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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-9859
BANCTEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-1559633
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4851 LBJ FREEWAY 75244
DALLAS, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (972) 341-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------- -----------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [X]
Aggregate Market Value of voting stock held by non-affiliates of the
Registrant at February 27, 1998: $488,937,244. The amount was based on the
closing price of the Common Stock on the New York Stock Exchange on February
27, 1998. For purposes of this computation, only executive officers, board
members and beneficial owners of more than 5% of the Company's outstanding
stock are deemed to be affiliates.
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING AT
TITLE OF EACH CLASS FEBRUARY 27, 1998
--------------------------- -------------------------------
<S> <C>
Common Stock, $.01 Par Value 21,919,012
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy
statement to be filed for the annual meeting of stockholders scheduled to be
held on May 21, 1998.
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<PAGE>
BANCTEC, INC.
ANNUAL REPORT
ON
FORM 10-K
TWELVE MONTHS ENDED DECEMBER 31, 1997
PART I
ITEM 1. BUSINESS
GENERAL
BancTec, Inc., a Delaware corporation, ("BancTec" or the "Company") is a
systems integration and services company specializing in image-based financial
transaction and document processing systems, workflow and image management
software products, applications software and professional services. The
Company's products 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"). Unless otherwise indicated, all
further references to BancTec(R) or the Company shall include its wholly owned
subsidiaries.
On October 12, 1995, the Company acquired Recognition International Inc.
("Recognition"), a Dallas-based provider of document processing systems,
imaging and workflow software, and maintenance services. The agreement
qualified as a tax-free reorganization and was accounted for on a "pooling of
interests" basis. Under the terms of the agreement, Recognition shareholders
received .59 shares of BancTec stock for each Recognition share owned.
BANCTEC PRODUCTS AND SERVICES
The Company markets its products and services to specific target markets
where it believes it has extensive business process expertise, certain
competitive advantages and is able to maintain or achieve a leadership
position.
EQUIPMENT AND SOFTWARE
FINANCIAL TRANSACTION PROCESSING SYSTEMS. During the twelve months ended
December 31, 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 which are 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.
The Company's ImageFIRST(R) 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 to
organizations with requirements for systems which will 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
2
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solutions for rejected check repair, enabling financial institutions that
handle large volumes of checks to more efficiently reprocess items which 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 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
substantially 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 its 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
which 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 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. In 1997, the Company acquired Electronic Strategies, Inc., which
operated a Menomonie, Wisconsin outsourcing center, bringing to six, the total
of BancTec service bureaus at year end.
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 electronic funds transfer transactions.
OEM TECHNOLOGIES AND SUPPORT PRODUCTS. During the twelve months ended
December 31, 1997, the Company derived approximately 9% of its revenues from
sales of document processing equipment to OEMs and various resellers and from
sales of support products to users of the Company's systems.
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, through OEM channels and to
various resellers and systems integrators throughout the world.
In 1997, the Company introduced a new line of document reader/sorter
products incorporating features from both the Company's and Recognition's
product lines. Enhancements include improved gray scale image capture
capability, increased reader performance and increased speed, field
upgradeability, and a more compact design.
3
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Components such as microfilm cameras, microfilm modules, image cameras, MICR
encoders, ink jet components and various peripheral equipment are also
manufactured and marketed by the Company. 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.
Support Products and Consumable Supplies. The Company utilizes its
telemarketing organization to sell consumable supplies that are used with the
Company's document processing equipment, as well as general office supplies
and forms. The Company's CheckMender(R) IV, HeatStrip(R) and BancStrip(TM)
products are used by banks to repair checks which cannot be processed by check
sorting equipment. The Company also provides encoding ribbons, microfilm, ink
rollers, and other consumable supplies that are used with the Company's
document processing equipment. In 1997, the Company acquired Springfield,
Missouri based Corporate Business Forms, Inc., which extended the Company's
sales organization and product line in the community banking market segment.
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. During the twelve months ended December 31, 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, health claims processing and character recognition
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.
Plexus software products are sold directly to end-users by its own sales
force, through the BancTec sales channel and through various VARs and systems
integrators worldwide.
MAINTENANCE AND OTHER SERVICES
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. Standard maintenance contracts are available which specify type of
service, hours of coverage and monthly rates. Contracts may also 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.
