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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended March 27, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _________
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Commission File Number 0-9859
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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.
4435 Spring Valley Road
Dallas, Texas 75244
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 450-7700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
------------
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
May 31, 1994: $168,944,098
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
Number of Shares Outstanding at
Title of Each Class May 31, 1994
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Common Stock, $.01 Par Value 10,756,546
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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 August 18, 1994.
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BANCTEC, INC.
ANNUAL REPORT
ON
FORM 10-K
YEAR ENDED MARCH 27, 1994
PART I
ITEM 1. BUSINESS
GENERAL
BancTec, Inc., a Delaware corporation, ("BancTec" or the "Company") is a
leader in providing integrated systems, applications software, network services
and maintenance support to the financial transaction processing market. The
Company develops turn-key image processing systems, data capture systems and
integrated software products for banking, financial services,
telecommunications, utility, petroleum, insurance, government, retail and other
industries. The Company also designs and manufactures document processing
equipment for original equipment manufacturer ("OEM") customers and provides
network support services for local area networks ("LAN") and personal computers
("PC"). Unless otherwise indicated, all further references to BancTec or the
Company shall include its wholly-owned subsidiaries and the ScanData and
Servibanca joint ventures discussed in Note B of the financial statements.
During fiscal year 1994, BancTec acquired LeRoux, Pitts & Assoc. ("LPA"), a
provider of software products for debit and credit card processing and
electronic check authorization requirements. The Company also acquired
Imagesolve International, Ltd. ("ImageSolve"), a provider of integrated systems
solutions for capturing, routing, storing and accessing electronic images of
paper documents. A third acquisition was Advanced Computer Systems, Inc.
("ACS"), a provider of integrated software solutions used by community banks for
in-house data processing, proof of deposit and various check processing-related
applications. In addition, the Company acquired Terminal Data Corporation
("TDC"), a provider of document imaging systems, page scanning devices, and
digital and microfilm cameras.
BANCTEC PRODUCTS
The Company targets its products to specific market segments where it
believes it has certain competitive advantages and can maintain or achieve a
leadership position.
SYSTEMS SOLUTIONS, SOFTWARE PRODUCTS AND EQUIPMENT. In fiscal year 1994, the
Company derived approximately 54% of its revenues from sales of the following
products:
IMAGING SYSTEMS. BancTec offers image-based products which are used to
process a variety of financial and full page documents. The Company's
ImageFIRST-R- product family provides image-based solutions for financial-
related applications. Remittance payment processors utilize ImageFIRST to
capture and digitize check and other document images, including utility,
telephone, retail and credit card bills, mortgage coupons and tax notices.
Document images are displayed on PC monitors, eliminating the need to
physically handle paper documents during processing. BancTec's intelligent
character recognition ("ICR") product utilizes neural network technology,
custom software and various hardware components to enable the ImageFIRST
system to automatically read and interpret a high
1
percentage of the hand printed characters on checks and other documents.
The incorporation of ICR capabilities further reduces the requirement for
human intervention in document processing and increases processing
efficiency.
Document processors also use ImageFIRST systems to capture and process
digitized images of credit card sales drafts. Rather than handle thousands
of individual paper sales drafts each day, operators view document images
on PC monitors and key in transaction amounts and other information. In
addition, ImageFIRST systems are currently used to produce image statements
and process European giro documents used in centralized country-wide
clearing operations. ImageFIRST systems may also be used for image-based
check repair, which enables banks that handle large volumes of checks to
more efficiently re-process items which have been rejected in the standard
processing cycle.
The Company's ImageFIRST systems utilize an Open Systems Architecture
("OSA") platform, which enables customers to easily add industry standard
hardware and/or software components to further improve processing
capabilities. Development of ImageFIRST OSA with ICR has given BancTec an
excellent competitive position with respect to financial document
processing in the United States, Canadian, European and Australian markets.
As a result of the acquisitions made in fiscal 1994, the Company also
offers products for a variety of full page document imaging applications.
The DocuScan-R- 2000 and 4000 series products utilize photo-optical
technology, gray scale capture capabilities, image character recognition
software and high precision document transports to scan and digitize a
variety of full-sized documents. The Company also provides systems
solutions utilizing Computer Output to Laser Disk (COLD) technology to
electronically archive computer-generated documents such as invoices,
statements and business forms on optical disks.
DOCUMENT PROCESSING SYSTEMS, CHECK SORTING SYSTEMS AND ELECTRONIC
COMPONENTS. The 9400 Document Processing System is utilized for remittance
and/or sales draft applications by financial transaction processors that
require automation but do not require high-speed image-based systems. By
accelerating the processing of payments, customers are able to improve
their cash flow and maximize funds availability. The system can operate as
a stand-alone device or in a clustered environment with a LAN and data
concentrator.
The 4300 Document Processing System is used by financial institutions to
re-encode and re-introduce repaired documents into the check processing
cycle. The 4300 can be configured as a PC-driven stand-alone device or a
multi-application controller-based system. With the controller option, the
4300 can also process other types of documents, such as remittances and/or
sales drafts.
The Company also manufactures 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 them according to patterns established by the
user. BancTec markets these products to various major systems providers
throughout the world. OEM purchasers of the Company's reader/sorters
include International Business Machines, AT&T Global Information Systems
(NCR) and Bull Corporation of America. The Company also directly markets
these products in conjunction with its software products to financial
document processors as (i) plug-compatible alternatives for the IBM 3890
high-speed reader/sorter, (ii) remote reader/sorters which enable banks to
operate check processing centers in various locations, (iii) stand-alone
reader sorters which utilize the Company's system software and (iv)
replacement systems for BancTec's and other vendors' older generation
products.
2
The Company markets the Transaction Processing System ("TPS"), which
utilizes reader/sorters and application software to perform check clearing
for large financial institutions in the United Kingdom and Ireland.
Components such as microfilm cameras, microfilm modules, image cameras,
MICR encoders, ink jet printers and various peripheral equipment are also
manufactured and marketed by the Company.
COMMUNITY BANKING PRODUCTS. The Company provides Banker-II, ACCESS and
PODExpress-R- products to community banks. Banker-II and ACCESS are
software packages which integrate check sorting, platform automation, loan
processing, deposit management, ATM and teller processing and other bank
operations activities. PODExpress 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. Community banks use
BancTec's products to improve operational efficiency and to compete
effectively with larger institutions.
ELECTRONIC PAYMENT PROCESSING PRODUCTS. BancTec markets software products
for electronic credit, debit and courtesy card processing, electronic check
authorization, inventory management and other electronic funds transfer
("EFT") oriented applications. The Company's products enable retailers to
process consumers' electronic transactions in-lane, in-store, at the main
office as well as at the electronic payment network switch.
SUPPORT PRODUCTS AND CONSUMABLE SUPPLIES. The Company utilizes its
telemarketing organization to distribute document processing supplies and
related products that are a source of recurring revenue. BancTec's
CheckMender, HeatStrip-R- and BancStrip-R- are used by banks to re-encode
checks which cannot be read by traditional check sorting equipment. The
Company's CheckMender automatically applies HeatStrip material to the
bottom edge of checks which have been damaged, have missing or erroneous
information or are otherwise unreadable. BancTec also provides encoding
ribbons, microfilm, ink rollers and other consumable supplies that are used
with the Company's document processing equipment.
BancTec generally warrants its equipment and software products sold
directly to end-users for 30 days from the date of installation and its OEM
products sold to systems providers for 90 days from the date of shipment.
NETWORK SERVICES AND EQUIPMENT MAINTENANCE. The Company derived approximately
46% of its revenue in fiscal year 1994 from the following network services and
equipment maintenance related products.
NETWORK SERVICES AND PERSONAL COMPUTER SUPPORT. BancTec provides LAN and
PC hardware support, systems integration services, asset management, help
desk services and installation coordination to major companies. The
Company's service engineers provide on-site or on-call support for file
servers, personal computers, laptop computers, engineering workstations,
printers and other peripheral equipment. BancTec also provides technical
telephone support for Novell network operating systems software and is the
U.S. warranty service provider for Dell Computer Corp.
INSTALLATION AND MAINTENANCE OF BANCTEC PRODUCTS. As a key aspect of
BancTec's strategy of providing its customers with a total system solution,
the Company installs and maintains its own products. 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
3
customers. The Company's maintenance contracts typically include both
parts and labor.
THIRD-PARTY SERVICE FOR OTHER DOCUMENT PROCESSING EQUIPMENT. BancTec
provides hardware maintenance services for IBM 3890 and 3890 XP
reader/sorters, which are the primary transports 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.
At May 31, 1994, BancTec employed approximately 998 service engineers
located in the United States, Canada, Australia, United Kingdom,
Scandinavia and continental Europe.
SOFTWARE ENGINEERING
Through its staff of approximately 369 software engineers, the Company
maintains standard system and application software products. In addition, the
Company utilizes these software engineers to modify and enhance its standard
application software products for customers in order to meet their particular
operating requirements. Enhancements are generally paid 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 development engineering activities in
connection with new and existing products, employing as of May 31, 1994,
approximately 101 persons for such activities.
The following table sets forth certain information regarding the Company's
development engineering expenditures for the indicated fiscal years:
1994 1993 1992
------ ------ ------
(Dollars in thousands)
Development engineering expenditures............... $9,515 $8,490 $7,692
Percent of total revenue........................ 3.8% 3.6% 4.0%
Percent of equipment and software revenue....... 7.1% 6.1% 6.6%
The Company also spent approximately $994,000, $851,000 and $2,149,000 in
fiscal years 1994, 1993 and 1992, respectively, on engineering activities funded
by customers relating to the development of new products and improvements of
existing products.
