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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-9859
BANCTEC, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1559633
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2701 East Grauwyler 75061
Irving, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (972) 579-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.01 Par Value privately held
Class A common stock, $0.01 Par Value privately held
Series A Preferred Stock, $0.01 Par Value privately held
Series B Preferred Stock, $0.01 Par Value privately held
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: [ ] No: [X]
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. Not applicable.
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 April 30, 2001
----------------------------- -------------------------------
Common Stock, $0.01 Par Value 17,003,838
Class A common stock, $0.01 Par Value 1,181,946
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BancTec, Inc.
Annual Report
on
Form 10-K
Year Ended December 31, 2000
================================================================================
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including "Factors Affecting the Company's
Business and Prospects" set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 and "Quantitative and
Qualitative Disclosure About Market Risk" in Item 7A, contains "forward-looking"
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995 (the "PSLRA") that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause the
results of BancTec, Inc. and its consolidated subsidiaries (the "Company") to
differ materially from those expressed or implied by such forward-looking
statements. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
projections of earnings, revenues, or other financial items; any statements of
the plans, strategies, and objectives of management for future operations; any
statements concerning proposed new products, services, or developments; any
statements regarding future economic conditions or performance; statements of
belief and any statement of assumptions underlying any of the foregoing. The
risks, uncertainties and assumptions referred to above include the ability of
the Company to retain and motivate key employees; the timely development,
production and acceptance of products and services and their feature sets; the
challenge of managing asset levels, including inventory; the flow of products
into third-party distribution channels; the difficulty of keeping expense growth
at modest levels while increasing revenues; and other risks that are described
from time to time in the Company's Securities and Exchange Commission reports,
including but not limited to the items discussed in "Factors Affecting the
Company's Business and Prospects" set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 below in
this report, and items described in the Company's other filings with the
Securities and Exchange Commission. The Company assumes no obligation to update
these forward-looking statements.
2
================================================================================
PART I
ITEM 1. BUSINESS.
Overview
BancTec, Inc. ("BancTec" or "the Company"), a Delaware corporation, is a
worldwide systems integration and services company that delivers solutions which
address complex data and paper-intensive work processes. The Company employs
comprehensive solutions by combining advanced web-enabled imaging and workflow
technologies with both BancTec-manufactured equipment and third party equipment.
These solutions are subsequently maintained and supported by the Company's
service operations. The Company is also a leading provider of personal computer
maintenance services for major computer companies, government and corporate
customers. The Company employs approximately 3,700 people worldwide and is
headquartered in Irving, Texas.
Founded in 1972, the Company operates worldwide serving approximately 5,000
customers in over 20 countries, with international sales in 2000 representing
almost one-third of total revenues.
The Company markets its portfolio of solutions to specific target markets in
which it believes it has extensive business process expertise and certain
competitive advantages and is able to maintain or achieve a leadership position.
In July 1999, BancTec entered into a recapitalization transaction. Welsh,
Carson, Anderson & Stowe, ("WCAS"), a private investment partnership and
Convergent Equity Partners, L.P., ("Convergent"), formed Colonial Acquisition
Corp., ("Colonial") with WCAS owning 93.5% and Convergent owning 6.5%. Through
the merger of Colonial into BancTec, WCAS acquired 17,003,838 shares of
BancTec's common stock and Convergent acquired 1,181,946 shares of BancTec's
Class A common stock. In connection with the recapitalization, each previously
outstanding share of BancTec common stock was converted into the right to
receive $18.50 in cash, totaling approximately $360.2 million, and
simultaneously canceled. Funding for the distribution to the former BancTec
shareholders was provided by a $145.0 million capital contribution from WCAS and
Convergent, by the Tranche A Term Loan, the Sponsor Notes, and the Revolving
Credit Facility discussed in Note F to the Consolidated Financial Statements. In
addition to the funds that were paid for the shares, cash payments were made for
employee stock options of $9.3 million and an employee stock purchase plan of
$0.3 million. The options and the employee stock purchase plan payments were
recorded as a reduction to stockholders' equity.
Holders of both common stock and Class A common stock are entitled to one
vote per share. The Class A holder is entitled to one seat on the Company's
Board of Directors.
In addition, WCAS owns Series A preferred stock ("Series
A Preferred") which includes warrants, and Series B preferred stock ("Series B
Preferred") which includes conversion rights (See Notes G and P to the
Consolidated Financial Statements). WCAS is strategically focused on the
acquisition of information services and health care companies, traditionally
investing for growth. WCAS manages more than $12.0 billion for corporate and
public pension funds, university endowment funds and other institutional
investors.
Reporting Structure
Historically, the Company's operations were organized into three business
segments - Manufacturing and Supplies, U.S. Maintenance and Service ("USMS"),
and Worldwide Systems ("WS"). At the end of 1998, the Company announced the
reorganization of its operations into two primary businesses, Worldwide
Financial Systems ("WFS") and Computer and Network Services ("CNS"). The
operations of WFS included manufacturing and supplies, maintenance of Company-
manufactured products, integrated systems, and Plexus products. The CNS
operations included personal computer warranty repair services and
administration of third party extended warranties. Later in 1999, the Company
separated WFS into two separately-managed reportable segments based on
geographical areas, North American Systems ("NAS") and International Systems
("INTL"). As a part of the reporting structure realignment discussed below,
International Systems has been renamed International Solutions ("INTL"). INTL
consists of operations throughout the world excluding North America. See Notes M
and N to the Consolidated Financial Statements.
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The Company recently realigned its reporting structure and will begin
reporting under the new alignment in the first quarter of 2001. Under this new
structure, NAS has been renamed U.S. Solutions ("USS"), and excludes Canadian
operations and Plexus products. The newly formed Advanced Enterprise Solutions
division ("AES") develops and sells the Company's OpenARCHIVE(TM) and other
archive solutions. INTL reporting now includes the Canadian operations. Canadian
operations are not material to USS nor to INTL operations. Under the new
structure, the composition of CNS remains unchanged.
U.S. Solutions and International Solutions. USS and INTL offer similar systems
integration and business process solutions and services, and market to similar
types of customers. The solutions offered primarily involve high volume
transaction processing using advanced technologies and processes. Key
applications include payment and check processing, document imaging and
workflow, as well as related ongoing service and support. The Company's
powerful, high-volume integrated systems deliver important benefits to some of
the world's largest credit card companies and major banks. In addition, these
segments provide their products and services to other customers, including
financial services companies and insurance providers, telecommunications
companies, utility companies, governmental agencies, and transportation firms.
The Company combines its extensive business application knowledge with a full
range of software and equipment offerings for complex transaction processing
environments. The Company's integrated systems generally incorporate advanced
applications software developed by the Company and by third parties. These
solutions may also include hardware developed and manufactured by the Company as
well as by third parties. USS and INTL offer the following process services and
solutions:
Document Imaging Solutions. The Company's image systems capture, digitize
and process check and other document images, including utility, telephone,
retail and credit card bills, mortgage coupons, sales drafts, airline tickets,
tax notices and other financial documents. These imaging systems are also used
by banks for high volume check-processing applications such as proof-of-deposit
and image statement preparation. Other Company offerings provide image-based
solutions for check exception handling, enabling financial institutions that
handle large volumes of checks to reprocess more efficiently items that were
rejected in normal operating cycles.
The Company's financial document imaging products utilize an open systems
architecture platform which enables customers to add industry standard hardware
and software components to improve processing capabilities. The Company
typically sells these products to end-users.
Document and Check Processing Equipment Products. The Company manufactures
low, medium, and high-speed document reader/sorters and related components that
read magnetic ink character recognition and optical character recognition data
from financial documents and sort the documents according to established
patterns. The Company's high-speed, full-page scanners utilize photo-optical
technology, gray scale image capture capabilities, character recognition
software and high precision document transports to scan and digitize full-sized
business documents such as invoices, statements and business forms. The Company
markets these products and solutions to end-users, other manufacturers and
various resellers and systems
4
integrators throughout the world.
The Company markets a full range of consumable supplies that complement the
Company's document processing systems. The Company also manufactures and markets
microfilm cameras, image cameras, MICR encoders, ink jet components and various
peripheral equipment. The Company's original equipment manufacturer ("OEM")
products are sold with a 90-day warranty from the date of shipment.
Installation and Maintenance of the Company's Products. The Company installs
and provides maintenance and support services for its own products, including
document reader/sorters and scanners. At April 30, 2001, the Company employed
approximately 800 customer service engineers located in the United States and
international locations to service the Company's installed equipment. The
Company's maintenance contracts usually include both parts and labor, and the
one-year contracts are typically renewed annually for five to seven years.
Advanced Enterprise Solutions. AES develops the Company's OpenARCHIVE(TM) and
other archive solutions. The ImageFIRST(R) OpenARCHIVE(TM) solution is a multi-
tiered archival system designed for high-speed digital archiving of financial
and other documents and related transaction data. The Company's image archive
systems are targeted to support industry efforts to reduce and eventually
eliminate the multiple handling of checks and documents through truncation and
electronic check presentment initiatives. The systems also improve accessibility
to the data and reduce access time. The Company believes that this technology
also has application for other market segments.
Computer and Network Services. The Company is a leading provider of personal
computer repair services in the United States for many companies, including Dell
Computer, Compaq Computer Corporation, Galileo International, and other Fortune
1000 companies. CNS is structured around the following three customer areas:
Strategic alliances, including outsource and system integration partners.
Strategic alliances focus on establishing and maintaining partnerships with
industry-recognized providers of outsourcing services as well as with system
integrators offering specific support to their customer base. The partnerships
with these organizations enable CNS to provide services consistent with its core
competencies for desktop/enterprise applications, while enabling the strategic
alliance partners to focus on program management and specific services.
OEM partner relationships. The focus of the CNS OEM partner relationship
group is on providing warranty fulfillment services and related support to
manufacturers of desktop/enterprise products. CNS provides OEMs with access to
CNS' extensive national field service organization, while enabling the OEMs to
focus on the production process and customer requirements.
Fortune and retail market accounts. The Fortune and retail accounts group is
chartered with serving those customers that have support needs consistent with
their core competencies in desktop/enterprise applications while leveraging CNS'
nationwide service organization. Typical customers require national service in
order to support their various sites. Agreements with these
5
customers require flexibility to manage support needs ranging from high-priority
mission-critical systems to office automation with lower-priority support
requirements.
Plexus(R) Products. The Company offers a complete suite of internet-enabled
document imaging and workflow software solutions under the Plexus(R) brand
designed for high-volume, complex and distributed environments. These software
products offer workflow, data management, forms processing and health claims
processing capabilities that enable users to automate, coordinate and streamline
business processes. The products are also incorporated into the Company's
application solutions to enhance functionality and provide competitive
distinction.
Geographical Locations
There are no significant risks associated with foreign operations other
than the fluctuation of international currencies. See Note N to the Consolidated
Financial Statements.
Product Development
The Company has an active research and product development program to
maintain the Company's leadership position in payment and document processing
technology. The Company is engaged in ongoing software and hardware product
development activities for both new and existing products, employing
approximately 280 people for such activities as of April 30, 2001.
The following table sets forth the Company's product development expenses:
For the years ended December 31,
2000 1999 1998
--------------------------------
(dollars in thousands)
Product Development Expenses $ 20,181 $ 15,917 $ 17,732
================================
Percent of Total Revenue 4.1% 3.0% 3.2%
The Company develops strategic partnerships to conduct its business in the
most effective and efficient manner possible. Accordingly, the Company's
objective is to incorporate third party solutions where appropriate and
practicable rather than develop the product.
There can be no assurance that the Company's development efforts will result
in successful commercial products. Many risks exist in developing new product
concepts, adapting new technology and introducing new products to the market.
Current expenditures are concentrated on developing new applications for the
Company's product lines and improving and expanding existing products. During
2000, the Company narrowed its product development expenditure focus by
incorporating more third party products in BancTec solutions. The Company is
currently focusing on Electronic Data Management ("EDM") solutions, AES-related
developments and hardware enhancements.
Electronic Data Management. BancTec's EDM business is organized around the
creation of a set of high level reusable components that form the basis of
vertical solutions for specific markets. Components of this suite are called
eFIRST(TM) Forms+, eFIRST Case+ and eFIRST Archive+. BancTec's EDM solutions are
differentiated from competitors in that the Company's solutions are constructed
from the complete, pre-integrated eFIRST components. As a result,
6
any integration issues are addressed at the product level so that the customer-
solution level is a seamless event with respect to integration issues.
Flexibility and robustness of the solution enable customers to adapt the
scalable system as their business needs change. Among the target uses for which
the suite of eFIRST solutions is well-suited are complex and large-scale
invoicing and billings systems, customer relationship management systems,
applications handling such as subscriptions, account openings, governmental,
including immigration visa handling, social security claims and records
management, and insurance claims handling. Three core modules exist in the
eFIRST suite of solutions - forms processing, case management, and archiving -
which can be integrated within the same environment and expanded.
eFIRST Forms focuses on interaction between customers and suppliers and
addresses certain problems of hybrid environments. eFIRST Forms captures data
from many types of interaction such as web, scanned documents, faxes and web-
forms. From these various types of sources, eFIRST Forms extracts useful data
previously thought unsuitable for such purposes as general correspondence, non-
standard invoices and delivery notes. eFIRST Archive addresses the other end of
the business transaction - the secure structured repository. eFIRST Archive
enables the creation of structures for information which relate to the way
business is conducted, facilitating the meaningful grouping of different kinds
of stored objects such as scanned images, mainframe records, and word document
files. eFIRST Archive can be searched using specific indices or across all
objects' contents for certain keywords or phrases which can be specified long
after the data has been stored. eFIRST Case focuses on the interaction between
the customer channel and repository - the processes and interfaces which
constitute the core competencies of businesses and how value is added through
the application of accumulated knowledge and data to their raw customer inputs,
e.g., developing meaningful electronic pathways, and collating information from
many sources. eFIRST Case addresses these issues by providing a technology
platform and user tools to construct workflows, data views, user environments
and access permission models that draw in existing systems and people.