NETWORK AND DESKTOP SUPPORT SERVICES. Through its established service
infrastructure, the Company offers a variety of outsourcing arrangements for
network and desktop computing support services. The Company derived
approximately 18% of its revenues during the twelve months ended December 31,
1997, from the following PC network and desktop support services:
4
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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.
PC Vendor Maintenance Services. The Company is a leading provider of
warranty repair service in the United States for Dell Computer Corporation,
Compaq Computer Corporation, Toshiba America Information Systems, Inc. and
other companies. The Company also provides telephone technical support for
Novell network operating systems software.
INTERNATIONAL OPERATIONS
Internationally, the Company is also 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.
During the twelve months ended December 31, 1997, sales to customers outside
the U.S. totaled approximately 29% of the Company's total revenues.
SERVICE PERSONNEL
At February 27, 1998, the Company employed approximately 1,500 customer
service engineers located in the United States, Canada, United Kingdom,
Scandinavia, continental Europe, Australia and Japan.
SOFTWARE ENGINEERING
Through its staff of approximately 500 software engineers and support
personnel, the Company develops and maintains application software products.
In addition, these software engineers modify and enhance standard application
software products for customers in order to meet particular operating
requirements. Enhancements are generally paid for by the customer under the
terms of a sales contract. This software engineering activity is generally
charged to cost of sales as incurred.
PRODUCT DEVELOPMENT
The Company is engaged in ongoing software and hardware product development
activities in connection with new and existing products, employing as of
February 27, 1998, approximately 180 persons for such activities.
The following table sets forth certain information regarding the Company's
product development expenditures for the indicated periods:
<TABLE>
<CAPTION>
TWELVE NINE
MONTHS ENDED MONTHS ENDED
------------------------- -------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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>
5
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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
will 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 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 the
industry's most complete portfolio of document transport products
incorporating improved document handling, double document detection, and
improved 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
which 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. For 1998,
particular attention is being given to extensions to Plexus' industry leading
internet/JAVA workflow product offerings. Each of Plexus' major products will
receive significant feature enhancements during the year. Also underway are
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.
There is no assurance that the Company's development efforts will result in
successful commercial products. Many risks exist in developing new product
concepts, adopting 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.
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Internationally, the Company also sells its products through a variety of
channels. The Company has direct sales forces in the United Kingdom, France,
Spain, Sweden, Denmark, Germany, Canada, Australia and Japan. Network
management and support services are also marketed in Canada via a separate
direct sales force.
In fiscal 1992, the Company and Thomson-CSF ("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.
International sales are subject to various risks, including fluctuations in
exchange rates, import controls and the need for export licenses. See Note L
of Notes to the Consolidated Financial Statements for financial information
concerning the Company's international operations.
SIGNIFICANT CUSTOMERS
For the twelve months ended December 31, 1997, no single customer accounted
for more than 10% of the total revenue of the Company.
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 financial 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
December 31, 1997 and December 31, 1996 was approximately $71,894,000 and
$95,470,000, 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
the level 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 the 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.
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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 which 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 February 27, 1998, the Company employed approximately 4,000 full-time
employees and considers its employee relations to be good. None of the
Company's employees are 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 assure that its products
and customer solutions are year 2000 compliant. The Company does not believe
that year 2000 issues will have a material impact on its operations.
ENVIRONMENTAL COMPLIANCE
Due to the nature of the Company's products, it has not been materially
affected to date by environmental laws. The Company does not anticipate its
business will be materially affected by current or proposed environmental
laws.
ITEM 2. PROPERTIES
The Company owns or leases numerous facilities throughout the world to
support its operations. The Company believes that these facilities are
adequate to meet its ongoing needs. The loss of any one facility could have an
adverse impact on operations in the short term.
The Company has the option to renew all leases on principal facilities at
the end of the lease terms.
The Company relocated its manufacturing operation from Oklahoma City,
Oklahoma, and consolidated operations in a Company-owned manufacturing
facility located in the Dallas, Texas area during 1996. The Company also
closed its subassembly operation in Puerto Rico and outsourced those
requirements to third parties during 1996. The Company will continue to
manufacture the HeatStrip and BancStrip products in Puerto Rico. The Dallas
area manufacturing facility is the primary location for all Company assembly
and manufacturing activities.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
8
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EXECUTIVE OFFICERS OF BANCTEC
Executive officers are elected annually at the first meeting of the Board of
Directors following the annual meeting of stockholders. No family
relationships exist among the executive officers of the Company.
