<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 June 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 AUGUST 5, 1998
----- -----------------------
Common Stock, $.01 par value 20,854,870
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,167 $ 21,686
Short-term investments 282 308
Accounts receivable, less allowance for doubtful accounts of
$7,489 at June 30, 1998 and $8,100 at December 31, 1997 158,107 156,911
Inventories 78,716 86,847
Current deferred tax asset 17,133 17,133
Other 10,993 7,635
--------- ---------
TOTAL CURRENT ASSETS 312,398 290,520
PROPERTY, PLANT AND EQUIPMENT - NET 129,700 111,303
GOODWILL, less accumulated amortization of
$32,477 at June 30, 1998 and $29,814 at December 31, 1997 88,185 89,147
OTHER ASSETS 11,668 11,069
--------- ---------
TOTAL ASSETS $ 541,951 $ 502,039
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 4,015 $ 84,139
Current maturities of long-term debt 911 11,888
Trade accounts payable 17,356 19,793
Other accrued expenses and liabilities 55,699 71,243
Deferred revenue 32,993 27,278
Income taxes 17,704 9,185
--------- ---------
TOTAL CURRENT LIABILITIES 128,678 223,526
LONG-TERM DEBT, less current maturities 150,818 11,854
OTHER LIABILITIES 5,643 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 21,162,000 at June 30, 1998 and
21,808,000 at December 31, 1997 212 218
Treasury stock - 317,000 shares at June 30, 1998
and 200,000 shares at December 31, 1997 (7,140) (4,692)
Additional paid-in capital 202,086 221,234
Retained earnings 67,752 50,119
Foreign currency translation adjustments (4,218) (5,129)
Unearned compensation (1,880) (1,227)
--------- ---------
Total Stockholders' Equity 256,812 260,523
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 541,951 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Equipment and software $ 74,346 $ 85,486 $ 145,817 $ 162,934
Maintenance and other services 71,595 65,813 142,506 130,718
------------- ------------ ------------- -------------
145,941 151,299 288,323 293,652
COST OF SALES:
Equipment and software 50,143 56,882 97,558 109,145
Maintenance and other services 55,012 49,122 107,496 96,025
------------- ------------ ------------- -------------
105,155 106,004 205,054 205,170
------------- ------------ ------------- -------------
GROSS PROFIT 40,786 45,295 83,269 88,482
OPERATING EXPENSES:
Product development 5,174 5,393 9,288 10,804
Selling, general & administrative 21,041 20,527 41,331 39,193
Goodwill amortization 1,558 1,377 2,912 2,721
------------- ------------ ------------- -------------
27,773 27,297 53,531 52,718
------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 13,013 17,998 29,738 35,764
OTHER INCOME (EXPENSE):
Interest income 735 211 908 386
Interest expense (1,329) (1,883) (3,056) (3,636)
Sundry-net (587) 242 (38) (279)
------------- ------------ ------------- -------------
(1,181) (1,430) (2,186) (3,529)
------------- ------------ ------------- -------------
INCOME BEFORE INCOME
TAXES 11,832 16,568 27,552 32,235
INCOME TAX PROVISION 4,260 5,965 9,919 11,605
------------- ------------ ------------- -------------
NET INCOME $ 7,572 $ 10,603 $ 17,633 $ 20,630
============= ============ ============= =============
NET INCOME PER SHARE:
Basic $ 0.36 $ 0.50 $ 0.83 $ 0.98
Diluted $ 0.36 $ 0.48 $ 0.82 $ 0.94
COMMON SHARES AND COMMON
SHARE EQUIVALENTS USED IN
COMPUTING PER SHARE AMOUNTS:
Basic 21,073 21,220 21,315 21,102
Diluted 21,148 23,095 21,476 22,926
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,633 $ 20,630
Adjustments to reconcile net income to cash flows
provided by operating activities
Depreciation and amortization 21,503 20,109
Disposition of property, plant and equipment 205 699
Other non-cash items (1,701) 906
Increase in accounts receivable (1,196) (7,597)
(Increase) decrease in inventories (101) 2,709
Increase in other assets (3,957) (4,013)
Decrease in trade accounts payable (2,437) (3,281)
Increase (decrease) in deferred revenue 5,715 (7,428)
Increase (decrease) in other accrued expenses
and liabilities (7,947) 5,982
--------- ---------
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES 27,717 28,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (28,472) (30,432)
Purchase of businesses, net of cash acquired (2,041) --
Other -- 53
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES (30,513) (30,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of current portion of long-term debt and
capital lease obligations (11,455) (5,692)
Net proceeds from long-term borrowings 139,442 1,080
Net (payments) proceeds from short-term borrowings (79,750) 591
Repurchase of common stock (24,491) --
Proceeds from sales and issuances of common stock 3,502 5,828
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES 27,248 1,807
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,029 (1,302)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,481 (1,158)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,686 22,872
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 47,167 $ 21,714
========= =========
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest $ 2,218 $ 2,023
Income taxes 5,749 3,614
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION
The accompanying unaudited balance sheet at June 30, 1998, and the
consolidated statements of operations and cash flows for the interim periods
ending June 30, 1998 and June 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 quarter
presentation.