Advanced Enterprise Solutions. AES develops and sells the Company's
OpenARCHIVE(TM) and other archive solutions. The Company's ImageFIRST(R)
OpenARCHIVE(TM) solution is a web-enabled high-speed archival system that
provides the tools to manage, store, retrieve, and deliver an unlimited amount
of check payment data and images. OpenARCHIVE's indexing feature allows
management of the aging of images to optimize performance of the storage tiers
in the archive. In addition, query selection templates and fields displayed for
item research are configurable and flexible which simplify finding specific data
and images. The Image Hosting Application Program Interface ("IHAPI") is a
collection of interfaces that provides the capability for third-party
applications to access data and images stored in OpenARCHIVE. The IHAPI image
enables many banking applications, including exceptions and returns processing,
signature verification, research and adjustments, fraud detection, statements,
Internet banking, and cash management.
Hardware Enhancements. In 2001, the Company plans to continue development and
enhancements to what it believes to be the industry's most complete portfolio of
document transport products. Among these products is the Company's X-Series(TM)
Reject Repair System, a comprehensive integrated solution that offers data
correction, heat strip application, and encoding in a single operation. This X-
Series product integrates multiple steps into a one-step, efficient operation
that automatically completes a significant daily reject volume with no operator
intervention. In a single step, the X-Series can process rejected checks, apply
stripping,
7
encode the corrected MICR line, and sort these items back for subsequent
processing, thereby reducing the per item cost and increasing processing
efficiency. Once the items are stripped and MICR encoded, and front or back
audit trails and programmable endorsements are complete, BancTec cameras can
capture a downstream image of all items, providing a more accurate record of the
completed transaction for research purposes. Other key development efforts
remain focused on character recognition, image improvements (gray scale
snippeting, character engine improvements, wavelet compression, improved gray
scale and color quality and delivery) and Image Quality Assurance for real-time
reading to improve monitoring and detection of image quality in the Company's
transport and scanner product lines.
Sales and Distribution
The Company primarily relies on its internal sales force. BancTec's
distribution strategy is to employ multiple delivery channels to achieve the
widest possible distribution. The Company's products are sold to end-users,
distributors, OEMs, value-added resellers and systems integrators.
International sales are subject to various risks, including fluctuations in
exchange rates, import controls and the need for export licenses. See Note N to
the Consolidated Financial Statements.
Customer Diversification
For the three years ended December 31, 2000, no single customer accounted for
more than 10.0% of the total revenue of the Company. The Company's ten largest
customers accounted for 34.2%, 25.0%, and 26.0% of the Company's revenues for
the years ended December 31, 2000, 1999, and 1998, respectively.
Competition
In marketing its products and services, the Company encounters aggressive
competition from a wide variety of companies, some of which have substantially
greater resources than BancTec. The Company believes that performance, quality,
service and price are important competitive factors in the markets in which it
operates. Generally, the Company emphasizes industry knowledge, unique product
features, flexibility, quality and service to configure unique systems from
standard components in its competitive efforts. While the Company believes that
its offerings compete favorably based on each of these elements, the Company
could be adversely affected if its competitors introduce innovative or
technologically superior solutions or offer their products at significantly
lower prices than the Company. No assurance can be given that the Company will
have the resources, marketing and service capability, or technological knowledge
to continue to compete successfully.
Backlog
The Company believes that backlog is not a meaningful indicator in
understanding BancTec's business nor a meaningful indicator of future business
prospects due to the large volume of products delivered from shelf inventories
and the relative portion of net revenue related to the Company's services
businesses. In addition, any backlog information would exclude CNS contracts,
recurring hardware and software maintenance contracts, and contracts for sales
of supplies. Further, the Company's backlog is subject to fluctuation due to
various
8
factors, including the size and timing of orders for the Company's products and
exchange rate fluctuations, and accordingly, is not necessarily indicative of
the level of future revenue.
Manufacturing
The Company's hardware and systems solutions are assembled using various
purchased components such as PC monitors, minicomputers, encoders,
communications equipment and other electronic devices. Certain products are
purchased from sole source suppliers. The Company generally has contracts with
these suppliers that are renewed periodically. The Company has not experienced,
nor does it foresee, any significant difficulty in obtaining necessary
components or subassemblies; however, if the supply of certain components or
subassemblies was interrupted without sufficient notice, the result could be an
interruption of product deliveries.
Patents
The Company owns numerous U.S. and foreign patents and holds licenses under
numerous patents owned by others. The Company also owns a number of registered
and common-law trademarks in the U.S. and other countries relating to the
Company's trade names and product names.
The validity of any patents issued or that may be issued to the Company may
be challenged by others and the Company could encounter legal difficulties in
enforcing its patent rights against infringement. In addition, there can be no
assurance that other technology cannot or will not be developed or that patents
will not be obtained by others that would render the Company's patents obsolete.
Management does not consider the Company's patents and licenses to be essential
to the ongoing operations of the Company.
Employees
At April 30, 2001, the Company employed approximately 3,700 full-time
employees and considers its employee relations to be good. None of the Company's
employees is represented by a labor union. The Company has never experienced a
work stoppage.
ITEM 2. PROPERTIES.
The principal executive offices of the Company were moved during the second
quarter of 2000 to its Irving, Texas facility. The former corporate headquarters
was leased space in Dallas, Texas, and was sublet effective May 1, 2000.
As of December 31, 2000, the Company owned or leased numerous facilities
throughout the world to support its operations. The Company believes that these
facilities are adequate to meet its ongoing needs. The loss of any of the
Company's principal facilities could have an adverse impact on operations in the
short term. The Company has the option to renew its facility leases or can
replace them with alternate facilities at comparable cost. The Irving
manufacturing facility, which the Company owns, is the primary location
9
for the Company's assembly and manufacturing activities. The Company's
Heatstrip(R) and BancStrip(R) products are manufactured in Puerto Rico.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
================================================================================
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
None.
================================================================================
10
ITEM 6. SELECTED FINANCIAL DATA.
Years Ended
------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(In thousands)
Revenue $ 487,707 $ 534,590 $ 556,097 $ 560,996 $ 511,903
Income (loss) from continuing
operations before income taxes (103,192) (35,842) 11,546 69,353 31,736
Income (loss) before extraordinary item (144,850) (11,197) 4,813 42,614 37,101
Net income (loss) (144,850) (11,197) 4,813 42,152 37,101
Total assets 399,752 473,105 520,312 498,343 455,703
Working capital 84,718 130,448 144,405 61,335 78,438
Long-term debt, less current maturities 388,112 350,500 150,352 11,854 65,891
Mandatory redeemable preferred stock 11,638 0 0 0 0
Stockholders' equity (deficit) (167,342) (21,738) 220,081 260,523 204,720
In September 1999, the Company completed the sale of its community banking
business to Jack Henry and Associates. For financial statement purposes, the
sale was treated as a discontinued operation. As a result, the financial data
above has been restated for 1999 and prior years to reflect the continuing
operations of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS
DOCUMENT.
The Company believes several factors created a challenging and more
competitive sales and cost containment environment during 2000. These factors
include: reduced corporate customer technology spending; ongoing competitive
pressures; a planned change in revenue mix within the Company's North American
Systems ("NAS") and International Solutions ("INTL") segments; and a highly
leveraged financial position.
The Company believes that the decrease in corporate customer technology
spending was due mainly to a slowing economy, mergers, and weaker international
currencies, particularly the Euro. The slower-than-anticipated growth coupled
with fixed cost increases negatively impacted gross margins. Generally,
declining revenues in the Company's traditional lines of business, combined with
increased costs, led to the current period gross profit decline. As a result of
delayed development of certain products and as part of an on-going review of
contracts, certain contracts were deemed to be in loss positions, thereby
requiring the Company to recognize a provision for loss contracts in the current
year. The impact of recognizing these previously inventoried costs and cost-to-
complete accruals for these contracts resulted in additional charges in 2000.
Employee expenses have not been reduced proportionately to the decline in sales
volumes, which was due in part to the Company's efforts to retain its core
employee knowledge base in critical functions, to staff for products currently
in the development state, and to improve service levels. In order to more
effectively control costs and deliver solutions, BancTec has changed its
organizational structure. The new structure builds upon functional teams which
support one or more business units, resulting in better use of resources. While
11
BancTec believes that long-term growth is not necessarily impacted by the
slowing economic conditions, the Company continuously monitors its fixed costs
structure for opportunities to incorporate efficiencies.
Based on 2001 expected economic and business conditions, the same factors
that affected 2000 indicate a cautious outlook regarding the Company's near-term
revenue and earnings growth prospects. While the Company's near-term outlook
remains cautious, the Company believes certain factors indicate a potential
positive outlook for 2002 and beyond. These factors include a concentrated
emphasis on existing offerings with additional investments in sales and
marketing. Product development efforts are focused on EDM solutions, AES
OpenARCHIVE(TM) and other archive solutions, and hardware enhancements. By
incorporating more third party products into the Company's solutions rather than
developing the products, the Company can more easily target its efforts and
expenditures to these core products and solutions. The Company cautions
investors that there can be no assurances that actual results or business
conditions will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changes in assumptions, the occurrence of unanticipated results or
changes to future operating results over time. There are many factors that
affect the Company's business and the results of its operations. The following
is a description of some of the important factors that may cause the actual
results of the Company's operations in future periods to differ materially from
those currently expected or desired.
DISCONTINUED OPERATIONS
In 1999, BancTec completed the sale of substantially all of the net assets of
its community banking business to Jack Henry and Associates ("JHA"). The Company
received proceeds of $50.0 million in cash from the sale and recorded a pre-tax
gain of approximately $20.3 million. During 2000, an additional $1.7 million was
accrued representing a change in estimate for additional expenses related to
the Company's obligation to complete certain development activities, thereby
reducing the net pre-tax gain to $18.6 million. For financial statement
purposes, the Company treated the sale as a discontinued operation, and
accordingly, financial statement presentation was made in accordance with APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Revenues from the community banking business
were $20.7 million and $41.8 million in 1999 and 1998, respectively.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 2000 and December 31, 1999
Consolidated revenue of $487.7 million for the year ended December 31, 2000
decreased by $46.9 million or 8.8% from the prior twelve-month period. The
decline occurred primarily in NAS of $44.2 million and INTL of $34.3 million,
offset partly by an increase in CNS of $31.6 million. The NAS decrease primarily
related to continued downward pressure on its traditional businesses, lower
Plexus software sales, and lower large systems sales in Canada. The INTL
decrease occurred primarily in the Company's European traditional businesses,
offset significantly by increases in EDM solution sales in the Company's
subsidiary in Japan. Factors contributing to the overall decline in revenues
include lower corporate customer spending for large systems solutions as a
result of the weakening economy, mergers, on-going competitive pressures, and a
general decline in international currencies, especially the euro. The increased
revenue from the CNS maintenance and other services is primarily attributable to
the expansion of CNS' capabilities to offer multi-vendor services for desktop
and network products during 2000, comprised mostly from its Galileo contract
which began in the first quarter. The remainder of the CNS increase is primarily
due to on-going OEM partner relationships, and to strategic alliances comprised
of its outsource and system integration partners.
Consolidated gross profit of $46.4 million decreased by $57.6 million or
55.4% from the prior year. The primary declines occurred in NAS and INTL of
$41.3 million and $15.8 million, respectively. CNS' gross profit declined
slightly for the same periods due to higher costs, particularly those related to
the 2000 expansion of capabilities, enabling the offering of multiple-vendor
services for desktop and network products. The NAS gross profit declines
occurred principally in its integrated business solutions, Plexus, and
manufacturing businesses in 2000 compared to 1999 and was due primarily to lower
than expected revenues and increased costs. The Company is currently in a period
of transitioning its product lines, which has had the impact of decreased sales
of established higher-margin traditional products. Some of these existing
products are being replaced with newly-developed and initially lower margin
products. As part of an on-going review of contracts and as a result of delayed
implementations, certain contracts were deemed to be in loss positions, thereby
requiring an acceleration of expense recognition into 2000. The impact of
recognizing these previously inventoried costs and costs-to-complete accruals
resulted in additional expenses totaling $11.1 million in 2000. The INTL decline
was further attributable to the weakening of the Euro and other European
currencies. As a result, in 2001, the Company narrowed its product offering
focus to proven deliverables and new targeted offerings, including EDM
solutions, its other archive solutions and hardware enhancements.
12
Incorporating more third party products into the Company's solutions rather than
developing the products enabled the concentration of efforts and expenditures on
the target items. The INTL decline occurred primarily in its European
traditional businesses, partially offset by a margin improvement in the
Company's subsidiary in Japan. The margin decline in the Company's subsidiaries
in Europe was due primarily to lower revenues without a corresponding percentage
decline in fixed expenses.
Operating expenses of $113.8 million decreased $4.4 million compared to the
prior year. Operating expenses, by component, changed as follows: Product
development expenses increased by $4.3 million or 26.8% primarily due to
concentration on developing new applications for the Company's product lines and
expanding existing products. Selling, general, and administrative expenses
decreased by $5.7 million or 5.9% due primarily to higher expenses related to
the recapitalization transaction (the "recapitalization"). In addition, lower
revenues and on-going efforts to realign the cost structure beginning in the
1999 third quarter resulted in a reduction in operating costs. Goodwill
amortization decreased by $3.0 million or 48.0% due primarily to a fourth
quarter 1999 write-down of $2.1 million.
