<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
Registration No. 333-56497
================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
BANCTEC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3670 75-1559633
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
4851 LBJ FREEWAY
DALLAS, TEXAS 75244
(972) 341-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
GRAHAME N. CLARK, JR.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BANCTEC, INC.
4851 LBJ FREEWAY
DALLAS, TEXAS 75244
(972) 341-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
COPIES TO:
JIM A. WATSON TOD V. MONGAN
VINSON & ELKINS L.L.P. BANCTEC, INC.
3700 TRAMMELL CROW CENTER 4851 LBJ FREEWAY
2001 ROSS AVENUE DALLAS, TEXAS 75244
DALLAS, TEXAS 75201-2975 (972) 341-4000
(214) 220-7762
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
--------------------
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
PROSPECTUS
OFFER FOR ALL OUTSTANDING
7.50% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
7.50% SENIOR NOTES DUE 2008
OF
BANCTEC, INC.
--------------------
Interest Payable June 1 and December 1
BancTec, Inc. ("BancTec" or the "Company") is offering upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal") (which together constitute
the "Exchange Offer") to exchange $1,000 principal amount of its new 7.50%
Senior Notes due 2008 (the "New Notes") for each $1,000 principal amount of its
outstanding 7.50% Senior Notes due 2008 (the "Old Notes") in the aggregate
principal amount of $150,000,000. The form and terms of the New Notes are
identical to the form and terms of the Old Notes except that the Old Notes were
offered and sold in reliance upon certain exemptions from registration under the
Securities Act of 1933, as amended (the "Securities Act"), while the offering
and sale of the New Notes in exchange for the Old Notes has been registered
under the Securities Act, with the result that the New Notes will not bear any
legends restricting their transfer. The New Notes will evidence the same debt
as the Old Notes and will be issued pursuant to, and entitled to the benefits
of, the Indenture (as defined) governing the Old Notes. The Exchange Offer is
being made in order to satisfy certain contractual obligations of the Company.
See "The Exchange Offer" and "Description of New Notes." The New Notes and the
Old Notes are sometimes collectively referred to herein as the "Notes."
Interest on the Notes will be payable semiannually on June 1 and December 1
of each year, commencing on December 1, 1998. The Notes will mature on June 1,
2008. The Notes will be redeemable at the option of the Company, in whole or in
part, at a redemption price equal to the greater of (i) 100% of their principal
amount, and (ii) the sum of the present values of the Remaining Scheduled
Payments (as defined) discounted to the date of redemption, on a semiannual
basis, at the Treasury Rate (as defined) plus 15 basis points, plus in each case
accrued interest thereon to the date of redemption. The Notes will not be
subject to any sinking fund requirement. See "Description of New Notes." The
Notes will be senior unsecured obligations of the Company, ranking pari passu
with all existing and future senior debt of the Company and senior in right of
payment to all future subordinated debt of the Company.
The Exchange Offer will expire at 5:00 p.m., New York City time September
28, 1998, or such later date and time to which it is extended (the "Expiration
Date").
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the Old Notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. See "The Exchange Offer"
and "Plan of Distribution."
Following the consummation of the Exchange Offer, holders of Old Notes who
were eligible to participate in the Exchange Offer but who did not tender their
Old Notes will not be entitled to certain rights under the Registration Rights
Agreement (as defined) and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity in the market for the Old
Notes could be adversely affected. No assurance can be given as to the
liquidity of the trading market for either the Old Notes or the New Notes.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 28, 1998
<PAGE>
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein
by reference and made a part of this Prospectus: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1997; (ii) the Company's Proxy
Statement, dated April 10, 1998, relating to the Annual Meeting of Stockholders
held on May 21, 1998; (iii) the Company's Quarterly Reports on Form 10-Q for the
fiscal periods ended March 31, 1998 and June 30, 1998; (iv) the Company's
Current Report on Form 8-K dated May 1, 1998; and (v) the Company's Current
Report on Form 8-K dated May 18, 1998.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the Expiration Date shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS REFERRED TO ABOVE THAT ARE INCORPORATED BY REFERENCE IN THE PROSPECTUS
(EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
SUSAN SEITER, DIRECTOR--INVESTOR RELATIONS, BANCTEC, INC., AT (972) 341-4904.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY SEPTEMBER 21, 1998.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with respect to the New Notes offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement. For further
information with respect to the Company and the New Notes offered hereby,
reference is made to the Registration Statement, including the exhibits and
schedules filed therewith. Statements contained in this Prospectus concerning
the provisions of any contract, agreement or other document referred to herein
or therein are not necessarily complete, but contain a summary of the material
terms of such contracts, agreements or other documents. With respect to each
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for the complete contents of the
exhibit, and each statement concerning its provisions is qualified in its
entirety by such reference. The Registration Statement may be inspected,
without charge, at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices at 7 World Trade Center, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2551. Copies of such materials may also be obtained by mail at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
such materials may also be obtained from the web site that the Commission
maintains at www.sec.gov.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission described above. The Company's Common Stock is
listed on the New York Stock Exchange, and such materials also can be inspected
at the offices of The New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE WORDS
"ANTICIPATE," "BELIEVE," "EXPECT," "PLAN," "INTEND," "ESTIMATE," "PROJECT,"
"WILL," "COULD," "MAY," "GOAL," "TARGET," "PURSUE" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE
AND INVOLVE RISKS AND UNCERTAINTIES RELATIVE TO MARKET DEMAND AND ACCEPTANCE,
CHANGING ECONOMIC CONDITIONS, COMPETITION, RAPIDLY CHANGING TECHNOLOGY AND OTHER
RISKS DETAILED IN THE COMPANY'S COMMISSION FILINGS. SHOULD ONE OR MORE OF THESE
RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED,
BELIEVED, EXPECTED, PLANNED, INTENDED, ESTIMATED, PROJECTED, TARGETED, PURSUED
OR OTHERWISE INDICATED.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus.
THE COMPANY
OVERVIEW
BancTec, Inc. (the "Company" or "BancTec") is a worldwide diversified
systems integration and services company with a 25-year history of innovation in
imaging technology, financial transaction processing and workflow productivity
improvement. The Company produces check, remittance and financial instrument
processing solutions for the banking, financial services, insurance, healthcare,
government, utility, telecommunications and retail industries. The Company is
also a leading provider of network support services for local area networks and
personal computers. Serving Fortune 1000 companies, government agencies and
leading personal computer manufacturers, BancTec provides premium service for
more than two million personal computers nationwide.
Founded in 1972, BancTec operates worldwide (with international sales in
1997 representing approximately 29% of total revenues) and serves over 5,000
customers in over 50 countries. Selected customers include the United States
Federal Reserve Bank ("Federal Reserve"), GTE Corporation ("GTE"), International
Business Machines Corporation ("IBM"), Dell Computer Corporation ("Dell"),
Metropolitan Life Insurance Co. ("MetLife"), National Westminster Bank p.l.c.
("NatWest"), NationsBank Corporation ("NationsBank"), Citicorp, Sagawa Express
Co. ("Sagawa Express"), Compaq Computer Corporation ("Compaq"), Lockheed Martin
Corporation ("Lockheed Martin"), British Telecommunications plc ("British
Telecom") and Inland Revenue of the United Kingdom ("U.K. Inland Revenue").
BUSINESS STRATEGY
Building on one of the largest installed customer bases in the industry,
BancTec plans to grow revenue and earnings by expanding the breadth of products
and services it offers its customers. For example, by incorporating its Plexus
portfolio of workflow and image management software products into customer
solutions, BancTec believes it can expand beyond traditional back office
processing applications to deliver new applications and systems for enterprise-
wide deployment by its customers. In addition, the Company is targeting new
vertical markets, such as healthcare, where BancTec's comprehensive transaction
and document processing solutions can improve efficiency and service. The
Company differentiates itself from its competitors by offering a complete suite
of advanced software applications, equipment and service designed for high
volume, mission critical processing environments.
BancTec has successfully built recurring revenue to balance the variable
nature of the systems integration business, to enhance cash flow and to lessen
the impact of economic disruptions. Today, more than 50% of the Company's
revenue is from recurring sources, and BancTec will continue to target
opportunities to further increase this percentage.
BancTec expects to continue to capitalize on the accelerating trend toward
outsourcing of services for distributed desktop computers (networks) through
direct sales efforts to Fortune 1000 corporations and government agencies, and
through strategic alliances with major information technology outsourcing
contractors. The Company plans to expand its service offerings in the areas of
network design and integration, help desk and training, remote network
monitoring, and life cycle and project management. A leading supplier of
warranty repair services for personal computers, BancTec will also continue to
pursue additional contracts with major PC manufacturers and third party warranty
administrators.
In most of its business operations, BancTec employs a multi-channel
strategy to market and distribute its products and services. Channels include
direct sales to end users by the Company's sales force and sales to other
manufacturers, systems integrators and value-added resellers. This distribution
network allows the Company to pursue business in markets where local economic
conditions preclude BancTec from having a direct presence.
4
<PAGE>
A key component of BancTec's strategy is an active research and development
program to maintain its leadership position in payment and document processing
technology. In addition, current development efforts are focused on expanding
the Company's portfolio of Internet-enabled software products and new
initiatives in the rapidly developing electronic commerce arena.
BancTec operates pursuant to a conservative financial strategy and has an
internal goal of maintaining a debt-to-capital ratio of 40% or less. While the
Company in the past has exceeded this percentage for short periods of time to
finance acquisitions, it has historically reduced leverage thereafter from free
cash flow. After the issuance of the Old Notes it was 38%.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer applies to $150.0 million aggregate principal amount of
the Old Notes. The form and terms of the New Notes are identical to the form and
terms of the Old Notes except that the Old Notes were offered and sold in
reliance upon certain exemptions from registration under the Securities Act,
while the offering and sale of the New Notes in exchange for the Old Notes has
been registered under the Securities Act, with the result that the New Notes
will not bear any legends restricting their transfer. See "Description of New
Notes."
The Exchange Offer..................... $1,000 principal amount of New Notes
in exchange for each $1,000 principal
amount of Old Notes. As of the date
hereof, Old Notes representing $150.0
million aggregate principal amount
were outstanding. The terms of the
New Notes and the Old Notes are
substantially identical.
Based on an interpretation by the
Commission's staff set forth in
no-action letters issued to third
parties unrelated to the Company, the
Company believes that, with the
exceptions discussed herein, New
Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may
be offered for resale, resold and
otherwise transferred by any person
receiving the New Notes, whether or
not that person is the holder (other
than any such holder or such other
person that is an "affiliate" of the
Company within the meaning of Rule
405 under the Securities Act),
without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that (i) the New Notes are
acquired in the ordinary course of
business of that holder or such other
person, (ii) neither the holder nor
such other person is engaging in or
intends to engage in a distribution
of the New Notes, and (iii) neither
the holder nor such other person has
an arrangement or understanding with
any person to participate in the
distribution of the New Notes.
However, the Company has not sought,
and does not intend to seek, its own
no-action letter, and there can be no
assurance that the Commission's staff
would make a similar determination
with respect to the Exchange Offer.
See "The Exchange Offer -- Purpose
and Effect." Each broker-dealer that
receives New Notes for its own
account in exchange for Old Notes,
where those Old Notes were acquired
by the broker-dealer as a result of
its market-making activities or other
trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of those
New Notes. See "Plan of
Distribution."
Exchange and Registration Rights
Agreement............................ The Old Notes were sold by the
Company on May 22, 1998 in a private
placement. In connection with the
sale, the Company entered into an
Exchange and Registration Rights
Agreement with the initial purchasers
of the Old Notes (the "Registration
Rights Agreement") providing for the
Exchange Offer. See "The Exchange
Offer -- Purpose and Effect."
Expiration Date........................ The Exchange Offer will expire at
5:00 P.M., New York City time,
September 28, 1998, or such later
date and time to which it is extended.
Withdrawal Rights...................... The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date. Any Old Notes not accepted for
exchange for any reason will be
returned without expense to the
tendering holder thereof as promptly
as practicable after the expiration
or termination of the Exchange Offer.
6
<PAGE>
Interest on the New Notes
and Old Notes........................ Interest on each New Note will accrue
from the date of issuance of the Old
Note for which the New Note is
exchanged or from the date of the
last periodic payment of interest on
such Old Note, whichever is later.
No interest will be paid on Old Notes
which are exchanged for New Notes.
Conditions to the Exchange
Offer................................ The Exchange Offer is subject to
certain customary conditions, certain
of which may be waived by the
Company. See "The Exchange Offer --
Conditions."
Procedures for Tendering
Old Notes............................ Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a copy thereof, in
accordance with the instructions
contained herein and therein, and
mail or otherwise deliver the Letter
of Transmittal, or the copy, together
with the Old Notes and any other
required documentation, to the
Exchange Agent at the address set
forth herein. Persons holding Old
Notes through the Depository Trust
Company (the "DTC") and wishing to
accept the Exchange Offer must do so
pursuant to the DTC's Automated
Tender Offer Program, by which each
tendering Participant (as defined)
will agree to be bound by the Letter
of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each holder will
represent to the Company that, among
other things, (i) any New Notes to be
received by it will be acquired in the
ordinary course of its business, (ii) it
has no arrangement with any person to
participate in the distribution of the
New Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of
the Securities Act, of the Company, or
if it is an affiliate, it will comply
with the registration and prospectus
delivery requirements of the Securities
Act to the extent applicable. If the
holder is not a broker-dealer, it will
be required to represent that it is not
engaged in, and does not intend to
engage in, the distribution of the New
Notes. If the holder is a broker-dealer
that will receive New Notes for its own
account in exchange for Old Notes that
were acquired as a result of market-
making activities or other trading
activities, it will be required to
acknowledge that it will deliver a
prospectus in connection with any resale
of such New Notes.
Pursuant to the Registration Rights
Agreement, the Company is required to
file a registration statement for a
continuous offering pursuant to Rule 415
under the Securities Act in respect of
the Old Notes if existing Commission
interpretations are changed such that
the New Notes received by holders in the
Exchange Offer are not or would not be,
upon receipt, transferable by each such
holder without restriction under the
Securities Act. See "The Exchange Offer
-- Purpose and Effect."
Acceptance of Old Notes and
Delivery of New Notes................ The Company will accept for exchange any
and all Old Notes which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the
Expiration Date. See "The Exchange
Offer -- Terms on the Exchange Offer."
7
<PAGE>
Exchange Agent......................... First Chicago Trust Company of New York
is serving as Exchange Agent in
connection with the Exchange Offer and
its affiliate, The First National Bank
of Chicago is serving as Trustee under
the Indenture.
Federal Income Tax
Considerations....................... The exchange pursuant to the Exchange
Offer will not be a taxable event for
federal income tax purposes. See
"Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering................ Old Notes that are not tendered or that
are tendered but not accepted will,
following the completion of the Exchange
Offer, continue to be subject to the
existing restrictions upontransfer
thereof. The Company will have no
further obligation to provide for the
registration under the Securities Act of
such Old Notes.
Global Note............................ The New Notes will only be issued in
registered form. Holders of
beneficial interests in the Global
Notes will not be considered the
owners or holders of any New Notes
under the Global Notes or the
Indenture for any purpose. Holders
of beneficial interests in the Global
Notes may be unable to transfer or
pledge their interest in the Global
Notes if physical delivery is
required. Payments by the
Participants (as defined) and the
Indirect Participants (as defined) to
the beneficial owners of New Notes
will be governed by standing
instructions and customary practice
and will be the responsibility of the
Participants or Indirect Participants
and not the Company or Trustee. See
"Book Entry; Delivery and Form."
8
<PAGE>
TERMS OF THE NEW NOTES
Issuer................................. BancTec, Inc.
Securities............................. $150,000,000 principal amount of 7.50%
Senior Notes due 2008.
Maturity............................... June 1, 2008.
Interest Payment Dates................. Interest will accrue from the date of
original issuance of the Old Notes,
or from the most recent date to which
interest has been paid or provided
for, whichever is later, and will be
payable semiannually in arrears on
June 1 and December 1 of each year,
commencing December 1, 1998. No
interest will be paid on Old Notes
exchanged for New Notes.
Sinking Fund........................... None.
Optional Redemption.................... The New Notes may be redeemed at any
time at the option of the Company, in
whole or in part, at a redemption
price equal to the greater of (i)
100% of their principal amount, and
(ii) the sum of the present values of
the Remaining Scheduled Payments (as
defined) discounted to the date of
redemption, on a semiannual basis, at
the Treasury Rate plus 15 basis
points, plus in each case accrued
interest thereon to the date of
redemption.
Ranking................................ The New Notes will be unsecured
obligations of the Company ranking
pari passu with all existing and
future senior debt of the Company and
senior in right of payment to all
other subordinated debt of the
Company.
Restrictive Covenants.................. The Indenture contains certain
limitations on the Company's ability
to (i) permit its subsidiaries to
incur debt, (ii) incur certain liens
and (iii) engage in certain sale and
leaseback transaction.
For additional information regarding
the Notes, see "Description of New
Notes."
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND
CERTAIN OPERATING DATA
The following table sets forth summary financial information for the
Company as of and for the periods indicated, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Company" and the audited and unaudited Consolidated Financial
Statements and related notes thereto.