2. INVENTORIES CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 30,363 $ 41,293
Work-in-progress 7,507 7,883
Finished goods 40,846 37,671
------------- ------------
$ 78,716 $ 86,847
============= ============
</TABLE>
5
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land $ 3,030 $ 3,030
Field support spare parts 103,236 110,297
Machinery and equipment 64,668 62,203
Furniture, fixtures and other 61,738 48,898
Building 28,658 27,488
--------- ---------
261,330 251,916
Accumulated depreciation (131,630) (140,613)
--------- ---------
$ 129,700 $ 111,303
========= =========
</TABLE>
4. OTHER ACCRUED EXPENSES AND LIABILITIES CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other compensation $ 15,927 $ 18,878
Advances from customers 10,440 16,441
Accrued taxes, other than income taxes 4,959 9,219
Accrued invoices and costs 7,869 8,582
Accrued merger charges and other costs 759 2,902
Other 15,745 15,221
--------- ---------
$ 55,699 $ 71,243
========= =========
</TABLE>
6
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC:
Net Income $ 7,572,000 $ 10,603,000 $ 17,633,000 $ 20,630,000
=============== ============== =============== ==============
Shares issued at beginning of period 21,631,582 21,220,026 21,809,678 20,796,935
Weighted average number of shares repurchased or held
in treasury stock during the period (569,427) (29,936) (651,025) (29,936)
Weighted average number of shares issued during the period 10,677 29,790 156,002 334,699
--------------- -------------- --------------- --------------
Weighted average number of shares outstanding,
as adjusted 21,072,832 21,219,880 21,314,655 21,101,698
=============== ============== =============== ==============
Basic income per common and common
equivalent share $ 0.36 $ 0.50 $ 0.83 $ 0.98
=============== ============== =============== ==============
DILUTED:
Net Income $ 7,572,000 $ 10,603,000 $ 17,633,000 $ 20,630,000
Add after tax interest expense applicable to
7 1/4% convertible subordinated debentures 0 507,000 0 1,014,000
--------------- -------------- --------------- --------------
Net Income as adjusted $ 7,572,000 $ 11,110,000 $ 17,633,000 $ 21,644,000
=============== ============== =============== ==============
Shares issued at beginning of period 21,631,582 21,220,026 21,809,678 20,796,935
Weighted average number of shares repurchased or held
in treasury stock during the period (569,427) (29,936) (651,025) (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 85,628 366,399 317,691 620,112
--------------- -------------- --------------- --------------
Weighted average number of shares
outstanding, as adjusted excluding 7 1/4%
convertible subordinated debentures 21,147,783 21,556,489 21,476,344 21,387,111
=============== ============== =============== ==============
Diluted income per common and common
equivalent share excluding 7 1/4% convertible
subordinated debentures $ 0.36 $ 0.49 $ 0.82 $ 0.96
=============== ============== =============== ==============
Weighted average shares issuable assuming conversion
of 7 1/4% convertible subordinated debentures - 1,538,720 0 1,538,720
Weighted average number of shares outstanding as
adjusted 21,147,783 23,095,209 21,476,344 22,925,831
--------------- -------------- --------------- --------------
Diluted income per common and common
equivalent share $ 0.36 $ 0.48 $ 0.82 $ 0.94
=============== ============== =============== ==============
</TABLE>
At June 30, 1998 and 1997, 689,604 stock options and 28,716 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
$24.56 to $25.81 per share and $23.31 to $24.75 per share, respectively, at June
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 three months and
six months ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income $ 7,572 $ 10,603 $ 17,633 $ 20,630
Foreign currency translation adjustments 738 93 911 (1,619)
-------- -------- -------- --------
Total comprehensive income $ 8,310 $ 10,696 $ 18,544 $ 19,011
======== ======== ======== ========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED JUNE 30,
- ------------------------------------------------------------------------------
1997
- ----
Total revenue of $145.9 million for the second quarter of 1998 decreased $5.4
million or 3.5% compared to the second quarter of 1997. Revenue from sales of
equipment and software decreased $11.1 million primarily due to a decrease in
sales of large-scale financial transaction processing systems. While the
Company's systems integration business has historically been somewhat variable,
the Company believes that additional factors contributing to lower second
quarter revenues include spending commitments by its customers to address year
2000 compliance, bank mergers and consolidations, and ongoing competitive
pressures. Revenue from maintenance and other services increased $5.8 million
from the prior period due to continued strong growth in network services.