Interest expense increased to $37.3 million in 2000 from $22.7 million in
1999. The increase was due mainly to a $16.1 million increase in debt related to
subordinated unsecured notes (the "Sponsor Notes") issued to the Company's
primary owners at the recapitalization date, to increased short-term borrowings,
and to a higher leveraged position for the full year. See additional discussion
in the Liquidity and Capital Resources section of this document.
Sundry expense of $0.7 million increased $0.2 million in 2000 primarily due
to higher foreign currency losses resulting from exchange rate fluctuations in
2000 compared to the prior year.
A pre-tax loss from continuing operations of $103.2 million for the year
ended December 31, 2000 resulted in an income tax expense of $39.4 million as
compared with an income tax benefit in 1999 of $13.3 million on a pre-tax loss
from continuing operations of $35.8 million. The Company provided a valuation
allowance increase to reduce its deferred tax assets to an amount management
believes is more likely than not to be realized. The increase had the effect of
decreasing the Company's effective tax rate to (38.2)% from the 1999 rate of
37.0%.
Comparison of Years Ended December 31, 1999 and December 31, 1998
BancTec experienced a number of significant changes during 1999, including
the Company's recapitalization, on-going changes in strategic direction of the
Company, and the sale of BancTec's community banking business to Jack Henry and
Associates ("JHA"). This sale was treated as a discontinued operation for
financial statement purposes, in accordance with Accounting Principles Board
Opinion No. 30.
Consolidated revenue of $534.6 million for the year ended December 31, 1999
decreased by $21.5 million or 3.9% from the prior year. In 1999, NAS revenue
decreased by 8.5% to $251.7 million compared to the prior year due to a decline
in traditional maintenance revenues compared to 1998 and customer spending
cautions related to Y2K concerns. CNS revenues decreased by 10.4% to $109.7
million for the same period due primarily to contract expirations and non-
renewals. International revenues increased by 9.2% to $173.2 million in 1999
compared to 1998 due to increased shipments to worldwide customers of financial
transaction and document management systems. Due to the lack of comparative data
for the new segments, the
13
Company has included below, as supplemental comparative information, a
discussion using historical segment data.
Revenue from Manufacturing and Supplies decreased by $2.4 million to $47.4
million in 1999 compared to 1998 due to customer spending cautions related to
Y2K concerns. Revenue for WS increased by approximately $9.6 million to $277.4
million due primarily to increased shipments of financial transaction and
document management systems to worldwide customers and increased Plexus software
sales. Offsetting the WS increase was a revenue decrease in USMS of $28.6
million to $209.7 million as compared to 1998. The decrease was mainly
attributable to the non-renewal of some large contracts and the expiration of
some maintenance contracts on older document processing systems.
Consolidated gross profit of $104.0 million decreased by $19.4 million or
15.7% in 1999 from the prior year. Gross profit for Manufacturing and Supplies
was $13.8 million, representing an increase of $8.9 million from 1998, and gross
profit for WS of $76.7 million increased $11.4 million from 1998. The increases
in gross profit were due primarily to charges incurred in connection with the
1998 reorganization that were not incurred in 1999 and to improved product mix.
Gross profit for USMS of $13.5 million in 1999 decreased by $39.7 million due
primarily to lower revenues, particularly related to non-renewals of two
strategic contracts and the decline in traditional maintenance revenue, without
a corresponding decrease in fixed costs. Based on management's belief that the
profit declines were temporary, management made no significant mitigating
adjustments to the fixed cost structure to compensate for the revenue decrease.
Operating expenses of $118.3 million in 1999 increased $12.0 million compared
to the prior year. Product development expenses of $15.9 million decreased by
$1.8 million for the same period due to completion of certain new product
developments and a refocus on a narrower set of strategic initiatives. Sales and
marketing expenses of $47.3 million increased by $2.7 million or 6.0% due to
management's decision to increase its marketing efforts. General and
administrative expenses of $48.8 million increased by $13.5 million or 38.2%
primarily due to $6.4 million of recapitalization-related expenses, $4.5 million
in additional provisions for accounts receivable, and a full year of
depreciation related to the implementation costs of a new internal information
system. As competition continued to increase, collection of receivables became
more difficult; consequently, bad debt expense increased. Goodwill amortization
of $6.2 million decreased $2.4 million or 27.8% due primarily to the prior year
$4.1 million write-off related to the Company's Canadian subsidiary. The
decrease was offset by a 1999 write-down of $2.1 million associated with the
discontinuance of a product line previously sold by the Company's subsidiary in
the United Kingdom ("UK"), BancTec Limited.
Interest expense of $22.7 million increased $13.7 million from 1998 due to
additional debt incurred by the Company in the July 1999 recapitalization and to
interest expense on the $150.0 million Senior Notes issued in May 1998. The
Senior Notes replaced $105.0 million of bank debt with a lower effective
interest rate.
Sundry income of $0.5 million decreased $1.6 million primarily due to foreign
currency activity, which resulted in losses of $0.4 million in 1999 compared to
gains of $1.0 million in 1998.
14
A pre-tax loss from continuing operations of $35.8 million for the year ended
December 31, 1999 resulted in an income tax benefit of $13.3 million as compared
to an income tax provision of $4.2 million on pre-tax income from continuing
operations of $11.5 million for the corresponding prior year. The effective tax
rates were 37.0% and 36.0% for the years ended December 31, 1999 and 1998,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $23.8 million at December 31,
2000, compared with $20.3 million at December 31, 1999. Excluding cash and debt,
working capital decreased $64.6 million to $60.9 million at December 31, 2000.
During 2000, the Company relied primarily on working capital, short-term
borrowings under its revolving credit facility (the "Revolver"), and to a
capital contribution from its primary owners to fund operations. At December 31,
2000 and March 31, 2001, the Company had available $25.0 million and $17.0
million of borrowing capacity, respectively, under the Revolver. Cash balances
as of March 31, 2001 increased $8.5 million to $32.3 million from year-end.
Operating activities provided $ 4.5 million and $19.5 million of cash in 2000
and 1999, respectively. The $15.0 million decrease was due mainly to an increase
in the loss from continuing operations. See the discussion in "Comparison of
Years Ended December 31, 2000 and December 31, 1999" for the factors
contributing to the increased net loss.
Investing activities used net cash of $19.3 million during 2000 compared to
cash provided of $4.3 million in 1999. The $23.6 million decrease was due mainly
to the 1999 receipt of $50.0 million of cash proceeds from the sale of the
Company's community banking business offset partially by significantly lower
purchases of property, plant and equipment in 2000.
15
Financing activities provided $21.6 million of net cash in 2000 compared to
net cash used of $28.6 million in 1999. The $50.2 million increase related
primarily to recapitalization costs in 1999 related to the repurchase of common
stock, offset partly by proceeds from recapitalization-related long-term
borrowings. The cash provided in 2000 related primarily to proceeds from the
issuance of Series A Preferred of $15.0 million and to additional short-term
borrowings of $6.6 million.
The Company has reviewed its projected cash requirements, including funds
required for operations, interest payments and anticipated capital expenditures,
in conjunction with the new credit facility as further described below. The
Company has concluded it has sufficient financial resources available to support
its anticipated requirements to fund operations and cash interest obligations
and is not aware of any trends, demands, or commitments that would have a
material impact on the Company's near-term liquidity.
Senior Notes. In August 1998, the Company exchanged the public Senior Notes
-------------
(the "Senior Notes") for the notes sold in a May 1998 Rule 144A private
offering. Interest is fixed at 7.5% and is due and payable in semi-annual
installments which began December 1, 1998. The Senior Notes contain covenants
placing limitations on the Company's ability to permit subsidiaries to incur
certain debts, incur certain loans, and engage in certain sale and leaseback
transactions. The Company was in compliance with all financial covenants as of
December 31, 2000. As of May 15, 2001, the Company was not in compliance with
the Senior Notes' reporting requirements for the year ended December 31, 2000
and for the three months ended March 31, 2001. The Company is in the 60-day cure
period for delivery of the year end audited financial statements, and the
delivery of the financial statements in this Form 10-K will remedy this non-
compliance condition. The Company expects to cure the non-compliance reporting
for the first quarter within the cure period provided.
The Company was in compliance with the covenants at December 31, 1999.
Bank Debt Facilities. Subsequent to, and as a result of the recapitalization
--------------------
of BancTec with Colonial, owned 93.5% by WCAS, the following debt instruments
were put into place: 1) $75.0 million Tranche A Term Loan ("Term Loan") due June
2004 and payable to a bank in quarterly installments and bearing interest, at
the Company's option, of either London Interbank Offered Rate ("LIBOR") plus
2.75% or prime plus 1.75% (10.25% at December 31, 1999), and 2) $160.0 million
subordinated unsecured Sponsor Notes due 2009 and payable to WCAS, the Company's
primary owners, and bearing interest at 10.0%. Collateral for the Term Loan
includes all tangible and intangible assets of the Company.
Also at December 31, 1999, the Company had a secured credit agreement with
financial institutions, which provided for a $50.0 million short-term revolving
credit facility (the "Agreement"). The Agreement contained restrictive covenants
which also applied to the Term Loan. The financial covenants required the
Company to maintain a EBITDA to interest expense ratio, as defined, limited
maximum debt to EBITDA, and limited capital expenditures. At December 31, 1999,
the Company was in compliance with all covenants. The Revolver bears interest at
the lender's prime commercial rate plus 1.75%, or at the Company's option, the
LIBOR on Eurocurrency borrowings plus 2.75%, depending on the Company's debt to
capitalization ratio. A commitment fee of 0.5% on the unused revolving credit
facility is payable quarterly. The Company had an outstanding balance of $9.0
million under the agreement at December 31, 1999.
The same bank debt agreements were in place for the two years ended December
31, 2000 and 1999. Certain provisions of the July 1999 Credit Agreement were
amended twice in the first two quarters of 2000. As a result of the First
Amendment, interest rates under the credit agreements increased from LIBOR plus
2.75%, or prime plus 1.75%, to LIBOR plus 3.25%, or prime plus 2.25% at the
beginning of 2000. The Company received temporary waivers from compliance with
the covenants while the amendments were structured. Under these amended
covenants, less restrictive EBITDA and capital expenditure provisions were
required.
Effective September 15, 2000, the Company amended certain provisions ("Third
Amendment") of its Credit Agreement dated July 1999 which includes the Term Loan
and the Revolver. Pursuant to the Third Amendment, less restrictive financial
covenants were required of the Company for the remaining quarters of 2000. The
Third Amendment covenants related primarily to EBITDA and capital expenditures,
and were agreed to in consideration for an increase in the guarantee to the
Lenders by the Company's primary owners, WCAS (or, the "Sponsor"), from $10.0
million to $35.0 million, and for the Company's receipt of $15.0 million in cash
proceeds from a preferred stock issuance to WCAS. On March 30, 2001, the Company
filed a Form 12b-25 with the Securities and Exchange Commission advising of its
inability to file timely its Annual Report on Form 10-K, due primarily to the
fact that certain factual evidence was needed to make a proper accounting
determination with respect to certain non-cash transactions. The Company
received waivers from its Lenders with respect to the Company's obligation to
deliver audited consolidated financial statements. Pursuant to the waivers, the
Lenders waived, through May 31, 2001, any covenant violation or event of default
related to the delay in the delivery of the audited consolidated financial
statements. The Company is in compliance with the revised covenants at December
31, 2000. The Company believes, as of March 31, 2001, it was in violation of
certain financial covenants of the bank debt facilities. The Company resolved
this non-compliance by refinancing this debt on May 31, 2001 as further
described below.
16
Term Loan. In the fourth quarter of 1999, the Company used $30.0 million of
----------
the proceeds from the sale of its community banking business to pay down the
Term Loan to $45.0 million. As permitted under the terms of the agreements,
BancTec exercised its option to defer quarterly principal payments until March
30, 2001; thus, a portion of the $30.0 million pay down in 1999 was used to
cover the third and fourth quarter payments originally scheduled for payment
in 2000. The March 2001 payment was paid in full on its due date. In accordance
with the revised amendments in 2000 to the credit agreement, there was a
reduction in the Company's capital spending commitment. The Term Loan, due June
2004, is payable in fourteen consecutive quarterly installments. Effective with
the execution of the first amendment to the credit agreements, interest rates
increased at the beginning of 2000. Interest under the Term Loan, at the
Company's option, was LIBOR plus 3.25%, or prime plus 2.25% (weighted average
interest rates of 10.56% and 8.31% at December 31, 2000, and 1999,
respectively). Collateral for these credit facilities includes all tangible and
intangible assets of the Company, subject to certain limitations contained in
the Senior Notes agreement.
Revolver. At December 31, 2000 and 1999, the Company had a $50.0 million
--------
Revolver under which current maximum borrowings allowed, including letters of
credit, was $43.6 million. Outstanding letters of credit at December 31, 2000
were $1.6 million. The Company had outstanding borrowings under the Revolver at
December 31, 2000 of $17.0 million. Interest under the Revolver, at the
Company's option, was LIBOR plus 3.25%, or prime plus 2.25% (weighted average
interest rates of 10.57% and 9.19% at December 31, 2000 and 1999, respectively).
Available credit under the Revolver at year-end was $25.0 million. A commitment
fee of 0.5% on the unused portion of the Revolver is payable quarterly.