<TABLE>
<CAPTION>
Nine Restated Fiscal
Six Months Ended Twelve Months Ended Months Years Ended
June 30, December 31, Ended March 26,
---------------------- ---------------------- December 31, ------------------------
1998 1997 1997 1996 1995(2) 1995(1)(3) 1994(1)
---------- ---------- ---------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
(In thousands, except per share data)
INCOME STATEMENT DATA
FOR THE PERIOD:
Revenue................ $288,323 $293,652 $603,534 $554,002 $383,984 $516,932 $478,116
Net income (loss)
before extraordinary
item.................. 17,633 20,630 42,614 37,101 (53,481) (15,608) 22,729
Net income (loss)...... 17,633 20,630 42,152 37,101 (53,481) (15,608) 22,729
Diluted income (loss)
per share before
extraordinary item.... 0.83 0.98 1.92 1.76 (2.71) (0.80) 1.19
Diluted income (loss)
per share............. 0.82 0.94 1.90 1.76 (2.71) (0.80) 1.19
BALANCE SHEET DATA AT
PERIOD END:
Total assets........... 541,951 483,534 502,039 467,295 440,348 501,758 489,488
Working capital........ 183,720 99,737 66,994 87,803 42,598 90,140 126,692
Short-term debt........ 4,926 43,016 96,027 42,330 35,135 41,607 18,359
Long-term debt, less
current maturities.... 150,818 61,175 11,854 65,891 82,972 94,181 104,220
Total debt............ 155,744 104,191 107,881 108,221 118,107 135,788 122,579
Stockholders' equity... $256,812 $230,186 $260,523 $204,720 $156,201 $206,743 $224,929
Diluted weighted
average shares........ 21,476 22,926 23,203 22,317 19,753 19,484 21,535
OTHER OPERATING AND
FINANCIAL DATA:
EBITDA(4).............. $ 51,203 $ 55,594 $112,823 $102,601 $(14,614) $ 46,986 $ 75,358
EBITDA as a
percentage of
revenues.............. 17.8% 18.9% 18.7% 18.5% (3.8)% 9.1% 15.8%
Ratio of EBITDA to
interest expense...... 16.8 15.3 14.6 12.9 (2.0) 4.7 10.5
Ratio of debt to
EBITDA................ 1.5 0.9 1.0 1.1 (8.1) 2.9 1.6
Ratio of earnings to
fixed charges(5)...... 6.8 7.4 7.2 6.2 (6.4) 0.6 4.1
</TABLE>
- --------------------------------
(1) The Company's financial statements have been restated for fiscal years 1994
and 1995, due to a change in the reporting entity to reflect its merger with
Recognition International Inc. ("Recognition") under the pooling of
interests method of accounting. Prior to the merger, Recognition had a
fiscal year-end of October 31, and BancTec had a fiscal year-end of on or
about March 31. Since the merger was accounted for as a pooling, combined
results of the two companies are presented for all periods disclosed.
(2) Includes restructuring charges of $85.2 million related to the Recognition
acquisition, consisting of charges of $41.8 million allocated to cost of
sales, $43.0 million allocated to operating expenses and $0.4 million
allocated to other income (expense).
(3) Under Recognition's 1994 restructuring plan, a pre-tax charge of $19.7
million was recorded in the fiscal year ended October 31, 1994 (fiscal year
ended March 26, 1995 of the combined company), consisting of $15.5 million
allocated to cost of sales and $4.2 million allocated to operating expenses.
(4) "EBITDA" means earnings before interest, taxes, depreciation and
amortization. EBITDA is included as supplemental disclosure because it is
commonly used by certain investors and analysts to analyze and compare
operating performance, and to determine a company's ability to service and
incur debt. EBITDA, however, should not be considered in isolation, or as a
substitute for, net income, cash flow provided by operating activities or
other income, or cash flow data prepared in accordance with generally
accepted accounting principles, or as a measure of a company's profitability
or liquidity.
(5) The ratio of earnings to fixed charges is computed by dividing fixed charges
into the sum of (a) net income (loss), (b) income taxes and (c) fixed
charges. Fixed charges consist of interest on all indebtedness and the
interest component of operating rents. Earnings for the nine months ended
December 31, 1995 and for the restated fiscal year ended March 26, 1995 were
inadequate to cover fixed charges. Additional earnings of $70.7 million and
$6.2 million, respectively, were required to achieve a ratio of earnings to
fixed charges of 1.0.
10
<PAGE>
HOLDING COMPANY STRUCTURE
The Company is a holding company and its assets consist of investments in
its subsidiaries and majority-owned partnerships. The Company's rights and the
rights of its creditors, including holders of the Notes, to participate in the
distribution of assets of any person in which the Company owns an equity
interest (including any subsidiary and majority-owned partnerships) upon such
person's liquidation or reorganization will be subject to prior claims of such
person's creditors, including trade creditors, except to the extent that the
Company may itself be a creditor with recognized claims against such person (in
which case the claims of the Company would still be subject to the prior claims
of any secured creditor or such person and of any holder of indebtedness of such
person that is senior to that held by the Company). Accordingly, holders of the
Notes may be deemed to be effectively subordinated to such claims.
11
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
CAPITALIZATION
The following table presents the capitalization of the Company at June 30,
1998, (i) on an actual basis and (ii) on a pro forma basis for the Exchange
Offer.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
PRO FORMA
FOR THE
ACTUAL EXCHANGE OFFER
--------- --------------
<S> <C> <C>
DEBT:
Short-term debt, including current
portion of long-term debt............. $ 4,926 $ 4,926
Long-term debt, net of current
portion............................... 818 818
Old Notes............................. 150,000 --
New Notes............................. -- 150,000
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01;
45,000,000 shares authorized;
21,162,000 shares issued.............. 212 212
Less treasury stock at cost,
317,000 shares........................ (7,140) (7,140)
Additional paid-in capital............ 202,086 202,086
Retained earnings..................... 67,752 67,752
Foreign currency translation
adjustments........................... (4,218) (4,218)
Unearned compensation................. (1,880) (1,880)
-------- --------
Total stockholders' equity....... 256,812 256,812
-------- --------
TOTAL CAPITALIZATION........................ $412,556 $412,556
======== ========
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The supplementary income statements below were derived from the unaudited
statements of operations for the six months ended June 30, 1998 and 1997, the
audited statements of operations for the twelve months ended December 31, 1997
and 1996 and proforma unaudited information for the twelve months ended December
31, 1995. Management's discussion and analysis that follows is based on this
supplementary information. The Company believes the discussion is more
meaningful than a comparison of periods with dissimilar lengths.
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995(1)
--------- --------- --------- --------- ---------
(UNAUDITED) (AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment and software ............. $ 145,817 $ 162,934 $ 335,214 $ 312,467 $ 270,256
Maintenance and other services ..... 142,506 130,718 268,320 241,535 242,284
--------- --------- --------- --------- ---------
288,323 293,652 603,534 554,002 512,540
COST OF SALES:
Equipment and software ............. 97,558 109,145 224,803 213,293 222,544
Maintenance and other services ..... 107,496 96,025 195,855 177,977 195,178
--------- --------- --------- --------- ---------
205,054 205,170 420,658 391,270 417,722
--------- --------- --------- --------- ---------
Gross profit ................... 83,269 88,482 182,876 162,732 94,818
OPERATING EXPENSES:
Product development ................ 9,288 10,804 19,972 17,582 26,529
Selling, general and
administrative .................... 41,331 39,193 83,179 76,075 112,898
Goodwill amortization .............. 2,912 2,721 5,391 4,990 19,732
--------- --------- --------- --------- ---------
53,531 52,718 108,542 98,647 159,159
--------- --------- --------- --------- ---------
Income (loss) from operations .. 29,738 35,764 74,334 64,085 (64,341)
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income .................... 908 386 743 1,146 2,489
Interest expense ................... (3,056) (3,636) (7,730) (7,927) (10,009)
Sundry-net ......................... (38) (279) (762) 666 257
--------- --------- --------- --------- ---------
(2,186) (3,529) (7,749) (6,115) (7,263)
Income (loss) before income
taxes and extraordinary item .. 27,552 32,235 66,585 57,970 (71,604)
INCOME TAX PROVISION (BENEFIT) .......... 9,919 11,605 23,971 20,869 (16,391)
EXTRAORDINARY ITEM ...................... -- -- (462) -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS) ....................... $ 17,633 $ 20,630 $ 42,152 $ 37,101 $ (55,213)
========= ========= ========= ========= =========
</TABLE>
(1) Includes restructuring charges of $85.2 million related to the Recognition
acquisition, consisting of charges of $41.8 million allocated to cost of
sales, $43.0 million allocated to operating expenses and $0.4 million
allocated to other income (expense).
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 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
13
<PAGE>
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 the first half of 1997. 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 Old 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 the first half of 1997. Diluted earnings per share fell to
$0.82 from $0.94 per share in the prior year.
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Consolidated revenue of $603.5 million for the twelve months ended December
31, 1997 increased by $49.5 million or 8.9% from the prior twelve month period.
Revenue from equipment and software for the twelve months ended December 31,
1997 of $335.2 million increased by $22.7 million or 7.3% from the twelve months
ended December 31, 1996. This increase was primarily due to higher systems
integration project revenues for international customers. Revenue from
maintenance and other services of $268.3 million increased by $26.8 million or
11.1% due to continued growth in domestic network maintenance operations
partially offset by the expiration of certain older document processing
maintenance contracts. Equipment and software revenue accounted for 55.5% of
total revenue for the twelve months ended December 31, 1997, compared to 56.4%
for the twelve months ended December 31, 1996.
Consolidated gross profit of $182.9 million for the twelve months ended
December 31, 1997 increased by $20.1 million or 12.4% from the prior twelve
month period. The gross profit for equipment and software of $110.4 million
increased by $11.2 million or 11.3% due to a combination of higher systems
installations and improved manufacturing performance. Gross profit for
maintenance and other services of $72.5 million increased $8.9 million or 14.0%
due to the increase in network and desktop support services revenue.
Operating expenses of $108.5 million increased by $9.9 million or 10.0%
compared to the prior twelve month period. The components of operating expenses
changed as follows: product development expenses increased by $2.4 million or
13.6% primarily due to higher spending for a new series of reader/sorters and
scanner products, the development of the Company's new check processing software
product and ongoing software enhancements. Selling, general and administrative
expenses of $83.2 million increased by $7.1 million or 9.3% due to the higher
level of revenues and operating activities. Goodwill amortization of $5.4
million increased by $0.4 million due to additional goodwill associated with two
small acquisitions during 1997.
Interest income of $0.7 million in 1997 was reduced by $0.4 million from
the prior year primarily due to lower interest rates in 1997 as compared to
1996.
Interest expense of $7.7 million in 1997 decreased by $0.2 million due to a
lower overall average balance of outstanding debt resulting from scheduled term
loan repayments. The Company also experienced lower borrowing rates during 1997.
Net sundry expense of $0.8 million in 1997 increased by $1.4 million
primarily due to foreign currency transaction losses in 1997 due to the
strengthening of the dollar over other currencies.
14
<PAGE>
The income tax provision for the twelve months ended December 31, 1997, was
$24.0 million compared to an income tax provision of $20.9 million in the prior
period. The income tax provision for 1997 resulted in an effective tax rate of
36%.
The Company recorded an extraordinary loss of $0.5 million in 1997 which
resulted from the write-off of deferred borrowing costs associated with the
$43.7 million of convertible debentures that were redeemed in December 1997.
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Consolidated revenue for the twelve months ended December 31, 1996 of
$554.0 million increased by $41.5 million or 8.1% from the prior twelve month
period. Revenue from equipment and software increased $42.2 million due to
additional imaging software revenue and network integration revenue offset in
part by lower revenue from several mature Recognition product lines. Revenue in
1996 from maintenance and other services decreased by $0.7 million from 1995 due
to expiration of several Recognition service contracts and the sale of the Xerox
printer service business. This decrease was partially offset by an increase in
network services revenue. Equipment and software revenue accounted for 56.4% of
total revenue for the twelve months ended December 31, 1996, as compared to
52.7% for the twelve months ended December 31, 1995.
Consolidated gross profit of $162.7 million in 1996 increased $67.9 million
from the prior twelve month period. When adjusted for $41.8 million of
restructuring charges taken to facilitate the Recognition acquisition (See Note
C and Note D to the Consolidated Financial Statements for a discussion of the
acquisition and charges) in the prior twelve month period, 1996 gross profit
increased by $26.1 million or 19.1%. The gross profit for equipment and software
of $99.2 million increased by $23.3 million after adjusting for a restructuring
charge of $28.2 million in the prior period. This increase in gross profit was
primarily due to an increase in 1996 in software revenue and a related
improvement in the software gross margin. The gross margin improved due to the
mix of software products sold and cost savings associated with the acquisition.
The gross profit for maintenance and other services of $63.6 million in 1996
increased by $2.9 million after adjusting for a $13.6 million restructuring
charge. This increase in gross profit for maintenance and other services was due
to a combination of increased revenue in network services and cost savings
associated with the acquisition.
Operating expenses of $98.6 million in 1996 decreased by $60.5 million
compared to the prior twelve month period. When adjusted for restructuring
charges of $43.0 million, 1996 operating expenses decreased by $17.5 million.
The components of operating expenses changed as follows: product development
expenses in 1996 decreased by $8.9 million from the prior period. When adjusted
for restructuring charges of $6.6 million, 1996 product development expenses
decreased by $2.3 million. This decrease was due to the elimination of duplicate
development projects and from other efficiencies resulting from the Recognition
acquisition. Selling, general and administrative expenses of $76.1 million
decreased by $36.8 million from the prior period. When adjusted for
restructuring charges in the prior period of $23.8 million, selling, general and
administrative expenses in 1996 decreased by $13.0 million. This decrease in
sales, general and administrative expenses resulted primarily from consolidation
of the sales organizations and elimination of duplicate corporate office staff.
Goodwill amortization of $5.0 million in 1996 decreased by $14.7 million
compared to the prior twelve month period. When adjusted for restructuring
charges of $12.6 million, goodwill amortization in 1996 decreased by $2.1
million. The lower goodwill amortization is due primarily to assets written off
as part of the restructuring charge.
Interest income of $1.1 million was reduced by $1.3 million from the prior
year due to lower investment balances as cash was utilized for restructuring
charges, debt service and the repurchase of convertible debentures.
Interest expense of $7.9 million in 1996 was reduced by $2.1 million from
the prior year due to a lower overall average balance of outstanding debt
resulting from scheduled term loan repayments and the repurchase of $8.0 million
of convertible debentures in March 1996. Additionally, the Company experienced
lower borrowing rates during 1996.
The tax provision for the twelve months ended December 31, 1996 was $20.9
million compared to an income tax benefit of $16.4 million in the prior twelve
months. The 1996 income tax provision resulted in an effective rate of 36%. The
prior year income tax benefit was affected by certain restructuring costs that
were non-deductible for tax purposes and by the geographic mix of where income
and losses were generated.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 the retirement of short-term debt from the proceeds of the
Notes.
Cash provided by operations was $27.7 million for the six months ended June
30, 1998, compared to $28.7 million for the six months ended June 30, 1997. The
decrease in cash flow was due primarily 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 will have 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 and, to a lesser extent, sales of capital stock under employee
stock option and purchase plans.
The Company is a party to a credit agreement dated as of February 22, 1996,
as amended, under which it has available a revolving credit facility of $70.0
million with no amounts borrowed thereunder as of June 30, 1998. The credit
agreement contains restrictive covenants which, among other things, restrict
payment of dividends, limit additional debt at the subsidiary level to the debt
permitted under the covenant described in "Description of New Notes - Certain
Covenants - Liabilities on Subsidiary Debt" and require the Company to maintain
a minimum cash flow coverage ratio of at least 2.0 to 1.0 at the end of any
fiscal quarter for the preceding twelve month period, a maximum debt to EBITDA
ratio of not more than 2.25 to 1.0 at the end of any fiscal quarter for the
preceding twelve month period and a maximum debt to capitalization ratio not to
exceed .50 to 1.0 as of the end of any fiscal quarter. At June 30, 1998, the
Company was in compliance with all covenants required under the agreement. The
agreement permits borrowing in foreign currency which the Company utilizes as
part of its foreign currency risk management program. Therefore, the reported
amounts can include recognized but unrealized gains and losses resulting from
currency fluctuations. The revolving credit facility matures on December 31,
2000 and bears interest at the lender's prime commercial rate or, at the
Company's option, London Interbank Offered Rate on Eurocurrency borrowings plus
an adjustment factor (0.50% as of June 30, 1998) that varies depending on the
Company's debt to capitalization ratio. A commitment fee of 0.225% on the unused
revolving credit facility is payable quarterly.
The Company and a domestic subsidiary also have available uncommitted lines
of credit with a group of banks totaling $65.0 million. These lines have a
maximum term of 30 days. Under these uncommitted lines, the Company had no
amounts outstanding as of June 30, 1998. A foreign subsidiary of the Company
also has available uncommitted lines of credit with a group of banks totaling
$6.0 million. Under these uncommitted lines, the foreign subsidiary had $4.0
million outstanding as of June 30, 1998.
As part of its ongoing stock repurchase program, the Company bought
1,024,800 shares of common stock during the first six months of 1998. Subsequent
to June 30, 1998, the Company bought an additional 769,400 shares of Common
Stock substantially completing the repurchase of 2.0 million shares under the
repurchase program authorized in October 1997. The share repurchase program is
intended primarily to offset dilution from the exercise of stock options.