Total gross profit of $40.8 million for the second quarter of 1998 declined $4.5
million from the second quarter of 1997. Gross profit for equipment and
software of $24.2 million was $4.4 million lower than in the second quarter of
1997. Equipment and software gross margin declined primarily due to the
decrease in revenues as discussed above. The decline in gross margin was also
due, to a lesser extent, to pressures on labor costs and competitive pricing.
Gross profit for maintenance and other services of $16.6 million was comparable
to the second quarter of 1997. Although revenue from maintenance and other
services increased from the prior period, the gross margin percentage declined
primarily due to start-up costs on new long-term service contracts and a change
in the mix of the types of services being provided.
Operating expenses in the second quarter of 1998 totaled $27.8 million, an
increase of $0.5 million from the second quarter of 1997. Product development
expenses of $5.2 million decreased $0.2 million primarily due to the completion
of development work on new products introduced in late 1997. Sales and marketing
expenses of $13.7 million increased by $0.6 million primarily due to the higher
level of operating activities. General and administrative expenses of $7.3
million were comparable to the second quarter of 1997.
Interest income of $0.7 million increased from $0.2 million, for the second
quarter of 1997 due to the investment of excess cash from the proceeds of the
Company's $150 million debt offering in May 1998.
Interest expense of $1.3 million decreased from $1.9 million due to the
capitalization of interest expense on capital expenses incurred to implement a
new internal information system, and gains on interest rate swaps in the second
quarter of 1998, partially offset by an increase in debt outstanding and a
higher interest rate on the new Senior Notes than on the bank debt retired in
May 1998.
Second quarter results included sundry expense of $0.6 million, primarily due to
foreign currency losses. This represents a $0.8 million increase over the prior
year period, a period that included foreign currency gains. The foreign
currency loss is primarily due to the decline in the value of the Japanese yen
in the second quarter of 1998 compared to an increase in the value of the
Japanese yen in the second quarter of 1997.
The income tax provision of $4.3 million decreased $1.7 million due to a
decrease in taxable income. The effective income tax rate was 36% for both
periods.
Net income of $7.6 million for the second quarter of 1998 decreased by $3.0
million compared to the second quarter of 1997. Diluted earnings per share were
$0.36 and $0.48, respectively for the quarters ended June 30, 1998 and 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(CONTINUED)
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1997
- -------------------------------------------------------------------------------
Total revenue of $288.3 million for the first half of 1998 decreased $5.3
million or 1.8% compared to the first half of 1997. Revenue from sales of
equipment and software decreased $17.1 million primarily due to a decrease in
sales of large-scale financial transaction processing systems. While the
Company's systems integration business has historically been somewhat variable,
the Company believes that additional factors contributing to lower revenues in
the first half of 1998 includes 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 $11.8 million
due to continued strong growth in network services.
Total gross profit of $83.3 million for the first half of 1998 decreased $5.2
million or 5.9% compared to the first half of 1997. Gross profit for equipment
and software of $48.3 million was $5.5 million lower than the first half of
1997. The decline in equipment and software gross margin is primarily due to
the decrease in revenues as discussed above. Gross profit for maintenance and
other services of $35.0 million was $0.3 million higher due to an increase in
network services offset by the effect of start-up costs on new long-term service
contracts and a change in the mix of the types of services being provided.
Operating expenses in the first half of 1998 totaled $53.5 million, an increase
of $0.8 million from last year's first half. Product development expenses of
$9.3 million decreased $1.5 million due to lower spending for software
development. Sales and marketing expenses of $27.1 million increased by $1.7
million due to the higher level of operating activities. General and
administrative expenses of $14.2 million increased $0.4 million due to the
timing of some expenses.