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Grahame N. Clark, Jr.... 55 Chairman of the Board, President, and Chief Executive Officer
John G. Guthrie......... 61 Senior Vice President
Tod V. Mongan........... 47 Senior Vice President, Secretary and General Counsel
Raghavan Rajaji......... 51 Senior Vice President, Treasurer and Chief Financial Officer
James E. Uren........... 61 Senior Vice President
James R. Wimberley...... 57 Senior Vice President
Kevin L. Roper.......... 43 Vice President
</TABLE>
Mr. Clark has been Chairman of the Board and Chief Executive Officer since
April 1987 and President since September 1995. Since August 1979, Mr. Clark
has been employed by the Company in various management capacities.
Mr. Guthrie has been Senior Vice President since September 1995. Since
February 1989, Mr. Guthrie has been employed by the Company in various
management capacities.
Mr. Mongan has been Senior Vice President, Secretary and General Counsel
since January 1993. Since November 1979, Mr. Mongan has been employed by the
Company in various management capacities.
Mr. Rajaji has been Senior Vice President, Treasurer and Chief Financial
Officer since September 1995. For the seven years prior to that date, Mr.
Rajaji was employed by Occidental Chemical Corporation as Senior Vice
President and Chief Financial Officer.
Mr. Uren has been Senior Vice President since September 1995. Since October
1988, Mr. Uren has been employed by the Company in various management
capacities.
Mr. Wimberley has been Senior Vice President since January 1993. Since
January 1984, Mr. Wimberley has been employed by the Company in various
management capacities.
Mr. Roper has been Vice President since May 1996. Since March 1985, Mr.
Roper has been employed by the Company in various management capacities.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York Stock Exchange under
the symbol BTC. The common stock of the Company traded on the NASDAQ National
Market system under the symbol BTEC until December 28, 1995.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997 HIGH LOW
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<S> <C> <C>
First Quarter ended March 31, 1997............................. $26 1/8 $19 1/8
Second Quarter ended June 30, 1997............................. 27 5/8 22 1/4
Third Quarter ended September 30, 1997......................... 27 22 3/4
Fourth Quarter ended December 31, 1997......................... 28 3/4 20 3/4
TWELVE MONTHS ENDED DECEMBER 31, 1996
- -------------------------------------
First Quarter ended March 31, 1996............................. $20 $15
Second Quarter ended June 30, 1996............................. 23 1/4 15 3/4
Third Quarter ended September 30, 1996......................... 21 1/4 18 1/8
Fourth Quarter ended December 31, 1996......................... 23 1/8 19 5/8
</TABLE>
The Company has not paid any cash dividends on its common stock since its
organization and currently intends to continue a policy of retaining earnings
for the Company's operations and planned expansion of its business. The number
of stockholders of record as of February 27, 1998, was approximately 2,630.
9
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS RESTATED FISCAL
ENDED ENDED YEARS ENDED(A)
------------------------- ------------ ------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 26,
1997 1996 1995 1995 1994
------------ ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
For the period:
Revenue................. $603,534 $554,002 $383,984 $516,932 $478,116
Income (loss) before
extraordinary item..... 42,614 37,101 (53,481) (15,608) 22,729
Net income (loss)....... 42,152 37,101 (53,481) (15,608) 22,729
Diluted income (loss)
per share before
extraordinary item..... 1.92 1.76 (2.71) (0.80) 1.19
Diluted income (loss)
per share.............. 1.90 1.76 (2.71) (0.80) 1.19
At period-end:
Total assets........... 502,039 467,295 440,348 501,758 489,488
Working capital........ 66,994 87,803 42,598 90,140 126,692
Long-term debt, less
current maturities.... 11,854 65,891 82,972 94,181 104,220
Stockholders' equity... $260,523 $204,720 $156,201 $206,743 $224,929
Diluted weighted average
shares................. 23,203 22,317 19,753 19,484 21,535
</TABLE>
- --------
(a) 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 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.
The foregoing summary reflects the acquisitions as discussed in Note C to
the Consolidated Financial Statements from their respective dates of
acquisition. Fiscal years ended March 26, 1995 and 1994 have been restated to
include Recognition since the acquisition was accounted for as a pooling of
interests (See (a) above).
