<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 March 31, 2000
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.)
2701 E. Grauwyler, Irving, TX 75061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 579-6000
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 May 10, 2000
----- ------------
Common Stock, $0.01 par value 17,003,838
Class A common stock $0.01 par value 1,181,946
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $1,532
at March 31, 2000 and $2,694 at December 31, 1999 $ 2,867 $ 20,292
Short-term investments 437 440
Accounts receivable, less allowance for doubtful accounts of
$11,591 at March 31, 2000 and $12,790 at December 31, 1999 145,505 143,745
Inventories 69,685 64,193
Current deferred tax asset 26,803 26,803
Other 15,477 11,851
---------- ----------
TOTAL CURRENT ASSETS 260,774 267,324
PROPERTY, PLANT AND EQUIPMENT - NET 121,577 125,902
GOODWILL, less accumulated amortization of
$28,951 at March 31, 2000 and $28,200 at December 31, 1999 54,088 54,903
OTHER ASSETS 26,023 24,976
---------- ----------
TOTAL ASSETS $ 462,462 $ 473,105
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Revolving credit facilities $ 21,956 $ 10,468
Current maturities of long-term debt 45,149 4,854
Trade accounts payable 19,464 24,978
Other accrued expenses and liabilities 54,797 61,181
Deferred revenue 37,894 29,420
Income taxes - 5,975
---------- ----------
TOTAL CURRENT LIABILITIES 179,260 136,876
LONG-TERM DEBT, less current maturities 310,000 350,500
OTHER LIABILITIES 7,675 7,467
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock-authorized, 1,000,000 shares of $0.01 par value - -
Common stock-authorized, 32,000,000 new shares of $0.01 par value:
New Common stock-issued and outstanding 17,003,838 170 170
Class A common stock - issued and outstanding 1,181,946 12 12
Additional paid-in capital 137,180 137,180
Accumulated deficit (166,990) (155,296)
Foreign currency translation adjustments (4,845) (3,804)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (34,473) (21,738)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 462,462 $ 473,105
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---------- ----------
REVENUES $ 128,390 $ 139,489
COST OF SALES 109,072 103,894
---------- ----------
GROSS PROFIT 19,318 35,595
OPERATING EXPENSES:
Product development 4,030 3,515
Selling, general & administrative 23,375 20,457
Goodwill amortization 778 945
---------- ----------
28,183 24,917
---------- ----------
INCOME (LOSS) FROM OPERATIONS (8,865) 10,678
OTHER INCOME (EXPENSE):
Interest income 73 170
Interest expense (8,705) (2,967)
Sundry-net 44 12
---------- ----------
(8,588) (2,785)
---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (17,453) 7,893
INCOME TAX PROVISION (BENEFIT) (5,759) 2,921
---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (11,694) 4,972
---------- ----------
DISCONTINUED OPERATIONS:
Loss from operations - (245)
Income tax benefit - 91
---------- ----------
Net loss from discontinued operations - (154)
---------- ----------
NET INCOME (LOSS) $ (11,694) $ 4,818
========== ==========
See notes to consolidated financial statements.
3
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ (11,694) $ 4,972
Adjustments to reconcile net income (loss) to cash flows
used in operating activities
Depreciation and amortization 10,556 10,824
Disposition of property, plant and equipment 2,861 379
Other non-cash items 185 181
(Increase) in accounts receivable (1,760) (10,502)
(Increase) in inventories (5,492) (5,196)
(Increase) decrease in other assets (5,246) 704
Increase (decrease) in trade accounts payable (5,514) 1,328
Increase in deferred revenue 8,474 4,045
Decrease in other accrued expenses
and liabilities (11,578) (7,443)
----------- -----------
CASH FLOWS USED IN OPERATING
ACTIVITIES (19,208) (708)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (8,678) (14,325)
Change in net assets of discontinued operations - 7,811
Investment in unconsolidated subsidiary - (892)
----------- -----------
CASH FLOWS USED IN
INVESTING ACTIVITIES (8,678) (7,406)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of current portion of long-term debt and
capital lease obligations (205) (246)
Net proceeds (payments) on short-term borrowings 11,500 (4,788)
Proceeds from sales and issuance of common stock - 825
----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 11,295 (4,209)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (834) (678)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,425) (13,001)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,292 25,313
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,867 $ 12,312
=========== ===========
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest $ 5,515 $ 88
Income taxes 6,529 4,965
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and other accounting information
The accompanying unaudited balance sheet at March 31, 2000, and the consolidated
statements of operations and cash flows for the interim periods ended March 31,
2000 and 1999, should be read in conjunction with BancTec, Inc. ("BancTec" or
the "Company") consolidated financial statements and notes thereto 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. All significant intercompany balances and transactions have been
eliminated.