Current expenditures are concentrated on developing new applications for
the Company's product lines and improving and expanding existing products, as
described below:
IMAGING SYSTEMS. The Company is currently developing several methods of
utilizing "gray scale" and other related technologies to further enhance
financial document image clarity and readability. Additional projects center
around the utilization of image archival technology and "in-line" image quality
assurance algorithms.
Projects for enhanced full page imaging such as a higher speed camera,
hardware interface adapters and additional software connectivity capabilities
for page scanners are also in development.
4
DOCUMENT PROCESSING SYSTEMS, CHECK SORTING SYSTEMS AND ELECTRONIC
COMPONENTS. Development activity continues on low-cost, low-speed financial
document transports for use at processing sites with modest volumes. The
Company is also developing both high speed and low speed MICR encoder modules
which may be used with various BancTec reader/sorter products and image
systems. During the year, BancTec completed development work on the CheckMender
IV device, which may be combined with the Company's patented HeatStrip products
for check repair requirements.
COMMUNITY BANKING PRODUCTS. The Company continues to enhance its systems
solutions and integrated software products for community banking applications.
Current development projects include the development of PODExpress Image
solutions for image-based proof of deposit and Banker III software for
integrated banking operations requirements.
ELECTRONIC PAYMENT PROCESSING. Several development projects are underway
regarding the Company's EFT products. A major application development program
will provide Electronic Benefits Transfer (EBT) capabilities to large grocery
chains. The Company's Open Systems-based Mainsail software product is being
enhanced with graphic user interfaces (GUI) and with the ability to utilize
additional commercial grade teleprocessing monitors.
The Tandem-based electronic switching product has recently been enhanced to
support a check authorization subsystem. Additional development projects will
add graphic user interfaces further improving product performance. Development
work also continues in order to position this product for multi-lane retail and
other markets. Research and design projects are underway to support Tandem
Computer's movement into Open Systems (POSIX) architectures. This will allow
the Company's Open Systems products and Tandem proprietary applications to run
concurrently on the same hardware platforms.
There is no assurance that the Company's development efforts will result in
successful commercial products. Many risks exist in new product development,
adopting new technology and introducing any new products.
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, OEMs, value added resellers ("VARs") and systems
integrators. In fiscal year 1994, BancTec had five separate business units
distributing its products in North America. The five business units focused on
the following areas:
1. Financial document processing systems sold directly to high-volume document
processors, such as large banks, financial service providers, telephone
companies, gas and electric utilities, petroleum companies, service
bureaus, insurance companies, retailers and other end-users.
2. Systems solutions and integrated software products for community banks and
smaller regional banks.
3. Software products for electronic funds transfer and point-of-sale ("POS")
applications for retailers, grocery chains and financial institutions.
4. PC/LAN network support services, PC warranty services, third party
maintenance and other maintenance-related products and services for major
North American companies and government institutions.
5
5. Document processing equipment, imaging products and electronic components
for OEMs, VARs and various other resellers.
Internationally, BancTec also sells its products through a variety of
channels. The Company has direct sales forces in the United Kingdom, Canada and
Australia. A separate business unit, Imagesolve, uses its sales organization to
market various image-based systems integration solutions in the United Kingdom
and continental Europe. Third-party maintenance and support services are also
marketed in the United Kingdom via a separate direct sales force.
In fiscal 1992, BancTec, Inc. and Thomson-CSF established a joint venture
company, ScanData N.V., which has exclusive rights to market and service various
products provided by BancTec and Thomson in specified territories, consisting of
continental Europe, Scandinavia and North Africa. In fiscal year 1994, BancTec
acquired a 33% equity interest in Servibanca, a document processing services
provider located in Chile. Servibanca will introduce the Company's products and
services to the South American document processing market. BancTec uses various
other distributor and OEM relationships to market its products in Asia and
various other locations.
The Company's combined worldwide sales organization totals approximately
165 people. Major sales offices are located in several U.S. cities, Toronto,
Montreal, London, Paris, Frankfurt, Sydney and Santiago, Chile.
Sales of products to foreign entities, which accounted for approximately
25% of total revenues in fiscal year 1994, are subject to various risks,
including fluctuations in exchange rates, import controls and the need for
export licenses. See Note J of Notes to Consolidated Financial Statements for
financial information concerning the Company's international operations.
SIGNIFICANT CUSTOMERS
For fiscal years 1994, 1993 and 1992, no single customer accounted for more
than 10% of the total revenue of the Company.
COMPETITION
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, flexibility to
configure unique systems from standard products, quality and service in its
competitive efforts. In marketing its products, the Company competes directly
or indirectly with a wide variety of companies, some of which have substantially
greater financial and other resources than the Company.
BACKLOG
The Company's firm order backlog for its products at March 27, 1994 and
March 28, 1993 was approximately $48,379,000 and $49,787,000 respectively.
The Company's backlog does not include contracts for recurring service and
maintenance-related products and support products. 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.
6
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 engineered
products are purchased from sole source suppliers. The Company generally has
contracts with these suppliers that are renewed periodically and that require no
minimum purchases. If the supply of certain components or subassemblies were
interrupted without sufficient notice, the result could be an interruption of
product deliveries. The Company has not experienced, nor does it foresee, any
difficulty in obtaining necessary parts.
PATENTS AND TRADEMARKS
The Company has registered patents in the United States and Canada
protecting the Company's HeatStrip product. In addition, BancTec holds U.S.
patents relating to high-speed document handling, encoding, and optical and
magnetic character recognition. BancTec also holds patents relating to image
processing technology in both the U.S. and several European countries.
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 patents 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.
The Company has an exclusive, paid-up, worldwide right and license from
Control Data Corporation to all issued and pending patents that pertain to
certain OEM products and to the know-how and technology related to the
manufacture of such products. This exclusive right and license expires in 2014.
In April, 1986, the Company executed a non-exclusive license agreement with
TRW Financial Systems, Inc. (formerly Teknekron Financial Systems, Inc.). The
agreement permits the Company to manufacture and market digital image processing
systems subject to a patent held by that company.
The Company has several registered trademarks, including "BancTec" and
various product names.
EMPLOYEES
At May 31, 1994, the Company employed approximately 2,439 full-time
employees and considers its employee relations to be good. None of the
Company's employees are represented by a labor union, and the Company has never
experienced a work stoppage.
ITEM 2. PROPERTIES
The Company owns or leases numerous facilities throughout the world to
support its operations. The Company believes that these facilties 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.
7
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
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 BancTec.
The executive officers of BancTec are:
NAME AGE POSITION
---- --- --------
Grahame N. Clark, Jr. ..... 51 Chairman of the Board and Chief Executive
Officer
Norton A. Stuart, Jr. ..... 59 President
William E. Bassett ........ 52 Executive Vice President
Jerome R. Brown ........... 49 Senior Vice President
William A. Feldman ........ 51 Senior Vice President
Tod V. Mongan ............. 43 Senior Vice President, Secretary and
General Counsel
Gary T. Robinson .......... 47 Senior Vice President and Chief Financial
Officer
James R. Wimberley ........ 53 Senior Vice President
Gordon F. Kipp ............ 47 Vice President
Peter N. Weeks ............ 48 Vice President
James E. Uren ............. 57 Vice President
John G. Guthrie ........... 57 Vice President
Michael D. Kubic .......... 39 Vice President, Controller, and Assistant
Treasurer
Kevin L. Roper ............ 39 Vice President
Michael N. Lavey .......... 36 Treasurer
Mr. Clark has been Chairman of the Board and Chief Executive Officer since
April 1987.
Mr. Stuart has been President since April 1987.
Mr. Bassett has been Executive Vice President since January 1993. Since
October 1977, Mr. Bassett has been employed by BancTec in various
management capacities.
Mr. Brown has been Senior Vice President since January 1991. Since April
1984, Mr. Brown has been employed by BancTec in various management
capacities.
Mr. Feldman has been Senior Vice President since January 1991. For the
five years prior to joining BancTec, Mr. Feldman was employed by Concurrent
Computer Corporation 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
BancTec in various management capacities.
8
Mr. Robinson has been Senior Vice President and Chief Financial Officer
since January 1993. Since November 1985, Mr. Robinson has been employed by
BancTec in various management capacities.
Mr. Wimberley has been Senior Vice President since January 1993. Since
January 1984, Mr. Wimberley has been employed by BancTec in various
management capacities.
Mr. Kipp has been Vice President since February 1990. For the five years
prior to joining BancTec, Mr. Kipp was employed by Intecom, Inc. in various
management capacities.
Mr. Weeks has been Vice President since January 1989. Since December 1977,
Mr. Weeks has been employed by BancTec in various management capacities.
Mr. Uren has been Vice President since September 1993. Since October 1988,
Mr. Uren has been employed by BancTec in various management capacities.
Mr. Guthrie has been Vice President since September 1993. Since February
1989, Mr. Guthrie has been employed by BancTec in various management
capacities.
Mr. Kubic has been Vice President, Controller, and Assistant Treasurer
since September 1993. Since August 1986, Mr. Kubic has been employed by
BancTec in various management capacities.
Mr. Roper has been Vice President since March 1994. Since March 1985,
Mr. Roper has been employed by BancTec in various management capacities.
Mr. Lavey has been Treasurer since March 1994. Since March 1990, Mr. Lavey
has been employed by BancTec in various management capacities. For the
three years prior to joining BancTec, Mr. Lavey was employed by NAC, Inc.
as Controller.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company is traded on the over-the-counter market
and is quoted on the National Market System of the National Association of
Securities Dealers Automated Quotation (NASDAQ) System under the symbol BTEC.