New Credit Facility
- -------------------
On May 31, 2001, the Company replaced its existing bank debt facilities
provided by a syndicate of lenders led by The Chase Manhattan Bank with a new
$100 million revolving credit facility (the "New Facility") provided by Heller
Financial, Inc. ("Heller"), which will mature on May 30, 2006. Within 90 days
after the closing, Heller intends to syndicate the New Facility to a group of
lenders for which Heller will act as agent.
The New Facility is secured by substantially all the assets of the Company,
subject to the limitations on liens contained in the Company's existing
Senior Notes. Availability under the New Facility will be determined by a
borrowing base formula equal to a specified percentage of the value of the
Company's eligible accounts receivable, inventory and real estate from time to
time. At May 31, 2001, the available borrowing base was approximately $80.0
million.
The interest rate on loans under the New Facility will be equal to, at the
Company's option, either (i) 1.25% over the "prime rate" or (ii) 2.75% over the
"LIBOR rate". Beginning August 1, 2002, the interest rate margins over the prime
rate and LIBOR rate may be increased or decreased by up to 0.50% based upon the
Company's available borrowing capacity. During the syndication of the New
Facility, the interest rate will be 1.25% over the prime rate. A commitment fee
of 0.50% per annum on the unused portion of the New Facility is payable
quarterly.
Under the New Facility, substantially all of the Company's cash flow
(including proceeds of accounts receivable and asset sales) must be applied to
repay the outstanding loans, which may be reborrowed subject to availability in
accordance with the borrowing base formula.
The New Facility contains various representations, warranties and covenants,
including financial covenants as to maximum capital expenditures, minimum fixed
charge coverage ratio and minimum average borrowing availability. The Company
believes this facility, along with cash from operations, will be sufficient to
cover the next 12 months' cash requirements.
Subordinated Unsecured Sponsor Notes ("Sponsor Notes"). The Company's $160.0
-------------------------------------------------------
million in Sponsor Notes are issued in U.S. dollars, with interest due and
payable quarterly. The payments began September 30, 1999. As provided under the
agreement, the Sponsor Notes' holder, WCAS, elected to defer the June,
September, and December 2000 interest payments of $4.0 million each, bearing
interest at 10.0%. No payments were deferred prior to the 2000 second quarter
payment. The deferred interest payments were added to the Sponsor Notes as
additional principal. A financing fee of 30.0% of the deferred interest payments
was also added to the Sponsor Notes as principal. At December 31, 2000, the
Company had $12.3 million outstanding in deferred interest notes and had
incurred financing fees of $3.8 million. On March 30, 2001, WCAS elected to
defer the March 2001 payment of $4.0 million. This deferred interest payment,
and interest on previously deferred interest payments, totaling $4.4 were added
to the Sponsor Notes as additional principal. A financing fee of 30.0% of the
deferred interest payment bears interest at 10.0%.
17
Foreign Credit Agreements. The Company has no outstanding foreign credit
--------------------------
balances as of December 31, 2000. The outstanding balance on foreign credit
agreements as of December 31, 1999 was $1.5 million, payable in Japanese yen.
The terms on the agreements ranged from three months to one year at interest
rates up to 1.75%.
Derivatives. As of December 31, 2000, BancTec had three yen-denominated
------------
foreign currency forward contracts entered into in August 2000. These contracts
are accounted for as economic, rather than accounting, hedges. As a result,
these economic hedges were independently measured at their fair value as of
September 30 and December 31, 2000. As of December 31, 2000, the Company had
recognized an inception-to-date unrealized gain of $0.6 million on these
instruments.
Inflation has not had a material effect on the operating results of the
Company.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements", in the fourth quarter of 2000. The SAB
more narrowly defined revenue recognition criterion related to delivery and
specified performance would generally include customer acceptance. SAB No. 101
did not have a significant effect on the Company's recognition of revenue.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities. It requires that all
derivatives be recognized as assets and liabilities on the balance sheet and
measured at fair value. The corresponding derivative gains or losses are
reported based on the hedge relationship that exists. Changes in fair value of
derivative instruments that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS 133 are required to be reported in earnings.
SFAS 133 describes three primary types of hedge relationships: fair value hedge,
cash flow hedge, and foreign currency hedge. The Company adopted SFAS 133 on
January 1, 2001 and recorded an asset and liability of $10.2 million. The
Company recognized an immaterial transition adjustment at adoption.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
From time to time, information provided by the Company or statements made by
its employees may contain "forward-looking" information, as that term is defined
in PSLRA. The Company cautions investors that there can be no assurances that
actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors. The Company undertakes no obligation to update or revise forward-
looking statements to reflect changes in assumptions, the occurrence of
unanticipated results or changes to future operating results over time. There
are many factors that affect the Company's business and the results of its
operations. The following is a description of some of the important factors that
may cause the actual results of the Company's operations in future periods to
differ materially from those currently expected or desired.
General Economic Conditions. The Company's business partly depends on
----------------------------
general economic and business conditions. The Company's sales are to businesses
in a wide variety of industries, including banking, financial services,
insurance, health care, governmental agencies and others. General economic
conditions that cause customers in such industries to reduce or delay their
investments in products and solutions such as those offered by the Company could
have a material adverse effect on the Company.
Delays or reductions in technology spending could have a material adverse
effect on demand for BancTec's products and services, and consequently on
BancTec's business, operating results, financial condition, and prospects.
18
International Activities. The Company's international operations have
-------------------------
provided a significant part of the Company's growth during recent fiscal years.
The success and profitability of international operations are subject to
numerous risks and uncertainties, such as economic and labor conditions,
political instability, tax laws (including U.S. taxes on foreign subsidiaries)
and changes in the value of the U.S. dollar versus the local currency in which
products are sold. Any adverse change in one or more of these factors could
have a material adverse effect on the Company.
Fluctuations in Operating Results. The Company's operating results may
----------------------------------
fluctuate from period to period and will depend on numerous factors, including
customer demand and market acceptance of the Company's products and solutions,
new product introductions, product obsolescence, varying product mix, foreign
currency exchange rates and other factors. The Company's business is sensitive
to the spending patterns of its customers, which in turn are subject to
prevailing economic conditions and other factors beyond the Company's control.
Any adverse change in one or more of these factors could have a material adverse
effect on the Company.
Technological Changes and Product Transitions. The Company's industry is
----------------------------------------------
characterized by continuing improvement in technology, which results in the
frequent introduction of new products, short product life cycles and continual
improvement in product price/performance characteristics. The Company must
incorporate these new technologies into its products and solutions in order to
remain competitive. There can be no assurance that the Company will be able to
continue to manage technological transitions. A failure on the part of the
Company to effectively manage these transitions of its product lines to new
technologies on a timely basis could have a material adverse effect on the
Company. In addition, the Company's business depends on technology trends in its
customers' businesses. Many of the Company's traditional products depend on the
efficient handling of paper-based transactions. To the extent that technology
changes impact the future volume of paper transactions, the Company's
traditional business may be adversely impacted.
Product Development Activities. The strength of the Company's overall
-------------------------------
business is partially dependent on the Company's ability to develop products and
solutions based on new or evolving technology and the market's acceptance of
those products. There can be no assurance that the Company's product development
activities will be successful, that new technologies will be available to the
Company, that the Company will be able to deliver commercial quantities of new
products in a timely manner, that those products will adhere to generally
accepted industry standards or that products will achieve market acceptance. The
Company believes that it is necessary for its products to adhere to generally
accepted industry standards, which are subject to change in ways that are beyond
the control of the Company.
Declining Financial Operating Results and Indebtedness. As a result of
-------------------------------------------------------
increased leverage and reduced performance over the last two quarters, certain
negative consequences of the Company's indebtedness could occur; however, the
Company has seen few consequences to date. The Company's future operating
flexibility may be impacted. In addition, the Company may be more vulnerable to
an increase in interest rates, a downturn in its operating performance or a
decline in general economic conditions.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is subject to certain market risks arising from transactions in
the normal course of its business, and from debt instruments. Such risk is
principally associated with interest rate and foreign exchange fluctuations, as
well as changes in the Company's credit standing.
Interest Rate Risk
The Company utilizes long and short-term borrowings to finance the working
capital and capital requirements of the business. At December 31, 2000 and 1999
the Company had outstanding Senior Notes of $150.0 million, with a fixed
interest rate of 7.5% and due in 2008. In addition, the Company had a Term Loan
due June 2004 and payable to a bank in quarterly installments and bearing
interest, at the Company's option, of either LIBOR plus 3.25% or prime plus
2.25%. The Term Loan balance was $45.0 million at December 31, 2000 and 1999.
The Company paid related interest of $4.3 million and $2.0 million at an average
rate of 10.56% and 8.31% for 2000 and 1999, respectively. If interest rates on
the Term Loan were to increase 100 basis points, the Company's net loss would be
increased by $1.2 million, based on fiscal 2000 borrowing levels. Further, the
Company had the Sponsor Notes, due 2009, with a balance of $176.1 million and
$160.0 million at December 31, 2000 and 1999, respectively. The Sponsor Notes
bear interest at a fixed rate of 10.0%. Finally, the Company utilizes a
revolving credit facility to support working capital needs. The Company borrowed
a total of approximately $27.4 million, at an average interest rate of 10.57%
and 9.19% during fiscal 2000 and 1999, respectively. Borrowings under the
revolving line of credit bear interest at the bank's prime rate plus 2.25% or
LIBOR plus 3.25%, at the Company's option. If interest rates on the revolving
borrowings were to increase by 100 basis points, the Company's net loss would be
increased by approximately $0.4 million based on the fiscal 2000 borrowing
levels.
The estimated fair value of the outstanding Term Loan at December 31, 2000
and 1999 was its carrying value. The estimated fair values of the outstanding
Senior Notes and Sponsor Notes, based upon comparable borrowing rates and the
relative seniority preference of the instruments, were $105.0 million and $130.0
million, respectively, at December 31, 2000 and 1999 for the Senior Notes, and
$132.0 million and $160.0 million, respectively, at December 31, 2000 and 1999
for the Sponsor Notes. The Company does not expect changes in fair value of the
Senior Notes or the Sponsor Notes to have a significant effect on the Company's
operations, cash flow or financial position.
Foreign Currency Risk
The Company's international subsidiaries operate in approximately 12
countries and use the local currencies as the functional currency and the U.S.
dollar as the reporting currency. Transactions between the Company and the
international subsidiaries are denominated in U.S. dollars. As a result, the
Company has certain exposures to foreign currency risk. However, management
believes that such exposure does not present a significant risk due to a
relatively limited number of transactions and operations denominated in foreign
currency. Approximately $148 million or 30.4% of the Company's revenues are
denominated in the international currencies. Transaction gains and losses on
U.S. dollar denominated transactions are recorded within sundry expenses in the
consolidated statements of operations, and were not material.
The Company may use foreign forward currency exchange rate contracts to
minimize the adverse earnings impact from the effect of exchange rate
fluctuations. At year-end 2000, the Company had three yen-denominated forward
currency exchange contracts outstanding of $10.8 million to buy U.S. dollars for
the Company's subsidiary in Japan's anticipated intercompany payables'
settlements in U.S. dollars. No hedging activities existed at year-end 1999.
Inflation is not expected to have a material effect on the operating results
of the Company.
Due to the lack of significant concentration of credit exposure, the
potential credit risk from any one customer is not expected to have a material
effect on the Company.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
BancTec, Inc.:
We have audited the accompanying consolidated balance sheet of BancTec,
Inc. and subsidiaries (the "Company") as of December 31, 2000, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity (deficit) and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
audit provides a reasonable basis for our opinion.
In our opinion, such 2000 consolidated financial statements present fairly,
in all material respects, the financial position of BancTec, Inc. and
subsidiaries at December 31, 2000 and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 15, 2001 (except with respect to the matters discussed in Notes F and P, as
to which the date is May 31, 2001)
21
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
BancTec, Inc.:
We have audited the accompanying consolidated balance sheet of BancTec, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, cash flows, stockholders' equity
(deficit) and comprehensive income (loss) for the two years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BancTec, Inc. and subsidiaries
as of December 31, 1999, and the results of their operations and their cash
flows for the two years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 16, 2000
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 31,
------------------------------
2000 1999
--------------- -------------
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $464
and $2,694 at December 31, 2000 and 1999 $ 23,841 $ 20,292
Short-term investments - 440
Accounts receivable, less allowance for doubtful accounts of
$8,274 and $12,790 at December 31, 2000 and 1999 106,201 143,745
Inventories, net 83,824 64,193
Current deferred tax asset - 26,803
Other current assets 12,446 11,851
-------------- -------------
Total current assets 226,312 267,324
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 2,860 2,860
Field support spare parts 96,473 117,010
Systems and software 64,686 62,809
Machinery and equipment 55,574 54,454
Furniture, fixtures and other 26,978 27,262
Buildings 29,591 29,637
-------------- -------------
276,162 294,032
Less accumulated depreciation 174,677 168,130
-------------- -------------
Property, plant and equipment, net 101,485 125,902
GOODWILL, less accumulated amortization of $30,953 and $28,200
at December 31, 2000 and 1999 51,596 54,903
OTHER ASSETS 20,359 24,976
-------------- -------------
TOTAL ASSETS $ 399,752 $ 473,105
============== =============
See notes to consolidated financial statements.