Effective September 1, 1999, BancTec sold substantially all of the net assets of
its community banking business to Jack Henry and Associates. For financial
statement purposes, the Company treated the sale as a discontinued operation,
and accordingly, the consolidated financial statements have been restated in
accordance with APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unused and Infrequently Occurring Events and Transactions."
Certain amounts have been reclassified to conform with the current year
presentation.
5
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
2. Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -------------
(In thousands)
<S> <C> <C>
Raw materials $ 20,183 $ 18,740
Work-in-progress 6,480 4,429
Finished goods 43,022 41,024
----------- -------------
$ 69,685 $ 64,193
=========== =============
</TABLE>
3. Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -------------
(In thousands)
<S> <C> <C>
Land $ 2,860 $ 2,860
Field support spare parts 113,381 117,010
Systems and software 63,351 62,809
Machinery and equipment 55,117 54,454
Furniture, fixtures and other 27,756 27,262
Building 29,349 29,637
------------ -------------
291,814 294,032
Accumulated depreciation (170,237) (168,130)
------------ -------------
Net property, plant, and equipment $ 121,577 $ 125,902
============ =============
</TABLE>
6
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
4. Other accrued expenses and liabilities consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(In thousands)
<S> <C> <C>
Salaries, wages and other compensation $ 15,033 $ 15,899
Advances from customers 8,989 9,543
Accrued taxes, other than income taxes 4,877 5,688
Accrued invoices and costs 6,526 5,892
Accrued interest payable 4,032 1,157
Accrued reorganization costs 215 215
Other 15,125 22,787
----------- -----------
$ 54,797 $ 61,181
=========== ===========
</TABLE>
5. Debt
At March 31, 2000, the Company had the following debt instruments in place: 1)
$150.0 million of 7.5% Senior Notes due 2008, 2) $45.0 million Tranche A Term
Loan due June 2004 payable to banks in sixteen consecutive quarterly
installments beginning September 30, 2000, bearing interest, at the Company's
option, of either LIBOR plus 3.0% or prime plus 2.0% ($30.0 million at 9.28% and
$15.0 million at 9.04% at March 31, 2000), 3) $160.0 million subordinated
unsecured "Sponsor" notes due 2009, bearing interest at 10.0%, 4) $50.0 million
Revolving Credit Facility, providing for borrowing, at the Company's option, of
either LIBOR plus 3.0% or prime plus 2.0%, and 5) Unsecured Foreign Lines of
Credit. The Company had outstanding borrowings of $20.5 million under the
revolving credit facility at March 31, 2000, comprised of $15.0 million at 9.13%
and $5.5 million at 11.0%. The Company had outstanding borrowings of $32.0
million under the revolver at May 12, 2000, comprised of $10.0 million at 9.15%,
$10.0 million at 9.18%, and $12.0 million at 11.0%. The Company had an
outstanding balance on the unsecured foreign lines of credit of $1.5 million as
of March 31, 2000. The weighted average interest rate on the unsecured foreign
lines of credit was 1.5% at March 31, 2000. At March 31, 2000, the Company was
not in compliance with the covenants under its Tranche A Term Loan and revolver
and was granted a temporary waiver through July 15, 2000 from its lenders.
Accordingly, the Company has classified the related loan balances as current
liabilities. The Company will work with its lenders in the near term to
restructure its existing bank debt. While the Company believes this effort will
be successful, there can be no assurance that an agreement will be reached, the
absence of which would have an adverse impact on the Company's liquidity.