The following table sets forth the range of high and low sales prices per share
of common stock, as reported by NASDAQ for the periods indicated. All sales
prices have been restated to reflect the three-for-two common stock split as
discussed in Note G of Notes to Consolidated Financial Statements.
Fiscal Year
-------------------------------------
1994 1993
---------------- ----------------
High Low High Low
---- --- ---- ---
First Quarter............ 20 15-1/2 16-1/3 13-2/3
Second Quarter........... 22-3/4 17-1/4 17-7/8 13-7/8
Third Quarter............ 24 18-3/4 19-7/8 15-2/3
Fourth Quarter........... 24-3/4 20 20-1/8 15-1/2
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 or to
repurchase its common stock. In addition, the Company's credit agreement places
restrictions on the payment of dividends. The number of stockholders of record
as of May 31, 1994, was approximately 1,290.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
---- ---- ---- ----- ----
(In thousands, except per share data)
For the year:
Revenue......................... $247,538 $233,885 $190,968 $183,761 $185,835
Income before cumulative
effect of accounting change... 16,343 14,351 11,721 10,672 10,498
Net income...................... 16,343 15,186 11,721 10,672 10,498
Income per share before
cumulative effect of accounting
change........................ 1.45 1.32 1.15 1.08 1.06
Net income per share............ 1.45 1.40 1.15 1.08 1.06
At fiscal year-end:
Total assets.................... $276,270 $194,846 $171,254 $152,707 $156,566
Working capital................. 46,085 49,687 43,143 41,764 41,878
Long-term debt.................. 50,564 12,239 19,629 27,392 34,388
Stockholders' equity............ 128,273 109,972 92,252 78,920 69,964
Weighted average number of
common shares................... 11,294 10,870 10,173 9,861 9,929
The foregoing summary reflects the acquisitions as discussed in Note B of
Notes to Consolidated Financial Statements from their respective date of
acquisition. Additionally, the per share amounts and the weighted average
number of common shares have been restated to reflect the three-for-two common
stock split.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fiscal year 1994 results reflected the acquisitions of LPA from August 23,
1993, Imagesolve from December 1, 1993, ACS from December 23, 1994 and TDC from
February 28, 1994. Fiscal year 1993 results reflected the acquisitions of CFS
and Access from June 29, 1992 and August 1, 1992, respectively. Fiscal year
1992 results reflected the acquisitions of ebm Systems' service operations and
Monitronics from August 30, 1991 and September 27, 1991, respectively.
Additionally, fiscal year 1992 reflected the consolidated results of ScanData
S.A., a French company formed in conjunction with the ScanData joint venture
with Thomson-CSF, from September 30, 1991. The combined revenues of the
companies acquired in fiscal years 1994, 1993 and 1992 accounted for
approximately, 5%, 5%, and 8% of consolidated revenues, in their respective
years of acquisition. See Note B of Notes to Consolidated Financial Statements
for a discussion of these acquisitions.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Revenue for fiscal year 1994 of $247,538,000 increased by $13,653,000 or
5.8% from fiscal year 1993 due to increases in network service revenue and
current year acquisitions offset in part by reductions in equipment revenue.
Revenue from maintenance and other services of $112,805,000 increased
$17,886,000 or 18.8% primarily due to business growth in the network services
business in the United States. Revenue from equipment and software of
$134,733,000 decreased by $4,233,000 or 3.0% from fiscal 1993 due to decreases
in reader/sorter equipment and document processing systems, offset in part by
growth in software from current year acquisitions. Revenue from equipment and
software represented 54.4% of total revenue in fiscal year 1994, compared to
59.4% in fiscal year 1993.
Gross profit of $69,652,000 for fiscal year 1994 increased by $3,052,000 or
4.6% over the same period for last year. Gross margin of 28.1% decreased by .4%
from the prior year due to a change in the mix of revenue to lower margin
maintenance revenue and the reduction in equipment revenue from prior year
levels. Gross profit for maintenance and other services increased by $5,556,000
due to the increase in network service revenue and an improvement in the gross
margin to 22.4% compared to 20.8% in fiscal year 1993. Gross profit for
equipment and software decreased by $2,504,000 due to the reduction in equipment
revenue and a 1.0% decrease in the associated gross margin percent. Partially
offsetting the reduction in equipment gross profit was an increase in software
revenue primarily from current year acquisitions and an improvement in software
margins.
Operating expenses increased by $3,719,000 from the prior year due to the
current year acquisitions. Operating expenses as a percentage of sales were
17.9% compared to 17.3% in the prior year.
Net interest expense decreased by $494,000 from fiscal 1993 as a result of
a lower average cost of borrowing and additional interest income on investments.
Net sundry expense decreased by $1,935,000 due to the absence of exchange losses
in the current year and gains on the sale of stock held for investment in fiscal
1994.
The provision for income taxes increased $720,000 over fiscal year 1993 due
to the increase in taxable income. The overall effective tax rate of 40.0%
remained constant with the prior year.
Minority interest of $2,625,000 reflects the ScanData Joint Venture
partner's (Thomson) 49.5% share of the losses incurred in the joint venture for
fiscal year 1994.
11
Fiscal year 1994 income before cumulative effect of accounting change of
$16,343,000 resulted in earnings per share of $1.45, compared to $14,351,000 and
$1.32 in fiscal year 1993. The fiscal year 1993 net income after accounting
change included $835,000 or an earnings per share effect of $0.08 for the
cumulative effect of adoption of SFAS No. 109 - Accounting for Income Taxes.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Revenue for fiscal year 1993 of $233,885,000 increased $42,917,000, or
22.5% from fiscal year 1992, as a result of increases in both equipment and
maintenance sales. Maintenance and other service revenue increased $20,140,000
or 26.9% from fiscal year 1992 due to growth in network services resulting from
acquisitions and new business. Revenue from equipment and software increased
$22,777,000 or 19.6% from fiscal year 1992 primarily due to acceptance by the
Swedish Bankgiro of a $14,000,000 turn-key image processing system and increased
end-user reader/sorter revenue due to acquisitions, offset in part by reduced
document processing systems and OEM reader/sorter revenue. Equipment and
software revenue represented 59.4% of total revenue in fiscal year 1993,
compared to 60.8% in fiscal year 1992.
Gross profit increased $8,712,000 or 15.1%. Fiscal year 1993 gross margin
of 28.5% decreased from 30.3% in the prior year primarily due to engineering
cost of sales related to the giro processing product and the write-off of an
obsolete page reader product in the joint venture.
Operating expenses increased $5,214,000 primarily due to increased sales
and marketing expense resulting from acquisitions. Operating expenses decreased
as a percentage of revenue to 17.3% in fiscal 1993 from 18.5% in fiscal 1992.
Net interest expense decreased $1,262,000 due to a lower average balance on
the term loan and a decline in the average effective interest rate on the term
loan due to the expiration of interest rate swap agreements. Net sundry
expenses increased $2,340,000 primarily due to a combination of foreign currency
transaction losses of $1,122,000 and increased goodwill amortization of $608,000
due to acquisitions.
The provision for income taxes reflected an increase in the Company's
effective tax rate to 40.0% in fiscal year 1993 from 37.7% in fiscal year 1992
primarily due to an increase in the foreign entities effective tax rates.
Minority interest of $1,675,000 represents Thomson's 49.5% share of the
losses incurred in the joint venture. These joint venture losses included the
write-off of an obsolete page reader product.
Fiscal year 1993 income before cumulative effect of accounting change
increased $2,630,000 or 22.4% compared to fiscal 1992, resulting in earnings per
share of $1.32 compared to $1.15 last year. The income improvement in fiscal
1993 was primarily due to increased gross profit on higher revenue and lower
interest expense offset in part by foreign currency losses.
During fiscal 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 - Accounting for Income Taxes. BancTec has elected to
reflect the cumulative effect of adopting SFAS 109 as a change in accounting
principle as of the beginning of fiscal 1993, increasing net income to
$15,186,000 or $1.40 per share. The adoption of SFAS 109 had no significant
impact on fiscal 1993 income before cumulative effect of accounting change.
12
LIQUIDITY AND CAPITAL RESOURCES
Funds to support the Company's operations, including capital expenditures,
have been derived from a combination of funds provided by operations, long and
short-term bank financing, capital leasing and, to a lesser extent, by sales of
capital stock under employee stock option and purchase plans. The Company has
three credit facilities currently in place under an agreement with several
banks. Under the term loan facility, the Company borrowed $51,000,000 in fiscal
year 1989 to fund the acquisition of Computer Entry Systems, (CES), of which
$13,181,000 is outstanding at March 27, 1994. Under the acquisition loan
facility, the Company may borrow up to $55,000,000, of which $44,200,000 has
been borrowed as of March 27, 1994 to fund the ACS and TDC acquisitions.
Remaining acquisition costs of TDC totalling $7,800,000 will be paid from
additional borrowings against the acquisition facility and/or operating cash
balances. The Company also has available a $20,000,000 revolving credit
facility which had no outstanding balance as of March 27, 1994. The Company
continues to make scheduled payments on the CES term loan of $1,821,000 per
quarter until maturity in March 1996. Under the terms of the acquisition loan
facility, interest only is currently payable and the amount outstanding on
December 31, 1994 will be converted to a term loan due and payable over 20 equal
quarterly payments until maturity in December 1999. During fiscal year 1994,
the Company borrowed a maximum amount of $3,000,000 against the revolving credit
facility, which was repaid by year end. See Note D of Notes to Consolidated
Financial Statements. The Company believes that it has sufficient financial
resources available to support its anticipated requirements to fund operations
in fiscal year 1995, 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.
Cash and cash equivalents decreased during the year as funds were utilized
for capital expenditures, current year acquisitions, inventory growth and in
support of several customer contracts with longer life cycles.