23
BANCTEC, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
(In thousands, except share data)
December 31,
---------------------------------
2000 1999
--------------- ----------------
CURRENT LIABILITIES:
Revolving credit facilities $ - $ 10,468
Current maturities of long-term debt - 4,854
Trade accounts payable 29,347 24,978
Other accrued expenses and liabilities 71,392 52,424
Deferred revenue 35,930 38,177
Income taxes 4,925 5,975
------------- --------------
Total current liabilities 141,594 136,876
LONG-TERM DEBT, less current maturities 388,112 350,500
OTHER LIABILITIES 25,750 7,467
COMMITMENTS AND CONTINGENCIES (Note L)
MANDATORY REDEEMABLE PREFERRED STOCK 11,638 -
STOCKHOLDERS' DEFICIT:
Common stock authorized, 32,000,000 shares of $0.01 par value
at December 31, 2000 and 1999: Common stock-issued and outstanding
17,003,838 shares at December 31, 2000 and 1999 170 170
Class A common stock-issued and outstanding 1,181,946 shares
at December 31, 2000 and 1999 12 12
Subscription stock warrants 3,726 -
Additional paid-in capital 137,149 137,180
Accumulated deficit (300,146) (155,296)
Foreign currency translation adjustments (8,253) (3,804)
------------- --------------
Total stockholders' deficit (167,342) (21,738)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 399,752 $ 473,105
============= ==============
See notes to consolidated financial statements.
24
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998
------------------- ----------------- -----------------
(In thousands)
REVENUE $ 487,707 $ 534,590 $ 556,097
COST OF SALES 441,302 430,558 432,694
------------------- ----------------- -----------------
Gross profit 46,405 104,032 123,403
OPERATING EXPENSES:
Product development 20,181 15,917 17,732
Selling, general and administrative 90,441 96,146 79,969
Goodwill amortization 3,217 6,188 8,568
----------------- ----------------- -----------------
113,839 118,251 106,269
----------------- ----------------- -----------------
Income (loss) from operations (67,434) (14,219) 17,134
OTHER INCOME (EXPENSE):
Interest income 814 546 1,296
Interest expense (37,250) (22,685) (9,024)
Sundry, net 678 516 2,140
----------------- ----------------- -----------------
(35,758) (21,623) (5,588)
----------------- ----------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (103,192) (35,842) 11,546
INCOME TAX PROVISION (BENEFIT) 39,378 (13,262) 4,154
----------------- --------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (142,570) (22,580) 7,392
LOSS FROM DISCONTINUED OPERATIONS, NET
OF TAX EXPENSE (BENEFIT) OF $ 630,
($830) AND ($1,447) at DECEMBER 31, 2000,
1999 AND 1998, (2,280) (1,415) (2,579)
GAIN ON DISPOSAL OF BUSINESS UNIT, NET OF
TAX PROVISION OF $7,516 -- 12,798 --
----------------- ----------------- -----------------
NET INCOME (LOSS) $ (144,850) $ (11,197) $ 4,813
PREFERRED STOCK DIVIDENDS
AND ACCRETION OF DISCOUNT (364) -- --
----------------- ----------------- -----------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ (145,214) $ (11,197) $ 4,813
================= ================= =================
See notes to consolidated financial statements.
25
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------------------
2000 1999 1998
------------------ ----------------- ---------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations $ (142,570) $ (22,580) $ 7,392
Adjustments to reconcile net income (loss) to cash flows provided
by operating activities:
Depreciation and amortization 45,327 43,341 61,412
Interest paid in-kind 12,498 -- --
Deferred income tax expense (benefit) 33,560 (17,913) (3,083)
Loss on disposition of property, plant and equipment 3,730 1,929 2,312
Other non-cash items 384 2,323 (1,032)
(Increase) decrease in accounts receivable 37,544 24,909 (23,711)
(Increase) decrease in inventories (21,707) 1,041 2,918
Increase in other assets (310) (9,014) (5,334)
Increase in trade accounts payable 4,369 1,926 5,821
Increase (decrease) in deferred revenue (2,247) 2,254 6,471
Increase (decrease) in other accrued expenses and liabilities 33,921 (8,739) 4,398
--------------- --------------- ---------------
Cash flows provided by operating activities 4,499 19,477 57,564
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (20,833) (45,880) (51,378)
Purchase of businesses, net of cash acquired -- (779) (2,041)
Proceeds from disposal of business unit -- 50,000 --
Change in net assets of discontinued operations -- 3,324 (3,976)
Investment in unconsolidated subsidiary 1,189 (2,375) --
Other 371 -- --
--------------- --------------- ---------------
Cash flows provided by (used in) investing activities (19,273) 4,290 (57,395)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of current maturities of long-term debt and capital
lease obligations (354) (884) (11,970)
Proceeds from long-term borrowings -- 228,851 150,000
Payments on long-term borrowing -- (30,000) (10,558)
Proceeds from (payments on) short-term borrowings, net 6,590 5,584 (79,750)
Repurchase of common stock -- (370,497) (49,837)
Net proceeds from sales and issuances of preferred stock 15,000 -- --
Net proceeds from sales and issuances of common stock -- 138,316 3,531
Other 333 -- --
--------------- --------------- ---------------
Cash flows provided by (used in) financing activities 21,569 (28,630) 1,416
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,246) (158) 2,045
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,549 (5,021) 3,630
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 20,292 25,313 21,683
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 23,841 $ 20,292 $ 25,313
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
DEFERRAL OF SPONSOR NOTES QUARTERLY INTEREST PAYMENTS $ 16,112 $ -- $ --
=============== =============== ===============
See notes to consolidated financial statements.
26
BANCTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except share data)
Subscrp- Foreign
Common tion Additional Retained Currency Unearned
Stock Stock Paid Earnings Translation Treasury Compen-
Old New Warrants Capital (Deficit) Adjustments Stock sation Total
----------- -------- ---------- --------- ----------- -------- -------- ------------
Balance at December 31, 1997
(includes 200,000 treasury shares $ 218 $ - $ - $ 221,234 $ 50,119 $ (5,129) $ (4,692) $ (1,227) $ 260,523
Common stock issued principally
under employee stock plan 3 - - 1,988 - - - - 1,991
Common stock issued/cancelled
under restricted stock plan, net - - - 1,077 - - - (930) 147
Amortization of unearned compensation - - - - - - - 530 530
Repurchase of common stock - - - - - (49,837) - (49,837)
Treasury stock cancelled (27) - - (54,502) - - 54,529 - -
Tax benefit from exercise
of stock options - - - 521 - - - - 521
Foreign currency
translation adjustments - - - - - 1,393 - - 1,393
Net income - - - - 4,813 - - - 4,813
------ ---- -------- ---------- --------- ----------- -------- -------- ------------
Balance at December 31, 1998 $ 194 $ - $ - $ 170,318 $ 54,932 $ (3,736) $ - $ (1,627) $ 220,081
Net proceeds from common stock
issued pursuant to recapitalization - 182 - 137,180 - - - - 137,362
Common stock issued principally
under employee stock plans 1 - - 866 - - - - 867
Common stock issued/cancelled
under restricted stock plan, net - - - 87 - - - (126) (39)
Amortization of unearned compensation - - - - - - - 1,753 1,753
Repurchase of common stock (195) - - (171,271) (199,031) - - - (370,497)
Foreign currency translation
adjustments - - - - - (68) - - (68)
Net loss - - - - (11,197) - - - (11,197)
----------- -------- ---------- --------- ----------- -------- -------- ------------
Balance at December 31, 1999 $ - $182 $ - $ 137,180 $(155,296) $ (3,804) $ - $ - $ (21,738)
Subscription warrants - - 3,726 - - - - - 3,726
Foreign currency translation
adjustments - - - - - (4,449) - - (4,449)
Net loss - - - - (144,850) - - - (144,850)
Other recapitalization related costs - - - 333 - - - - 333
Series A preferred stock dividends - - - (263) - - - - (263)
Accretion of discount - - - (101) - - - - (101)
----------- -------- ---------- --------- ----------- -------- -------- ------------
Balance at December 31, 2000 $ - $182 $ 3,726 $ 137,149 $(300,146) $ (8,253) $ - $ - $ (167,342)
=========== ======== ========== ========= =========== ======== ======== ============
See notes to consolidated financial statements.
27
BANTEC, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998
------------------- ----------------- -----------------
(In thousands)
Net income (loss) $ (144,850) $ (11,197) $ 4,813
Foreign currency translation adjustments (4,449) (68) 1,393
------------------- ----------------- -----------------
Total comprehensive income (loss) $ (149,299) $ (11,265) $ 6,206
=================== ================= =================
See notes to Consolidated Financial Statements.
28
BANCTEC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 1999, and 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
BancTec, Inc., a Delaware corporation, and its subsidiaries (the "Company" or
"BancTec"), is a worldwide systems integration and services company with a 28-
year history of innovation in imaging technology, financial transaction
processing and workflow productivity improvement. Serving a variety of
industries, including banking, financial services, insurance, healthcare,
governmental agencies and others, the Company offers a comprehensive portfolio
of payment and document processing systems and services, workflow and image
management software products, and computer and network support services.
Principles of Consolidation
The consolidated financial statements include the accounts of BancTec, Inc.
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts disclosed in the consolidated financial statements. Actual
results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash on hand and on deposit, including
highly liquid investments with original maturities of three months or less.
Short-term investments are similar instruments with original maturities in
excess of three months and are valued at cost, which approximates market at
December 31, 1999. The Company had no short-term investments at December 31,
2000.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is generally established during the period
in which receivables are recorded. The allowance is maintained at a level deemed
appropriate based on loss experience and other factors affecting collectibility.
Inventories
Inventories are valued at the lower of cost or market and include the cost of
raw materials, labor, factory overhead and purchased subassemblies. Cost is
determined using
29
the first-in, first-out and weighted average methods. The Company continually
assesses the appropriateness of inventory valuations giving consideration to
obsolete and slow-moving inventories. Inventory reserves as of December 31,
2000, 1999, and 1998 were $26.7 million, $24.2 million, and $8.4 million,
respectively.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and are depreciated or
amortized using principally the straight-line basis over the estimated useful
lives of the related assets. Estimated useful lives range from three to five
years for field support spare parts, three to eight years for systems and
software, five to seven years for machinery and equipment, leasehold
improvements, and furniture and fixtures. Buildings are depreciated over 40
years. Depreciation expense for the years ended December 31, 2000, 1999, and
1998 was $42.1 million, $39.8 million, and $53.2 million, respectively.
Intangible Assets
Intangible assets are amortized using the straight-line basis. Cost in excess
of net assets acquired is amortized over five to 40 year periods. Other
intangible assets are amortized over three to five years.
The Company continually assesses the recoverability of cost in excess of net
assets acquired and the value of other long-lived assets for impairment by
measuring the carrying value of the assets against the estimated undiscounted
future cash flows associated with them. As of December 31, 2000, management
believes there is no impairment of its long-lived assets.
During the fourth quarters of 1999 and 1998, respectively, the Company wrote
down $2.1 million and $4.1 million of goodwill, the charges for which are
included in goodwill amortization in the Consolidated Statements of Operations.
The 1999 write-down was associated with the Company's subsidiary in the United
Kingdom and was related to a product line discontinuance. The 1998 write-down
was made in conjunction with a reorganization discussed in Note D to the
Consolidated Financial Statements and related to management's decision not to
pursue development of certain third party maintenance business for the Company's
subsidiary in Canada.
Deferred Revenue and Advances from Customers
Certain of the Company's contracts permit the Company to bill the customer in
advance of the time revenue is recognized. Deferred revenue and Advances from
Customers represent billings in excess of revenue recognized.
Derivative Financial Instruments
Derivative financial instruments are utilized by the Company to reduce
foreign currency exchange rate risks. The Company has established policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not enter into
financial instruments for trading or speculative purposes.
Gains and losses on forward foreign exchange contracts used to hedge the
currency fluctuations on transactions denominated in foreign currencies and the
offsetting losses and gains on hedged transactions are recorded in "Other Income
(Expense)" caption in the Consolidated Statement of Operations. At December 31,
2000, an inception-to-date unrealized gain has been recorded for $0.6 million.
In 1998, the Company purchased interest rate cap agreements which were
amortized to interest expense over the period of the agreements. There were no
interest rate cap agreements in place at December 31, 2000 and 1999.
30
Revenue Recognition
The Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements", in the fourth quarter of 2000. The SAB
more narrowly defined revenue recognition criterion related to delivery and
specified performance would generally include customer acceptance. SAB No. 101
did not have a significant effect on the Company's recognition of revenue.
The Company's revenue recognition policies for its principal sources of
revenue are as follows:
Software and solution sales--Revenue from sales of established products that
do not require significant customization is recognized upon transfer of title in
conformity with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition". Revenues for contracts which require significant customization are
generally recognized in conformity with SOP 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts". Under certain
circumstances, if required information is available, the percentage of
completion method is used in conformity with Accounting Research Bulletin No.
45, "Long-Term Construction-Type Contracts." Upon transfer of title, the Company
also provides for the estimated cost that may be incurred for product
warranties.
Equipment and supply sales--Revenue from sales of equipment and supplies is
recognized upon transfer of title.
Maintenance--Revenue from maintenance contracts is recognized ratably over
the term of the contract.
Leasing--Revenue from operating leases of equipment is recognized ratably
over the terms of the related contract. Revenue from sales-type leases is
recorded as the present value
31
of the minimum lease payments (net of executory costs), computed at the interest
rate implicit in the lease in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 13, "Accounting for Leases."
Product Development
Company sponsored software product development costs are expensed as
incurred. Customer-sponsored product development costs are generally charged to
cost of sales, and the proceeds therefrom are credited to product development
costs. Product development costs for the years ended December 31, 2000, 1999,
and 1998 are $20.2 million, $15.9 million, and $17.7 million, respectively.