Inflation has not had a material effect on the operating results of the
Company.
16
<PAGE>
THE COMPANY
OVERVIEW
BancTec is a worldwide diversified systems integration and services company
with a 25-year history of innovation in imaging technology, financial
transaction processing and workflow productivity improvement. Serving a variety
of industries, including banking, financial services, insurance, healthcare,
government agencies and others, BancTec offers a comprehensive portfolio of
payment and document processing systems and services, workflow and image
management software products, and network and desktop support services.
BancTec is a leading provider of software, equipment and ongoing
maintenance of advanced systems used to process high volumes of checks and
related payment documents. The Company's integrated systems are used by many of
the largest credit card issuers and other high volume payment processors
worldwide. BancTec's leadership extends to the rapidly expanding outsourcing
market for local area networks and desktop support systems. Fortune 1000
companies, government agencies and leading personal computer manufacturers rely
on BancTec for premium service for more than two million personal computers
nationwide.
Founded in 1972, BancTec operates worldwide (with international sales in
1997 representing approximately 29% of total revenues) and serves over 5,000
customers in over 50 countries. Selected customers include the Federal Reserve,
GTE, IBM, Dell, MetLife, NatWest, NationsBank, Citicorp, Sagawa Express, Compaq,
Lockheed Martin, British Telecom and U.K. Inland Revenue.
BUSINESS STRATEGY
Building on one of the largest installed customer bases in the industry,
BancTec plans to grow revenue and earnings by expanding the breadth of products
and services it offers its customers. For example, by incorporating the Plexus
portfolio of workflow and image management software products into customer
solutions, BancTec believes it can expand beyond traditional back office
processing applications to deliver new applications and systems for enterprise-
wide deployment by its customers. The Company has specifically targeted customer
service applications, utilizing the Company's ImageFIRST(R) OpenARCHIVE/TM/
system for long-term storage and rapid retrieval of payment and document images
and related transaction data.
In addition, BancTec is targeting new vertical markets, such as healthcare,
where BancTec's comprehensive transaction and document processing solutions can
improve efficiency and service. BancTec differentiates itself from its
competitors by offering a complete suite of advanced software applications,
equipment and service designed for high volume, mission critical processing
environments.
BancTec has successfully built recurring revenue to balance the variable
nature of the systems integration business, to enhance cash flow and to lessen
the impact of economic disruptions. Today, more than 50% of the Company's
revenue is from recurring sources, including maintenance services, software
licenses, sales of consumable supplies and other services. The Company will
continue to target opportunities to increase this percentage.
BancTec expects to continue to capitalize on the accelerating trend toward
outsourcing of services for distributed desktop computers (networks) through
direct sales efforts to Fortune 1000 corporations and government agencies and
through strategic alliances with major information technology outsourcing
contractors. The Company plans to expand its service offerings in the areas of
network design and integration, help desk and training, remote network
monitoring, and life cycle and project management. A leading supplier of
warranty repair services for personal computers, BancTec intends to continue to
pursue additional contracts with major PC manufacturers and third party warranty
administrators.
In most areas of its business operations, BancTec employs a multi-channel
strategy to market and distribute its products and services. Channels include
direct sales to end users by the Company's sales force and sales to other
manufacturers, systems integrators and value-added resellers. This distribution
network allows BancTec to pursue business in markets where local economic
conditions preclude BancTec from having a direct presence.
17
<PAGE>
A key component of the Company's strategy is an active research and
development program to maintain the Company's leadership position in payment and
document processing technology. In addition to ongoing software and equipment
enhancements, current development efforts are focused on expanding the Company's
portfolio of Internet-enabled software products and new initiatives in the
rapidly developing area of electronic commerce.
BancTec operates pursuant to a conservative financial strategy and has an
internal goal of maintaining a debt-to-capital ratio of 40% or less. While the
Company in the past has exceeded this percentage for short periods of time to
finance acquisitions, it has historically reduced leverage thereafter from free
cash flow. After issuance of the Old Notes it was 38%.
BANCTEC PRODUCTS AND SERVICES
The Company markets its products and services to specific target markets in
which it believes it has extensive business process expertise and certain
competitive advantages and is able to maintain or achieve a leadership position.
[REVENUE DISTRIBUTION CHART APPEARS HERE]
FINANCIAL TRANSACTION PROCESSING SYSTEMS. During 1997, the Company
derived approximately 41% of its revenues from sales of the following products
and services:
INTEGRATED SYSTEMS SOLUTIONS. The Company offers image technology-based
solutions, used to process a variety of financial and full-page documents. The
Company's integrated systems generally incorporate advanced applications
software developed by the Company and may also include hardware developed and
manufactured by the Company. Customers include some of the largest payment
processors worldwide, including Citicorp, GTE, MBNA Corp., The Bank of New York,
Tele-Communication International, Inc., NationsBank, Novus Financial
Corporation, State Farm Life Insurance Co., and multiple districts of the
Federal Reserve.
The Company's ImageFIRST product family provides solutions for financial
document processing applications. Remittance payment processors utilize
ImageFIRST systems to capture, digitize and process check and other document
images, including utility, telephone, retail and credit card bills, mortgage
coupons and tax notices. ImageFIRST systems are also used worldwide to process
sales drafts, financial coupons, airline tickets and other types of financial
documents. The Company also offers the TRACE(R) family of products, which
process documents at speeds in excess of 2,000 documents per minute.
The Company's imaging systems are also used by banks for high volume check
processing applications such as proof-of-deposit ("POD") and image statement
preparation. Other Company products provide image-based solutions for rejected
check repair, enabling financial institutions that handle large volumes of
checks to reprocess more efficiently items that were rejected in normal
operating cycles.
A key component of the Company's integrated systems strategy is to expand
the scope of processing solutions offered to customers with its ImageFIRST
OpenARCHIVE solution, a system specifically designed for high speed digital
18
<PAGE>
archiving of financial and other documents and related transaction data. The
ImageFIRST OpenARCHIVE product is a multi-tiered archival system that utilizes
magnetic disks, optical disks and various tape cartridge technologies for high
volume image and data storage. ImageFIRST OpenARCHIVE systems are currently used
to increase productivity, to improve customer service capabilities and to
replace microfilm for long-term storage. The ImageFIRST OpenARCHIVE solution is
further targeted to support industry efforts to reduce and eventually eliminate
the multiple handling of checks and documents through truncation and electronic
check presentment initiatives.
The Company's financial document imaging products utilize an Open Systems
Architecture ("OSA") platform, which enables customers to add industry standard
hardware and software components to further improve processing capabilities. The
Company typically sells these products to end-users and offers a warranty for 30
days from the date of installation.
Community Banking Software Solutions. The Company provides a full range
of products and services to community banks for account management and
transaction processing. Banker-II/TM/ and ACCESS/TM/ are software products that
integrate deposit management, platform automation, loan processing, ATM and
teller processing and other bank operations. In 1997, the Company introduced
ImageFIRST TPS, a new image check processing software solution. ImageFIRST TPS,
along with the Company's PODExpress(R) software, combines PC and UNIX-based
software products with the Company's reader/sorters to provide solutions for
proof-of-deposit and other check sorting applications.
Service Bureau Operations. The Company owns and operates six service
bureau facilities that provide check and data processing services primarily for
small to mid-size financial institutions and are marketed as an outsourcing
alternative to in-house processing. These service bureaus utilize the Company's
software and equipment, operations personnel and maintenance services for core
account processing and processing of checks and related documents.
Electronic Payment Processing Products and Services. The Company markets
software products for electronic credit, debit and courtesy card processing and
electronic check authorization. The Company also markets software products
relating to electronic benefits transfer ("EBT") applications, which certain
states have implemented as a replacement for traditional food stamp programs.
The Company also maintains a separate service bureau specifically for
authorizing check, credit and debit card transactions.
EQUIPMENT MAINTENANCE PRODUCTS AND SERVICES. The Company derived
approximately 27% of its revenues during the twelve months ended December 31,
1997, from the following equipment maintenance products and services:
Installation and Maintenance of BancTec Products. The Company installs
and maintains its own equipment products such as document reader/sorters and
scanners. Contracts can be tailored to meet the specific needs of individual
customers. The Company's maintenance contracts typically include both parts and
labor and generally are three to five years in duration.
Third-Party Service for Other Document Processing Equipment. The Company
provides hardware maintenance services for IBM 3800 printers and 3890 and 3890
XP reader/sorters, which are the primary products for check sorting in many
large banks. The Company also refurbishes and resells IBM 3890 and 3890 XP
reader/sorters to banks and bank service bureaus.
More than 95% of the Company's revenue from equipment maintenance services
is recurring.
NETWORK AND DESKTOP SUPPORT SERVICES. Network and desktop services
include BancTec's PC and desktop maintenance service business, one of BancTec's
fastest-growing business segments. Leveraging the national infrastructure of its
equipment maintenance business, BancTec has developed three distinct
distribution channels to grow the desktop outsourcing business: PC Vendor
Maintenance Services; Outsourced Network Management Services; and Personal
Computer support. The Company derived approximately 18% of its revenues during
1997 from the following services:
PC Vendor Maintenance Services. The Company is a leading provider of
warranty repair services in the United States for Dell, Compaq, Toshiba America
Information Systems, Inc. and other companies. The Company also provides
telephone technical support for Novell network operating systems software.
Contracts with market leaders provide the foundation to establish BancTec as a
premier provider of maintenance services in this market.
19
<PAGE>
Outsourced Network Management Services and Personal Computer Support. The
Company provides large companies with on-site or on-call LAN and PC hardware
support, systems integration, asset management services, help desk and
installation coordination services. The Company's customer service engineers
provide on-site or on-call support for file servers, personal computers, laptop
computers, printers and other peripheral equipment. Direct contracting for PC
maintenance services to Fortune 1000 companies offers substantial prospects for
growth as U.S. corporations seek to standardize the look and feel of the desktop
and reduce servicing expense. Additionally, relationships with major outsourcers
such as Lockheed Martin and Amdahl Corporation continue to create opportunities
for growth through indirect channels. Major customers include MetLife, Southern
California Edison Co. and the United States Department of Housing and Urban
Development.
OEM TECHNOLOGIES AND SUPPORT PRODUCTS. BancTec believes that it provides
the industry's most complete line of equipment for high volume, high speed,
check and document processing. BancTec believes its equipment products are
considered a standard by other manufacturers and systems integrators worldwide.
External sales of these products and related supplies accounted for 9% of the
Company's revenues in 1997. Key customers include IBM, NCR Corporation and
systems integrators.
Document Processing Systems, Check Sorting Systems and Electronic
Components. The Company offers low, medium and high-speed document
reader/sorters and related components that read magnetic ink character
recognition ("MICR") and optical character recognition ("OCR") data from
financial documents and sort the documents according to established patterns.
The Company markets its products to end-users, to other manufacturers and to
various resellers and systems integrators throughout the world.
BancTec markets a full range of consumable supplies that complement the
Company's document processing systems. The Company also manufactures and markets
microfilm cameras, microfilm modules, image cameras, MICR encoders, ink jet
components and various peripheral equipment. The Company's OEM products are sold
with a 90-day warranty from the date of shipment.
Full-page Document Scanners. The Company's full line of high-speed, full-
page scanners utilize photo-optical technology, gray scale image capture
capabilities, character recognition software and high precision document
transports to scan and digitize full-sized business documents such as invoices,
statements and business forms. The Company's scanner products are sold through
distributors in the United States and abroad.
PLEXUS DOCUMENT IMAGING AND WORKFLOW SOFTWARE PRODUCTS. Through its
Plexus software division, the Company offers a complete family of document
imaging and workflow software products designed for high-volume, complex and
distributed environments. During 1997, the Company derived approximately 5% of
its revenues from sales of Plexus software products.
Plexus software products offer workflow, image storage, data management,
forms processing and health claims processing capabilities that enable users to
automate, coordinate and streamline business processes. Plexus software products
can be deployed in organizations ranging from single sites for departmental
workflow, storage and retrieval applications to enterprise-wide applications
across multiple hardware platforms.
Now in use in more than 1200 sites worldwide, Plexus software products are
sold directly to end-users by the Company's own sales force, through BancTec
sales channels and through various value-added resellers and systems integrators
worldwide. In addition to BancTec systems customers, Plexus customers include
Edward Jones & Co., John Hancock Mutual Life Insurance Company, Blue Cross and
Blue Shield of Massachusetts and BankBoston, N.A.
INTERNATIONAL OPERATIONS
Internationally, the Company is a leading provider of financial transaction
processing systems and solutions, with applications tailored to meet the
localized needs of its customers. Through direct sales and other channels, the
Company markets integrated systems to process a wide variety of transaction
documents including checks, remittance documents, credit vouchers, giro
documents, freight bills and airline tickets. The Company also provides
comprehensive maintenance services for its transaction processing customers.
International customers include Japan's Sagawa Express, United Kingdom's Inland
Revenue, NatWest and British Telecommunications, Norway's Bankenes
Betalingssentral, Denmark's Den Danske Bank, Sweden's BankgiroCentralen BGC AB
and Postgira Bank and the Dutch Bankgiro.
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<PAGE>
During 1997, sales to customers outside the U.S. totaled approximately 29%
of the Company's total revenues.
PRODUCT DEVELOPMENT
The Company is engaged in ongoing software and hardware product development
activities in connection with new and existing products, employing approximately
180 persons for such activities as of June 30, 1998.
The following table sets forth certain information regarding the Company's
product development expenditures for the indicated periods:
<TABLE>
<CAPTION>
NINE MONTHS
TWELVE MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31,
------------------------ ------------
1997 1996 1995
--------- --------- ------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Product development expenditures............ $19,972 $17,582 $21,455
Percent of total revenue.................... 3.3% 3.2% 5.6%
Percent of equipment and software revenue... 6.0% 5.6% 11.4%
</TABLE>
Current expenditures are concentrated on developing new applications for
the Company's product lines and improving and expanding existing products, as
described below:
Software and Systems Development. In addition to ongoing software
enhancements and year 2000 compliance, the Company has focused its development
efforts primarily on electronic commerce technologies. Continued development in
the areas of a universal applications software engine, workflow integration, web
client components and frameworks is intended to allow the Company to reduce
customer delivery time, decrease support costs and leverage developer knowledge
in new software development. Enhancements to the Company's ImageFIRST
OpenARCHIVE product will improve query interfaces and enable faster search
capabilities. The Company is also developing an upgraded version of its OSA
platform to take advantage of recent industry developments.
Development efforts in 1998 will also include upgrades to the Company's
workstation software platform to provide a more flexible, efficient and
competitive document processing workstation product. In addition, the Company
will develop and release a new community banking client/server product which
combines the best features of its ACCESS and BANKER core account processing
suites, providing a migration path for existing community bank customers, as
well as a competitive product to be marketed to new customers.
Equipment Technology Development. In 1998, the Company plans to develop
and introduce enhancements to what it believes to be the industry's most
complete portfolio of document transport products by incorporating improved
document handling, double document detection and read rates.
Key development efforts remained focused on character recognition, image
improvements (gray scale snippeting, character engine improvements, wavelet
compression, improved gray scale and color quality and delivery) and Image
Quality Assurance ("IQA") for real-time reading to improve monitoring and
detection of image quality in the Company's transport and scanner product lines.
Enhancements to the Company's scanner product line include color, improved
feeder technology and the addition of pockets for sorting documents that have
been scanned.
Plexus Document Imaging and Workflow. The Company's Plexus division
continues to develop new software products and implement changes to current
software products to further strengthen its competitive position in the imaging
and workflow software markets. Particular attention is being given to extensions
to Plexus' industry-leading internet/JAVA workflow product offerings. The
Company expects that each of Plexus' major products will receive significant
feature enhancements during the year. The Company is also conducting projects to
build horizontal and vertical applications using Plexus' core imaging and
workflow technology. These applications are intended to provide more complete
customer solutions, allowing rapid deployment and more rapid customer return on
investment.
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<PAGE>
There can be no assurance that the Company's development efforts will
result in successful commercial products. Many risks exist in developing new
product concepts, adapting new technology and introducing new products to the
market.
SALES AND DISTRIBUTION
The Company's distribution strategy is to employ multiple sales channels to
achieve the widest possible distribution of its products. The Company's products
are sold to end-users, distributors, OEMs, VARs and systems integrators.
International sales are subject to various risks, including fluctuations in
exchange rates, import controls and the need for export licenses. See Note L of
the Notes to the Consolidated Financial Statements for financial information
concerning the Company's international operations.
CUSTOMER DIVERSIFICATION
In 1997, no single customer accounted for more than 10% of the total
revenue of the Company. BancTec's ten largest customers accounted for 22% of the
Company's revenues in 1997.
COMPETITION
In marketing its products, the Company encounters aggressive competition
from a wide variety of companies, some of which have substantially greater
financial and other resources than the Company. The Company believes that
product performance, quality, service and price are important competitive
factors in the markets in which it competes. Generally, the Company emphasizes
unique product features, quality and service, and flexibility to configure
unique systems from standard products in its competitive efforts. While the
Company believes that its products compete favorably based on each of these
elements, the Company could be adversely affected if its competitors introduce
innovative or technologically superior products or offer their products at
significantly lower prices than the Company. No assurance can be given that the
Company will have the resources, marketing and service capability, or
technological knowledge to continue to compete successfully.