Accounts receivable increased in fiscal 1994 due to acquisitions and
increased sales in the fourth quarter as compared to the prior fiscal year.
Inventory increased due to a growth in finished goods reader/sorters due to
lower customer shipments, inventory from acquisitions and a buildup in support
of scheduled shipments for our image based products.
Net fixed assets increased due to current year capital additions in support
of the network services business, purchase of the headquarters facility, capital
leases on computer equipment and phone systems and business acquisitions.
Excess of cost over net assets of acquired business increased as of a
result of current year acquisitions. See Note B of Notes to the Consolidated
Financial Statements.
Current liabilities increased as a result of current maturities on the
acquisition facility, customer advances in Scandinavia, increases in amounts due
from the joint venture to Thomson, growth in network services deferred revenue
and liabilities assumed with the current year acquisitions.
Long-term debt increased primarily as a result of the borrowings under the
acquisition loan facility and to a lesser extent for debt assumed as part of one
of the acquisitions.
Inflation has not had a material effect on the operating results of the
Company.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
BancTec, Inc.:
We have audited the accompanying consolidated balance sheets of BancTec,
Inc. (a Delaware corporation) and subsidiaries as of March 27, 1994 and March
28, 1993, and the related consolidated statements of income, cash flows and
stockholders' equity for the years then ended. 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. The
consolidated financial statements of BancTec, Inc. as of March 29, 1992 were
audited by other auditors whose report dated May 28, 1992, expressed an
unqualified opinion on those statements.
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 March 27, 1994 and March 28, 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Note F of Notes to Consolidated Financial Statements,
effective March 30, 1992, the Company changed its method of accounting for
income taxes.
Arthur Andersen & Co.
Dallas, Texas
May 17, 1994
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
BancTec, Inc.
We have audited the accompanying consolidated statements of income, cash
flows, and stockholders' equity of BancTec, Inc. and subsidiaries for the year
ended March 29, 1992. Our audit also included the financial statement schedules
listed in the Index at Item 14(a) as of March 29, 1992 and for the year ended
March 29, 1992. These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audit.
We conducted our audit 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of BancTec, Inc. for the year ended March 29, 1992, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein at March 29, 1992 and for the year ended March
29, 1992.
Ernst & Young
Dallas, Texas
May 28, 1992
15
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
March 27, March 28,
1994 1993
-------- --------
(In thousands)
CURRENT ASSETS:
Cash and cash equivalents................................ $ 12,644 $ 25,326
Accounts receivable, less allowance for doubtful accounts
of $1,518,000 in 1994 and $1,342,000 in 1993.......... 66,635 47,849
Inventories.............................................. 48,769 36,934
Other.................................................... 8,667 6,437
-------- --------
Total current assets............................... 136,715 116,546
-------- --------
PROPERTY, PLANT AND EQUIPMENT-AT COST:
Land..................................................... 1,295 277
Field support spare parts................................ 44,548 35,611
Machinery and equipment.................................. 34,377 29,872
Furniture, fixtures and other............................ 20,378 15,273
Building................................................. 4,911 690
-------- --------
105,509 81,723
Less accumulated depreciation and amortization........... 60,125 47,535
-------- --------
Net property, plant and equipment ................. 45,384 34,188
-------- --------
EXCESS OF COST OVER NET ASSETS OF ACQUIRED BUSINESS,
less accumulated amortization of $6,832,000 in 1994 and
$4,932,000 in 1993....................................... 88,352 39,119
-------- --------
OTHER INTANGIBLE ASSETS, less accumulated amortization of
$4,388,000 in 1994 and $2,598,000 in 1993................ 3,264 4,011
-------- --------
OTHER ASSETS............................................... 2,555 982
-------- --------
TOTAL ASSETS............................................... $276,270 $194,846
-------- --------
-------- --------
See notes to consolidated financial statements.
16
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
March 27, March 28,
1994 1993
-------- --------
(In thousands)
CURRENT LIABILITIES:
Current maturities of long-term debt..................... $ 12,426 $ 9,846
Trade accounts payable................................... 19,539 12,771
Other accrued expenses and liabilities................... 31,968 26,945
Deferred revenue......................................... 23,580 14,561
Income taxes............................................. 3,117 2,736
-------- --------
Total current liabilities.......................... 90,630 66,859
-------- --------
LONG-TERM DEBT, less current maturities.................... 50,564 12,239
-------- --------
OTHER LIABILITIES.......................................... 5,593 1,941
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 1,210 3,835
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock-authorized, 1,000,000 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, 10,743,550 shares in
1994 and 10,428,400 in 1993........................... 107 104
Additional paid-in capital.............................. 45,959 43,731
Retained earnings........................................ 84,361 68,018
Foreign currency translation adjustments................. (721) (750)
Unearned compensation.................................... (1,433) (1,131)
-------- --------
Total stockholders' equity......................... 128,273 109,972
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $276,270 $194,846
-------- --------
-------- --------
See notes to consolidated financial statements.
17
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended
--------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands, except per share data)
REVENUE:
Equipment and software.......................... $134,733 $138,966 $116,189
Maintenance and other services.................. 112,805 94,919 74,779
-------- -------- --------
247,538 233,885 190,968
-------- -------- --------
COSTS OF SALES:
Equipment and software.......................... 90,380 92,109 75,295
Maintenance and other services.................. 87,506 75,176 57,785
-------- -------- --------
177,886 167,285 133,080
-------- -------- --------
Gross profit.............................. 69,652 66,600 57,888
-------- -------- --------
OPERATING EXPENSES:
Product development............................. 9,515 8,490 7,692
Selling, general and administrative............. 34,701 32,007 27,591
-------- -------- --------
44,216 40,497 35,283
-------- -------- --------
Income from operations.................... 25,436 26,103 22,605
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income................................. 422 315 534
Interest expense................................ (1,846) (2,233) (3,714)
Sundry-net...................................... (1,149) (3,084) (744)
-------- -------- --------
(2,573) (5,002) (3,924)
-------- -------- --------
Income before income taxes, minority inter-
est and cumulative effect of accounting
change..................................... 22,863 21,101 18,681
-------- -------- --------
INCOME TAX PROVISION (BENEFIT):
Current......................................... 11,363 8,969 6,405
Deferred........................................ (2,218) (544) 641
-------- -------- --------
9,145 8,425 7,046
-------- -------- --------
MINORITY INTEREST................................. 2,625 1,675 86
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE.......................................... 16,343 14,351 11,721
CUMULATIVE EFFECT OF ACCOUNTING CHANGE............ -- 835 --
-------- -------- --------
NET INCOME........................................ $ 16,343 $ 15,186 $ 11,721
-------- -------- --------
-------- -------- --------
NET INCOME PER SHARE:
Income Before Accounting Change................. $1.45 $1.32 $1.15
Cumulative Effect of Accounting Change.......... -- .08 --
-------- -------- --------
Net Income...................................... $1.45 $1.40 $1.15
-------- -------- --------
-------- -------- --------
Fully Diluted Shares............................ 11,294 10,870 10,173
See notes to consolidated financial statements.
18
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
--------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 16,343 $ 15,186 $ 11,721
Adjustments to reconcile net income to cash flows
provided by operating activities:
Depreciation and amortization............. 18,827 14,478 12,956
Deferred income tax expense (benefit)..... (2,218) (544) 641
Cumulative effect of accounting change.... -- (835) --
Other non-cash items...................... 258 1,069 --
(Increase) decrease in accounts receivable (8,182) (8,840) 3,566
(Increase) decrease in inventories........ (6,833) 5,888 2,587
(Increase) decrease in other assets....... (6,776) 598 (2,796)
Increase in trade accounts payable........ 3,217 3,331 1,465
Increase in deferred revenue.............. 5,125 5,801 3,492
Increase (decrease) in other accrued
expenses and liabilities............... 3,171 6,165 (4,192)
Minority interest in earnings............. (2,625) (1,675) (86)
-------- -------- --------
Cash flows provided by operating
activities.......................... 20,307 40,622 29,354
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment...... (24,821) (15,199) (16,080)
Disposition of property, plant and equipment.... 3,196 3,057 2,903
Purchase of businesses, net of cash acquired.... (49,014) (6,162) (9,389)
-------- -------- --------
Cash flows used in investing
activities.......................... (70,639) (18,304) (22,566)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of current maturities of long-term debt
and capital lease obligations................ (8,168) (6,003) (7,721)
Proceeds from long-term borrowings.............. 44,200 -- --
Proceeds from short-term borrowings............. 3,000 6,000 2,500
Payments of short-term borrowings............... (3,000) (6,000) (2,500)
Repurchase of common stock...................... -- -- (205)
Proceeds from sales and issuances of common
stock........................................ 1,650 2,087 1,554
-------- -------- --------
Cash flows provided by (used in)
financing activities................ 37,682 (3,916) (6,372)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........... (32) (891) 1,074
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (12,682) 17,511 1,490
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR..... 25,326 7,815 6,325
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR........... $ 12,644 $ 25,326 $ 7,815
-------- -------- --------
-------- -------- --------
See notes to consolidated financial statements.