Income Taxes
The Company has provided for income taxes on its separate taxable income or
loss and other tax attributes. Deferred income taxes are provided for the
temporary differences between assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes. The Company
records valuation allowances related to its deferred income tax assets when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred income tax assets will not be realized.
Foreign Currency Translation
Foreign assets and liabilities are translated using the exchange rate in
effect at the balance sheet date, and results of operations are translated using
an average rate for the period. Translation adjustments are accumulated and
reported as a component of stockholders' deficit and comprehensive income.
Transaction gains and losses are included in results of operations in Sundry,
net. Foreign currency transaction gains/(losses) for the years ended December
31, 2000, 1999, and 1998 were ($1.1 million), ($0.4 million), and $1.0 million,
respectively.
Concentration of Credit Risk and Fair Value Information
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade receivables. Concentrations of
credit risk for these instruments are limited due to the large number of
customers comprising the Company's customer base, and their dispersion across
different geographic areas.
The Company sells its products to customers under specified credit terms in
the normal course of business. These customers' businesses can generally be
classified as banking, personal computer manufacturers, financial services,
insurance, healthcare, government agencies, utilities or telecommunications. Due
to the diversity of the Company's customers, management does not consider there
to be a concentration of risk within any single classification. However, general
economic conditions that cause customers in such industries to reduce or delay
their investments in products and solutions such as those offered by the Company
could have a material adverse effect on the Company.
The Company's hardware and systems solutions are assembled using various
purchased components such as PC monitors, minicomputers, encoders,
communications equipment and other electronic devices. Certain products are
purchased from sole source suppliers. The Company generally has contracts with
these suppliers that are renewed periodically. The Company has not experienced,
nor does it foresee, any significant difficulty in obtaining necessary
components or subassemblies; however, if the supply of certain components or
subassemblies was interrupted without sufficient notice, the result could be an
interruption of product deliveries.
The following estimated fair values of financial instruments have been
determined by the Company using available market information and valuation
methodologies:
The estimated fair values of the Company's financial instruments at December 31
are as follows:
2000 1999
------------------------ ---------------------
(in thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- -------- -------- ----------
Cash and short term investments $ 23,841 $ 23,841 $ 20,732 $ 20,732
Foreign currency contracts - 10,192 - -
Term loan 45,000 45,000 45,000 45,000
Revolver 17,000 17,000 9,000 9,000
Senior Notes 150,000 105,000 150,000 130,000
Sponsor Notes 176,100 132,000 160,000 160,000
Mandatory redeemable preferred stock 11,638 11,638 - -
32
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees". Compensation cost for stock options, if any, is
measured as the excess of the fair market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock.
Compensation expense for shares issued under employee stock award plans is
recorded based upon the current market value of the Company's stock at the end
of each period. The Company has adopted the disclosure requirements of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards NO. 133 "Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities. It requires that all
derivatives be recognized as assets and liabilities on the balance sheet and
measured at fair value. The corresponding derivative gains or losses are
reported based on the hedge relationship that exists. Changes in fair value
derivative instruments that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS 133 are required to reported in earnings. SFAS
133 describes three primary types of hedge relationships: fair value hedge, cash
flow hedge, and foreign currency hedge. The Company adopted SFAS 133 on January
1, 2001 and recorded an asset and liability of $10.2 million. The Company
recognized an immaterial transition adjustment at adoption.
Reclassification
Certain amounts have been reclassified from the prior years to conform to the
current year presentation.
NOTE B--ACQUISITIONS
Early in 1998, the Company acquired Group ParmaTec Inc., a Montreal based
object-oriented software technology company for approximately $2.0 million. The
acquisition was accounted for under the purchase method of accounting, and
operating results from the date of acquisition, which are not material to the
year of acquisition, are included in the consolidated statements of operations.
33
NOTE C - RECAPITALIZATION
In July 1999, BancTec entered into a recapitalization transaction. Welsh,
Carson, Anderson & Stowe, ("WCAS"), a private investment partnership and
Convergent Equity Partners, L.P., ("Convergent"), formed Colonial Acquisition
Corp., ("Colonial") with WCAS owning 93.5% and Convergent owning 6.5%. Through
the merger of Colonial into BancTec, WCAS acquired 17,003,838 shares of
BancTec's common stock and Convergent acquired 1,181,946 shares of BancTec's
Class A common stock. In connection with the recapitalization, each previously
outstanding share of BancTec common stock was converted into the right to
receive $18.50 in cash, totaling approximately $360.2 million, and
simultaneously canceled. Funding for the distribution to the former BancTec
shareholders was provided by a $145.0 million capital contribution from WCAS and
Convergent, by the Tranche A Term Loan, the Sponsor Notes, and the Revolving
Credit Facility discussed in Note F to the Consolidated Financial Statements. In
addition to the funds that were paid for the shares, cash payments were made for
employee stock options of $9.3 million and an employee stock purchase plan of
$0.3 million. The options and the employee stock purchase plan payments were
recorded as a reduction to stockholders' equity.
Holders of both common stock and Class A common stock are entitled to one
vote per share. The Class A holder is entitled to one seat on the Company's
Board of Directors.
Under the terms of the merger agreement, a rabbi trust in the approximate
amount of $5.5 million was established for potential senior management
separation payouts pursuant to related employment agreements. The balance of the
accrual at December 31, 1999 was approximately $2.5 million. As of December 31,
2000, approximately $4.1 million has been paid, $0.9 million was forfeited, and
$0.5 million remains segregated as restricted cash with a corresponding $0.5
million accrual. Fees of $17.8 million were paid in conjunction with the
recapitalization transaction. Of this amount, $11.4 million was allocated to the
capital portion of the transaction and reflected as a reduction to stockholders'
equity, and $6.2 million was allocated to the Company's new debt instruments to
be amortized over their respective lives. Included in the above-referenced fees
were payments to WCAS in the amount of $5.8 million and to Convergent in the
amount of $0.2 million.
NOTE D - DISCONTINUED OPERATIONS AND REORGANIZATION
Discontinued Operations. In 1999, BancTec completed the sale of substantially
------------------------
all of the net assets of its community banking business to Jack Henry and
Associates ("JHA"). The Company received proceeds of $50.0 million in cash from
the sale and recorded a pre-tax gain of approximately $20.3 million. During
2000, an additional $1.7 million was accrued representing a change in estimate
for additional expenses related to the Company's obligation to complete certain
development activities, thereby reducing the net pre-tax gain to $18.6 million.
For financial statement purposes, the Company treated the sale as a discontinued
operation, and accordingly, financial statement presentation was made in
accordance with APB Opinion No. 30, "Reporting the Results of
34
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
Revenues from the community banking business were $20.7 million and $41.8
million in 1999 and 1998, respectively.
Reorganization. At the end of 1998, the Company announced a reorganization of
--------------
its operations into two primary businesses, WFS and CNS. In conjunction with
the reorganization, charges were recorded of approximately $22.1 million, of
which $13.6 million related to inventory obsolescence costs and $4.1 million to
goodwill impairment. Remaining charges totaled $4.4 million, of which $2.0
million was recorded as cost of sales expense, and $2.4 million was recorded as
selling, general and administrative expense. Included in the reorganization
charge was an accrual for approximately $1.0 million related to the closure of
the Company's operations in Australia. The remaining $3.4 million primarily
related to severance costs. Substantially all amounts had been paid at December
31, 1999.
NOTE E--INVENTORIES
Net inventory consists of the following:
2000 1999
---------- ----------
(In thousands)
Raw materials $ 10,264 $ 18,740
Work-in-progress 34,507 4,429
Finished goods 39,053 41,024
---------- ----------
$ 83,824 $ 64,193
========== ==========
NOTE F--DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
35
December 31,
2000 1999
-------- --------
(in thousands)
7.5% Senior Notes, due 2008 $150,000 $150,000
Tranche A Term Loan, due 2004 45,000 45,000
Revolving Credit Facility 17,000 9,000
Subordinated Sponsor Notes, unsecured, due 2009 176,112 160,000
Other - 1,822
-------- --------
388,112 365,822
Less: Current portion - (15,322)
-------- --------
$388,112 $350,500
======== ========
Senior Notes. In August 1998, the Company exchanged the public Senior Notes
-------------
for the notes sold in a May 1998 Rule 144A private offering. Interest is fixed
at 7.5% and is due and payable in semi-annual installments. Payments began
December 1, 1998. The Notes contain covenants placing limitations on the
Company's ability to permit subsidiaries to incur certain debts, incur certain
loans, and engage in certain sale and leaseback transactions. The Company was in
compliance with all covenants as of December 31, 2000. As of May 15, 2001, the
Company was not in compliance with the Senior Notes' reporting requirements for
the year ended December 31, 2000 and certain covenants for the three months
ended March 31, 2001. The Company is in the 60-day cure period for delivery of
the year end audited financial statements, and the delivery of the financial
statements in this Form 10-K will remedy this non-compliance condition. The
Company expects to cure the non-compliance reporting for the first quarter
within the cure period provided. The estimated fair market value of the Senior
Notes as of December 31, 2000 is approximately $105.0 million based on a yield
of 14.0%.
Bank Debt Facilities. Effective September 15, 2000, the Company amended
---------------------
certain provisions ("Third Amendment") of its Credit Agreement dated July 1999
which includes the Term Loan and the Revolver. Pursuant to the Third Amendment,
less restrictive financial covenants were required of the Company for the
remaining quarters of 2000. The Third Amendment covenants related primarily to
EBITDA and capital expenditures, and were agreed to in consideration for an
increase in the guarantee to the Lenders by the Company's primary owners, WCAS
(or, the "Sponsor"), from $10.0 million to $35.0 million, and for the Company's
receipt of $15.0 million in cash proceeds from a preferred stock issuance to
WCAS. On March 30, 2001, the Company filed a Form 12b-25 with the Securities and
Exchange Commission advising of its inability to file timely its Annual Report
on Form 10-K, due primarily to the fact that certain factual evidence was needed
to make a proper accounting determination with respect to certain non-cash
transactions. The Company received waivers from its Lenders with respect to the
Company's obligation to deliver audited consolidated financial statements.
Pursuant to the waivers, the Lenders waived, through May 31, 2001, any covenant
violation or event of default related to the delay in the delivery of the
audited consolidated financial statements. The Company is in compliance with the
amended covenants at December 31, 2000. The Company believes, as of March 31,
2001, it was in violation of certain financial covenants of the bank debt
facilities. The Company resolved this non-compliance by refinancing this debt on
May 31, 2001 as further described below.
New Credit Facility. On May 31, 2001, the Company replaced its existing bank
-------------------
debt facilities provided by a syndicate of lenders led by The Chase Manhattan
Bank with a New Facility provided by Heller, which will mature on May 30, 2006.
Within 90 days after the closing, Heller intends to syndicate the New Facility
to a group of lenders for which Heller will act as agent.
The New Facility is secured by substantially all the assets of the Company,
subject to the limitations on liens contained in the Company's existing Senior
Notes. Availability under the New Facility will be determined by a borrowing
base formula equal to a specified percentage of the value of the Company's
eligible accounts receivable, inventory and real estate from time to time. At
May 31, 2001, the available borrowing base was approximately $80.0 million.
The interest rate on loans under the New Facility will be equal to, at the
Company's option, either (i) 1.25% over the "prime rate" or (ii) 2.75% over the
"LIBOR rate". Beginning August 1, 2002, the interest rate margins over the prime
rate and LIBOR rate may be increased or decreased by up to 0.50% based upon the
Company's available borrowing capacity. During the syndication of the New
Facility, the interest rate will be 1.25% over the prime rate. A commitment fee
of 0.50% per annum on the unused portion of the New Facility is payable
quarterly.
Under the New Facility, substantially all of the Company's cash flow
(including proceeds of accounts receivable and asset sales) must be applied to
repay the outstanding loans, which may be reborrowed subject to availability in
accordance with the borrowing base formula.
The New Facility contains various representations, warranties and covenants,
including financial covenants as to maximum capital expenditures, minimum fixed
charge coverage ratio and minimum average borrowing availability. The Company
believes this facility along with cash from operations will be sufficient to
cover the next 12 months' cash requirements.
36
Term Loan. In the fourth quarter of 1999, the Company used $30.0 million of
----------
the proceeds from the sale of its community banking business to pay down the
Term Loan to $45.0 million. As permitted under the terms of the agreements,
BancTec exercised its option to defer quarterly principal payments until March
30, 2001; thus a portion of the $30.0 million pay down in 1999 was used to cover
the third and fourth quarter payments originally scheduled for payment in 2000.
The Company paid the $2.5 million quarterly payment in full on its March 2001
due date. As of December 31, 2000, capital expenditures at a quarter end for the
preceding year are not to exceed $26.5 million. The Term Loan, due June 2004, is
payable in fourteen consecutive quarterly installments. Effective with the
execution of the first amendment to the credit agreements, interest rates
increased at the beginning of 2000. Interest under these agreements, at the
Company's option, was LIBOR plus 3.25%, or prime plus 2.25% (weighted average
interest rates of 10.56% and 8.31% at December 31, 2000 and 1999, respectively).
Collateral for these credit facilities includes all tangible and intangible
assets of the Company, subject to certain limitations contained in the Senior
Notes agreement. See Note G to the Consolidated Financial Statements.