BACKLOG
The Company's backlog of orders believed to be firm for its products at
June 30, 1998 and December 31, 1997 was approximately $100 million and $71.9
million, respectively.
The Company's backlog excludes contracts for recurring hardware and
software maintenance and support products. The Company is also able to fulfill
many of its customers' requests for immediate delivery, which therefore has no
effect on ending backlog. The Company's backlog is subject to fluctuation due to
various factors, including the size and timing of orders for the Company's
products and exchange rate fluctuations, and is not necessarily indicative of
future revenue.
MANUFACTURING
The Company's hardware and systems products are assembled using various
standard purchased components such as PC monitors, minicomputers, encoders,
communications equipment and other electronic devices. Certain products are
purchased from sole source suppliers. The Company generally has contracts with
these suppliers that are renewed periodically. If the supply of certain
components or subassemblies were interrupted without sufficient notice, the
result could be an interruption of product deliveries. The Company has not
experienced, nor does it foresee, any difficulty in obtaining necessary
components or subassemblies.
PATENTS
The Company owns numerous U.S. and foreign patents and holds licenses under
numerous patents owned by others. The Company also owns a number of registered
and common law trademarks in the U.S. and other countries relating to the
Company's trade names and product names.
22
<PAGE>
The validity of any patents issued or which may be issued to the Company
may be challenged by others and the Company could encounter legal difficulties
in enforcing its patent rights against infringement. In addition, there can be
no assurance that other technology cannot or will not be developed or that
patents will not be obtained by others that would render the Company's patents
obsolete. Management does not consider the Company's patents to be essential to
the ongoing operations of the Company.
EMPLOYEES
At June 30, 1998, the Company employed approximately 4,000 full-time
employees and considers its employee relations to be good. None of the Company's
employees is represented by a labor union. The Company has never experienced a
work stoppage.
YEAR 2000 CONSIDERATIONS
The Company has assessed the impact of the Year 2000 on its operations and
has implemented development and marketing programs to ensure that its products
and customer solutions are year 2000 compliant. Most of the products currently
offered by the Company are Year 2000 compliant, with the remaining currently
offered products expected to become compliant in 1998 and early 1999 through new
releases. Because Year 2000 compliance is integrated into its normal product
development, the Company does not expect to incur any significant incremental
expense in addressing the Year 2000 compliance issue in its products. Regardless
of whether or not the Company's products are Year 2000 compliant, there can be
no assurance that customers will not assert Year 2000 related claims against the
Company.
In addition, the Company is nearing completion of the implementation of a
new internal information system which will meet the foreseeable needs of the
Company and also be Year 2000 compliant.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on May 22, 1998 in a private
placement pursuant to certain exemptions from registration under the Securities
Act. In connection with that placement, the Company entered into the
Registration Rights Agreement which requires that the Company file a
registration statement under the Securities Act with respect to the New Notes on
or prior to 90 days after the date of issuance of the Old Notes (the "Issue
Date") and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and may be reoffered and resold by the holder without registration under the
Securities Act. The Registration Rights Agreement further provides that the
Company must cause the registration statement with respect to the Exchange Offer
to be declared effective within 180 days following the Issue Date and to
consummate the Exchange Offer within 210 days of the Issue Date. A copy of the
Registration Rights Agreement has been filed as an exhibit to the registration
statement of which this Prospectus is a part.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer should acknowledge that it acquired the
Old Notes for its own account as the result of market making activities or other
trading activities. Any holder who is unable to make the appropriate
representations to the Company will not be permitted to tender the Old Notes in
the Exchange Offer and will be required to comply with the registration and
prospectus delivery requirements of the Securities Act (or an appropriate
exemption therefrom) in connection with any sale or transfer of the Old Notes.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
Following the consummation of the Exchange Offer, holders of Old Notes who
were eligible to participate in the Exchange Offer but who did not tender their
Old Notes will not be entitled to certain rights under the Registration Rights
Agreement and such Old Notes will continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the market for the Old Notes could
be adversely affected. No assurance can be given as to the liquidity of the
trading market for either the Old Notes or the New Notes.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions discussed herein, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving the New Notes, whether or not that
person is the holder (other than any such holder or such other person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) the New Notes are acquired
in the ordinary course of business of that holder or such other person, (ii)
neither the holder nor such other person is engaging in or intends to engage in
a distribution of the New Notes, and (iii) neither the holder nor such other
person has an arrangement or understanding with any person to participate in the
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where those Old Notes were acquired
by the broker-dealer as a result of its market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of those New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act and applicable state securities laws, except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and applicable state
securities
24
<PAGE>
laws. The Company does not intend to register the Old Notes under the Securities
Act and, after consummation of the Exchange Offer, will not be obligated to do
so.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only
in integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are identical to the form and terms of
the Old Notes except that the Old Notes were offered and sold in reliance upon
certain exemptions from registration under the Securities Act, while the
offering and sale of the New Notes in exchange for the Old Notes has been
registered under the Securities Act, with the result that the New Notes will not
bear any legends restricting their transfer. The New Notes will evidence the
same debt as the Old Notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture pursuant to which the Old Notes were, and the New
Notes will be, issued.
As of the date of this Prospectus, $150.0 million aggregate principal
amount of the Old Notes were outstanding. The Company has fixed the close of
business on August 28, 1998 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent. As of such date, there was one
registered holder of the Old Notes. Holders of Old Notes do not have any
appraisal or dissenters' rights under the General Corporation Law of the State
of Delaware or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth herein or otherwise, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"The Exchange Offer -- Solicitation of Tenders; Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 28, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. The Company
reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes, to extend the Exchange Offer or, if any of the conditions set forth under
"The Exchange Offer -- Conditions" shall not have been satisfied, to terminate
the Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at the rate of 7.50% per annum from May
22, 1998, the date of original issuance of the Old Notes, or from the most
recent date to which interest has been paid or provided for, whichever is
later. No interest will be paid on the Old Notes accepted for exchange.
25
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if
that procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth under "The
Exchange Offer -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND
PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
Old Notes tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box titled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, the guarantee
must be by any eligible guarantor institution that is a member of or participant
in the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion Program, or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes
26
<PAGE>
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that the Company determines are not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holders, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, (ii) if it is not a broker-
dealer, neither the holder nor any such other person is engaging in or intends
to engage in a distribution of such New Notes, (iii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an "affiliate" (as defined in Rule 405 of the
Securities Act) of the Company. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company), may
participate in the Exchange Offer but may be deemed an "underwriter" under the
Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or copy thereof, with any
required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
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<PAGE>
The DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through the DTC. To accept the Exchange Offer
through ATOP, participants in the DTC must send electronic instructions to the
DTC through the DTC's communication system in place of sending a signed, hard
copy Letter of Transmittal. The DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Notes through
ATOP, the electronic instructions sent to the DTC and transmitted by the DTC to
the Exchange Agent must contain the character by which the participant
acknowledges its receipt of and agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, in its sole discretion, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer -- Procedures for Tendering" at any time on or prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
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(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange
Offer.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account maintained with such Book-
Entry Transfer Facility), (ii) extend the Exchange Offer and retain all Old
Notes tendered prior to the expiration of the Exchange Offer, subject, however,
to the rights of holders to withdraw such Old Notes (see "-- Withdrawal Rights")
or (iii) waive such unsatisfied conditions with respect to the Exchange Offer
and accept all properly tendered Old Notes which have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five-to-ten-
business-day period.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. First Chicago Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions, requests for assistance and requests
for additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail:
First Chicago Trust Company of New York
Attention: Tenders & Exchanges
P.O. Box 2569, Suite 4660
Jersey City, New Jersey 07303-2569
By Hand:
First Chicago Trust Company of New York
Attention: Tenders & Exchanges
c/o SECURITIES TRANSFER AND REPORTING SERVICES INC.
One Exchange Plaza, Third Floor
New York, New York 10006
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By Overnight Courier:
First Chicago Trust Company of New York
Attention: Tenders & Exchanges
Suite 4680
14 Wall Street, 8/th/ Floor
New York, New York
By Facsimile:
(201) 222-4720
or
(201) 222-4721
Confirm by Telephone:
(201) 222-4707
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF NEW NOTES
GENERAL
The Old Notes were and the New Notes will be issued under an Indenture,
dated as of May 22, 1998 (the "Indenture"), between the Company and The First
National Bank of Chicago, as Trustee (the "Trustee"), a copy of which is filed
as an Exhibit to the registration statement of which this Prospectus is a part.
The terms of the New Notes are identical in all material respects to the Old
Notes, except that the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer. Upon the
issuance of the New Notes, the Indenture will be subject to and governed by the
TIA (as defined). The following summary of certain provisions of the Indenture
and the New Notes does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture
(including the definitions of certain terms therein and those terms made a part
thereof by the TIA) and the Notes. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the section "Certain
Definitions." The Old Notes and the New Notes are sometimes collectively
referred to herein as the "Notes."
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of New
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Old Notes that remain outstanding after the consummation of the Exchange
Offer and New Notes issued in connection with the Exchange Offer will be
entitled to vote or consent on all matters as a single class of securities under
the Indenture.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at an office or agency of the
Company, one of which will be maintained for such purposes in The City and State
of New York (which initially will be the corporate trust office of the Trustee
at 153 West 51st Street, New York, New York 10019), except that, at the option
of the Company, payment of interest may be made by check mailed to the
registered holders of the Notes at their registered addresses.
TERMS OF THE NOTES
The Notes will be unsecured senior obligations of the Company, limited to
$150.0 million aggregate principal amount, and will mature on June 1, 2008. Each
Note will bear interest at a rate per annum shown on the front cover of this
Prospectus from May 22, 1998, or from the most recent date to which interest has
been paid or provided for, to but excluding the next interest payment date, and
will be payable semiannually on June 1 and December 1 of each year, commencing
December 1, 1998, to Holders of record at the close of business on the May 15 or
November 15 immediately preceding such June 1 or December 1, respectively.
OPTIONAL REDEMPTION
The Notes may be redeemed at the option of the Company, in whole or in part
at any time or from time to time, on not less than 30 nor more than 60 days'
prior notice, at a redemption price equal to the greater of (i) 100% of their
principal amount and (ii) the sum of the present values of the Remaining
Scheduled Payments (as defined herein) thereon discounted to the date of
redemption, on a semiannual basis, at the Treasury Rate (as defined herein) plus
15 basis points, plus in each case accrued interest thereon to the date of
redemption. Interest shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
If money sufficient to pay the redemption price of and accrued interest on
all Notes (or portions thereof) to be redeemed on the redemption date is
deposited with the Trustee on or before the redemption date and certain other
conditions are satisfied, on and after such date interest will cease to accrue
on such Notes (or such portions thereof) called for redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of
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corporate debt securities of comparable maturity to the remaining term of such
Notes. "Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) if the
Trustee obtains three or more Reference Treasury Dealer Quotations for such
redemption date, the average of the Reference Treasury Dealer Quotations for
such redemption date, excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m., on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of Chase Securities Inc., Goldman,
Sachs & Co. and NationsBanc Montgomery Securities LLC and their respective
successors and, at the option of the Company, additional Primary Treasury
Dealers; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to any Note, the
remaining scheduled payments of the principal thereof to be redeemed and
interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if such redemption date is not an
interest payment date with respect to such Note, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
RANKING
The indebtedness evidenced by the Notes will be senior indebtedness of the
Company and will be direct unsecured obligations of the Company, ranking on a
parity with all other unsecured and unsubordinated indebtedness of the Company.
The Company is a holding company and the Notes will be effectively subordinated
to all existing and future liabilities, including indebtedness, of the Company's
subsidiaries. See "Holding Company Structure" and "--Certain Covenants--
Limitation on Subsidiary Debt."
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Subsidiary Debt. The Company shall not permit any
Subsidiary of the Company to Incur or suffer to exist any Debt or issue any
Preferred Stock except: (i) Debt or Preferred Stock outstanding on the date of
original issuance of the Notes after giving effect to the application of the
proceeds from the Notes; (ii) interest rate swap or similar agreements and
foreign currency hedge, exchange or similar agreements designed to provide
protection against fluctuations in interest rates and currency exchange rates,
respectively, provided that such agreements are entered into in, or are
incidental to, the ordinary course of business or are entered into in connection
with the incurrence of Debt permitted hereunder; (iii) Debt Incurred pursuant to
industrial revenue or development bonds in an aggregate principal amount not to
exceed $15 million at any one time outstanding; (iv) Debt Incurred or Incurrable
in respect of trade letters of credit, bankers' acceptances, surety or appeal
bonds, performance or return-of-money bonds or other obligations of a like
nature Incurred in the ordinary course of business; (v) Debt or Preferred Stock
issued to and held by the Company or a Wholly Owned Subsidiary of the Company,
but only so long as held
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or owned by the Company or a Wholly Owned Subsidiary of the Company; (vi) Debt
Incurred or Preferred Stock issued by a Person prior to the time (A) such Person
became a Subsidiary of the Company, (B) such Person merges into or consolidates
with a Subsidiary of the Company or (C) another Subsidiary of the Company merges
into or consolidates with such Person (in a transaction in which such Person
becomes a Subsidiary of the Company), or Debt Incurred or Preferred Stock issued
by a Person and thereafter assumed by a Subsidiary of the Company in a
transaction in which the property of such Person is sold, leased or otherwise
disposed of as an entirety or substantially as an entirety to such Subsidiary,
in each such case in which such Debt or Preferred Stock was not Incurred or
issued in anticipation of such transaction; (vii) Debt Incurred for the purpose
of financing all or any part of the purchase price or the cost of construction
of or improvements (or additions to improvements) to the property of the Company
or any of its Subsidiaries in an aggregate principal amount not to exceed the
fair market value of such property, construction or improvements (or additions
to improvements); (viii) Debt or Preferred Stock that is exchanged for, or the
proceeds of which are used to refinance or refund, any Debt or Preferred Stock
permitted to be outstanding pursuant to clauses (i) through (vii) (or any
extension or renewal thereof) (A) in an aggregate principal amount not to exceed
the principal amount of the Debt, in the case of Debt, or the liquidation
preference of the Preferred Stock, in the case of Preferred Stock, so exchanged,
refinanced or refunded and (B) provided that such Debt or Preferred Stock does
not require the payment of all or a portion of the principal or liquidation
value thereof (whether pursuant to purchase, redemption, defeasance, retirement,
sinking fund payment, payment at stated maturity or otherwise, but excluding any
payment or retirement required by virtue of acceleration of such Debt upon an
event of default thereunder or "change of control" or similar provision
thereunder) prior to the scheduled maturity or maturities of the Debt or
Preferred Stock being refinanced or refunded; (ix) Debt arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of any Subsidiary of the Company
pursuant to such agreements, in each case Incurred in connection with the
disposition of any business assets of any Subsidiary of the Company (other than
Guarantees of Debt or other obligations Incurred by any Person acquiring all or
any portion of such business assets for the purpose of financing such
acquisition) in a principal amount not to exceed the gross proceeds actually
received by any such Subsidiary in connection with such disposition, and (x)
Debt not otherwise permitted to be Incurred pursuant to clauses (i) through (ix)
above which, together with the sum of any other outstanding Debt Incurred
pursuant to this clause (x) and clauses (vi), (vii) and (viii) above (excluding,
for purposes of clause (viii), any Debt or Preferred Stock Incurred or issued in
exchange for, or to refinance or refund, Debt or Preferred Stock described in
clauses (i) through (v) above), has an aggregate principal amount not in excess
of the greater of $40 million or 15% of Consolidated Net Tangible Assets.
Notwithstanding the foregoing, the aggregate amount of Debt that may be
outstanding under clauses (vi), (vii), (viii) (excluding, for purposes of clause
(viii), any Debt or Preferred Stock Incurred or issued in exchange for, or to
refinance and refund, Debt or Preferred Stock described in clauses (i) through
(v) above) and (x) above shall not exceed the greater of $40 million or 15% of
Consolidated Net Tangible Assets.
Limitation on Liens. The Company shall not, and shall not permit any
Subsidiary of the Company to, Incur any Lien on any Principal Property of the
Company or such Subsidiary, to secure Debt without making, or causing such
Subsidiary to make, effective provision for securing the Notes (and, if required
by its governing instruments, any other Debt of the Company or of such
Subsidiary that is not subordinate to the Notes) equally and ratably with such
Debt as to such Principal Property for so long as such Debt will be so secured
or, in the event such Debt is Debt of the Company which is subordinate in right
of payment to the Notes, prior to such Debt as to such Principal Property for so
long as such Debt will be secured.