In December 1995, the Company changed its fiscal year end from a 52/53 week
year which ended on or about March 31, to a calendar year-end of December 31.
This resulted in a nine month transitional period for December 31, 1995.
The consolidated balance sheet data as of December 31, 1997, 1996 and 1995,
are those of the combined Company. The consolidated balance sheet data for
fiscal years 1995 and 1994 includes the Company as of March 26, 1995 and March
27, 1994, combined with the consolidated balance sheet data of Recognition as
of March 26, 1995 and October 31, 1993. The consolidated statement of
operations for the twelve months ended December 31, 1997 and 1996 are those of
the combined company. The consolidated statement of operations data for the
nine months ended December 31, 1995, includes the Company's results for the
nine months ended December 31, 1995, combined with Recognition's results for
the nine months ended December 31, 1995. The consolidated statement of
operations data for the fiscal years ended 1995 and 1994 includes the
Company's fiscal years ended March 26, 1995 and March 27, 1994, combined with
Recognition's fiscal years ended October 31, 1994 and 1993.
Recognition's results of operations for the five months ended March 26, 1995
are excluded from the consolidated statement of operations in order to combine
complete twelve month periods and is therefore included in the statement of
stockholders' equity for the year ended March 26, 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The supplementary income statements below were derived from 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>
TWELVE MONTHS ENDED
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Equipment and software................ $335,214 $312,467 $270,256
Maintenance and other services........ 268,320 241,535 242,284
-------- -------- --------
603,534 554,002 512,540
COST OF SALES:
Equipment and software................ 224,803 213,293 222,544
Maintenance and other services........ 195,855 177,977 195,178
-------- -------- --------
420,658 391,270 417,722
-------- -------- --------
Gross profit........................ 182,876 162,732 94,818
OPERATING EXPENSES:
Product development................... 19,972 17,582 26,529
Selling, general and administrative... 83,179 76,075 112,898
Goodwill amortization................. 5,391 4,990 19,732
-------- -------- --------
108,542 98,647 159,159
-------- -------- --------
Income (loss) from operations....... 74,334 64,085 (64,341)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income....................... 743 1,146 2,489
Interest expense...................... (7,730) (7,927) (10,009)
Sundry-net............................ (762) 666 257
-------- -------- --------
(7,749) (6,115) (7,263)
-------- -------- --------
Income (loss) before income taxes
and extraordinary item............. 66,585 57,970 (71,604)
INCOME TAX PROVISION (BENEFIT).......... 23,971 20,869 (16,391)
EXTRAORDINARY ITEM...................... (462) -- --
-------- -------- --------
NET INCOME (LOSS)....................... $ 42,152 $ 37,101 $(55,213)
======== ======== ========
</TABLE>
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 some 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 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%
11
<PAGE>
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 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 decreased by $0.2 million due to a lower
overall average balance of outstanding debt resulting from scheduled term loan
repayments. The Company has also experienced lower borrowing rates during the
current year.
Net sundry expense of $0.8 million increased by $1.4 million primarily due
to foreign currency transaction losses in the current year due to the
strengthening of the dollar over other currencies.
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 current year income tax provision resulted in an effective
tax rate of 36%.
The Company recorded an extraordinary loss of $0.5 million in the current
year 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
from maintenance and other services decreased by $0.7 million 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 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, the current year 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 is primarily due to an increase 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 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.
12
<PAGE>
Operating expenses of $98.6 million decreased by $60.5 million compared to
the prior twelve month period. When adjusted for restructuring charges of
$43.0 million, the current year operating expenses decreased by $17.5 million.
The components of operating expenses changed as follows: Product development
expenses decreased by $8.9 million from the prior period. When adjusted for
restructuring charges of $6.6 million, the current year 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 acquisition. Selling, general and administrative expenses of $76.1 million
decreased by $36.8 million from the prior period. When adjusted for charges in
the prior period of $23.8 million, the current year selling, general and
administrative expenses 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 decreased by $14.7 million compared to
the prior twelve month period. When adjusted for restructuring charges of
$12.6 million, the current year goodwill amortization 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 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 the current year.