19
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 27, 1994, March 28, 1993 and March 29, 1992
(In thousands)
Foreign
Currency
Addi- Trans-
tional lation Unearned
Common Paid-in Retained Adjust- Compen-
Stock Capital Earnings ments sation Total
------ ------- -------- ------- -------- ---------
Balance at March 31, 1991..... $ 61 $38,138 $40,744 $ (23) $ -- $ 78,920
Common stock issued princip-
ally under employee stock
plans....................... 3 1,551 -- -- -- 1,554
Repurchase and retirement of
common stock................ -- (205) -- -- -- (205)
Foreign currency translation
adjustments................. -- -- -- 262 -- 262
Net income.................... -- -- 11,721 -- -- 11,721
---- ------- ------- ----- ------- --------
Balance at March 29, 1992..... 64 39,484 52,465 239 -- 92,252
Common stock issued princip-
ally under employee stock
plans....................... 2 2,088 -- -- -- 2,090
Three-for-two common stock
split....................... 35 (41) -- -- -- (6)
Shares issued for CFS acquisi-
tion........................ 3 -- 367 -- -- 370
Common stock issued under
restricted stock plan....... -- 1,239 -- -- (1,239) --
Amortization of unearned
compensation................ -- -- -- -- 108 108
Tax benefit from exercise of
stock options............... -- 961 -- -- -- 961
Foreign currency translation
adjustments................. -- -- -- (989) -- (989)
Net income.................... -- -- 15,186 -- -- 15,186
---- ------- ------- ----- ------- --------
Balance at March 28, 1993..... 104 43,731 68,018 (750) (1,131) 109,972
Common stock issued princip-
ally under employee stock
plans....................... 3 1,668 -- -- -- 1,671
Common stock issued under
restricted stock plan....... -- 490 -- -- (490) --
Amortization of unearned
compensation................ -- -- -- -- 188 188
Tax benefit from exercise of
stock options............... -- 70 -- -- -- 70
Foreign currency translation
adjustments................. -- -- -- 29 -- 29
Net income.................... -- -- 16,343 -- -- 16,343
---- ------- ------- ----- ------- --------
Balance at March 27, 1994..... $107 $45,959 $84,361 $(721) $(1,433) $128,273
---- ------- ------- ----- ------- --------
---- ------- ------- ----- ------- --------
See notes to consolidated financial statements.
20
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The principal business of BancTec, Inc. and subsidiaries ("the Company") is
the development, manufacture and sale of integrated financial transaction
processing systems, application software and support services. The Company
develops turn-key image processing systems, data capture systems and integrated
software products for the banking, financial services, telecommunications,
utility, petroleum, insurance, government, retail and other industries. The
Company also designs, manufactures and markets document processing equipment for
original equipment manufacturer (OEM) customers and provides network support
services for local area networks and personal computers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and the ScanData Joint Venture discussed in Note
B. All significant intercompany accounts and transactions have been eliminated.
The Company's fiscal year is a 52/53 week year which ends on or about March 31.
Fiscal year 1994 ended on March 27, 1994, fiscal year 1993 ended on March 28,
1993 and fiscal year 1992 ended on March 29, 1992.
The Company uses a 13-week period for quarterly reporting.
CASH EQUIVALENTS
Cash equivalents include investments with original maturities of three
months or less. Investments with original maturities greater than three months
are included in other current assets or other assets depending upon maturity.
There were no such investments with original maturities greater than three
months at fiscal year-end 1994 and 1993.
INVENTORIES
Inventories are stated at the lower of cost or market 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 RECOGNITION
The Company's revenue recognition policy for its principal sources of
revenue are:
Equipment and software sales - Revenue from sales of established products
is recognized upon shipment in conformity with Statement of Position No. 91-1,
Software Revenue Recognition. Revenue for new products, certain other equipment
and software with lengthy development or installation periods 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
21
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 March 27, 1994 and March 28, 1993, there were $803,000
and $647,000, 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.
The Company generally warrants its equipment and software products sold
directly to end-users for 30 days and OEM products sold to system providers for
90 days from the date of shipment. The Company provides for warranty costs at
the time revenue is recorded.
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 income, as appropriate. Straight-line or declining balance
methods of depreciation are 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 is generally seven years. Buildings utilize a forty year life.
Intangible assets are amortized on a straight-line basis over their
estimated useful lives. The excess of cost over net assets of acquired business
is amortized over 10 to 40 years. Other intangible assets are amortized over 3
to 5 years.
PRODUCT DEVELOPMENT
Company-sponsored product development costs are expensed as incurred.
Customer-sponsored product development costs are generally charged to costs of
sales or the proceeds generated therefrom are credited to product development
costs by the Company.
INCOME TAXES
Deferred income taxes recognize the effect of temporary differences between
the reporting of transactions and the basis of assets and liabilities for
financial accounting and income tax purposes. Utilization of income tax credits
are accounted for using the flow-through method, which recognizes the credits as
reductions of income tax expense in the year utilized.
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
22
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
translated monthly at the average exchange rates for the month. Translation
gains and losses are reported as a separate component of stockholders' equity,
and transaction gains and losses are included in results of operations.
NET INCOME PER SHARE
Net income per common and common equivalent share is based upon the
weighted average number of outstanding shares during the year. The number of
outstanding shares of common stock has been adjusted to reflect the assumed
exercise of all outstanding stock options which are dilutive, at the beginning
of the period or date of issuance, and the use of the proceeds of such assumed
exercise to repurchase, at market, common stock of the Company.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current
year presentation.
On February 8, 1993, the Company authorized a three-for-two stock split
payable in the form of a 50% stock dividend to stockholders of record on
February 18, 1993. All share and per share data has been adjusted to reflect
the stock split.
NOTE B - ACQUISITIONS AND EQUITY INVESTMENTS
During the second quarter of fiscal year 1994, the Company acquired certain
assets and assumed certain liabilities of LeRoux, Pitts and Associates ("LPA"),
a subsidiary of NYNEX. The acquisition of LPA provides BancTec EFT-oriented
software products for debit/credit card processing and electronic check
authorization requirements. The purchase price, including acquisition costs,
was approximately $2,500,000, which was paid in cash, plus liabilities assumed
of approximately $1,500,000. The business combination was accounted for as a
purchase and accordingly, LPA operations are included in the Company's
consolidated results of operations from August 20, 1993, the effective date of
the transaction. The assets and liabilities acquired are recorded in the
Company's consolidated balance sheet at the assigned fair value.
During the second quarter of fiscal year 1994, BancTec contributed
approximately $500,000 in cash and certain other considerations in exchange for
a 33% equity interest in Servibanca, S.A.("Servibanca"), a Chilean company.
Servibanca is a check processing service bureau as well as a distributor of
BancTec image processing systems, document processing systems, and stand alone
reader/sorters to banks, service bureaus, and other financial processors in
Chile and other South American countries. BancTec's investment in and share of
Servibanca's earnings have been included since September 14, 1993, and are
recorded using the equity method of accounting.
During the third quarter of fiscal year 1994, the Company acquired
Imagesolve International, Ltd. ("Imagesolve"), a leading British provider of
integrated systems solutions for electronic document imaging, specializing in
solutions utilizing Computer Output to Laser Disk (COLD) technology, which
electronically archives computer-generated documents onto optical disks. The
purchase price, including acquisition costs, was approximately $2,800,000, which
was paid in cash, plus liabilities assumed of approximately $1,350,000. The
business combination was accounted for as a purchase
23
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
and accordingly, Imagesolve operations are included in the Company's
consolidated results of operations from December 1, 1993, the effective date of
the transaction. The assets and liabilities acquired are recorded in the
Company's consolidated balance sheet at the assigned fair value.
Also during the third quarter of fiscal year 1994, the Company acquired
Advanced Computer Systems, Inc. ("ACS"). ACS is currently a leading provider of
software products which integrates check sorting, platform automation, loan
processing, ATM and teller terminal processing and other bank operations
activities, to banks with less than $300 million in assets. The purchase price,
including acquisition costs, was approximately $25,300,000, which was paid in
cash borrowed under the acquisition loan facility discussed in Note D, plus
liabilities assumed of approximately $13,600,000. The business combination was
accounted for as a purchase and accordingly, ACS operations are included in the
Company's consolidated results of operations from December 23, 1993, the
effective date of the transaction. The assets and liabilities acquired are
recorded in the Company's consolidated balance sheet at the assigned fair value.
During the fourth quarter of fiscal year 1994, the Company acquired
Terminal Data Corporation ("TDC"). TDC is a provider of document imaging
systems, page scanning devices, and digital and microfilm cameras. The purchase
price, including acquisition costs, was approximately $23,600,000, of which
approximately $18,100,000 has been paid in cash as of year end. Liabilities
assumed in the transaction were approximately $11,750,000. Such cash was
borrowed under the acquisition loan facility. Non-cash consideration of
approximately $5,500,000 consists primarily of future payments to be made for
stock and debt which had not been tendered as of year end. Such payments shall
be made using additional funds borrowed under the acquisition loan facility
and/or operating cash. The business combination was accounted for as a purchase
and accordingly, TDC operations are included in the Company's consolidated
results of operations from February 28, 1994, the effective date of the
transaction. The assets and liabilities acquired are recorded in the Company's
consolidated balance sheet at the assigned fair value.
The following unaudited pro forma information combines the results of
operations of the Company, ACS and TDC as if the purchase transactions had
occurred at the beginning of fiscal year 1993. The pro forma information is
based on the historical financial statements of BancTec, ACS and TDC giving
effect to the transactions under the purchase method of accounting and including
adjustments necessary to reflect the exclusion of certain ACS and TDC
administration costs, additional interest on debt, amortization of the excess of
cost over net assets of acquired business and the related tax impact thereof.
Management believes that these pro forma statements may not be indicative
of the results that would have occurred if the combinations had been in effect
on the dates indicated or which may be obtained in the future. Anticipated
efficiencies from the consolidation of these entities are not fully
determinable, and therefore, have been excluded from these pro forma results of
operations. The Company has not considered the LPA and Imagesolve acquisitions
in these unaudited pro forma results of operations because such acquisitions are
not material to the consolidated financial statements.