The foregoing restrictions will not apply to Liens existing at the date of
the Indenture, or to: (i) Liens on inventories and accounts receivable existing
from time to time; (ii) Liens securing only the Notes; (iii) Liens in favor of
the Company; (iv) Liens on property of a Person existing at the time such Person
becomes a Subsidiary of the Company, is merged into or consolidated with the
Company (or any Subsidiary of the Company) or any Subsidiary of the Company
merges into or consolidates with such Person or when the property of such Person
is sold, leased or otherwise disposed of as an entirety or substantially as an
entirety to the Company or a Subsidiary thereof, in each such case not securing
Debt Incurred in anticipation of such transaction; (v) Liens on property
existing at the time of acquisition thereof; (vi) Liens on property securing (a)
all or any portion of the cost of acquiring, constructing, altering, improving
or repairing any property, real or personal, or improvements used or to be used
in connection with such property or (b) Debt Incurred by the Company or any
Subsidiary of the Company prior to or within one year after the later of the
acquisition, the completion of construction, alteration, improvement or repair,
or the commencement of commercial operation thereof, which Debt is Incurred for
the purpose of financing all or any part
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of the purchase price thereof or such construction, alteration, improvement or
repair; (vii) Liens in favor of the United States of America or any State,
territory or possession thereof (or the District of Columbia), or any
department, agency, instrumentality or political subdivision of the United
States of America or any State, territory or possession thereof (or the District
of Columbia), to secure partial, progress, advance or other payments pursuant to
any contract or statute or to secure any Debt incurred for the purpose of
financing all or any part of the purchase price or the cost of constructing or
improving the property subject to such Liens; (viii) Liens granted to any bank
or other institution on the payments to be made by such institution to the
Company or a Subsidiary of the Company pursuant to any interest rate swap or
similar agreement or foreign currency hedge, exchange or similar agreement
designed to provide protection against fluctuations in interest rates and
currency exchange rates, respectively, provided that such agreements are entered
into in, or are incidental to, the ordinary course of business or are entered
into in connection with Debt permitted by the provisions described under
"Limitation on Subsidiary Debt" above, between the Company or such Subsidiary
and such institution; (ix) Liens to secure industrial revenue or development
bonds, not to exceed $15 million at any one time outstanding; (x) mechanics',
workmen's, materialmen's or similar Liens arising in the ordinary course of
business; (xi) Liens to secure any extension, renewal, refinancing or refunding
(or successive extensions, renewals, refinancings or refundings), in whole or in
part, of any Debt secured by Liens referred to in the foregoing clauses (i) to
(x) so long as such Lien does not extend to any other property (other than
improvements to such property) and the principal amount of the Debt so secured
is not increased; (xii) Liens that do not secure Debt in an aggregate principal
amount in excess of the greater of $40 million or 15% of Consolidated Net
Tangible Assets at any one time outstanding; (xiii) any Liens securing Debt owed
by the Company to one or more Wholly Owned Subsidiaries of the Company (but only
if such Debt is held by such Wholly Owned Subsidiaries); (xiv) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Debt) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure
performance, surety or appeal bonds to which such Person is a party or which are
otherwise required of such Person, or deposits as security for contested taxes
or import duties or for the payment of rent or other obligations of like nature,
in each case incurred in the ordinary course of business; (xv) Liens resulting
from the deposit of funds or evidences of Debt in trust for the purpose of
defeasing Debt of the Company or any of its Subsidiaries; and (xvi) legal or
equitable encumbrances deemed to exist by reason of negative pledges or the
existence of any litigation or other legal proceeding and any related lis
pendens (excluding any attachment prior to judgment, judgment lien or attachment
lien in aid of execution on a judgment).
Limitation on Sale and Leaseback Transactions. The Company shall not, and
shall not permit any Subsidiary of the Company to, enter into any Sale and
Leaseback Transaction with respect to any Principal Property (except for a
period not exceeding three years) unless (a) the Company or such Subsidiary
would be entitled to Incur a Lien on such Principal Property to secure Debt by
reason of the provisions described in clauses (i) through (xvi) of the second
paragraph under the "Limitation on Liens" covenant in an amount equal to the
Attributable Value of such Sale and Leaseback Transaction without equally and
ratably securing the Notes or (b) the Company applies an amount equal to the
Attributable Value with respect to such Sale and Leaseback Transaction within
six months of such sale to the defeasance or retirement (other than any
mandatory retirement, mandatory prepayment or sinking fund payment or by payment
at maturity) of Debt securities or other debt for borrowed money of the Company
or a Subsidiary thereof that matures more than one year after the creation of
such Debt or to the purchase, construction or development of other comparable
property.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due and payable, continued for 30 days,
(ii) a default in the payment of principal of any Note when due and payable at
its Stated Maturity, upon required redemption or repurchase, upon declaration or
otherwise, (iii) the failure by the Company to comply with any other covenants
in the Indenture that will not have been remedied by the end of a period of 60
days after written notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in principal amount of the
outstanding Notes, (iv) acceleration of, or failure by the Company to pay when
due, any Debt within any applicable grace period after final maturity or the
acceleration of any such Debt by the holders thereof because of a default if the
total amount of such Debt unpaid or accelerated exceeds $10.0 million or its
foreign currency equivalent (the "cross acceleration provision") and such
failure continues for 20 days after receipt of the notice specified in the
Indenture, (v) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary (the "bankruptcy provisions"), or (vi) the
rendering of any judgment or decree for the
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payment of money in excess of $10.0 million or its foreign currency equivalent
at the time it is entered against the Company or any Significant Subsidiary and
is not discharged, waived or stayed if (A) an enforcement proceeding thereon is
commenced by any creditor or (B) such judgment or decree remains outstanding for
a period of 60 days following such judgment and is not discharged, waived or
stayed and, in either case, the default continues for ten days after the date on
which written notice specifying the failure and requiring the Company to remedy
the same shall have been given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes at the time outstanding (the "judgment default provision").
The Indenture will provide that if an Event of Default (other than an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company) occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the outstanding Notes by notice
to the Company may declare the principal of and accrued but unpaid interest on
all the Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company
occurs, the principal of and interest on all the Notes will become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holders. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
The Indenture will provide that the Holders of not less than a majority in
principal amount of the outstanding Notes may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
written consent of the Holders of a majority in principal amount of the Notes
then outstanding and any past default or compliance with any provisions may also
be waived with the consent of the Holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may (i) reduce the amount of
Notes whose Holders must consent to an amendment or waiver, (ii) reduce the rate
of or extend the time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption of any Note or change the time at which any Note may
be redeemed as described under "Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) impair the right of
any Holder to receive payment of principal of and interest on such Holder's
Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, or (vii)
make any change in the amendment provisions which require each Holder's consent
or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to secure the Notes, to add to the covenants of the Company for the
benefit of the Noteholders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
Holder in any material respect, to provide for the issuance of the Exchange
Notes or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
The consent of the Holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "Certain Covenants", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "Defaults" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii), (iv), (v) or (vi) under "Defaults"
above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The First National Bank of Chicago is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
For purposes of the Indenture, the following terms have meanings set forth
below.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount
36
<PAGE>
of rent required to be paid by such Person under such lease during the initial
term thereof as determined in accordance with GAAP, discounted from the last
date of such initial term to the date of determination at a rate per annum equal
to the discount rate which would be applicable to a Capital Lease Obligation
with like term in accordance with GAAP. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the amount of such penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated. "Attributable Value" means, as to a Capital Lease
Obligation under which any Person is at the time liable and at any date as of
which the amount thereof is to be determined, the capitalized amount thereof
that would appear on the face of a balance sheet of such Person in accordance
with GAAP.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with GAAP. The stated maturity of
such obligation shall be the date of the last payment of rent or any other
amount due under such lease or other Debt arrangements prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Consolidated Net Tangible Assets" means, as of any particular time, the
aggregate amount of assets (less applicable reserves and other properly
deductible items) after deducting therefrom (i) all current liabilities, except
for (a) notes and loans payable, (b) current maturities of long-term Debt and
(c) current maturities of Capital Lease Obligations and (ii) intangible assets,
to the extent included in such aggregate amount of assets, all as set forth on
the most recent consolidated balance sheet of the Company and its consolidated
subsidiaries and computed in accordance with GAAP.
"Consolidated Subsidiaries" of any Person means all other Persons that
would be accounted for as consolidated Persons in such Person's financial
statements in accordance with GAAP.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person other than as entered into in the ordinary course of
business, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
Capital Lease Obligation of such Person, (vi) the maximum fixed redemption or
repurchase price of Redeemable Stock of such Person at the time of
determination, (vii) every payment obligation of such Person under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements at the time of determination, and (viii) every obligation of the type
referred to in clauses (i) through (vii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise and such obligations secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured by) any
Lien on property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become liable
for the payment of such obligation; provided that if the obligation so secured
has not been assumed in full by such Person or is otherwise not such Person's
legal liability in full, the amount of such obligation for the purposes of this
definition shall be limited to the lesser of the amount of such obligation
secured by such Lien or the fair market value of the assets or the property
securing such Lien.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, that are in effect from time to time.
37
<PAGE>
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Debt
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed" and "Guaranteeing"
shall have meanings correlative to the foregoing); provided, however, that the
Guarantee by a Person shall not include endorsements by such Person for
collection or deposit in the ordinary course of business.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the registrar's books.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Debt shall not be
deemed an Incurrence of such Debt.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit agreement, security
interest, lien, charge, easement (other than any title defect or easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Principal Property" means any property or assets (including, without
limitation, accounts receivable and inventory) owned or leased by the Company or
any Subsidiary thereof, the gross book value of which exceeds one percent of
Consolidated Net Tangible Assets.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time prior to the Stated Maturity of the Notes.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any Principal Property of such Person which
has been or is being sold or transferred by such Person more than one year after
the acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other similar amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
38
<PAGE>
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subsidiary" means, with respect to any Person, any corporation more than
50% of the outstanding voting stock of which is owned, directly or indirectly,
by such Person, and any partnership, association, joint venture or other entity
in which such Person owns more than 50% of the equity interests or has the power
(i) to elect a majority of the board of directors or other governing body or
(ii) to direct the policies, management or affairs thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb), as amended.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
39
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTE
The certificates representing the Old Notes were issued, and the
certificates representing the New Notes will be issued, in fully registered
form, without coupons. The Old Notes are represented by one permanent global
certificate in definitive, fully registered form without interest coupons in the
amount of $150.0 million (the "Initial Global Note"). Except as described in
the next paragraph, the New Notes initially will be represented by one or more
permanent global certificates in definitive, fully registered form (the "Global
Notes") and will be deposited with, or on behalf of, the DTC (the "Depositary"),
and registered in the name of Cede & Co., as the DTC's nominee or will remain in
the custody of the Trustee pursuant to a FAST Balance Certificate Agreement
between the DTC and the Trustee. If any holder of Old Notes whose interest in
such Old Notes is represented by the Initial Global Note fails to tender in the
Exchange Offer, the Company may issue and deliver to such holder a separate
certificate representing such holder's Old Notes in registered form without
interest coupons.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The description of the operations and procedures of DTC set forth below is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by them from time to
time. The Company does not take any responsibility for these operations or
procedures, and holders are urged to contact DTC or its participants directly to
discuss these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Holders who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
Pursuant to procedures established by DTC (i) upon the issuance of the
Initial Global Certificate, DTC credited, on its internal system, the number of
Notes of the individual beneficial interests represented by such global
securities to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Initial Global
Certificate are shown on, and the transfer of such ownership are effected only
through, records maintained by DTC (with respect to interests of Participants)
and the records of Participants (with respect to interests of persons other than
Participants). Such accounts initially were designated by or on behalf of the
initial purchasers of the Notes and ownership of beneficial interests in the
Initial Global Certificate are limited to Participants or Indirect Participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the Indenture for any purpose,
40
<PAGE>
including with respect to the giving of any direction, instruction or approval
to the Trustee thereunder. Accordingly, each holder owning a beneficial interest
in a Global Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a holder
of Notes under the Indenture or such Global Note. The Company understands that
under existing industry practice, in the event that the Company requests any
action of holders of Notes, or a holder that is an owner of a beneficial
interest in a Global Note desires to take any action that DTC, as the holder of
such Global Note, is entitled to take, DTC would authorize the Participants to
take such action and the Participants would authorize holders owning through
such Participants to take such action or would otherwise act upon the
instruction of such holders. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, and premium, if any, and
interest on any Notes represented by a Global Note registered in the name of DTC
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of DTC or its nominee in its capacity as the registered
holder of the Global Note representing such Notes under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving payment thereon and for any and all other
purposes whatsoever. Accordingly, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a Global Note (including principal, premium,
if any, and interest). Payments by the Participants and the Indirect
Participants to the owners of beneficial interests in a Global Note will be
governed by standing instructions and customary industry practice and will be
the responsibility of the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global Notes.