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 current year 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of December 31, 1997 were $21.7 million
compared to $22.9 million as of December 31, 1996. Total borrowings were
$107.9 million as of December 31, 1997, compared to $108.2 million as of
December 31, 1996. Total working capital decreased to $67.0 million as of
December 31, 1997 from $87.8 million as of December 31, 1996. The $20.8
million decrease in working capital was primarily due to the use of the
revolving credit facilities for the redemption of $43.7 million of 7 1/4%
convertible subordinated debentures. Excluding the redemption, working capital
increased by approximately $22.9 million in 1997 primarily due to an increase
in accounts receivable and a decrease in deferred revenue.
Cash provided by operations was $52.1 million in 1997, compared to $46.9
million in 1996. The increased cash flow in 1997 was due primarily to higher
income in 1997 compared to 1996. See the discussion in "Comparison of Twelve
Months Ended December 31, 1997 and December 31, 1996" for the factors
contributing to the increase in net income. Cash provided by operations in
1995 was $19.0 million. The cash flow from operations in 1995 was lower
primarily due to costs and expenses associated with the merger of the Company
and Recognition, Inc. in October 1995.
The Company believes that it has sufficient financial resources available to
support its anticipated requirements to fund operations and pay out the
remaining term loan cash obligations over the next year, and is not aware of
any trends, demands or commitments which would have a material impact on the
Company's long or short-term liquidity.
The Company is seeking long-term public or private debt financing of up to
$150 million in 1998 to replace the debt instruments that are currently in
place and for other anticipated requirements.
At December 31, 1997, the Company had the following debt instruments in
place; 1) Term Loan, 2) Revolving Credit Facility, 3) Foreign Credit Agreement
and 4) Uncommitted Lines of Credit. On February 22,
13
<PAGE>
1996, the Company signed a new credit agreement increasing its revolving
credit facility to $50.0 million and providing more favorable terms and
conditions for its existing term loan. The outstanding term loan balance as of
December 31, 1997, was $21.5 million. Pursuant to the conditions of the term
loan, payments commenced March 31, 1995, with equal quarterly payments due
through its maturity in December 1999. As of December 31, 1997, the Company
had available a $50.0 million revolving credit facility which had an
outstanding balance of $41.8 million. During the period ended December 31,
1997, the Company borrowed a maximum amount of $41.8 million against this
credit facility. Also outstanding as of December 31, 1997, was a foreign
credit agreement in the amount of $4.4 million. Cash, cash equivalents and
short-term investments have been pledged as collateral to secure this loan.
The Company has agreements in place for lines of credit totaling $80.0
million. The lines are uncommitted and have a maximum term of 30 days. The
Company borrowed as much as $46.0 million against these lines at various times
throughout the twelve month period ended December 31, 1997. At December 31,
1997, the Company had an outstanding balance of $38.0 million on the lines of
credit. See Note F to the Consolidated Financial Statements for a further
discussion of these debt instruments.
On December 5, 1997, the Company redeemed substantially all $43.7 million 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 shares per $1,000
bond. The redemption eliminates potential dilution of the Company's common
stock of approximately 1.5 million shares.
The Company spent $14.4 million during 1997 for computer hardware, software
and consulting to implement a new information system for the Company.
Commitments for approximately $8 million are expected during 1998 to fully
implement the new system. This new system will meet the foreseeable needs of
the Company and will also be year 2000 compliant.
In October 1997, the Company announced a plan to repurchase up to 2.0
million common shares in open market transactions. As of December 31, 1997,
the Company had repurchased 200,000 common shares for approximately $4.7
million.
During 1995, the Company completed the acquisition of Recognition which was
accomplished through an exchange of stock. As a result of the acquisition, the
Company took a pretax charge of $85.2 million to integrate the two companies
and to cover the cost of severance, duplicate and impaired assets, idle
facilities, loss contracts and cost incurred to complete the acquisition. This
charge is reflected in both the audited nine months ended December 31, 1995
and the unaudited proforma twelve months ended December 31, 1995 financial
statements. At December 31, 1997, the Company had accruals of approximately
$2.3 million recorded in other accrued expenses and liabilities for the
remaining obligations related to these charges.
Inflation has not had a material effect on the operating results of the
Company.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
15
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<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
======== ========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
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.
17
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
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.
18
<PAGE>
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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 sales 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 consoldiated financial statements.