24
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Revenue....................................... $284,770 $277,847
Income before cumulative effect of change
in accounting method.................... 15,477 13,288
Net Income.................................... 15,477 14,123
Net Income per share:
Before accounting change................... $1.37 $1.22
Net Income................................. $1.37 $1.30
In the second quarter of fiscal year 1993, the Company acquired Computer
Field Specialists, Inc. and Computer Field Specialists of Texas, Inc.
(collectively, "CFS") for 318,181 (477,272 as adjusted for stock split) shares
of common stock. The acquisition was accounted for as a pooling of interests.
The financial statements include the combined results of CFS and BancTec from
June 29, 1992, the date of the acquisition. Prior periods have not been
restated due to immateriality.
Also during the second quarter of fiscal year 1993, the Company acquired
Springfield Computer Consultants, Inc., which markets under the name of Access
Banking Systems ("Access"). The purchase price, including acquisition costs,
was approximately $3,400,000, of which $2,900,000 was paid in cash. Non-cash
consideration of $500,000 consists primarily of future payments to the former
owners. The business combination was accounted for as a purchase and
accordingly, Access operations are included in the Company's consolidated
results of operations from August 1, 1992, the effective date of the
transaction. The assets and liabilities acquired are recorded in the Company's
consolidated balance sheet at the assigned fair value.
In the third quarter of fiscal year 1992, BancTec, Inc. and Thomson-CSF
("Thomson"), a French company, established a joint venture company, ScanData
N.V. BancTec contributed approximately $6,500,000 comprised of all of the
outstanding stock of BancTec GmbH and BancTec Nederlands B.V., at book value,
cash totalling $304,000 and other consideration in exchange for 50.5% of the
shares of ScanData N.V.. Thomson contributed the assets, liabilities and
contracts of ScanData S.A. (formerly the Cyberbanque operations) for 49.5% of
the shares of ScanData N.V.. The transaction was recorded as an acquisition of
ScanData S.A. using the purchase method. Accordingly, ScanData S.A. operations
are included in the Company's consolidated financial results of operations from
September 30, 1991, the effective date of the acquisition for accounting
purposes.
During the second quarter of fiscal year 1992, the Company acquired the
third-party service business and related assets of ebm Systems, Inc. for a total
cost, including acquisition costs, of approximately $6,400,000, paid in cash.
The business combination was accounted for as a purchase and accordingly, ebm
operations are included in the Company's consolidated financial results of
operations from August 30, 1991, the effective date of the transaction.
Also during the second quarter of fiscal year 1992, the outstanding common
stock of Monitronics, Inc., a supplier of banking system hardware and software
was acquired at a total cost, including acquisition costs, of approximately
$2,000,000. Non-cash consideration totaled $1,350,000 and consisted primarily
of future payments to the former owners. The business combination was accounted
for as a purchase and
25
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
accordingly, Monitronics operations are included in the Company's consolidated
financial results of operations from September 27, 1991, the effective date of
the transaction.
The Company has not disclosed unaudited proforma results of operations of
CFS, Access, ScanData S.A., ebm Systems, Inc., and Monitronics, Inc. as if the
acquisitions had been made as of the beginning of fiscal year 1993 or 1992
because such acquisitions are not material to the consolidated financial
statements.
The excess of the costs of these acquired businesses over the fair value
assigned to the assets acquired less liabilities assumed are being amortized
over their estimated useful lives using the straight-line method commencing with
the respective dates of acquisition:
Acquired Business Goodwill Amortization Period
----------------- ----------------------------
LPA 15 years
ImageSolve 20 years
ACS 20 years
TDC 25 years
Access 15 years
ScanData S.A. 20 years
ebm 10 years
Monitronics 15 years
The Company continually evaluates whether events and circumstances indicate
the remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. No adjustments to
recorded goodwill have resulted from these evaluations.
NOTE C - INVENTORIES
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Raw materials................................. $18,395 $16,215
Work-in-process .............................. 6,565 2,639
Finished goods ............................... 28,732 21,707
Obsolescence and valuation reserves........... (4,923) (3,627)
------- -------
$48,769 $36,934
------- -------
------- -------
NOTE D - INDEBTEDNESS
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Term loans payable to banks................... $61,340 $20,697
Obligations under capital leases.............. 1,650 1,388
------- -------
62,990 22,085
Less current maturities....................... 12,426 9,846
------- -------
$50,564 $12,239
------- -------
------- -------
26
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Future maturities of indebtedness, excluding obligations under capital
leases, are as follows:
Fiscal Year (In thousands)
----------- --------------
1995............................. $11,941
1996............................. 13,175
1997............................. 9,247
1998............................. 9,247
1999............................. 9,247
Thereafter....................... 8,483
-------
$61,340
-------
-------
During fiscal year 1994, the Company renegotiated the terms of its credit
agreement with several banks. The revised agreement provides for a $20,000,000
short-term revolving credit facility ("revolving credit facility"), a
$51,000,000 term loan ("term loan") and a $55,000,000 acquisition loan facility
("acquisition facility") 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 defined current
ratio, minimum net worth and a minimum ratio of cash flow from operations to
debt service. 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 Eurodollar borrowings plus 1 point. A commitment fee of 1/4% on
the unused revolving credit facility is payable on a quarterly basis. The term
loan and acquisition facility bear interest at the lender's prime commercial
rate or, at the Company's option, LIBOR plus 1-1/4 to 1-3/4 points, depending on
the Company debt to capitalization ratio, as defined. At March 27, 1994, the
Company's debt to capitalization ratio was .35 and the applicable interest rate
was LIBOR plus 1-1/2 points.
At March 29, 1992, the Company had outstanding interest rate swap
agreements which effectively converted $25,000,000 of floating rate debt to
fixed rate debt with interest rates ranging from 11.53% to 11.98%. Under the
agreements, which expired in the first quarter of fiscal year 1993, the Company
made payments to a counter party at a fixed rate and in return received payments
at variable rates based on the prime rate as defined in the agreements. The net
interest paid is included in interest expense.
Borrowings under the term loan total $13,181,000 at March 27, 1994.
Principal payments under the term loan are due in 28 equal quarterly
installments, plus interest, which commenced on June 30, 1989 and matures in
fiscal year 1996.
Under the acquisition facility, the Company may borrow up to $55,000,000
during the period from inception of the facility, October 6, 1993, through
December 31, 1994 for the purpose of funding acquisitions. At December 31,
1994, the balance of the acquisition facility will be converted to a term loan
and principal payments are due in 20 equal quarterly installments, plus
interest, which commence on March 31, 1995 and end on December 31, 1999. At
March 27, 1994, the balance of the acquisition facility was $44,200,000.
The weighted average interest rate on borrowings under the term loan and
acquisition facility was 4.94% at March 27, 1994.
27
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Future minimum lease payments under capital lease obligations are as
follows:
Fiscal Year (In thousands)
----------- --------------
1995............................. $ 734
1996............................. 556
1997............................. 313
1998............................. 128
1999............................. 33
------
Total minimum lease payments..... 1,764
Less amount representing interest
(5.9%-10.3% rate).............. 114
------
Present value of net minimum lease
payments, including current
maturities of $635,000 at
March 27, 1994 ................ $1,650
------
------
Property, plant and equipment recorded under capital leases are as follows:
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Machinery and equipment....................... $ 852 $ 702
Furniture, fixtures and other................. 3,006 2,133
------- -------
Total - at cost............................... 3,858 2,835
Less accumulated depreciation ................ 1,991 1,351
------- -------
$ 1,867 $ 1,484
------- -------
------- -------
The Company paid cash totalling $1,093,000, $1,967,000, and $3,442,000 for
interest during fiscal years 1994, 1993 and 1992, respectively.
NOTE E - OTHER ACCRUED EXPENSES AND LIABILITIES
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Salaries, wages and other compensation........ $16,033 $12,086
Accrued taxes, other than income taxes........ 3,860 1,859
Advances from customers....................... 3,279 2,666
Other......................................... 8,796 10,334
------- -------
$31,968 $26,945
------- -------
------- -------
NOTE F - INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109 - Accounting for Income Taxes. SFAS 109 is an asset and
liability approach which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events which have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, SFAS 109 generally considers all expected future events
other than enactments of changes in the tax law or rates. Previously, the
Company used the SFAS 96 asset and liability approach that
28
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their recorded amounts.
BancTec elected to reflect the cumulative effect of adopting this
pronouncement as a change in accounting principle as of the beginning of fiscal
year 1993 with a credit to earnings of $835,000. Prior year's financial
statements were not restated. This credit consists primarily of the increase in
net deferred tax assets to reflect the benefit of taxes previously provided for
profit on inventory sold between BancTec entities within different taxing
jurisdictions but still on the Company's consolidated books at the end of fiscal
1992. Such benefit could not be recorded under SFAS 96. The impact of adoption
of SFAS 109 on fiscal 1993 results was not significant and previously reported
quarters have not been restated.