Upon any such issuance, the Trustee is required to register such Certificated
Notes in the name of such person or persons (or the nominee of any thereof) and
cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
41
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of Old Notes for New Notes should not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
42
<PAGE>
PLAN OF DISTRIBUTION
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the holder (other than any such holder or such other person which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that (i) the New Notes are
acquired in the ordinary course of business of the holder or such other person,
(ii) neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iii) neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of the New
Notes. The Company, however, has not sought, and does not intend to seek, its
own no-action letter and there can be no assurance that the Commission's staff
would make a similar determination with respect to the Exchange Offer. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes cannot rely on this interpretation by the
Commission's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the Old Notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will, for a period of 180 days following the Expiration Date, make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale for such period of time as such persons must
comply with such requirements in order to resell the New Notes.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such New Notes. Any broker-dealer that resells
New Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal for such period of time as such
persons must comply with such requirements in order to resell the New Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any brokers or dealers.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The financial statements and schedule included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Consolidated Financial Statements:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........................ F-3
Consolidated Statements of Operations for the twelve months ended December 31,
1997 and 1996 and the nine months ended December 31, 1995......................... F-4
Consolidated Statements of Cash Flows for the twelve months ended December 31,
1997 and 1996 and the nine months ended December 31, 1995......................... F-5
Consolidated Statements of Stockholders' Equity for the twelve months ended
December 31, 1997 and 1996 and the nine months ended December 31, 1995............ F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997............... F-24
Consolidated Statements of Operations for the three months ended June 30, 1998 and
1997 and six months ended June 30, 1998 and 1997.................................. F-25
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997...................................................... F-26
Notes to Consolidated Financial Statements.......................................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BancTec, Inc.:
We have audited the accompanying consolidated balance sheets of BancTec,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, cash flows and
stockholders' equity for the years ended December 31, 1997 and 1996, and for the
nine months ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BancTec, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996,
and for the nine months ended December 31, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
January 27, 1998
F-2
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted amounts of $717 at December 31, 1996........... $ 21,686 $ 22,872
Short-term investments including, restricted amounts of $154 at December 31, 1997, and $4,203
at December 31, 1996.......................................................................... 308 4,203
Accounts receivable, less allowance for doubtful accounts of $8,100 at December 31, 1997, and
$9,627 at December 31, 1996................................................................... 156,911 135,138
Inventories.................................................................................... 86,847 83,320
Current deferred tax asset..................................................................... 17,133 22,277
Other.......................................................................................... 7,635 7,025
-------- --------
Total current assets......................................................................... 290,520 274,835
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land........................................................................................... 3,030 3,030
Field support spare parts...................................................................... 110,297 97,350
Machinery and equipment........................................................................ 62,203 62,415
Furniture, fixtures and other.................................................................. 48,898 31,217
Buildings...................................................................................... 27,488 24,720
-------- --------
251,916 218,732
Less accumulated depreciation.................................................................. 140,613 131,579
-------- --------
Net property, plant and equipment............................................................ 111,303 87,153
GOODWILL, less accumulated amortization of $29,814 at December 31, 1997, and $24,709 at
December 31, 1996............................................................................. 89,147 93,858
LONG-TERM DEFERRED TAX ASSET.................................................................... 133 442
OTHER ASSETS.................................................................................... 10,936 11,007
-------- --------
TOTAL ASSETS.................................................................................... $502,039 $467,295
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities.................................................................... $ 84,139 $ 30,996
Current maturities of long-term debt........................................................... 11,888 11,334
Trade accounts payable......................................................................... 19,793 21,303
Other accrued expenses and liabilities......................................................... 71,243 81,956
Deferred revenue............................................................................... 27,278 38,196
Income taxes................................................................................... 9,185 3,247
-------- --------
Total current liabilities.................................................................... 223,526 187,032
LONG-TERM DEBT, less current maturities......................................................... 11,854 65,891
OTHER LIABILITIES............................................................................... 6,136 9,652
COMMITMENTS AND CONTINGENCIES (Note K)
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 and outstanding, 21,808,000 shares at December 31, 1997 and 20,797,000 at
December 31, 1996............................................................................. 218 208
Treasury stock--200,000 shares at December 31, 1997 and 29,936 at December 31, 1996............ (4,692) (388)
Additional paid-in capital..................................................................... 221,234 201,006
Retained earnings.............................................................................. 50,119 7,967
Foreign currency translation adjustments....................................................... (5,129) (1,612)
Unearned compensation.......................................................................... (1,227) (2,461)
-------- --------
Total stockholders' equity................................................................... 260,523 204,720
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................................... $502,039 $467,295
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS
---------------------------- ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
(In thousands, except per share data)
REVENUE:
Equipment and software.................................. $335,214 $312,467 $188,107
Maintenance and other services.......................... 268,320 241,535 195,877
-------- -------- --------
603,534 554,002 383,984
COST OF SALES:
Equipment and software.................................. 224,803 213,293 163,090
Maintenance and other services.......................... 195,855 177,977 159,413
-------- -------- --------
420,658 391,270 322,503
-------- -------- --------
Gross profit......................................... 182,876 162,732 61,481
OPERATING EXPENSES:
Product development..................................... 19,972 17,582 21,455
Selling, general and administrative..................... 83,179 76,075 85,908
Goodwill amortization................................... 5,391 4,990 18,089
-------- -------- --------
108,542 98,647 125,452
-------- -------- --------
Income (loss) from operations........................ 74,334 64,085 (63,971)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income......................................... 743 1,146 1,839
Interest expense........................................ (7,730) (7,927) (7,309)
Sundry-net.............................................. (762) 666 (1,274)
-------- -------- --------
(7,749) (6,115) (6,744)
-------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................... 66,585 57,970 (70,715)
INCOME TAX PROVISION (BENEFIT):
Current................................................. 18,518 3,434 3,401
Deferred................................................ 5,453 17,435 (20,635)
-------- -------- --------
23,971 20,869 (17,234)
-------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............... 42,614 37,101 (53,481)
EXTRAORDINARY ITEM, NET OF TAXES OF $260.................. (462) -- --
-------- -------- --------
NET INCOME (LOSS)......................................... $ 42,152 $ 37,101 $(53,481)
======== ======== ========
INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY
ITEM
Basic................................................... $2.00 $1.82 $(2.71)
Diluted................................................. $1.92 $1.76 $(2.71)
INCOME (LOSS) PER SHARE
Basic................................................... $1.97 $1.82 $(2.71)
Diluted................................................. $1.90 $1.76 $(2.71)
WEIGHTED AVERAGE SHARES
Basic................................................... 21,359 20,341 19,753
Diluted................................................. 23,203 22,317 19,753
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
TWELVE MONTHS ENDED ENDED
---------------------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $ 42,152 $ 37,101 $(53,481)
Adjustments to reconcile net income (loss) to cash
flows provided by operating activities:
Depreciation and amortization...................... 39,973 37,850 50,631
Deferred income tax expense (benefit).............. 5,453 17,435 (20,635)
Loss on disposition of property, plant
and equipment.................................... 1,429 -- 8,693
Other non-cash items............................... 2,851 964 2,740
(Increase) decrease in accounts receivable......... (21,773) (28,949) 23,346
Increase in inventories............................ (2,241) (10,878) (100)
(Increase) decrease in other assets................ (539) 5,109 763
Decrease in trade accounts payable................. (1,510) (2,940) (8,708)
Increase (decrease) in deferred revenue............ (10,918) 172 661
Increase (decrease) in other accrued expenses
and liabilities.................................. (2,815) (8,918) 15,138
-------- -------- --------
Cash flows provided by operating activities..... 52,062 46,946 19,048
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment............ (60,597) (39,968) (29,878)
Purchase of businesses, net of cash acquired.......... (1,090) (7,136) (138)
Additions to capitalized software..................... -- -- (942)
Other................................................. 53 661 (3,694)
-------- -------- --------
Cash flows used in investing activities......... (61,634) (46,443) (34,652)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of current maturities of long-term debt and
capital lease obligations........................... (11,926) (14,047) (19,361)
Payments of long-term borrowings...................... (41,428) (5,350) --
Proceeds from short-term borrowings, net.............. 53,591 10,780 3,203
Repurchase of common stock............................ (4,692) -- --
Proceeds from sale and issuances of common stock...... 15,166 9,487 1,881
Other................................................. -- -- (117)
-------- -------- --------
Cash flows provided by (used in)
financing activities........................... 10,711 870 (14,394)
EFFECT OF EXCHANGE RATE CHANGES ON CASH................. (2,325) (511) (225)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................... (1,186) 862 (30,223)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR............ 22,872 22,010 52,233
-------- -------- --------
CASH AND CASH EQUIVALENTS--END OF YEAR.................. $ 21,686 $ 22,872 $ 22,010
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996, AND THE NINE MONTHS
ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN COMPREHENSIVE EARNINGS TRANSLATION TREASURY UNEARNED
STOCK CAPITAL INCOME (DEFICIT) ADJUSTMENTS STOCK COMPENSATION TOTAL
------- --------- -------- --------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 26, 1995
(includes 29,936 treasury
shares)................... $197 $189,755 $ 24,349 $(2,734) $ (388) $(4,436) $206,743
Common stock issued
principally under
employee stock plans...... 2 1,879 -- -- -- -- 1,881
Common stock
issued/canceled under
restricted stock plan,
net....................... -- (90) -- -- -- 90 --
Amortization of unearned
compensation.............. -- -- -- -- -- 1,027 1,027
Tax benefit from exercise
of stock options.......... -- 165 -- -- -- -- 165
Foreign currency
translation adjustments.... -- -- (2) (132) -- -- (134)
Net loss................... -- -- (53,481) (53,481) -- -- -- (53,481)
---- -------- ------- --------- ------- ------- ------- --------
Foreign currency
translation adjustment -- -- (132) -- -- -- -- --
-------
Comprehensive Income -
total -- -- (53,613) -- -- -- -- --
=======
Balance at December 31,
1995 (includes 29,936
treasury shares).......... 199 191,709 -- (29,134) (2,866) (388) (3,319) 156,201
Common stock issued
principally under
employee stock plans...... 9 9,186 -- -- -- -- -- 9,195
Common stock
issued/canceled under
restricted stock plans,
net...................... -- 636 -- -- -- -- (636) --
Amortization of unearned
compensation.............. -- -- -- -- -- -- 1,494 1,494
Foreign currency
translation adjustments... -- (525) -- -- 1,254 -- -- 729
Net income................. -- -- 37,101 37,101 -- -- -- 37,101
---- -------- ------- -------- ------- ------- ------- --------
Foreign currency
translation adjustment -- -- 1,254 -- -- -- -- --
-------
Comprehensive Income -
total -- -- 38,355 -- -- -- -- --
=======
Balance at December 31,
1996 (includes 29,936
treasury shares).......... 208 201,006 -- 7,967 (1,612) (388) (2,461) 204,720
Common stock issued
principally under
employee stock plans...... 10 15,013 -- -- -- -- -- 15,023
Common stock
issued/canceled under
restricted stock plans,
net...................... -- 83 -- -- -- -- -- 83
Repurchase of common
stock..................... -- -- -- -- -- (4,692) -- (4,692)
Treasury stock canceled.... -- (388) -- -- -- 388 -- --
Conversion of 7 1/4%
debentures................ -- 60 -- -- -- -- -- 60
Tax benefit from exercise
of stock options.......... -- 5,460 -- -- -- -- -- 5,460
Amortization of unearned
compensation.............. -- -- -- -- -- -- 1,234 1,234
Foreign currency
translation adjustments... -- -- -- -- (3,517) -- -- (3,517)
Net income................. -- -- 42,152 42,152 -- -- -- 42,152
---- -------- ------- -------- ------- ------- ------- --------
Foreign currency
translation adjustment -- -- (3,517) -- -- -- -- --
-------
Comprehensive Income -
total -- -- 38,636 -- -- -- -- --
=======
Balance at December 31,
1997 (includes 200,000
treasury shares)......... $218 $221,234 -- $ 50,119 $(5,129) $(4,692) $(1,227) $260,523
==== ======== ======== ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Description of Business
BancTec, Inc., a Delaware corporation, and subsidiaries (the "Company") is
a systems integration and services company specializing in image-based financial
transactions and document processing systems, workflow and image management
software products, applications software and professional services. The
Company's systems solutions are targeted at the banking, financial services,
insurance, healthcare, government, utility, telecommunications and retail
industries. The Company also provides network management and support services
for users of local area networks ("LANs") and computer workstations and designs
and manufactures document processing equipment for value added resellers
("VARs") and original equipment manufacturers ("OEMs").
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and, for periods prior to 1996, the ScanData Joint
Venture established with Thomson-CSF ("Thomson") in fiscal year 1992. In March
1996, the Company purchased Thomson's interest in the Joint Venture. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
Cash equivalents are comprised of highly liquid instruments with original
maturities of three months or less. Short-term investments are similar
instruments with original maturities in excess of three months and are valued at
cost, which approximates market.
Inventories
Inventories are valued at the lower of cost or market and include the cost
of raw materials, labor, factory overhead and purchased subassemblies. Cost is
determined using the first-in, first-out method.
Deferred Revenue
Certain of the Company's contracts permit the Company to bill the customer
in advance of the time revenue is recognized. Deferred revenue represents
billings in excess of revenue recognized. Revenue is recognized ratably over the
contract period as the services are performed, which usually occurs within one
year of billing.
F-7
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Derivative Financial Instruments
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the period of the agreements. Unamortized premiums are
included in other current assets or other assets on the balance sheet depending
on the amortization period.
Revenue Recognition
The Company's revenue recognition policies for its principal sources of
revenue are:
Equipment and software sales--Revenue from sales of established products is
recognized upon delivery of completed product in conformity with certain
provisions of AICPA Statement of Position No. 97-2, "Software Revenue
Recognition." Revenue for new products is generally recognized at the time of
acceptance by the customer. Contracts with lengthy software development periods
are accounted for in conformity with Accounting Research Bulletin No. 45, "Long-
Term Construction Contracts." Under such contracts, the excess of engineering
costs and other related miscellaneous equipment costs over advance billings on
such contracts are recorded in other current assets. All contract costs,
including equipment and software, are charged to cost of sales at the time the
related revenue is recognized. At December 31, 1997 and 1996, there were
$884,000 and $1,577,000, respectively, of costs in excess of advance billings
recorded in other current assets.
Maintenance--Revenue from maintenance contracts is recognized ratably over
the term of the contract.
Leasing--Revenue from operating leases of equipment is recognized ratably
over the terms of the related contract. Revenue from sales type leases is
recorded as the present value of the minimum lease payments (net of executory
costs), computed at the interest rate implicit in the lease in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for
Leases."
Depreciation and Amortization
Depreciation is provided in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives. Such
amounts are charged to cost of sales or operating expenses in the consolidated
statements of operations, as appropriate. The straight-line method of
depreciation is used for financial reporting purposes. Accelerated methods are
used for tax purposes.
Leasehold improvements and assets recorded under capital lease obligations
are depreciated over the shorter of their estimated useful life or the remaining
lease term. Field support spare parts, which are repairable replacement parts
for products maintained under service contracts, are amortized over a useful
life of three or five years. Depreciable lives for furniture, fixtures and
machinery are generally from five to seven years. Buildings utilize a forty year
life.
Goodwill is amortized on a straight-line basis over their estimated useful
lives. The excess of cost over net assets of acquired businesses is amortized
over 10 to 40 years. Other intangible assets are amortized over three to five
years.
Product Development
Company sponsored software product development costs are expensed as
incurred until technological feasibility has been established. At that time, the
software product development costs are capitalized in conformity with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." At December
F-8
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
31, 1997 and 1996, capitalized software costs recorded in other long-term assets
were $181,000 and $361,000, respectively. Software costs are amortized to cost
of sales on a per unit basis or on a straight-line basis over a three year
period, whichever is less. The Company performs a periodic review to determine
the realization of capitalized software. When it is determined that there is an
impairment, carrying amounts are written down to their net realizable value. The
amount of software development costs charged to expense for the twelve month
period ended December 31, 1997 and 1996, and the nine month period ended
December 31, 1995, was $180,000, $181,000, and $6,555,000, respectively.
Customer sponsored product development costs are generally charged to cost of
sales or the proceeds generated therefrom are credited to product development
costs by the Company.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at the year-end rates of exchange. Revenue and
expenses are translated monthly at the average exchange rates for the month.
Translation gains and losses including those arising from intercompany accounts
considered to be long-term investments, are reported as a separate component of
stockholders' equity, and transaction gains and losses are included in results
of operations in sundry-net. Foreign currency transaction losses in the twelve
months ended December 31, 1997 and 1996, and the nine months ended December 31,
1995, were $741,000, $835,000 and $1,246,000, respectively.
Net Income Per Share
Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted income (loss) per share is computed by dividing net income (loss) 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 15, 1997. As a result, the
Company's reported income (loss) per share for all periods ending prior to
December 31, 1997, was restated.
Concentration of Credit Risk
The Company sells its products to certain customers under specified credit
terms in the normal course of business. These customers can generally be
classified as banking, financial services, insurance, government, utility,
telecommunications or retail entities. Due to the diversity of the Company's
customers, management does not consider there to be a concentration of risk
within any single classification.
Reclassification
Certain amounts have been reclassified from the prior year to conform to
the current year presentation.
NOTE B--CHANGE IN FISCAL YEAR-END
On October 12, 1995, concurrent with the consummation of the acquisition of
Recognition, the Company changed its fiscal year-end from a 52/53 week year
which ended on or about March 31 of each year to a calendar year-end of December
31.
F-9
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--ACQUISITIONS AND EQUITY INVESTMENTS
Acquisition of Recognition International Inc.
On October 12, 1995, the shareholders of the Company and Recognition
approved the acquisition of Recognition by the Company. The acquisition was
effected through the merger of BTEC Merger Subsidiary, Inc., a wholly-owned
subsidiary of the Company, with and into Recognition. Under the terms of the
merger agreement, Recognition stockholders received 0.59 of a share of the
Company's common stock for each share of Recognition common stock owned, for a
total of approximately 9.1 million shares. Fractional shares were not issued;
instead former Recognition stockholders were paid a fractional share percentage
of $21.00 in cash, the closing price of a share of the Company's common stock on
the date of closing.
Other Acquisitions and Equity Investments
In fiscal 1992, the Company and Thomson established a joint venture
company, ScanData Holding N.V. (now BancTec Holding, N.V.), with subsidiaries in
France, Sweden, Germany and the Netherlands, which had exclusive rights to
market and service various products provided by the Company and Thomson in
specified territories, consisting of continental Europe, Scandinavia and North
Africa. On March 15, 1996, the Company purchased Thomson's interest in ScanData
Holding N.V. for cash of approximately $7,200,000.
NOTE D--CHARGES
For the nine month period ended December 31, 1995, the Company incurred
pretax charges of $85,187,000 for the integration of the Company and
Recognition. The components of these charges were $17,000,000 to cover the cost
of severance, $51,687,000 for duplicate and impaired assets, $6,000,000 for loss
contracts, $5,500,000 related to facilities and $5,000,000 in transaction costs.
These costs were categorized in the consolidated statement of operations as
follows: $41,838,000 in cost of sales, $6,647,000 in product development,
$23,761,000 in selling, general and administrative, $12,556,000 as amortization
and $385,000 in other sundry.
As of December 31, 1997, approximately $82,929,000 (primarily professional
fees, severance and write off of impaired assets) of such costs have been paid
or otherwise charged against the $85,187,000 accrual. The remaining obligations
are currently recorded in other accrued expenses and liabilities and are
expected to be substantially paid by the end of 1998, utilizing existing cash
resources of the Company. The amounts disclosed represent management's best
estimate of the costs to be incurred and the timing of such costs. The progress
of the plan and the actual amounts incurred could vary from these estimates if
future developments differ from the underlying assumptions used by management in
developing the accrual.
NOTE E--INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................... $41,293 $40,391
Work-in-process................. 7,883 9,321
Finished goods.................. 37,671 33,608
------- -------
$86,847 $83,320
======= =======
</TABLE>
F-10
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--DEBT
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Term loans payable to banks........................... $21,508 $32,614
7 1/4% convertible subordinated debentures due 2011... -- 43,722
Obligations under capital leases...................... 2,234 889
------- -------
23,742 77,225
Less current maturities............................... 11,888 11,334
------- -------
$11,854 $65,891
======= =======
</TABLE>
Future maturities of long-term debt, excluding capital lease obligations,
are as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR (IN THOUSANDS)
--------------- --------------
<S> <C>
1998.............................. $10,950
1999.............................. 10,558
Thereafter........................ --
-------
$21,508
=======
</TABLE>
On December 5, 1997, the Company redeemed substantially all $43,700,000 of its
7 1/4% convertible subordinated debentures for cash at par plus accrued
interest. Holders of $60,000 face amount of the debentures elected to convert to
the Company's common stock at an exchange rate of 35.224 common shares per
$1,000 bond. The redemption eliminates potential dilution of the Company's
common stock of approximately 1.5 million shares. The extraordinary item of
$462,000, net of taxes of $260,000, was due to the write off of deferred loan
costs associated with the 7 1/4% convertible subordinated debentures.
At December 31, 1997, the Company's credit agreement provided for a
$50,000,000 short-term revolving credit facility ("revolving credit facility")
and a $55,000,000 term loan facility ("term loan") which are unsecured. The
agreement contains restrictive covenants which, among other things, restrict
payment of dividends, limit additional debt and require the Company to maintain
a 2.0 to 1.0 minimum cash flow coverage, maximum debt to EBITDA of not more than
2.25 to 1.0 at the end of any fiscal quarter for the preceding twelve month
period and a maximum debt to capitalization ratio not to exceed .50 to 1.0 as of
the end of any fiscal quarter. At December 31, 1997, the Company was in
compliance with all covenants required under the agreement. The agreement
permits borrowing in foreign currency which the Company utilizes as part of its
foreign currency risk management program. Therefore, the reported amounts can
include recognized but unrealized gains and losses resulting from currency
fluctuations. The revolving credit facility bears interest at the lender's prime
commercial rate or, at the Company's option, the London Interbank Offered Rate
("LIBOR") on Eurocurrency borrowings plus 0.50%, depending on the Company's debt
to capitalization ratio, as defined. A commitment fee of 0.225% on the unused
revolving credit facility is payable quarterly.