7
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
6. Comprehensive Income
Comprehensive income includes net income and foreign currency translation
adjustments. The components of comprehensive income for the quarters ended
March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- -------------
(In thousands)
<S> <C> <C>
Net income (loss) $ (11,694) $ 4,818
Foreign currency translation adjustments (1,041) (1,414)
-------------- -------------
Total comprehensive income (loss) $ (12,735) $ 3,404
============== =============
</TABLE>
8
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7. Business Segment Data
<TABLE>
<CAPTION>
North American Computer & Net- International Corp/Other
Systems work Services Systems Eliminations Total
---------------- ----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
For the three months ended
March 31, 2000
Revenues from
external customers $ 54,963 $ 32,348 $ 41,079 $ - $ 128,390
Intersegment revenues 11,956 - 238 (12,194) -
Segment operating income (loss) (1,964) (20) 595 (7,476) (8,865)
Segment identifiable assets 228,271 68,738 106,175 59,278 462,462
For the three months ended
March 31, 1999
Revenues from external customers $ 65,104 $ 32,539 $ 41,846 $ - $ 139,489
Intersegment revenues 14,204 (63) 775 (14,916) -
Segment operating income (loss) 10,575 3,096 3,778 (6,771) 10,678
Segment identifiable assets 254,308 75,232 115,552 79,386 524,478
</TABLE>
As of December 31, 1998, BancTec adopted SFAS No. 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 1998
fourth quarter, the Company announced a reorganization of its operations
ultimately into three reportable segments as follows: Computer and Network
Services ("CNS"), North American Systems ("NAS") and International Systems
("INTL"). The CNS operations include personal computer warranty repair services
and administration of third party extended warranties. Both NAS and INTL
operations offer their solutions to similar types of customers. The offerings
include financial transaction processing, manufacturing and supplies,
installation and maintenance of BancTec-manufactured equipment, integrated
systems, and Plexus(R). NAS and INTL are managed separately based on
geographical areas, with INTL consisting of operations throughout the world
excluding North America.
9
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
8. Stock Split
In February 2000, the Company authorized a two-for-one stock split payable in
the form of a 100% stock dividend to shareholders of record on February 25,
2000. A total of 9,092,892 shares of common stock were issued in connection with
the split, comprised of 8,501,919 shares of New Common Stock and 590,973 shares
of Class A common stock. Consequently, all references to shares of New Common
Stock and Class A common stock included in the accompanying consolidated
financial statements and notes thereto reflect the 100% stock dividend and its
retroactive effect.
9. Corporate Facilities Move
In February 2000, the Company decided to move its corporate leased-space
headquarters from its Dallas, Texas location to an owned facility in Irving,
Texas. The move will be completed during the second quarter of 2000. In
conjunction with the move, the Company has entered into an agreement to sublease
the office space currently being used by corporate headquarters' staff. The
Company incurred a one-time pre-tax loss on the lease of approximately $1.0
million which is reflected in the first quarter 2000 results.
10. Subsequent Event
On May 15, 2000, as part of the developing strategy to improve profitability,
the Company announced it was eliminating approximately 200 positions. A charge
of approximately $3.1 million will be taken in the second quarter to provide for
related severance costs.
10
<PAGE>
BANCTEC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of Three Months Ended March 31, 2000 and Three Months Ended March 31,
- --------------------------------------------------------------------------------
1999
- ----
Consolidated revenues decreased $11.1 million, or 8.0%, compared to the first
quarter of 1999. The decline primarily occurred in the NAS segment which
experienced a revenue decrease of 15.6% to $55.0 million due to a decline in
revenues for delivery of large systems of approximately $8.0 million and to
certain maintenance contract cancellations of approximately $2.0 million. The
declines in system deliveries resulted in part from product distribution issues
and extended product rollout periods resulting from longer than-expected product
development cycles. INTL revenue decreased by 1.8% to $41.1 million. CNS revenue
decreased slightly to $32.3 million for the same period due to the cancellation
of contracts in the second quarter of 1999, offset by revenue from the start-up
of the Galileo contract.
Consolidated gross profit of $19.3 million decreased by $16.3 million from the
prior year quarter. The decline in gross profit was primarily due to lower than
anticipated revenues without corresponding decreases in fixed costs. Management
is currently assessing the cost structure to develop cost containment strategies
to more efficiently manage costs. NAS operations represented $11.6 million of
the decline, while CNS and INTL operations comprised the remaining $4.6 million.
In addition, management made a decision in NAS to increase maintenance
expenditures to achieve a higher level of customer service satisfaction. CNS
gross profit declined due primarily to additional costs of servicing the Galileo
project as compared to costs to service business lost in the prior year. INTL
gross profit declined primarily due to product mix. Management is in the process
of evaluating alternative strategies to improve profitability in the remaining
quarters.
Operating expenses for the quarter totaled $28.2 million, increasing $3.3
million from the prior year first quarter. Product development expenses
increased $0.5 million from the comparative prior year quarter due primarily to
increased software development costs related to the longer development cycles.