The domestic and foreign components of income before income taxes and
cumulative effect of accounting change consisted of the following:
Years Ended
--------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands)
Domestic (including Puerto Rico)....... $26,754 $19,272 $10,413
Foreign................................ (3,891) 1,829 8,268
------- ------- -------
$22,863 $21,101 $18,681
------- ------- -------
------- ------- -------
The income tax provision (benefit) consisted of the following:
Years Ended
--------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands)
Current:
Federal (including Puerto Rico)..... $ 9,508 $7,174 $4,356
State............................... 729 822 918
Foreign............................. 1,126 973 1,131
------- ------ ------
Total current.................... 11,363 8,969 6,405
------- ------ ------
Deferred:
Federal............................. (972) (544) 641
Foreign............................. (1,246) - -
------- ------ ------
Total deferred................... (2,218) (544) 641
------- ------ ------
$ 9,145 $8,425 $7,046
------- ------ ------
------- ------ ------
29
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:
Years Ended
--------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands)
Provision at U.S. statutory rate of 35%
in fiscal year 1994, and 34% for
fiscal year 1993 and 1992........... $8,002 $7,174 $6,352
Increase (reduction) in tax expense
resulting from:
Impact of foreign and Puerto Rico
income tax rates............... (1,029) 475 (388)
Charge in lieu of taxes for tax
benefits realized from the
acquisition of CES............. 137 110 468
Valuation reserves provided for tax
deductible losses generated.... 1,246 - -
Utilization of investment and
alternative minimum tax credits. - (584) -
Domestic amortization of cost over
net assets of acquired business. 637 437 355
State income tax, net of federal
income tax benefit............. 474 597 606
Other............................. (322) 216 (347)
------ ------ ------
$9,145 $8,425 $7,046
------ ------ ------
------ ------ ------
The Company paid cash totalling $9,414,000, $5,006,000, and $6,049,000, for
income taxes in fiscal years 1994, 1993 and 1992, 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. The
deferred tax benefit in fiscal years 1994 and 1993 and the deferred tax
provision in fiscal year 1992 represented the effect of changes in the amounts
of temporary differences during those fiscal years.
30
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of March 27, 1994 and March 28, 1993, deferred tax assets (liabilities),
as determined under the provisions of SFAS 109, were comprised of the following:
March 27, March 28,
1994 1993
-------- --------
(In thousands)
Gross Deferred Tax Liability:
Depreciation................................ $ (939) $(2,070)
------- -------
Gross Deferred Tax Assets:
Inventory reserves.......................... 1,088 997
Warranty reserves........................... 104 136
Employee benefit accruals................... 2,015 1,568
Accounts receivable reserves................ 531 361
Deductible acquisition costs................ 238 397
Net operating losses........................ 6,135 3,654
Taxes paid on intercompany profits.......... 983 1,215
Alternative minimum tax credit carryforward. - 350
Other....................................... 117 201
------- -------
Gross deferred tax assets................... 11,211 8,879
------- -------
Deferred tax assets valuation reserve....... (4,900) (3,654)
------- -------
Net deferred tax asset...................... $ 5,372 $ 3,155
------- -------
------- -------
The net change in the deferred tax asset valuation reserve in fiscal 1994
and 1993 was $1,246,000 and $2,326,000, respectively, and is attributable to
the increase in the net operating loss carryforwards of the Company's Canadian
and Australian subsidiaries and the German entity of the Scandata Joint Venture.
At March 27, 1994, the Company had approximately $566,000 in deductible
temporary differences remaining for financial reporting purposes as a result of
the acquisition of CES. An adjustment to the excess of cost over net assets of
business acquired and a charge in lieu of taxes is recorded for any tax benefits
resulting from realization of these carryforwards in years subsequent to the
acquisition.
Undistributed earnings of foreign subsidiaries were approximately
$7,264,000 at March 27, 1994 and $6,831,000 at March 28, 1993. No taxes have
been provided on these undistributed earnings as they are considered to be
permanently reinvested.
NOTE G - STOCKHOLDERS' EQUITY
On February 8, 1993, the Company authorized a three-for-two stock split
payable in the form of a 50% stock dividend to stockholders of record on
February 18, 1993. A total of 3,457,553 shares of common stock were issued in
connection with the split. Accordingly, $34,576 was transferred from additional
paid-in capital to common stock. All share and per share data presented has
been adjusted to reflect the stock split.
31
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EMPLOYEE STOCK AWARD PLANS
At March 27, 1994, a total of 2,313,558 shares of common stock were
reserved for issuance under the Company's stock award plans. At March 27, 1994,
630,966 shares 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 award is as follows:
STOCK OPTIONS
In general, the plans provide for the granting of options at not less than
the fair market value of the stock at the date of grant. Options issued
vest periodically as defined in the plans. At March 27, 1994, options to
purchase 1,682,592 shares were outstanding, of which options to purchase
617,182 shares were vested and could be exercised.
A summary of activity in the Company's stock option plans is as follows:
Option Price
Shares Per Share
---------- ---------------
Options outstanding - March 29, 1992.... 1,532,974 $ 3.50 - $11.50
Granted................................. 375,897 14.67 - 18.83
Exercised............................... (297,044) 4.67 - 10.50
Forfeited............................... (51,505) 4.83 - 16.92
----------
Options outstanding - March 28, 1993.... 1,560,322 3.50 - 18.83
Granted................................. 397,235 17.75 - 22.38
Exercised............................... (221,933) 3.50 - 18.83
Forfeited .............................. (53,032) 4.83 - 18.83
----------
Options outstanding - March 27, 1994.... 1,682,592 $ 3.50 - $22.38
----------
----------
RESTRICTED STOCK AWARDS
The Board of Directors of the Company 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 fiscal
1994, 27,981 restricted shares were awarded and unearned compensation of
$490,100 was recorded. During fiscal 1993, 53,312 restricted shares were
awarded and unearned compensation of $1,239,000 was recorded. Vesting on
such shares ranges from 3 years to 19 years. In fiscal year 1994 and 1993,
$188,100 and $108,000, respectively, was amortized to expense.
EMPLOYEE STOCK PURCHASE PLANS
The Company has an employees' stock purchase plan, under which 42,142
shares of common stock were reserved at March 27, 1994. 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
fiscal years 1994 and 1993, the Company issued 49,186 and 51,474 shares,
respectively, under the plan.
32
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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 Company 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 offers 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. 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 H - EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which allows substantially all
full-time domestic employees to make contributions defined by section 401(k) of
the Internal Revenue Code. The Company elected to contribute 1.4%, 1.5%, and
2.6% of the qualifying participant's base salary in fiscal years 1994, 1993 and
1992, respectively. Amounts expensed under the plan for the years ended March
27, 1994, March 28, 1993, and March 29, 1992 were $597,000, $600,000, and
$698,000, respectively. The Company provides no material post retirement
benefits to its employees.
33
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company leases most of its production facilities and certain equipment
under non-cancelable operating leases expiring through fiscal year 2010. Total
Company rent expense for the years ended March 27, 1994, March 28, 1993, and
March 29, 1992 was $4,263,000, $4,701,000, and $4,754,000, respectively.
Future minimum payments under non-cancelable operating leases are
approximately as follows:
Fiscal Year (In thousands)
----------- --------------
1995............................. $ 5,260
1996............................. 4,125
1997............................. 3,022
1998............................. 2,610
1999............................. 1,658
Thereafter....................... 4,808
-------
$21,483
--------
--------
The Company has the option to renew operating leases on its major
facilities at the end of the current lease terms.
NOTE J - GEOGRAPHIC OPERATIONS
The Company operates in the following geographic areas: the United States,
including Puerto Rico, Europe, including the United Kingdom and Scandinavia, and
other international areas consisting primarily of Australia and Canada.
Interarea sales to affiliates are accounted for at established transfer prices.
Sales and operating income for the years ended March 27, 1994, March 28,
1993, and March 29, 1992, and identifiable assets at the end of each of those
years, classified by geographic area, are as follows:
Other
United Inter- Elimi- Consoli-
States Europe national nations dated
------ ------ ------- ------- -------
(In thousands)
1994
Sales to unaffiliated customers..$186,362 $56,778 $ 4,398 $ - $247,538
Interarea sales to affiliates.... 16,809 - - (16,809) -
Operating income................. 25,159 (2,175) (569) 3,021 25,436
Identifiable assets.............. 236,136 54,759 2,234 (16,859) 276,270
1993
Sales to unaffiliated customers. $171,539 $56,571 $ 5,775 $ - $233,885
Interarea sales to affiliates.... 25,121 710 - (25,831) -
Operating income................. 25,717 (1,166) (718) 2,270 26,103
Identifiable assets.............. 164,055 46,886 2,809 (18,904) 194,846
1992
Sales to unaffiliated customers..$141,728 $35,646 $13,594 $ - $190,968
Interarea sales to affiliates.... 18,576 2,690 - (21,266) -
Operating income................. 24,527 2,245 352 (4,519) 22,605
Identifiable assets.............. 154,294 37,526 3,705 (24,271) 171,254
34
BANCTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Foreign currency transaction losses in fiscal years 1994, 1993 and 1992
were $374,000, $1,122,000, and $17,000, respectively, and are included as part
of sundry-net in the consolidated statements of income.
NOTE K - RELATED PARTIES
Prior to fiscal year 1994, ScanData S.A. subcontracted the performance of
maintenance services for certain customers to Thomson, a partner in the ScanData
J.V. discussed in Note B. Under the terms of such agreement, ScanData S.A.
received 12.5% of the amount billed for maintenance services in exchange for
providing such customers to Thomson. This agreement expired at the end of
fiscal year 1993. Included in fiscal year 1993 and 1992 revenues are $461,000
and $208,000, respectively, related to this arrangement. Included in trade
accounts payable at March 27, 1994 and March 28, 1993 are $6,635,000 and
$2,531,000, respectively, payable to Thomson.
