systems 79,766 72,442 215,647 225,655
Plexus 5,906 4,206 16,724 13,372
Eliminations (8,052) (7,450) (22,640) (22,114)
-------------- -------------- ------------- --------------
Total Revenue $ 157,484 $ 150,530 $ 445,819 $ 444,182
============== ============== ============= ==============
</TABLE>
TABLE 2. SUPPLEMENTAL REVENUE BREAKDOWN
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial transaction processing systems $ 65,207 $ 60,694 $ 172,740 $ 182,508
OEM and support products 12,303 16,113 37,016 42,734
Plexus (Worldwide Sales) 8,171 5,371 22,281 19,870
-------------- -------------- -------------- --------------
Total equipment and software 85,681 82,178 232,037 245,112
-------------- -------------- -------------- --------------
Equipment maintenance 39,777 41,008 119,170 122,879
Network services 32,026 27,344 94,612 76,191
-------------- -------------- -------------- --------------
Total maintenance and other services 71,803 68,352 213,782 199,070
-------------- -------------- -------------- --------------
Total Revenue $ 157,484 $ 150,530 $ 445,819 $ 444,182
============== ============== ============== ==============
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
On May 22, 1998, the Company sold $150 million of 7.5% Senior Notes due June 1,
2008 in a Rule 144A private offering. On August 28, 1998 the Senior Notes were
registered as public debt. Proceeds of the offering were used to retire the
Company's approximately $105 million of bank debt, with the remaining proceeds
to be used for other requirements.
Cash and cash equivalents as of September 30, 1998 were $31.3 million compared
to $21.7 million as of December 31, 1997. Total borrowings were $155.7 million
as of September 30, 1998 compared to $107.9 million as of December 31, 1997.
Total working capital increased to $169.8 million as of September 30, 1998 from
$67.0 million as of December 31, 1997. The $102.8 million increase in working
capital was primarily due to retirement of short-term debt from the proceeds of
the long-term debt.
Cash provided by operations was $45.0 million for the first nine months of 1998
compared to $32.0 million for the first nine months of 1997. The increase in
cash flow from operations was primarily due to changes in working capital items.
The Company believes that it has sufficient financial resources available to
support its requirements to fund operations, and is not aware of any trends,
demands or commitments that would have a material adverse impact on the
Company's long or short-term liquidity.
Funds to support the Company's operations, including capital expenditures, have
been derived from a combination of funds provided by operations, short
term bank financing, long-term debt financing and, to a lesser extent, by sales
of capital stock under employee stock option and purchase plans.
At September 30, 1998, the Company had the following debt instruments in place:
1) 7.5% Senior Notes due 2008, 2) Revolving Credit Facility, 3) Foreign Lines of
Credit and 4) Uncommitted Domestic Lines of Credit. The Company had no
outstanding balances on the Revolving Credit Facility or the Uncommitted
Domestic Lines of Credit as of September 30, 1998. The Company has available a
revolving credit facility of $70.0 million. Unsecured foreign credit debt of
$4.2 million was also outstanding at September 30, 1998 under the foreign lines
of credit. The Company also has available uncommitted lines of credit with a
group of domestic banks totaling $60.0 million. These lines have a maximum term
of 30 days.
As part of its stock repurchase program, the Company bought 2,273,100 shares
during the nine months ended September 30, 1998. The Board of Directors has
authorized the repurchase of up to an additional 1.0 million shares of the
Company's common stock over the next twelve months. The repurchases will be
made from time to time in the open market using operating cash flow.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)
The Company's backlog of orders scheduled for delivery over the next twelve-
month period increased 11% to $80.0 million compared to $72.0 million at
December 31, 1997, primarily as a result of new international orders for large
systems. The Company's backlog excludes contracts for recurring equipment and
software maintenance, as well as orders slated for immediate delivery.
Inflation has not had a material effect on the operating results of the Company.
YEAR 2000 ISSUES
The Year 2000 problem relates to the inability of certain technology products to
properly recognize and process date-sensitive information relative to the Year
2000 and beyond. Year 2000 issues impact the Company and substantially all
companies in the industries in which the Company operates. During 1998, the
Company developed a plan to assess and address all potential risks it faces as a
result of Year 2000 issues. A corporate Year 2000 compliance team, as well as
various organizational/functional teams throughout the Company, has been formed
to ensure the implementation of this plan.
During the third quarter of 1998, the Company has completed the implementation
of an enterprise resource planning information system ("ERP System"), for use in
all the Company's domestic operations, which is represented to be Year 2000
compliant by SAP, the software vendor. The implementation of this system cost
approximately $25 million. The investment in this ERP system was primarily for
the domestic operations of the Company and there is no way to allocate the
portion of the $25 million which relates to Year 2000 issues.