Sales and marketing expenses of $12.1 were comparable to the prior year quarter.
General and administrative expenses of $11.3 million increased $2.6 million from
the prior year quarter and consisted primarily of an approximately $1.0 million
pre-tax loss on the corporate leased-space headquarters, approximately $1.0
million in information technology expenses for the Galileo project, and residual
merger-related expenses of approximately $0.3 million. The decrease in goodwill
amortization compared to the prior year first quarter was due to the $2.1
million write-off of impaired goodwill in the fourth quarter of 1999.
11
<PAGE>
BANCTEC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Interest expense of $8.7 million increased from the prior year first quarter due
to additional debt incurred by the Company resulting from the July 1999 merger.
A pre-tax loss from operations of $17.5 million for the first quarter resulted
in an income tax benefit of $5.8 million compared to the 1999 first quarter's
income tax provision of $2.9 million on pre-tax income from continuing
operations of $7.9 million. The consolidated tax rate for the first quarter of
2000 was 33.0%.
Liquidity and Capital Resources
Cash and cash equivalents as of March 31, 2000 decreased to $2.9 million from
$20.3 million as of December 31, 1999 due primarily to purchases of property,
plant and equipment of $8.7 million and interest payments of $5.5 million. Total
borrowings were $377.1 million as of March 31, 2000, compared to $365.8 million
at December 31, 1999. Total working capital decreased to $122.0 million from
$130.4 million as of December 31, 1999. The decrease was due primarily to the
decrease in cash and cash equivalents discussed above.
Cash used in operations increased to $19.2 million for the first three months of
2000 from $0.7 million for the first three months of 1999. The increased use of
cash primarily resulted from the $16.7 million decrease in net income from
continuing operations which was driven mostly by lower revenues without
corresponding decreases in fixed expenses. Offsetting this decrease was an $8.7
million reduction in the increase in accounts receivable as compared to the
prior year increase. Cash flow increases over the prior period of $2.5 million
from the disposition of property, plant, and equipment and $4.4 million for
deferred revenue were offset by increases over the prior period in trade
payables and accrued expenses of $6.8 million and $4.1 million, respectively.
Increased inventories contributed to the cash usage and were due primarily to
the combined effects of unanticipated revenue declines and delayed shipments.
The delayed shipments resulted in part from customer requests and longer product
development-to-completion life cycles than were originally anticipated. In
addition, ninety-day raw material purchase lead-times contributed to the
inventory build-ups since finished goods shipments were less than originally
planned.
On May 22, 1998, the Company sold $150.0 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. Interest is due and payable in semi-annual
installments beginning December 1, 1998. The notes contain covenants placing
limitations on the Company's ability to permit subsidiaries to incur certain
debts, incur certain loans and engage in certain sale and leaseback
transactions. The Company is in compliance with all covenants related to the
Senior Notes.
12
<PAGE>
BANCTEC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
At March 31, 2000, the Company had a secured credit agreement with financial
institutions, which provides for a $50.0 million short-term revolving credit
facility (the "revolver"). The revolver contains restrictive covenants which
also apply to the Tranche A Term Loan. The covenants have variable parameters
which, among other things, restrict payment of dividends, require the Company to
maintain a minimum EBITDA to interest expense ratio, as defined, limit the
maximum debt to EBITDA, restrict the minimum fixed charge to interest expense
ratio and limit capital expenditures. At March 31, 2000, the Company was not in
compliance with the covenants under its Tranche A Term Loan and revolver and was
granted a temporary waiver from its lenders through July 15, 2000. Accordingly,
the Company has classified the related loan balances as current liabilities. The
Company will work with its lenders in the near term to restructure its existing
bank debt. While the Company believes this effort will be successful, there can
be no assurance that an agreement will be reached, which would have an adverse
impact on the Company's liquidity. The revolver bears interest at the lender's
prime commercial rate plus 2.0%, or at the Company's option, the LIBOR on
Eurocurrency borrowings plus 3.0%, depending on the Company's debt to
capitalization ratio. A commitment fee of 0.5% on the unused revolving credit
facility is payable quarterly. The Company had outstanding balances under the
revolver of $32.0 million at May 12, 2000, consisting of $10.0 million at 9.15%,
$10.0 million at 9.18%, and $12.0 million at 11.0%.
Also outstanding as of March 31, 2000, were foreign credit agreements in the
amount of $1.5 million payable in Japanese yen at interest rates of up to 1.5%.