NOTE L - SUMMARIZED QUARTERLY DATA (UNAUDITED)
1994
------------------------------------------------
Q1 Q2 Q3 Q4 Total
-- -- -- -- -----
(In thousands, except per share data)
Revenue............................ $54,878 $53,342 $59,539 $79,779 $247,538
Gross profit....................... 15,251 14,815 17,620 21,966 69,652
Net income......................... 3,280 3,356 4,257 5,450 16,343
Fully diluted net income per share. .30 .30 .38 .48 1.45
1993
------------------------------------------------
Q1 Q2 Q3 Q4 Total
-- -- -- -- -----
(In thousands, except per share data)
Revenue............................ $49,246 $67,670 $56,377 $60,592 $233,885
Gross profit....................... 14,651 18,063 17,079 16,807 66,600
Income before cumulative effect of
accounting change............... 2,803 3,737 3,622 4,189 14,351
Net income......................... 3,638 3,737 3,622 4,189 15,186
Fully diluted income per share
before cumulative effect of
accounting change............... .27 .34 .33 .38 1.32
Fully diluted net income per share. .35 .34 .33 .38 1.40
Due to changes in the market value of the Company's stock, net income per
share as presented does not equal the sum of the quarters.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
35
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 1994 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 1994 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 1994 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 1994 annual meeting
of stockholders, which information is incorporated herein by reference.
36
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 40.
(b) Reports on Form 8-K:
(i) January 5, 1994, Acquisition of Advanced Computer Systems,
Inc.
(ii) May 16, 1994, Acquisition of Terminal Data Corporation.
(c) Exhibits
3.1 - Certificate of Incorporation.(6)
3.2 - By-Laws.(1)
4.1 - Specimen of Common Stock Certificate.(1)
10.1 - BancTec, Inc. 1989 Stock Plan (8)
10.2 - BancTec, Inc. Incentive Stock Option Plan, as amended.(3)
10.3 - BancTec, Inc. 1982 Nonqualified Stock Option Plan, as amended.(3)
10.4 - BancTec, Inc. 1994 Stock Plan.(11)
10.5 - BancTec, Inc. 1990 Employee Stock Purchase Plan, as amended.(7)
10.6 - BancTec, Inc. Deferred Compensation Plan.(9)
10.7 - Employment Agreement with Grahame N. Clark, Jr. dated
May 28, 1992.(10)
10.8 - Employment Agreement with Norton A. Stuart dated
May 28, 1992.(10)
10.9 - Employment Agreement with Tod V. Mongan dated May 28, 1992.(10)
10.10 - Employment Agreement with Gary T. Robinson dated
May 28, 1992.(10)
10.11 - Rights Agreement dated June 16, 1988.(5)
10.12 - Amended and Restated Credit Agreement dated October 6, 1993 among
the Company, its Subsidiaries and Texas Commerce Bank National
Association, as Agent.(11)
10.13 - Form of Indemnification Agreement between the Company and each of
its Directors and Officers.(4)
10.14 - License Agreement dated April 1, 1986 between the Company and TRW
Financial Systems, Inc. (formerly Teknekron Financial Systems,
Inc.), a TRW company.(2)
11.1 - Statement re: computation of net income per share.(11)
37
22.1 - Subsidiaries.(11)
24.1 - Consent of Independent Public Accountants.(11)
24.2 - Consent of Independent Public Accountants.(11)
- - - - - ----------
(1) Filed as an Exhibit to the Company's Registration Statement on Form
8-B and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 31, 1985 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 30, 1987 and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 29, 1988 and incorporated herein by reference.
(5) Incorporated by reference to the Company's current report on Form
8-K filed on July 6, 1988.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended April 2, 1989 and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 31, 1990 and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 31, 1991 and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 29, 1992 and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended March 28, 1993 and incorporated herein by reference.
(11) Filed herewith.
38
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.
By /s/ Grahame N. Clark, Jr.
---------------------------------
Grahame N. Clark, Jr.
Chairman of the Board
and Chief Executive Officer
Dated: June 22, 1994
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:
Signature Title Date
--------- ----- ----
/s/ Grahame N. Clark, Jr. Chairman of the Board and Chief June 22, 1994
- - - - - ----------------------------- Executive Officer and Director
Grahame N. Clark, Jr. (Principal Executive Officer)
/s/ Norton A. Stuart, Jr. President and Director June 22, 1994
- - - - - -----------------------------
Norton A. Stuart, Jr.
/s/ Gary T. Robinson Senior Vice President and June 22, 1994
- - - - - ----------------------------- Chief Financial Officer
Gary T. Robinson (Principal Financial Officer)
/s/ Michael D. Kubic Vice President, Controller and June 22, 1994
- - - - - ----------------------------- Assistant Treasurer
Michael D. Kubic (Principal Accounting Officer)
/s/ Michael E. Faherty Director June 22, 1994
- - - - - -----------------------------
Michael E. Faherty
Director
- - - - - -----------------------------
Paul J. Ferri
/s/ Rawles Fulgham Director June 22, 1994
- - - - - -----------------------------
Rawles Fulgham
Director
- - - - - -----------------------------
Thomas G. Kamp
/s/ Michael A. Stone Director June 22, 1994
- - - - - -----------------------------
Michael A. Stone
/s/ Merle J. Volding Director June 22, 1994
- - - - - -----------------------------
Merle J. Volding
39
BANCTEC, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
------
Financial Statements and Report of Independent Public Accountants
- - - - - -----------------------------------------------------------------
Report of Independent Public Accountants...................... 14-15, 41
Consolidated Balance Sheets at March 27, 1994 and March 28,
1993......................................................... 16-17
Consolidated Statements of Income for the years ended March 27,
1994, March 28, 1993 and March 29, 1992........................ 18
Consolidated Statements of Cash Flows for the years ended
March 27, 1994, March 28, 1993 and March 29, 1992.............. 19
Consolidated Statements of Stockholders' Equity for the years
ended March 27, 1994, March 28, 1993 and March 29, 1992........ 20
Notes to Consolidated Financial Statements..................... 21-35
Supporting Schedules
- - - - - --------------------
Schedules:
VIII Valuation and Qualifying Accounts for the years ended
March 27, 1994, March 28, 1993 and March 29, 1992..... 42
IX Short-term Borrowings for the years ended March 27,
1994, March 28, 1993 and March 29, 1992............... 43
X Supplementary Income Statement Information for the
years ended March 27, 1994, March 28, 1993 and
March 29, 1992........................................ 44
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.
40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
BancTec, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements as of March 27, 1994 and March
28, 1993 and for the years then ended included in BancTec, Inc.'s Form 10-K, and
have issued our report thereon dated May 17, 1994. Our audits were made for the
purpose of forming an opinion on the 1994 and 1993 consolidated financial
statements taken as a whole. The schedules listed in the index to financial
statements and schedules are the responsibility of the Company's management and
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic 1994 and 1993 consolidated
financial statements. The 1994 and 1993 consolidated schedules have been
subjected to the auditing procedures applied in the audits of the basic 1994
and 1993 consolidated financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic 1994 and 1993 consolidated financial statements taken as
a whole.
Arthur Andersen & Co.
Dallas, Texas
May 17, 1994
41
Schedule VIII
BANCTEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended March 27, 1994, March 28, 1993 and March 29, 1992
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- ----------------- -------- --------
Additions
-----------------
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Other Deductions period
----------- ---------- --------- ----- ---------- ----------
Year ended March 27, 1994:
Allowance for doubtful
accounts............... $1,342 $ 312 $ - $ 136(a) $1,518
Inventory obsolescence and
valuation reserves..... 3,627 2,945 - 1,649(b) 4,923
------ ------ ----- ------ ------
$4,969 $3,257 $ - $1,785 $6,441
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year ended March 28, 1993:
Allowance for doubtful
accounts............... $1,831 $ 324 $ - $ 813(a) $1,342
Inventory obsolescence and
valuation reserves..... 3,792 2,692 - 2,857(b) 3,627
------ ------ ----- ------ ------
$5,623 $3,016 $ - $3,670 $4,969
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year ended March 29, 1992:
Allowance for doubtful
accounts............... $2,039 $ 170 $ - $ 378(a) $1,831(c)
Inventory obsolescence and
valuation reserves..... 4,501 735 - 1,444(b) 3,792
------ ------ ----- ------ ------
$6,540 $ 905 $ - $1,822 $5,623
------ ------ ----- ------ ------
------ ------ ----- ------ ------
- - - - - ------------
(a) Write-off of uncollectible accounts.
(b) Scrapping of obsolete inventory and book to physical inventory adjustments.
(c) Comprised of $1,501 applicable to current accounts receivable and $330
applicable to non-current receivables.
42
Schedule IX
BANCTEC, INC.
SHORT-TERM BORROWINGS
Years Ended March 27, 1994, March 28, 1993 and March 29, 1992
(In thousands)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Maximum Average Weighted
Weighted amount amount average
Balance average outstanding outstanding interest rate
Category of aggregate at end of interest during the during the during the
short-term borrowings period rate period period (a) period (a)
--------------------- --------- -------- ---------- ---------- -------------
Year ended March 27, 1994:
Amounts payable to banks.. $ - 6.13% $3,000,000 $ 24,725 6.13%
Year ended March 28, 1993:
Amounts payable to banks.. - 4.98% 6,000,000 1,588,398 5.07%
Year ended March 29, 1992:
Amounts payable to banks.. - 6.29% 2,500,000 1,043,956 6.36%
- - - - - ------------
(a) The average amount outstanding and the weighted average interest rate
during the period were computed on a daily basis.
43
Schedule X
BANCTEC, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B
-------- --------
Item Charged to costs and expenses
---- ------------------------------
Years ended
------------------------------
March 27, March 28, March 29,
1994 1993 1992
-------- -------- --------
(In thousands)
Depreciation and amortization of intangible assets:
Excess of cost over net assets of acquired
business....................................... $1,900 $1,658 $1,113
Other intangible assets........................... 1,790 1,420 1,178
------ ------ ------
$3,690 $3,078 $2,291
------ ------ ------
------ ------ ------
All other required information has been omitted as no other single item
exceeds 1% of total sales and revenues.
44