Revolver. At December 31, 2000 and 1999, the Company had a $50.0 million
--------
Revolver under which maximum borrowings allowed, including letters of credit,
was $43.6 million. Outstanding letters of credit at December 31, 2000 were $1.6
million. The Company had outstanding borrowings under the Revolver at December
31, 2000 of $17.0 million. Interest under the Revolver, at the Company's option,
was LIBOR plus 3.25%, or prime plus 2.25% (weighted average interest rates of
10.57% and 9.19% at December 31, 2000 and 1999, respectively). Available credit
under the Revolver at year-end was $25.0 million. A commitment fee of 0.5% on
the unused portion of the Revolver is payable quarterly. As of April 30, 2001,
the Company had $25.0 million of borrowings outstanding under the Revolver.
Subordinated Unsecured Sponsor Notes ("Sponsor Notes"). The Company's $160.0
-------------------------------------------------------
million in Sponsor Notes are issued in U.S. dollars, with interest due and
payable quarterly. The payments began September 30, 1999. As provided under the
agreement, the Sponsor Notes' holder, WCAS, elected to defer the June,
September, and December 2000 interest payments of $4.0 million each, bearing
interest at 10.0%. The deferred interest payments were added to the Sponsor
Notes as additional principal. A financing fee of 30.0% of the deferred interest
payments was also added to the Sponsor Notes as principal. At December 31, 2000,
the Company had $12.3 million outstanding in deferred interest notes and had
incurred financing fees of $3.8 million. On March 30, 2001, WCAS elected to
defer the March 2001 payment of $4.0 million. The deferred interest payment was
added to the Sponsor Notes as additional principal. A financing fee of 30.0% of
the deferred interest
37
payment was also added to the Sponsor Note as additional principal. This
deferred interest payment, and interest on previously deferred interest
payments, totaling $4.4 million were added to the Sponsor Notes as additional
principal. A financing fee of 30.0% of the deferred interest payment bears
interest at 10.0%. The estimated fair market value of the Sponsor Notes is
approximately $132.0 million based on a discount rate of 15.0% as of December
31, 2000.
Foreign Credit Agreements. The Company has no outstanding foreign credit
--------------------------
balances as of December 31, 2000. Outstanding balances on foreign credit
agreements as of December 31, 1999 was $1.5 million, payable in Japanese yen.
The terms on the agreements ranged from three months to one year at interest
rates up to 1.75%.
As of December 31, 2000, the future maturities of long-term debt are as
follows:
Year (In thousands)
---------- --------------
2001 $ -
2002 62,000
2003 -
2004 -
2005 -
Thereafter 326,112
--------------
$ 388,112
==============
The $62.0 million of debt maturing in 2002 represents existing bank debt
replaced by the New Facility as described above. The Company does not have a
reasonable estimate of the expected borrowing capacity beyond one year.
Therefore, the debt is classified as maturing in 2002.
There were no capital lease obligations outstanding as of December 31, 2000.
Capital lease obligations outstanding as of December 31, 1999 totaled $0.4
million.
The Company paid cash totaling $22.4 million, $21.2 million, and $7.9
million, for interest during the twelve months ended December 31, 2000, 1999,
and 1998, respectively. During the years ended December 31, 2000 and 1999, the
Company capitalized no interest costs. During the year ended December 31, 1998,
the Company capitalized $0.7 million in interest on the costs incurred to
implement an internal information system.
NOTE G--REDEEMABLE PREFERRED STOCK
38
In consideration for amending the Company's credit agreements with its
Lenders, in September 2000, the Company issued 100,000 shares of $0.01 par value
Series A Preferred Stock to WCAS, its primary owners. In exchange, WCAS
contributed an additional $15.0 million in cash to the Company. The Series A
Preferred has an annual cash dividend rate of 7.0% of the then "Stated Value".
The Stated Value equals $150.00 per share, plus accumulated and unpaid
dividends. Dividends are paid when declared by the Company's Board of Directors.
The aggregate liquidation preference/redemption value is $15.0 million, plus
accumulated and unpaid dividends. The Company shall redeem all of the
outstanding shares of Series A preferred stock on September 22, 2008 or at an
earlier date upon the occurence of certain other events. The Company has the
option to redeem the Series A Preferred at any time. Each share of Series A
Preferred includes a warrant to purchase between 2.5 and 7.75 shares of Common
Stock at $0.01 per share. Common stock exercisable by the warrants totals
750,000 shares and may be exercised at any time from the date of purchase to
September 22, 2008.
The Company allocated the proceeds from the Series A preferred stock
issuance based upon the relative fair value of the preferred stock and warrants
which resulted in recording mandatory redeemable preferred stock of $11.3
million and warrants of $3.7 million. The related discount is being accreted
such that the carrying amount of the mandatory redeemable preferred stock will
equal the mandatory redemption amount at September 22, 2008.
39
NOTE H--OTHER ACCRUED EXPENSES AND LIABILITIES
Other accrued expenses and liabilities consist of the following:
December 31,
2000 1999
---------- ----------
(In thousands)
Salaries, wages and other compensation $ 18,976 $ 15,899
Accrued taxes, other than income taxes 7,795 5,688
Advances from customers 16,800 786
Accrued interest payable 1,128 1,157
Accrued invoices and costs 5,812 5,892
Other 20,881 23,002
---------- ----------
Total $ 71,392 $ 52,424
========== ==========
NOTE I--TAXES
The income tax provision (benefit) consists of the following:
Years Ended
December 31,
-------------------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Current:
Federal $ - $ 3,205 $ 621
State - 231 387
Foreign 6,448 7,901 4,782
---------- ---------- ----------
Total current 6,448 11,337 5,790
---------- ---------- ----------
Deferred:
Federal 33,041 (15,744) (2,684)
Foreign 519 (2,169) (399)
---------- ---------- ----------
Total deferred 33,560 (17,913) (3,083)
---------- ---------- ----------
$ 40,008 $ (6,576) $ 2,707
========== ========== ==========
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
December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Provision (benefit) at U.S. statutory rate of 35% for
all periods $ (36,695) $ (6,221) $ 2,632
Increase in tax expense resulting from:
Impact of foreign and Puerto Rico income tax rates 2,019 1,310 2,724
State income tax, net of federal income tax benefit - 150 426
Utilization of net operating losses - - (4,419)
Foreign losses not providing a current benefit - - 2,086
Goodwill amortization 962 7,481 1,077
Change in valuation allowance 78,604 (8,103) -
Other (4,882) (1,193) (1,819)
---------- ---------- ----------
$ 40,008 $ (6,576) $ 2,707
========== ========== ==========
The Company paid cash totaling $7.6 million, $14.6 million, and $10.2
million, for income taxes during the years ended December 31, 2000, 1999 and
1998, 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. Deferred tax assets (liabilities), as determined
under the provisions of SFAS No. 109, "Accounting for Income Taxes", were
comprised of the following:
December 31,
--------------------------
2000 1999
---------- ----------
(In thousands)
Gross deferred tax assets:
Net operating losses $ 58,181 $ 26,946
Inventory reserves 8,213 9,673
Receivable allowance 1,281 2,642
Intangible assets previously deducted 2,102 2,890
Deferred revenues 9,262 3,413
Deferred compensation 3,652 1,481
Foreign timing differences, net 2,407 784
Taxes paid on intercompany profits 741 1,330
Other 9,310 4,361
---------- -----------
Total gross deferred tax asset 95,149 53,520
---------- -----------
Gross deferred tax liabilities:
Depreciation (2,853) (6,268)
---------- -----------
Total gross deferred tax liability (2,853) (6,268)
Deferred tax asset valuation reserve (87,594) (8,990)
---------- -----------
Net deferred tax asset $ 4,702 $ 38,262
========== ===========
A valuation allowance has been provided to reduce the deferred tax assets to
an amount management believes is more likely than not to be realized. The
increase had the effect of decreasing the Company's effective tax rate to
(38.2%) from the 1999 rate of 37.0%.
The Company's net operating loss carryforwards of $58.2 million expire $15.6
million in 2001 through 2005, $8.7 million in 2006 through 2010, $30.8 million
in 2016 through 2020 and $3.1 million with no expiration.
Components of income (loss) before income tax expense (benefit) are as
follows:
Years Ended December 31,
2000 1999 1998
---------- ---------- ----------
United States $ (96,602) $ (48,916) $ 2,706
Foreign (6,590) 13,074 8,840
---------- ---------- ----------
Total income (loss) $ (103,192) $ (35,842) $ 11,546
========== ========== ==========
40
Undistributed earnings of foreign subsidiaries were approximately $32.7
million, $30.3 million, and $25.5 million, at December 31, 2000, 1999, and 1998,
respectively. No taxes have been provided on these undistributed earnings as
they are considered to be permanently reinvested.
NOTE J--STOCKHOLDERS' EQUITY
2000 Stock Plan:
Effective July 1, 2000, the Company adopted the 2000 Stock Plan (the "Plan"),
which provides for the granting to employees of incentive options, non-qualified
stock options, and restricted stock awards.
Incentive Options. At December 31, 2000, 1,303,460 incentive options had
------------------
been granted by the Company and were outstanding. Under the Plan, incentive
options are granted at a fixed exercise price not less than 100% of the fair
market value of the shares of stock on the date of grant (or 110% of the fair
market value in certain circumstances). The incentive options contain vesting
provisions over a length of time and accelerated vesting provisions based on the
performance of the Company. The incentive options vest over a four-year period
at 25% per year beginning January 2, 2001. As a part of an employee retention
program, vesting of 20.0% of the performance-based incentive options was
accelerated in October 2000. During 2000, there were 138,500 incentive options
forfeited.
Non-qualified stock options. At December 31, 2000, 377,040 non-qualified
----------------------------
stock options had been granted by the Company and were outstanding. Under the
Plan, incentive options are granted at a fixed exercise price equal to, more
than, or less than 100% of the fair market value of the shares of stock on the
date of grant. The options contain vesting provisions over a length of time and
accelerated vesting provisions based upon the performance of the Company. The
options vest over a four-year period at 25% per year beginning January 1, 2001.
As a part of an employee retention program, vesting of 20.0% of the performance-
based options was accelerated in October 2000. During 2000, no non-qualified
options were forfeited.
Restricted stock awards. The amount, if any, to be paid by the award
------------------------
recipient to acquire the share of stock pursuant to a restricted stock award is
a fixed exercise price equal to, more than, or less than 100% of the fair market
value of the shares of stock subject to the award on the date of grant. The
restricted stock awards are subject to vesting provisions determined by the
Company's Board of Directors. At December 31, 2000, no restricted stock awards
had been granted.
Options and awards expire and terminate the earlier of ten years from the
date of grant or the date the employee ceases to be employed by the Company.
At December 31, 2000, options to purchase 1,542,000 shares were outstanding,
of which 243,600 were vested. All options outstanding have an exercise price of
$9.25. No options have been exercised.
41
Prior Stock Plan:
Prior to the recapitalization (see Note C to the Consolidated Financial
Statements), the Company had various stock award plans (the "Plans"). In
general, the Plans provided for the granting of options or restricted shares to
key employees. As a result of the recapitalization, all options and restricted
shares became fully vested and were converted into the right to receive $18.50
in cash, net of exercise price, per common share. A summary of the key
provisions of each type of award is as follows:
Stock Options. In general, the Plans provided for the granting of options
-------------
at not less than fair market value of the stock at the grant date, and vesting
occurred over a five-year period. At December 31, 1999, there were no options
outstanding.
Restricted Stock Awards. Prior to the Company's recapitalization, the
-----------------------
Board of Directors periodically awarded restricted stock to key employees as
compensation, and vesting was pro rata and subject to future service. In
conjunction with the July 1999 recapitalization, all restricted shares became
fully vested and were purchased by WCAS and Convergent. Accordingly, there was
no restricted stock outstanding at December 31, 1999. Unearned compensation was
charged for the market value of the shares on the date of grant and was
amortized to expense over the vesting period. These amounts were shown as a
reduction of stockholders' equity in the accompanying 1999 consolidated balance
sheets. During the year ended December 31, 1999, 9,518 restricted shares were
awarded and unearned compensation of $0.1 million was recorded. The weighted
average price of the shares awarded during the year ended December 31, 1999 was
$13.25. Vesting on such shares ranged from three years to 21 years. During the
year ended December 31, 2000 and 1999, $0 and $1.8 million, respectively, were
amortized to expense.
A summary of activity in the Company's stock option plans follows:
Weighted
Range of Average
Exercise Prices Exercise
Shares Per Share Price
---------- ---------------- -------
Options outstanding--December 31, 1997 2,519,745 $ 5.33 $27.00 $21.09
Granted 1,812,319 12.56 25.81 14.40
Exercised (176,788) 5.33 23.31 15.59
Forfeited (1,124,612) 12.08 27.00 22.42
----------
Options outstanding--December 31, 1998 3,030,664 7.09 25.81 16.94
Granted 87,000 13.25 13.25 13.25
Exercised (1,722,854) 12.56 18.00 13.17
Forfeited (1,394,810) 12.56 25.81 21.01
----------
Options outstanding--December 31, 1999 0
==========
Of the options forfeited during 1999, 217,195 shares had exercise prices
between $12.56 and $18.83, with a weighted average exercise price of $18.72. The
remaining 1,177,615 options forfeited had exercise prices between $19.88 and
$25.81, with a weighted average exercise price of $21.43.
Of the options exercised during 1999, options for 1,543,795 shares had
exercise prices between $12.56 and $13.25 with a weighted average exercise price
of $12.73. The remaining 179,059 options had exercise prices between $13.44 and
$17.38 with a weighted average exercise price of $17.01.
As stated in Note A to the Consolidated Financial Statements, the Company has
elected to follow the intrinsic value approach prescribed in APB Opinion No. 25.