Inflation has not had a material impact on the operating results of the Company.
13
<PAGE>
BANCTEC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
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. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changes in assumptions, the occurrence of unanticipated results or
changes to future operating results over time. 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
and solutions 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
versus 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 and solutions, 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.
14
<PAGE>
BANCTEC, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
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 and
solutions 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 and solutions 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.
Impact of Merger with WCAS
As a result of the merger with WCAS, the Company incurred additional debt of
approximately $240.0 million and entered into a revolving credit facility for
up to $50.0 million. The increased debt levels at higher interest rates than
rates on previous debt levels resulted in a more highly leveraged financial
position for the Company. The Company's business and economic risk factors are
magnified due to the higher leveraged financial position. The Company will
work with its lenders in the near term to restructure its existing bank debt.
While the Company believes this effort will be successful, there can be no
assurance that an agreement will be reached, the absence of which would have an
adverse impact on the Company's liquidity.
15
<PAGE>
BANCTEC, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks primarily related to fluctuations
in interest rates.
As of March 31, 2000, the Company had outstanding long-term debt of $150.0
million in Senior Notes issued in U.S. dollars at a fixed annual interest rate
of 7.5%. Interest is due and payable in semi-annual installments which began
December 1, 1998. The notes mature on June 1, 2008. The fair market value of the
Senior Notes as of March 31, 2000 is approximately $130.0 million based on an
estimated yield of 10%. After the merger, the Company put the following
additional debt in place: (1) $160.0 million subordinated unsecured "Sponsor"
notes due 2009, bearing interest at 10.0% and (2) a $45.0 million Tranche A term
loan due June 2004, payable in sixteen consecutive quarterly installments
beginning September 30, 2000, bearing interest at the lower of LIBOR plus 3.0%
or prime plus 2.0% ($30.0 million at 9.28% and $15.0 million at 9.04% at March
31, 2000), and (3) a $50.0 million Revolving Credit Facility providing for
borrowing, at the Company's option, of either LIBOR plus 3.0% or prime plus 2.0%
was also obtained. At May 12, 2000 borrowings under the revolver consisted of
$10.0 million at 9.15%, $10.0 million at 9.18% and $12.0 million at 11.0%. At
March 31, 2000, the Company was not in compliance with the covenants under its
Tranche A Term Loan and revolver and was granted a temporary waiver through July
15, 2000 from its lenders. Accordingly, the Company has classified the related
loan balances as current liabilities. The Company will work with its lenders in
the near term to restructure its existing bank debt. While the Company believes
this effort will be successful, there can be no assurance that an agreement will
be reached, which would have an adverse impact on the Company's liquidity.
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
interest rate risks and generally consist of interest rate swap and/or interest
rate cap agreements. There were no such instruments in place at March 31, 2000.
16
<PAGE>
PART II
BANCTEC, INC.
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1.1 Financial Data (Electronic Filing Only)
b) Reports on Form 8-K
On May 4, 2000, the Company filed a Form 8-K regarding the dismissal
of Arthur Andersen LLP as its independent auditors and the engagement
of Deloitte & Touche LLP as its independent auditors effective
April 28, 2000.
17
<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 and
Chief Accounting Officer
Dated: May 15, 2000
18
<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 and
Chief Accounting Officer
Dated: May 15, 2000
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS, AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND FOOTNOTES.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 2,867 20,292
<SECURITIES> 437 440
<RECEIVABLES> 157,096 156,535
<ALLOWANCES> (11,591) (12,790)
<INVENTORY> 69,685 64,193
<CURRENT-ASSETS> 260,774 267,324
<PP&E> 291,814 294,032
<DEPRECIATION> (170,237) 168,130
<TOTAL-ASSETS> 462,462 473,105
<CURRENT-LIABILITIES> 179,260 136,876
<BONDS> 310,000 350,500
0 0
0 0
<COMMON> 182 182
<OTHER-SE> (34,655) (21,920)
<TOTAL-LIABILITY-AND-EQUITY> 462,462 473,105
<SALES> 60,366 69,148
<TOTAL-REVENUES> 128,390 139,489
<CGS> 49,563 48,611
<TOTAL-COSTS> 109,072 103,894
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,705 2,967
<INCOME-PRETAX> (17,453) 7,893
<INCOME-TAX> (5,759) 2,921
<INCOME-CONTINUING> (11,694) 4,972
<DISCONTINUED> 0 (154)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,694) 4,818
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