19
<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 EARNINGS TRANSLATION TREASURY UNEARNED
STOCK CAPITAL (DEFICIT) ADJUSTMENTS STOCK COMPENSATION TOTAL
------ ---------- ---------- ------------ -------- ------------- --------
<S> <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/cancelled 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)
---- -------- ------- ------- ------- ------- --------
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/cancelled 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
---- -------- ------- ------- ------- ------- --------
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/cancelled under
restricted stock plans,
net.................... -- 83 -- -- -- -- 83
Repurchase of common
stock.................. -- -- -- -- (4,692) -- (4,692)
Treasury stock
cancelled.............. -- (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
---- -------- ------- ------- ------- ------- --------
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.
20
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
transaction 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.
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.
21
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
22
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
23
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
24
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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%.
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.
25
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
26
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 NINE MONTHS
ENDED ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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 NINE MONTHS
ENDED ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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>
27
<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 NINE MONTHS
ENDED ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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.
28
<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:
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
29
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
30
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
TWELVE NINE
MONTHS ENDED MONTHS ENDED
------------------------- ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
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 NINE
ENDED ENDED MONTHS
------------------------- ------------
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
31
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
with the Company. This resulted in a reduction to unearned compensation of
$102,006, $105,000 and $471,300, respectively.
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
32
<PAGE>
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the 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.
33
<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>
UNITED OTHER
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.
34
<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
<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.
35
<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
------------- ------------- ------------
<S> <C> <C> <C>
BASIC:
Net income (loss)................... $42,152,000 $37,101,000 $(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.................. 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>
For the nine months ended December 31, 1995, the following items were not
considered because they were antidulitive: (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.
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of stockholders, except for the information regarding executive officers of
the Company which is contained in Part I of this Annual Report on Form 10-K.
The information required by this item contained in such definitive proxy
material is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of stockholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of stockholders, which information is incorporated herein by reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements: See Index to Financial Statements and
Schedules on page 41.
(b) Reports on Form 8-K:
(c) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- Certificate of Incorporation.(3)
3.2 -- By-Laws.(3)
4.1 -- Rights Agreement dated June 16, 1988.(1)
10.1 -- Credit Agreement dated February 22, 1996, among the Company, its
Subsidiaries and Texas Commerce Bank National Association, as
Agent.(3)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.2 -- BancTec, Inc. 1989 Stock Plan.(3)
10.3 -- BancTec, Inc. 1994 Stock Plan.(4)
10.4 -- BancTec, Inc. Deferred Compensation Plan. (5)
10.5 -- BancTec, Inc. 1996 Employee Stock Purchase Plan. (5)
10.6 -- Employment Agreement with Grahame N. Clark, Jr. dated November 5,
1995.(3)
10.7 -- Employment Agreement with Tod V. Mongan dated November 5, 1995.(3)
10.8 -- Employment Agreement with Raghavan Rajaji dated September 27,
1995.(3)
10.9 -- Form of Indemnification Agreement between the Company and each of
its Directors and Officers.(3)
21.1 -- Subsidiaries.(5)
23.1 -- Consent of Arthur Andersen LLP.(5)
27.0 -- Selected Financial Data.(6)
</TABLE>
- --------
(1) Incorporated by reference to the Company's Form 8-A filed on July 6, 1988.
(2) Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended March 30, 1987, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.
(4) Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended March 27, 1994, and incorporated herein by reference.
(5) Filed herewith.
(6) Filed electronically only.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BancTec, Inc.
/s/ Grahame N. Clark, Jr.
By: _________________________________
Grahame N. Clark, Jr.
Chairman of the Board,
President and Chief Executive
Officer
Dated: March 26, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Grahame N. Clark, Jr. Chairman of the Board, March 26, 1998
____________________________________ President and Chief
Grahame N. Clarke, Jr. Executive Officer and
Director (Principal
Executive Officer)
/s/ Raghavan Rajaji Senior Vice President, March 26, 1998
____________________________________ Treasurer and Chief
Raghaven Rajaji Financial Officer
(Principal Financial
Officer)
/s/ Scott J. Wilson Controller (Principal March 26, 1998
____________________________________ Accounting Officer)
Scott J. Wilson
/s/ Michael E. Faherty Director March 26, 1998
____________________________________
Michael E. Faherty
/s/ Paul J. Ferri Director March 26, 1998
____________________________________
Paul J. Ferri
/s/ Rawles Fulgham Director March 26, 1998
____________________________________
Rawles Fulgham
/s/ Thomas G. Kamp Director March 26, 1998
____________________________________
Thomas G. Kamp
/s/ A.A. Meitz Director March 26, 1998
____________________________________
A.A. Meitz
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael A. Stone Director March 26, 1998
____________________________________
Michael A. Stone
/s/ Norton A. Stuart, Jr. Director March 26, 1998
____________________________________
Norton A. Stuart, Jr.