The Company is seeking long-term public or private debt financing of up to
$150,000,000 in 1998 to replace the debt instruments that are currently in place
and for other anticipated requirements.
At December 31, 1997, the amount outstanding under the revolving credit
facility was $41,750,000 at a weighted average interest rate of 6.47%.
F-11
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The term loan bears interest at the lender's prime commercial rate or, at
the Company's option, LIBOR plus 0.75%, depending on the Company's debt to
capitalization ratio, as defined. Principal payments against the outstanding
balance of the term loan commenced as of March 31, 1995. The principal, plus
accrued interest, is due in 20 equal quarterly installments until December 31,
1999. At December 31, 1997, the balance of the term loan was $21,508,000. The
weighted average interest rate on borrowings under the term loan was 6.69% at
December 31, 1997.
Also outstanding as of December 31, 1997, were foreign credit agreements in
the amount of $4,389,000 payable in Japanese yen. Cash, cash equivalents and
short-term investments of $154,000 have been pledged as collateral to secure
these credit agreements. The terms on the agreements range from three months to
one year at interest rates up to 1.75%.
The Company has agreements in place for additional lines of credit totaling
$80,000,000. The lines are uncommitted and have a maximum term of 30 days. The
weighted average interest rate on borrowings under the additional lines of
credit was 6.28% at December 31, 1997. At December 31, 1997, the Company had an
outstanding balance of $38,000,000 on the lines of credit.
The Company was party to one interest rate cap agreement which expired in
May 1997 (See Note K).
The fair market value of the term loan, revolving credit facility, the
subordinated debentures, lines of credit and foreign credit agreement as of
December 31, 1997, approximates their respective carrying values.
Future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
CALENDAR YEAR (IN THOUSANDS)
------------- --------------
<S> <C>
1998.................................................... $1,116
1999.................................................... 934
2000.................................................... 360
Thereafter.............................................. --
------
Total minimum lease payments............................ 2,410
Less amount representing interest (6.0%-16.2% rate)..... 176
------
Present value of net minimum lease payments, including
current maturities of $938 at December 31, 1997........ $2,234
======
</TABLE>
Property, plant and equipment recorded under capital leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures and other.. $3,508 $1,385
Machinery and equipment........ 74 559
------ ------
Total--at cost................. 3,582 1,944
Less accumulated depreciation.. 915 1,025
------ ------
$2,667 $ 919
====== ======
</TABLE>
F-12
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company paid cash totaling $7,943,000, $7,972,000, and $7,228,000, for
interest during the twelve months ended December 31, 1997 and 1996, and the nine
months ended December 31, 1995, respectively.
NOTE G--OTHER ACCRUED EXPENSES AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other compensation.. $18,878 $17,834
Advances from customers................. 16,441 21,353
Accrued taxes, other than income taxes.. 9,219 5,961
Accrued invoices and costs.............. 8,582 5,252
Accrued merger charges and other costs.. 2,902 6,431
Other................................... 15,221 25,125
------- -------
$71,243 $81,956
======= =======
</TABLE>
NOTE H--INCOME TAXES
The domestic and foreign components of income (loss) before income taxes
and extraordinary item consisted of the following:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED NINE MONTHS
-------------------------- ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Domestic (including Puerto Rico)... $51,510 $47,357 $(58,739)
Foreign............................ 15,075 10,613 (11,976)
------- ------- --------
$66,585 $57,970 $(70,715)
======= ======= ========
</TABLE>
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED NINE MONTHS
--------------------------- ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal (including Puerto Rico).. $ 9,618 $ 974 $ 3,172
State............................ 3,240 -- 1,117
Foreign.......................... 5,660 2,460 (888)
------- ------- --------
Total current................... 18,518 3,434 3,401
------- ------- --------
Deferred:
Federal.......................... 3,709 19,906 (19,125)
Foreign.......................... 1,744 (2,471) (1,510)
------- ------- --------
Total deferred.................. 5,453 17,435 (20,635)
------- ------- --------
$23,971 $20,869 $(17,234)
======= ======= ========
</TABLE>
F-13
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between the income tax provision computed at the statutory
federal income tax rate and the financial statement provision for taxes is
summarized as follows:
<TABLE>
<CAPTION>
Twelve Months
Ended Nine Months
-------------------------- Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
(In thousands)
Provision (benefit) at U.S. statutory rate of 35% for all
periods................................................ $23,305 $20,290 $(24,750)
Increase (reduction) in tax expense resulting from:
Impact of foreign and Puerto Rico income tax
rates................................................. 54 100 (177)
State income tax, net of federal income tax
benefit............................................... 2,106 -- (171)
Charge/credit in lieu of taxes for tax benefits
realized from acquisitions............................ -- -- 211
Utilization of net operating losses..................... (4,291) (3,626) --
Foreign losses not providing a current
benefit............................................... 407 879 2,247
Goodwill amortization................................... 1,579 1,575 1,664
Foreign earnings and profit adjustment.................. 975 -- --
Foreign goodwill amortization........................... 142 221 221
Other................................................... (306) 1,430 3,521
------- ------- --------
$23,971 $20,869 $(17,234)
======= ======= ========
</TABLE>
The Company paid cash totaling $9,631,000, $4,651,000, and $2,654,000 for
income taxes during the twelve months ended December 31, 1997 and 1996, and the
nine months ended December 31, 1995, respectively.
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis and are included in other current assets or other
assets depending on the timing of the expected realization. The deferred tax
benefit for the periods shown represents the effect of changes in the amounts of
temporary differences during those periods.
F-14
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets (liabilities), as determined under the provisions of
SFAS No. 109, "Accounting for Income Taxes", were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Net operating losses............................... $ 36,715 $ 43,792
Inventory reserves................................. 3,430 4,922
Acquisition & restructuring charges................ 4,557 5,634
Receivable allowance............................... 299 2,744
Deferred revenues.................................. 2,723 3,286
Deferred compensation.............................. 4,134 3,053
Foreign timing differences, net.................... 1,144 2,618
Taxes paid on intercompany profits................. 996 585
Unrealized foreign exchange gains.................. -- 468
Tax deductible foreign reserves.................... -- 422
Other.............................................. 966 2,084
-------- --------
Total gross deferred tax asset.................. 54,964 69,608
-------- --------
Gross deferred tax liabilities:
Depreciation....................................... (330) (11)
Tax deductible deferred computer conversion costs.. (2,947) --
-------- --------
Total gross deferred tax liability.............. (3,277) (11)
Deferred tax assets valuation reserve.............. (34,421) (46,878)
-------- --------
Net deferred tax asset.......................... $ 17,266 $ 22,719
======== ========
</TABLE>
The Company has net operating loss carryforwards which expire as follows:
1998 through 2002, $33,397,000; 2003 through 2007, $22,865,000; 2008 through
2012, $19,082,000; and indefinite, $19,673,000.
The net change in the deferred tax asset valuation reserve for the twelve
months ended December 31, 1997 and 1996, was a decrease of $12,547,000 and
$10,720,000, respectively. The current year's decrease is primarily attributable
to reversal of acquisition timing differences, inventory reserves and
utilization of net operating loss carryforwards.
Undistributed earnings of foreign subsidiaries were approximately
$21,165,000, $17,922,000, and $14,243,000 at December 31, 1997, 1996 and 1995,
respectively. No taxes have been provided on these undistributed earnings as
they are considered to be permanently reinvested.
NOTE I--STOCKHOLDERS' EQUITY
Employee Stock Award Plans
At December 31, 1997, a total of 3,841,855 shares of common stock were
reserved for issuance under the Company's stock award plans. At December 31,
1997, 1,322,110 were available for future grant. In general, the plans provide
for the granting of options or restricted shares to key employees. A summary of
the key provisions of each type of award is as follows:
F-15
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Options
In general, the plans provide for the granting of options at not less than
fair market value of the stock at the grant date. Options issued vest over a
five year period, with one-fifth of the shares becoming exercisable on each
anniversary. At December 31, 1997, 1996 and 1995, options to purchase 2,519,745,
2,860,586, and 3,515,193 shares, respectively, were outstanding, of which
options to purchase 844,560, 1,405,388, and 2,208,434 shares, respectively, were
vested and could be exercised at a weighted average exercise price of $17.97,
$15.74, and $14.59, respectively. The outstanding stock options at December 31,
1997 have a weighted average remaining contractual life of 4.0 years.
A summary of activity in the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
---------- -------------- --------
<S> <C> <C> <C>
Options outstanding--March 26, 1995..... 3,337,801 $ 4.83--$28.39 $15.19
Granted.............................. 538,050 15.38-- 19.98 17.08
Exercised............................ (149,786) 4.83-- 16.63 9.56
Forfeited............................ (210,872) 4.83-- 27.75 17.61
-----------
Options outstanding--December 31, 1995.. 3,515,193 4.83-- 28.39 15.75
Granted.............................. 712,500 17.25-- 22.50 21.35
Exercised............................ (913,451) 4.83-- 22.68 9.86
Forfeited............................ (453,656) 5.42-- 28.39 20.50
-----------
Options outstanding--December 31, 1996.. 2,860,586 4.83-- 28.39 17.99
Granted.............................. 865,550 21.25-- 27.00 23.61
Exercised............................ (1,035,468) 4.83-- 23.31 14.65
Forfeited............................ (170,923) 5.42-- 22.50 20.72
-----------
Options outstanding--December 31, 1997.. 2,519,745 $ 5.33--$27.00 $21.09
===========
</TABLE>
Of the options exercised during 1997, 498,321 options had exercise prices
between $4.83 and $13.56, with a weighted average exercise price of $8.53. The
remaining 537,147 options exercised had exercise prices between $15.38 and
$23.31, with a weighted average exercise price of $20.34.
Of the options forfeited during 1997, 20,833 options had exercise prices
between $5.42 and $15.90, with a weighted average exercise price of $14.22. The
remaining 150,090 options forfeited had exercise prices between $16.63 and
$23.31, with a weighted average exercise price of $21.17.
Of the options outstanding at December 31, 1997, 196,300 options had
exercise prices between $5.33 and $15.90, with a weighted average exercise price
of $13.24 and a weighted average remaining contractual life of 5.5 years. The
remaining 2,323,445 options had exercise prices between $16.63 and $27.00, with
a weighted average exercise price of $21.76 and a weighted average contractual
life of 3.8 years.
The Company accounts for the stock option plans under APB Opinion No. 25,
under which no compensation has been recognized. Had compensation costs for
these plans been determined consistent with SFAS Statement No. 123, "Accounting
for Stock-Based Compensation", the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
F-16
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED NINE MONTHS
-------------------------- ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income (loss):
As reported...... $42,152 $37,101 $(53,481)
Pro Forma........ 40,173 36,430 (53,630)
Basic EPS:
As reported...... $ 1.97 $ 1.82 $ (2.71)
Pro Forma........ 1.88 1.79 (2.71)
Diluted EPS:
As reported...... $ 1.90 $ 1.76 $ (2.71)
Pro Forma........ 1.81 1.73 (2.71)
</TABLE>
Because the SFAS Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions and results:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED NINE MONTHS
---------------------------- ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
WEIGHTED AVERAGE 1997 1996 1995
---------------- ------------- ------------- -------------
<S> <C> <C> <C>
Risk free interest rate........ 5.8% 6.2% 5.8%
Expected life.................. 3.5 years 3.5 years 3.5 years
Expected volatility............ 35% 40% 40%
Fair value of options granted.. $6.88 $6.92 $5.85
</TABLE>
RESTRICTED STOCK AWARDS
The Board of Directors periodically awards restricted stock to key
employees as compensation. Vesting is pro rata and is subject to future service.
Unearned compensation is charged for the market value of the shares on the date
of grant and is amortized to expense over the vesting period. Such amount is
shown as a reduction of stockholders' equity in the accompanying consolidated
balance sheets. During the twelve months ended December 31, 1997, 8,695
restricted shares were awarded and unearned compensation of $184,769 was
recorded. During the twelve months ended December 31, 1996, 40,648 restricted
shares were awarded and unearned compensation of $741,266 was recorded. During
the nine months ended December 31, 1995, 22,475 restricted shares were awarded
and unearned compensation of $380,936 was recorded. The weighted average price
of the shares awarded during the twelve months ended December 31, 1997 and 1996,
and the nine months ended December 31, 1995, was $21.25, $18.24, and $16.95,
respectively. Vesting on such shares ranges from 3 years to 21 years. During the
twelve months ended December 31, 1997 and 1996, and the nine months ended
December 31, 1995, $228,413, $316,955, and $199,607, respectively, was amortized
to expense. Also during the twelve month period ended December 31, 1997 and
1996, and the nine month period ended December 31, 1995, the Company cancelled
6,193, 5,730 and 31,270 shares, respectively, reserved for key employees who are
no longer with the Company. This resulted in a reduction to unearned
compensation of $102,006, $105,000 and $471,300, respectively.
F-17
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which 431,208 shares
of common stock were reserved at December 31, 1997. The shares are offered for
sale to employees only, through payroll deductions, at prices equal to 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the offering period or the last day of the exercise period. During the
twelve months ended December 31, 1997 and 1996, and the nine months ended
December 31, 1995, the Company issued 48,455, 50,448, and 21,835 shares,
respectively, under the plan.
STOCKHOLDER RIGHTS
On June 16, 1988, the Company adopted a Stockholder Rights Plan in which
common stock purchase rights were distributed as a dividend at the rate of one
right for each common share held as of the close of business on June 27, 1988.
Each share issued thereafter also received one right. As a result of the three-
for-two stock split, the number of rights associated with each share of common
stock has been adjusted from one right to two-thirds of a right. The Stockholder
Rights Plan was designed to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without offering a fair price to
all of the Company's stockholders. The rights will expire on May 24, 1998. The
Board of Directors is currently reviewing the continuation of the Stockholder
Rights Plan. It is expected that the Board of Directors will adopt a resolution
to continue the Stockholder Rights Plan at the annual meeting of the Board of
Directors held on May 21, 1998.
Each right will entitle stockholders to buy one and one-half shares of
common stock of the Company at an exercise price of $35.50. The rights will be
exercisable only if a person or group acquires beneficial ownership of 20% or
more of the Company's common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 30% or more of
the common shares.
If any person becomes the beneficial owner of 35% or more of the Company's
common stock, other than pursuant to certain tender or exchange offers described
in the Plan, or if the Company is the surviving corporation in a merger with a
20%-or-more stockholder and its common shares are not changed or converted, or
if a 20%-or-more stockholder engages in certain self-dealing transactions with
the Company, then each right not owned by such person or related parties will
entitle its holder to purchase, at the right's then current exercise price,
shares of the Company's common stock (or, in certain circumstances as determined
by the Board, cash, other property, or other securities) having a value of twice
the right's exercise price. In addition, after any person has become a 20%-or-
more stockholder, (i) if the Company is involved in a merger or other business
combination transaction in which it is not the continuing or surviving
corporation (other than a merger described in the previous sentence or a merger
that follows a certain tender or exchange offer described in the Plan), or (ii)
if the Company sells 50% or more of its assets or earning power, each right will
entitle its holder to purchase, at the right's then current exercise price,
shares of common stock of such other person having a value of twice the right's
exercise price by a stockholder.
The Company will generally be entitled to redeem the rights at $.05 per
right at any time until the fifteenth day (subject to certain limited
extensions) following public announcement that a 20% position has been acquired.
NOTE J--EMPLOYEE BENEFIT PLANS
Through December 31, 1997, the Company had one employee savings plan for
substantially all full-time and part- time U.S. employees. The Employees'
Savings Plan was available to existing Company employees prior to the
F-18
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquisition of Recognition. The ESOP Flex/Save Plan was available to existing
Recognition employees prior to the acquisition. Effective January 1, 1996, the
ESOP Flex/Save Plan was merged with the existing Employees' Savings Plan.
The Employees' Savings Plan allows substantially all full-time and part-
time U.S. employees to make contributions defined by Section 401(k) of the
Internal Revenue Code. During the twelve months ended December 31, 1997 and
1996, the Company elected to contribute 69,492 shares and 69,491 shares,
respectively, which were allocated based on compensation. During the nine months
ended December 31, 1995 the Company contributed 2.0% of the qualifying
participant's base salary. Amounts expensed under the plan for the period noted
were $1,863,000, $1,177,000, and $691,000, respectively.
Shares allocated to the ESOP Flex/Save Plan during the nine months ended
December 31, 1995 were 52,118. Amounts expensed under this plan for the period
noted were $827,000.
The Company provides no material postretirement benefits to its employees.
NOTE K--COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain sales and service office facilities and
equipment under non-cancelable operating leases expiring through year 2010.
Total Company rent expense for the twelve months ended December 31, 1997 and
1996, and the nine months ended December 31, 1995, was $8,454,000, $9,155,000,
and $6,772,000, respectively.
Future minimum payments under non-cancelable operating leases are
approximately as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR (IN THOUSANDS)
--------------- --------------
<S> <C>
1998........................... $ 9,109
1999........................... 7,092
2000........................... 4,693
2001........................... 3,602
2002........................... 2,375
Thereafter..................... 4,782
-------
$31,653
=======
</TABLE>
The Company has the option to renew operating leases on its facilities at
the end of the current lease terms.