Interest expense of $3.1 million decreased $0.6 million from the prior period
primarily due to the capitalization of interest expense on capital expenses
incurred to implement a new internal information system, and gains on interest
rate swaps in the second quarter of 1998, partially offset by an increase in
debt outstanding and a higher interest rate on the new Senior Notes than on the
bank debt retired in May 1998.
The income tax provision of $9.9 million decreased $1.7 million from the prior
period due to a decrease in taxable income. The effective tax rate was 36% for
both periods.
Net income of $17.6 million for the first half of 1998 decreased $3.0 million
compared to last year's first half. Diluted earnings per share fell to $0.82
from $0.94 per share in the prior year.
10
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service & Manufacturing $ 79,088 $ 75,929 $ 156,212 $ 145,937
Worldwide Systems 69,435 79,454 135,881 153,213
Plexus 5,658 4,842 10,818 9,166
Eliminations (8,240) (8,926) (14,588) (14,664)
------------- -------------- -------------- --------------
Total Revenue $ 145,941 $ 151,299 $ 288,323 $ 293,652
============= ============== ============== ==============
</TABLE>
TABLE 2. SUPPLEMENTAL REVENUE BREAKDOWN
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial transaction processing systems $ 55,268 $ 64,526 $ 107,533 $ 121,580
OEM and support products 11,502 13,960 24,174 26,621
Plexus (Worldwide Sales) 7,576 7,000 14,110 14,499
------------- -------------- -------------- --------------
Total equipment and software 74,346 85,486 145,817 162,700
------------- -------------- -------------- --------------
Equipment maintenance 39,981 40,458 79,920 82,924
Network services 31,614 25,355 62,586 48,028
------------- -------------- -------------- --------------
Total maintenance and other services 71,595 65,813 142,506 130,952
------------- -------------- -------------- --------------
Total Revenue $ 145,941 $ 151,299 $ 288,323 $ 293,652
============= ============== ============== ==============
</TABLE>
11
<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. The Senior Notes will be subsequently
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 June 30, 1998 were $47.2 million compared to
$21.7 million as of December 31, 1997. Total borrowings were $155.7 million as
of June 30, 1998 compared to $107.9 million as of December 31, 1997. Total
working capital increased to $183.7 million as of June 30, 1998 from $67.0
million as of December 31, 1997. The $116.7 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 $27.7 million for the first six months of 1998
compared to $28.7 million for the first six months of 1997. The decrease in cash
flow from operations was primarily due to lower net income for the six months
ended June 30, 1998 as compared to the six months ended June 30, 1997.
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 June 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 June 30, 1998. The Company has available a
revolving credit facility of $70.0 million. Unsecured foreign credit debt of
$4.0 million was also outstanding at June 30, 1998 under the foreign lines of
credit. The Company also has available uncommitted lines of credit with a group
of domestic banks totaling $65.0 million. These lines have a maximum term of 30
days.
As part of its stock repurchase program, the Company bought 1,024,800 shares of
common stock during the six months ended June 30, 1998. Subsequent to June 30,
1998, the Company bought an additional 769,400 shares substantially completing
the repurchase of 2.0 million shares under the repurchase program authorized in
October 1997.
The Company's backlog of orders scheduled for delivery over the next twelve-
month period increased 39% to $100.0 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.
12
<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.
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,
13
<PAGE>
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.
14
<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
The annual meeting of the stockholders of BancTec, Inc. was May 21,
1998. The following item was voted upon:
1. Election of one nominee for director. The following individual
was elected director of BancTec, Inc.
VOTES FOR
-----------
Rawles Fulgham 19,803,901
The following individuals, who were not up for election, continue to
serves as directors of BancTec, Inc.
Grahame N. Clark, Jr.
Michael E. Faherty
Paul J. Ferri
A.A. Meitz
Michael A. Stone
15
<PAGE>
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
On May 18, 1998, the Company filed a Form 8-K concerning factors
affecting the Company's business and prospects.
16
<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: August 11, 1998
17
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
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<SECURITIES> 282 0
<RECEIVABLES> 165,596 0
<ALLOWANCES> (7,489) 0
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<CURRENT-ASSETS> 312,398 0
<PP&E> 261,330 0
<DEPRECIATION> (131,630) 0
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<INTEREST-EXPENSE> 3,056 3,636
<INCOME-PRETAX> 27,552 32,235
<INCOME-TAX> 9,919 11,605
<INCOME-CONTINUING> 17,633 20,630
<DISCONTINUED> 0 0
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