</TABLE>
40
<PAGE>
BANCTEC, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Report of Independent Public Accountants............................... 15, 42
Consolidated Balance Sheets at December 31, 1997, and December 31,
1996................................................................ 16-17
Consolidated Statements of Operations for the twelve months ended
December 31, 1997 and 1996, and the nine months ended December 31,
1995................................................................. 18
Consolidated Statements of Cash Flows for the twelve months ended
December 31, 1997 and 1996, and the nine months ended December 31,
1995................................................................. 19
Consolidated Statements of Stockholders' Equity for the twelve months
ended December 31, 1997 and 1996, and the nine months ended December
31, 1995............................................................. 20
Notes to Consolidated Financial Statements............................. 21-36
SUPPLEMENTAL SCHEDULES
Schedule II--Valuation and Qualifying Accounts for the twelve months
ended December 31, 1997 and 1996, and the nine months ended December
31, 1995............................................................. 43
</TABLE>
All other schedules have been omitted as the required information is
inapplicable, not required, or the information is included in the financial
statements and notes thereto.
41
<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 Form 10-K,
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 listed in the Index to Financial
Statements and Schedules 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
42
<PAGE>
SCHEDULE II
BANCTEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996, AND THE NINE MONTHS
ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ------------- ----------
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>
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.
43
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BANCTEC, INC.
BancTec USA, Inc., a Delaware corporation.
BancTec (Management), Inc., a Delaware corporation.
BancTec (Export), Inc., a Virgin Islands corporation.
BancTec (Puerto Rico), Inc., a Delaware corporation.
BancTec (Canada), Inc., a Canadian corporation.
BancTec Limited, a U.K. corporation.
BancTec (Australia) Pty Limited, an Australian corporation.
BancTec Japan, Inc., a Delaware corporation.
BancTec Holding N.V., a Netherlands corporation
BancTec GmbH, a German corporation.
BancTec S.A., a French corporation.
BancTec B.V., a Netherlands corporation.
BancTec AB, a Swedish corporation.
BancTec Danmark A/S, a Danish corporation.
BancTec Iberica S.A., a Spanish corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated January 27, 1998, included in this Form 10-K, into the
Company's previously filed Registration Statement Form S-3 (No. 33-28942);
Registration Statement Form S-8 (No. 33-28939); Registration Statement Form S-
8 (No. 33-29163); Registration Statement Form S-8 (No. 33-32824); Registration
Statement Form S-3 (No. 33-35988); Registration Statement Form S-8 (No. 33-
37377), Registration Statement Form S-3 (No. 33-49918); Registration Statement
Form S-8 (No. 33-71114); and Registration Statement Form S-8 (33-58335);
Registration Statement Form S-4 (33-60391); Registration Statement Form S-8
(33-63699); Registration Statement Form S-8 (333-25509); Registration
Statement Form S-8 (333-25667); and Registration Statement Form S-8 (333-
29835).
Arthur Andersen LLP
Dallas, Texas
March 26, 1998
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF OPERATIONS AND NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND FOOTNOOTES
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 21,686 0
<SECURITIES> 308 0
<RECEIVABLES> 165,011 0
<ALLOWANCES> (8,100) 0
<INVENTORY> 86,847 0
<CURRENT-ASSETS> 290,520 0
<PP&E> 251,916 0
<DEPRECIATION> (140,613) 0
<TOTAL-ASSETS> 502,039 0
<CURRENT-LIABILITIES> 223,526 0
<BONDS> 11,854 0
0 0
0 0
<COMMON> 218 0
<OTHER-SE> 260,305 0
<TOTAL-LIABILITY-AND-EQUITY> 502,039 0
<SALES> 335,214 0
<TOTAL-REVENUES> 603,534 0
<CGS> 224,803 0
<TOTAL-COSTS> 420,658 0
<OTHER-EXPENSES> 25,363 0
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</TABLE>