Although the total remaining cost of executing this plan has not been finalized,
it is expected to be in the range of $5 to $8 million. A significant portion of
this amount has already been expended. The largest remaining dollar item is the
potential replacement of non-compliant personal computers, which may or may not
have occurred in the absence of the Year 2000 problem. The Company has
organized the overall project into approximately 20 major projects, which are at
various stages of completion; overall, the Company believes it is approximately
50% complete with the execution of the plan. Substantial completion is expected
to occur by June 30, 1999. Plans are in progress to evaluate all of the
Company`s products for Year 2000 compliance. This portion of the plan is nearly
complete and BancTec will notify all customers via its Year 2000 Website,
expected to be online by December 31, 1998. The process of ensuring that the
Company's major suppliers and vendors are addressing their Year 2000 concerns is
on going and substantially complete.
Not withstanding the Company's Year 2000 compliance efforts to date, achieving
Year 2000 compliance is dependent on many factors, some of which are not
completely within the Company's control. Should either the Company's systems or
the systems of one or more significant customers, vendors, or suppliers fail to
achieve Year 2000 compliance, the Company's business and financial condition
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS- (CONTINUED)
YEAR 2000 ISSUES - (CONTINUED)
could be adversely affected. The Company intends to develop contingency plans
for those mission critical areas that might be affected by the Year 2000 problem
and will finalize plans after the evaluation and remediation phases are
complete. No litigation has been initiated against the Company in connection
with Year 2000 issues.
17
<PAGE>
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
From time to time, information provided by the Company or statements made by its
employees may contain "forward looking" information, as that term is defined in
the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company
cautions investors that there can be no assurances that actual results or
business conditions will not differ materially from those projected or suggested
in such forward looking statements as a result of various factors. There are
many factors that affect the Company's business and the results of its
operations. The following is a description of some of the important factors that
may cause the actual results of the Company's operations in future periods to
differ materially from those currently expected or desired.
General Economic Conditions
The Company's business partly depends on general economic and business
conditions. The Company's sales are to businesses in a wide variety of
industries, including banking, financial services, insurance, health care,
governmental agencies and others. General economic conditions that cause
customers in such industries to reduce or delay their investments in products
such as those offered by the Company could have a material adverse effect on the
Company.
International Activities
The Company's international operations have provided a significant part of the
Company's growth during recent fiscal years. The success and profitability of
international operations are subject to numerous risks and uncertainties, such
as economic and labor conditions, political instability, tax laws (including
U.S. taxes on foreign subsidiaries) and changes in the value of the U.S. dollar
verses the local currency in which products are sold. Any adverse change in one
or more of these factors could have a material adverse effect on the Company.
Fluctuations in Operating Results
The Company's operating results may fluctuate from period to period and will
depend on numerous factors, including customer demand and market acceptance of
the Company's products, new product introductions, product obsolescence, varying
product mix, foreign currency exchange rates and other factors. The Company's
business is sensitive to the spending patterns of its customers, which in turn
are subject to prevailing economic conditions and other factors beyond the
Company's control. Any adverse change in one or more of these factors could
have a material adverse effect on the Company.
Technological Changes and Product Transitions
The Company's industry is characterized by continuing improvement in technology,
which results in the frequent introduction of new products, short product life
cycles and continual improvement in product price/performance characteristics.
The Company must incorporate these new technologies into its products in order
to remain competitive. There can be no assurance that the Company will be able
to continue to effectively manage technology transitions. A failure on the part
of the Company to effectively manage the transitions of its product lines to new
technologies on a timely basis could have a material adverse effect on the
Company.
18
<PAGE>
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS - (CONTINUED)
Product Development Activities
The strength of the Company's overall business is partially dependent on the
Company's ability to develop products based on new or evolving technology and
the market's acceptance of those products. There can be no assurance that the
Company's product development activities will be successful, that new
technologies will be available to the Company, that the Company will be able to
deliver commercial quantities of new products in a timely manner, that those
products will adhere to generally accepted industry standards or that products
will achieve market acceptance. The Company believes that it is necessary for
its products to adhere to generally accepted industry standards, which are
subject to change in ways that are beyond the control of the Company.
19
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.0 Financial Data (Electronic Filing Only)
b) Reports on Form 8-K
NONE
20
<PAGE>
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.
BANCTEC, INC.
/s/ Scott J. Wilson
-------------------------------
Scott J. Wilson
Vice President, Controller and
Assistant Treasurer
Dated: November 16, 1998
21
<PAGE>
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.
BANCTEC, INC.
/s/ Scott J. Wilson
- - -----------------------------------
Scott J. Wilson
Vice President, Controller and
Assistant Treasurer
Dated: November 16, 1998
22
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