Litigation
The Company and its subsidiaries are parties to various legal proceedings.
Although the ultimate disposition of such proceedings is not presently
determinable, in the opinion of the Company, any liability that may ensue would
not have a significant impact on the financial position or results of operations
of the Company.
Derivative Financial Instruments
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.
F-19
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. As discussed in
Note F, the Company had one interest rate cap agreement in effect at December
31, 1996, which expired in May 1997.
NOTE L--GEOGRAPHIC OPERATIONS
The Company operates in the following geographic areas: the United States,
Europe, and other international areas consisting primarily of Australia, Japan
and Canada. Interarea sales to affiliates are accounted for at established
transfer prices.
Sales and operating income for the twelve months ended December 31, 1997
and 1996, and the nine months ended December 31, 1995, and identifiable assets
at the end of each of those periods, classified by geographic area, are as
follows:
<TABLE>
<CAPTION>
OTHER
UNITED STATES EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
-------------- --------- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Twelve months ended
December 31, 1997
Sales to unaffiliated customers.. $427,943 $111,891 $63,700 $ -- $603,534
Interarea sales to affiliates.... 36,518 2,985 -- (39,503) --
Operating income................. 64,050 11,863 6,170 (7,749) 74,334
Identifiable assets.............. 429,799 68,595 37,854 (34,209) 502,039
Twelve months ended
December 31, 1996
Sales to unaffiliated customers.. $393,635 $ 92,624 $67,743 $ -- $554,002
Interarea sales to affiliates.... 36,021 3,117 38 (39,176) --
Operating income................. 63,293 7,486 4,302 (10,996) 64,085
Identifiable assets.............. 411,766 68,370 36,437 (49,278) 467,295
Nine months ended
December 31, 1995
Sales to unaffiliated customers.. $285,947 $ 56,855 $41,182 $ -- $383,984
Interarea sales to affiliates.... 10,096 655 -- (10,751) --
Operating loss................... (51,073) (2,987) (5,235) (4,676) (63,971)
Identifiable assets.............. 351,517 69,518 37,692 (18,379) 440,348
</TABLE>
NOTE M--RELATED PARTIES
In fiscal 1992, the Company and Thomson established a joint venture
company, ScanData Holding N.V. (now BancTec Holding N.V.), with exclusive rights
to market and service various products provided by the Company and Thomson in
specified territories, consisting of continental Europe, Scandinavia and North
Africa. On March 15, 1996, the Company purchased Thomson's interest in ScanData
Holding N.V. for cash of approximately $7,200,000.
F-20
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--SUMMARIZED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
Q1 Q2 Q3 Q4 TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue............................... $142,353 $151,299 $150,530 $159,352 $603,534
Gross profit.......................... 43,187 45,295 46,314 48,080 182,876
Net income before extraordinary item.. 10,027 10,603 10,787 11,197 42,614
Net income............................ 10,027 10,603 10,787 10,735 42,152
Basic income per share before
extraordinary item................... $ 0.48 $ 0.49 $ 0.50 $ 0.52 $ 2.00
Basic income per share................ $ 0.48 $ 0.50 $ 0.50 $ 0.50 $ 1.98
Diluted income per share before
extraordinary item................... $ 0.46 $ 0.48 $ 0.48 $ 0.50 $ 1.92
Diluted income per share.............. $ 0.46 $ 0.48 $ 0.48 $ 0.48 $ 1.90
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
Q1 Q2 Q3 Q4 TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue............................... $140,053 $133,994 $136,422 $143,533 $554,002
Gross profit.......................... 40,344 40,069 40,425 41,894 162,732
Net income............................ 8,682 9,266 9,296 9,857 37,101
Basic income per share................ $ 0.43 $ 0.45 $ 0.46 $ 0.47 $ 1.82
Diluted income per share.............. $ 0.42 $ 0.44 $ 0.44 $ 0.46 $ 1.76
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1995
----------------------------------------
Q1 Q2 Q3 TOTAL
-------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue..................................... $124,659 $134,322 $125,003 $383,984
Gross profit................................ 36,554 37,110 (12,183) 61,481
Net income (loss)........................... 3,679 4,657 (61,817) (53,481)
Basic income (loss) per share............... $ 0.19 $ 0.24 $ (3.12) $ (2.71)
Diluted income (loss) per share............. $ 0.19 $ 0.24 $ (3.12) $ (2.71)
</TABLE>
The quarter ended December 31, 1995, includes pretax charges of $85,187,000
during the third quarter. See Note D for a further discussion of these charges.
Due to the impact of stock prices on the computation of earnings per share,
income per share presented may not equal the sum of the quarters.
F-21
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE O--EARNINGS PER SHARE
In accordance with SFAS 128, "Earnings Per Share", the Company has computed
basic and diluted earnings per share using the treasury stock method.
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
-------------- -------------- -------------
BASIC:
<S> <C> <C> <C>
Net Income (loss)..................................... $42,152,000 $37,101,000 $(53,481,000)
=========== =========== ============
Shares outstanding at beginning period................ 20,796,935 19,918,735 19,681,429
Weighted average number of shares repurchased or
held in treasury stock during the period............. (59,001) (29,936) (29,936)
Weighted average shares issued during the period...... 621,375 451,762 101,975
----------- ----------- ------------
Weighted average number of shares outstanding, as
adjusted............................................. 21,359,309 20,340,561 19,753,468
=========== =========== ============
Basic income (loss) per common and common
equivalent share..................................... $ 1.97 $ 1.82 $ (2.71)
=========== =========== ============
DILUTED:
Net Income (loss)..................................... $42,152,000 $37,101,000 $(53,481,000)
Add after tax interest expense applicable to 7 1/4%
convertible subordinated debentures.................. 1,879,000 2,100,000 --
----------- ----------- ------------
Net Income (loss), as adjusted........................ $44,031,000 $39,201,000 $(53,481,000)
=========== =========== ============
Shares outstanding at beginning of period............. 20,796,935 19,918,735 19,681,429
Weighted average number of shares repurchased or
held in treasury stock during the period............. (59,001) (29,936) (29,936)
Weighted average 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.............. 1,040,218 840,019 101,975
----------- ----------- ------------
Weighted average number of shares outstanding, as
adjusted excluding 7 1/4% convertible subordinated
debentures........................................... 21,778,152 20,728,818 19,753,468
=========== =========== ============
Diluted income (loss) per common and common
equivalent share excluding 7 1/4 convertible
subordinated debentures.............................. $ 1.94 $ 1.79 $ (2.71)
=========== =========== ============
Weighted average shares issuable assuming
conversion of 7 1/4% convertible subordinated
debentures........................................... 1,424,897 1,588,241 --
Weighted average number of shares outstanding, as
adjusted............................................. 23,203,049 22,317,059 19,753,468
----------- ----------- ------------
Diluted income (loss) per common and common
equivalent share..................................... $ 1.90 $ 1.76 $ (2.71)
=========== =========== ============
</TABLE>
F-22
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the nine months ended December 31, 1995, the following items were not
considered because they were antidilutive: (1) $2,126,000 of interest expense
related to the 7 1/4% convertible subordinated debentures, (2) 539,229 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, and (3) 1,821,920 shares
issuable assuming conversion of 7 1/4% convertible subordinated debentures.
F-23
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents.............................................. $ 47,167 $ 21,686
Short-term investments including restricted amounts of $154 at
December 31, 1997..................................................... 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.
F-24
<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 52,531 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.
F-25
<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.
F-26
<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
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:
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
Raw materials............................. $30,363 $41,293
Work-in-progress.......................... 7,507 7,883
Finished goods............................ 40,846 37,671
------- -------
$78,716 $86,847
======= =======
3. PROPERTY, PLANT AND EQUIPMENT CONSISTED OF THE FOLLOWING:
JUNE 30, DECEMBER 31,
1998 1997
---------- -------------
(IN THOUSANDS)
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
========= =========
F-27
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. OTHER ACCRUED EXPENSES AND LIABILITIES CONSISTED OF THE FOLLOWING:
JUNE 30, DECEMBER 31
1998 1997
-------- -----------
(IN THOUSANDS)
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
======= =======
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 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........................................ -- 507,000 -- 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 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 -- 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>
F-28
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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.
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>
F-29
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY
INITIAL PURCHASER OF THE OLD NOTES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
----
Incorporation by Reference................................................ 2
Available Information..................................................... 3
Forward-Looking Statements................................................ 3
Summary................................................................... 4
Holding Company Structure................................................. 11
Use of Proceeds........................................................... 12
Capitalization............................................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................ 13
The Company............................................................... 17
The Exchange Offer........................................................ 24
Description of New Notes.................................................. 31
Book-Entry; Delivery and Form............................................. 40
Certain United States Federal Income
Tax Considerations....................................................... 42
Plan of Distribution...................................................... 43
Legal Matters............................................................. 43
Experts................................................................... 43
Index to Financial Statements............................................. F-1
================================================================================
================================================================================
$150,000,000
BANCTEC, INC.
7.50% SENIOR
NOTES DUE 2008
-------------------
PROSPECTUS
August 28, 1998
-------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DIRECTOR LIABILITY
Article Tenth of the Restated Certificate of Incorporation of the
Registrant provides that the Registrant must indemnify its officers and
directors to the fullest extent permitted by the Delaware General Corporation
Law. Pursuant to Section 145 of the Delaware General Corporation Law, the
Registrant generally has the power to indemnify its present and former directors
and officers against expenses and liabilities incurred by them in connection
with any suit to which they are, or are threatened to be made, a party by reason
of their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the Registrant, and with respect to any criminal action, they had no
reasonable cause to believe their conduct was unlawful. With respect to suits by
or in the right of the Registrant, however, indemnification is generally limited
to attorneys' fees and other expenses and is not available if the person is
adjudged to be liable to the registrant unless the court determines that
indemnification is appropriate. The statute expressly provides that the power to
indemnify authorized thereby is not exclusive of any rights granted under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Registrant also has the power to purchase and maintain insurance
liability insurance which indemnifies the directors and officers of the
Registrant against damages arising out of certain kinds of claims which might be
made against them based on their negligent acts or omissions while acting in
their capacity as such. The Restated Certificates of Incorporation of the
Registrant eliminates the liability of its directors for monetary damages for
breach of their fiduciary duty as directors. This provision, however, does not
eliminate a director's liability (i) for any breach of the director's duty
loyalty to the registrant or its stockholders, (ii) for acts of omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases, or (iv) for any transaction from which a director derived an
improper personal benefit.
The Company has entered into certain agreements ("Indemnification
Agreements") with each of its directors and officers designed to give effect to
the foregoing provisions of the Restated Certificate of Incorporation and to
provide certain additional assurances against the possibility of uninsured
liability. These provisions and the Indemnification Agreements will not alter
the liability of Directors of the Company under federal securities laws.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1(1) -- Amended and Restated Certificate of Incorporation of the
Registrant, as amended
3.2(1) -- Bylaws of the Registrant
4.1 -- Exchange and Registration Rights Agreement dated Securities Inc,
Goldman, Sachs & Co. and May 22, 1998 by and among the Registrant,
Chase NationsBanc Montgomery Securities LLC
4.2 -- Indenture dated May 22, 1998 by and between the Registrant and The
First National Bank of Chicago
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1(1) -- Credit Agreement dated February 22, 1996, among Bank National
Association, as Agent the Registrant, its subsidiaries and Texas
Commerce
10.2 -- First Amendment to Loan Documents dated May 22, Chase Bank of
Texas, N.A. (formerly known as 1998, among the Registrant, its
subsidiaries and Texas Commerce Bank National Association), as
agent
10.3(1) -- BancTec, Inc. 1989 Stock Plan.
10.4(2) -- BancTec, Inc. 1994 Stock Plan.
10.5(3) -- BancTec, Inc. Deferred Compensation Plan.
10.6(3) -- BancTec, Inc. 1996 Employee Stock Purchase Plan.
10.7(1) -- Employment Agreement dated as of November 5, 1995 Jr. between the
Registrant and Grahame N. Clark,
10.8(1) -- Employment Agreement dated November 5, 1995 between the Registrant
and Tod V. Mongan.
10.9(1) -- Employment Agreement dated September 27, 1995 between the
Registrant and Raghavan Rajaji.
10.10(3) -- Form of Indemnification Agreement between the Registrant and each
of its Directors and Officers.
10.11(4) -- Rights Agreement dated May 26, 1998, between the Registrant and
American Stock Transfer & Trust Company
12.1* -- Computation of Ratio of Earnings to Fixed Charges
21.1(3) -- Subsidiaries of the Company
23.1* -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
24.1 -- Powers of Attorney (set forth on signature page)
25.1 -- Form T-1 of The First National Bank of Chicago
27.1* -- Financial Data Schedule
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
- -------------------
* Filed herewith.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended March 27, 1994.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form 8-A dated June 2, 1998.
(b) FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedule is included in this Registration
Statement:
Report of Independent Public Accountants
II -- Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this Third Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 28/th/ day of August,
1998.
BANCTEC, INC.
By: /s/ Grahame N. Clark, Jr.
-------------------------------------
Grahame N. Clark, Jr.,
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the capacities
and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
* Chairman of the Board, President, Chief August 28, 1998
- --------------------------------- Executive Officer and Director (Principal
Grahame N. Clark, Jr. Executive Officer)
* Senior Vice President, Treasurer and August 28, 1998
- --------------------------------- Chief Financial Officer
Raghavan Rajaji (Principal Financial Officer)
* Controller (Principal Accounting Officer) August 28, 1998
- ---------------------------------
Scott J. Wilson
* Director August 28, 1998
- ---------------------------------
Rawles Fulgham
* Director August 28, 1998
- ---------------------------------
Michael E. Faherty
* Director August 28, 1998
- ---------------------------------
Paul J. Ferri
* Director August 28, 1998
- ---------------------------------
A.A. Meitz
* Director August 28, 1998
- ---------------------------------
Michael D. Stone
*By: /s/ Grahame N. Clark, Jr. Attorney-in-Fact August 28, 1998
-----------------------------
Grahame N. Clark, Jr.
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of BancTec, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in BancTec, Inc.'s
Registration Statement on Form S-4, and have issued our report thereon dated
January 27, 1998. Our audits were made for the purpose of forming an opinion on
those consolidated financial statements taken as a whole. The schedule set
forth in the registration statement is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
Arthur Andersen LLP
Dallas, Texas
January 27, 1998
<PAGE>
SCHEDULE II
BANCTEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Six Months Ended June, 1998, the Twelve
Months Ended December 31, 1997 and 1996, and the
Nine Months Ended December 31, 1995
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end of
Allowance for Doubtful Accounts of period expenses Deductions (A) period
- ----------------------------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Six months ended June 30, 1998 $ 8,100 $ 59 ($670) $ 7,489
(unaudited)
Twelve months ended December 31, 1997 $ 9,627 $3,091 ($4,618) $ 8,100
Twelve months ended December 31, 1996 $11,571 $1,252 ($3,196) $ 9,627
Nine months ended December 31, 1995 $ 4,313 $8,471 ($1,213) $11,571
</TABLE>
- --------------------------------------------
(A) Write-off of uncollectible accounts
<PAGE>
EXHIBIT 12.1
BANCTEC, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS NINE MONTHS RESTATED FISCAL
ENDED ENDED ENDED YEARS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 26,
------- ----------- ----------- --------
1998 1997 1997 1996 1995 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest expense $3,056 $3,636 $7,730 $7,927 $7,309 $10,021 $7,186
Implicit interest on operating leases 1,409 1,409 2,818 3,052 2,257 3,826 3,137
Amortization of deferred debt expense 267 28 51 59 48 65 65
------ ------ ------ ------ ------ ------- ------
Total Fixed Charges 4,732 10,599 11,038 9,614 13,912 10,388
Earnings before provision for income taxes 27,552 32,235 65,863 57,970 (70,715) (6,155) 32,307
Fixed charges 4,732 5,703 10,599 11,038 9,614 13,912 10,388
------ ------ ------ ------ ------ ------- ------
EARNINGS, AS DEFINED 32,284 37,308 76,462 69,008 (61,101) 7,757 42,695
Ratio of earnings to fixed charges 6.8 7.4 7.2 6.2 (6.4) 0.6 4.1
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
August 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<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
<CASH> 47,167 0
<SECURITIES> 282 0
<RECEIVABLES> 165,596 0
<ALLOWANCES> (7,489) 0
<INVENTORY> 78,716 0
<CURRENT-ASSETS> 312,398 0
<PP&E> 261,330 0
<DEPRECIATION> (131,630) 0
<TOTAL-ASSETS> 541,951 0
<CURRENT-LIABILITIES> 128,678 0
<BONDS> 150,818 0
0 0
0 0
<COMMON> 212 0
<OTHER-SE> 256,600 0
<TOTAL-LIABILITY-AND-EQUITY> 541,951 0
<SALES> 145,817 162,934
<TOTAL-REVENUES> 288,323 293,652
<CGS> 97,558 109,145
<TOTAL-COSTS> 205,054 205,170
<OTHER-EXPENSES> 12,200 13,525
<LOSS-PROVISION> 0 0
<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
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,633 20,630
<EPS-PRIMARY> 0.83 0.98
<EPS-DILUTED> 0.82 0.94
</TABLE>