In accounting for its employee stock award plans, the Company has adopted the
disclosure-only provisions of SFAS No. 123. Had compensation costs for these
plans been determined consistent with SFAS No. 123, the Company's net income
(loss) would have changed to the following pro forma amounts:
Years Ended December 31
------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Net Income (loss):
As reported $ (144,850) $ (11,197) $ 4,813
Pro Forma $ (148,242) $ (13,194) $ 2,093
42
The fair value of each stock option grant under the stock option plans was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions and results:
Years Ended
December 31,
------------------------------------------
Weighted Average 2000 1999 1998
- ---------------------- ------------ ------------ ------------
Risk free interest rate 5.9% 6.3% 4.8%
Expected life 10 years 3.5 years 3.5 years
Expected volatility 0 58% 64%
Fair value of options granted $4.06 $6.15 $6.91
NOTE K--EMPLOYEE BENEFIT PLANS
The Company's Employees' Savings Plan allows substantially all full-time and
part-time U.S. employees to make contributions defined by Section 401(k) of the
Internal Revenue Code. During the years ended December 31, 2000, 1999 and 1998
the Company contributed 50.0% of the participants' qualifying total pre-tax
contributions. Amounts expensed under the plan for the years ended December 31,
2000, 1999, and 1998 were $2.7 million, $2.8 million, and $2.8 million,
respectively. Beginning in February 2001, the Company's 401(k) Plan changed to
match 50.0% of the participants' qualifying total pre-tax contributions, up to a
maximum which is tied to the Company's achievement of certain financial
objectives.
The Company's subsidiary in Japan provides pension benefits to retirees and
eligible dependents. Employees eligible for participation include all full-time
regular employees who are more than three years from retirement. A retirement
pension or a lump-sum payment may be paid dependent upon length of service at
the mandatory retirement age of 60. When a person retires at mandatory
retirement age with between three and 16 years of service, a lump-sum pension is
paid. Otherwise, the pensioner may request a lump-sum payment in lieu of pension
payments with respect to all or a portion of future pensions. The Company
accrues the cost of these benefits during the service lives of the covered
employees based on an actuarial calculation.
43
The following table provides a reconciliation of the benefit obligation, plan
assets and funded status of the pension fund:
Years Ended December 31,
2000 1999
-----------------------
(Dollars in thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year $ 7,820 $ 6,361
Service cost 819 635
Interest cost 222 224
Actuarial loss 97 584
Benefits paid (514) (760)
Change due to translation (872) 776
-------------------
Benefit Obligation at end of year 7,572 7,820
Change in Plan Assets
Estimated fair value of plan assets at beginning of year 2,680 2,354
Actual return on plan assets 9 44
Employer contribution 949 774
Benefits paid (514) (760)
Change due to translation (312) 268
-------------------
Estimated fair value of plan assets at end of year 2,812 2,680
Funded status (4,760) (5,140)
Unrecognized actuarial loss 2,258 2,189
Unrecognized transition cost 1,431 1,468
Change due to translation (124) 381
-------------------
Accrued benefit cost $ (1,195) $ (1,102)
===================
Weighted average assumptions as of December 31, 2000
Discount Rate 3.0% 3.5%
Expected asset return 3.0% 3.0%
Rate of compensation increase 3.5% 3.5%
The components of the net periodic benefit cost are as follows:
Years Ended December 31,
2000 1999
-----------------------
(Dollars in thousands)
Service Cost $ 819 $ 635
Interest Cost 222 224
Expected return on plan assets (76) (71)
Amortization of transition amount 104 100
Recognized actuarial loss 103 67
-------------------
Net periodic benefit cost $ 1,172 $ 955
===================
44
NOTE L--COMMITMENTS AND CONTINGENCIES
Leases. The Company leases certain sales and service office facilities and
equipment under non-cancelable operating leases expiring through year 2010.
Total Company rent expense for the years ended December 31, 2000, 1999, and 1998
was $13.9 million, $9.3 million, and $11.1 million, respectively.
Future minimum payments under non-cancelable operating leases, net of $2.4
million of sublease income as follows:
Calendar Year (In thousands)
2001 $ 11,816
2002 9,008
2003 5,340
2004 2,447
2005 1,205
Thereafter 4,071
-----------
$ 33,887
===========
The Company believes that its facility leases can be either renewed or
replaced with alternate facilities at comparable cost.
Litigation. The Company and its subsidiaries are parties to various legal
proceedings. Although the ultimate disposition of such proceedings is not
presently determinable, in the opinion of the Company, any liability that may
ensue would not have a material adverse impact on the financial position or
results of operations or cash flows of the Company.
Employment Agreements. The Company maintains employment agreements (the
officer "agreements") with two officers and one non-officer director of the
Company. The officer agreements provide for the payment of base salary amounts
and the participation in any employee benefit or bonus plan or arrangement made
available by the Company. The agreements further provide that if the employee's
employment is terminated within three years after a triggering event, the
Company is obligated to make a lump sum cash payment equal to either 2.99, 2.0
or 1.0 times the average of the employee's annualized compensation received from
the Company during the period consisting of the five full taxable years ending
immediately preceding the triggering event. The agreements also provide for
severance benefits, disability and death benefits. The agreement with the non-
officer director provides for severance amounts which are immaterial to the
results of operations and cash flows of the Company. See Note C to the
consolidated financial statements.
45
NOTE M--BUSINESS SEGMENT DATA
As discussed in Note D to the Consolidated Financial Statements, the Company
reorganized its historical operations into two primary businesses, WFS and CNS,
at the end of 1998. Management has chosen to structure the organization around
product lines and geography.
The operations of WFS included manufacturing and supplies, maintenance of
Company-manufactured products, integrated systems, and Plexus(R) products. The
CNS operations include personal computer warranty repair services and
administration of third party extended warranties. In 1999, the Company
separated WFS into two separately-managed reportable segments based on
geographical areas, North American Systems ("NAS") and International Systems
("INTL"). INTL consists of operations throughout the world excluding North
America.
US Solutions and International Solutions. USS and INTL offer similar systems
integration and business process solutions and services and market to similar
types of customers. The solutions offered primarily involve high volume
transaction processing using advanced technologies and processes. Key
applications include payment and check processing, document imaging and
workflow, and ongoing service and support. These segments provide their
products and services to other customers, including financial services companies
and insurance providers, telecommunications companies, utility companies,
governmental agencies, and transportation firms.
Computer and Network Services. The Company is a leading provider of personal
computer repair services in the United States for many companies, including
Dell, Compaq, Galileo International, and other Fortune 1000 companies. One
focus of CNS is providing warranty fulfillment services and related support to
manufacturers of desktop/enterprise products. Another focus is the support of
desktop/enterprise applications.
Data for the CNS, NAS, and INTL segments is available on a comparative basis
for 2000 and 1999 only. For more meaningful disclosure, also presented are
tables reflecting historical segment data for 1999 and 1998.
Historical Segment Descriptions. The Company's M&S segment provided document-
--------------------------------
processing systems, check sorting systems and electronic components, which were
marketed to its end-users, other manufacturers and various resellers and systems
integrators worldwide. In addition, the M&S segment provided full-page document
scanners that were sold worldwide through distributors.
46
The Company's USMS segment installed and maintained its own equipment
products such as document reader/sorters and scanners. In addition, M&S and
USMS provided personal computer warranty repair services for companies and
administered third party extended warranties on personal computers sold by some
of the nation's largest retailers.
The Company's WS segment provided integration services related to a full
range of software and equipment for high volume, complex financial transaction
processing environments. Customers included some of the largest check and
payment processors worldwide, including banks, credit card companies, utilities,
insurance companies and government agencies.
Whenever possible, the Company uses market prices to determine inter-segment
pricing. Other products are transferred at cost or cost plus an agreed upon
mark-up.
47
Table 1--New Segments
North Computer
American & Network
Systems Services International Corp/Elims Total
------------- -------------- ------------- ------------- -------------
(In thousands)
For the year ended December 31, 2000
Revenue from external customers $ 206,621 $ 141,460 $ 139,626 $ - $ 487,707
Intersegment revenues 37,524 - 2,124 (39,648) -
Segment gross profit (loss) 18,474 (2,479) 29,414 996 46,405
Segment operating income (loss) (26,747) (9,864) (4,150) (26,673) (67,434)
Segment identifiable assets 184,638 52,829 105,697 56,588 399,752
Capital appropriations 9,179 5,062 5,402 1,190 20,833
For the year ended December 31, 1999
Revenue from external customers $ 250,895 $ 109,821 $ 173,874 $ - $ 534,590
Intersegment revenues 65,951 (83) 4,786 (70,654) -
Segment gross profit (loss) 59,811 (427) 45,191 (543) 104,032
Segment operating income (loss) 16,680 (10,824) 11,434 (31,509) (14,219)
Segment identifiable assets 205,666 58,194 116,368 92,877 473,105
Capital appropriations 15,927 16,200 6,776 6,977 45,880
Table 2-Historical Segments
Manufacturing & US Maintenance Worldwide Corporate/
Supplies & Service Systems Eliminations Total
--------------- -------------- ------------- ------------- -------------
(In thousands)
For the year ended December 31, 1999
Revenue from external customers $ 47,443 $ 209,711 $ 277,436 $ - $ 534,590
Intersegment revenues 53,663 103 16,888 (70,654) -
Segment gross profit 13,799 13,486 76,747 - 104,032
Income (loss) from operations 1,195 847 16,195 (32,456) (14,219)
Total assets 51,843 121,238 207,184 92,840 473,105
Capital expenditures 385 29,369 9,149 6,977 45,880
For the year ended December 31, 1998
Revenue from external customers $ 49,880 $ 238,335 $ 267,882 $ - $ 556,097
Intersegment revenues 55,179 1,311 7,480 (63,970) -
Segment gross profit 4,864 53,229 65,310 - 123,403
Income (loss) from operations (7,754) 42,653 (415) (17,350) 17,134
Total assets 65,058 142,921 199,285 113,048 520,312
Capital expenditures 1,656 22,962 9,588 17,172 51,378
48
NOTE N--GEOGRAPHIC OPERATIONS
The Company operates in the following geographic areas: the United States,
Japan, the UK, and other international areas consisting primarily of Canada,
France, Sweden, Germany, and the Netherlands. Inter-area sales to affiliates
are accounted for at established transfer prices.
Sales to unaffiliated customers and affiliates for the years ended December
31, 2000, 1999 and 1998, and long-lived assets, other than deferred taxes, at
the end of each of those periods, classified by geographic area, are as follows:
Other
United United Inter- Elimina- Consoli-
States Japan Kingdom national tions dated
------------- -------------- ------------- ------------- ------------- -----------
(In thousands)
Year ended December 31, 2000
Sales to unaffiliated customers $ 339,619 $ 75,087 $ 30,574 $ 42,427 $ - $ 487,707
Inter-area sales to affiliates 37,457 - 1,850 341 (39,648) -
Long-lived assets other than
deferred taxes 178,777 6,650 4,698 5,792 (27,179) 168,738
Year ended December 31, 1999
Sales to unaffiliated customers $ 345,977 $ 59,585 $ 55,862 $ 73,166 $ - $ 534,590
Inter-area sales to affiliates 65,393 - 4,785 476 (70,654) -
Long-lived assets other than
deferred taxes 203,216 5,960 6,142 6,183 (27,179) 194,322
Year ended December 31, 1998
Sales to unaffiliated customers $ 380,852 $ 46,713 $ 61,076 $ 67,456 $ - $ 556,097
Inter-area sales to affiliates 61,568 - 2,402 - (63,970) -
Long-lived assets other than
deferred taxes 202,335 4,687 7,913 11,226 (29,487) 196,674
49
NOTE O--SUMMARIZED QUARTERLY DATA (UNAUDITED)
Year Ended December 31, 2000
-------------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
as restated(1) (2)(3)
-------------- -------------- ------------- ------------- -------------
(In thousands)
Revenue $ 128,390 $ 138,804 $ 127,126 $ 93,387 $ 487,707
Gross profit 19,318 14,424 18,134 (5,471) 46,405
Loss from continuing operations (11,694) (17,163) (15,466) (98,247) (142,570)
Net loss (11,694) (17,163) (15,466) (100,527) (144,850)
Year Ended December 31, 1999
-------------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Total
-------------- -------------- ------------- ------------- -------------
(In thousands)
Revenue $ 139,489 $ 140,827 $ 126,954 $ 127,320 $ 534,590
Gross profit 35,595 35,817 30,764 1,856 104,032
Income (loss) from continuing
operations 4,972 5,889 (4,693) (28,748) (22,580)
Net income (loss) 4,818 5,521 7,464 (29,000) (11,197)
(1) Subsequent to the issuance of the Company's financial statements as of and
for the three and nine months ended September 30, 2000 and the filing of
Form 10-Q for the third quarter of 2000, management determined that certain
revenue items totaling $4.0 million and the related cost of sales of $2.2
million were incorrectly recognized in that period and that $2.4 million of
predominately operating expense items were not accrued in the proper period
which should have been recognized in the third quarter. Accordingly, the
summarized quarterly data for the third quarter of 2000 has been restated
from amounts previously reported to appropriately report such revenues,
costs and expenses. A summary of the effects on the quarterly data is as
follows:
Three Months Ended September 30, 2000
------------------ -----------------
As Previously As Restated
Reported
------------------ -----------------
Revenue 131,162 127,126
Gross Profit 19,948 18,134
Loss from Continuing Operations (12,447) (15,466)
Net Loss (12,447) (15,466)
(2) Due to changes in managements' estimates a valuation allowance has been
provided to reduce the deferred tax assets to an amount management believes
is more likely than not to be realized. The increase had the effect of
decreasing the Company's effective tax rate to (38.2%) from 37.0% in 1999.
The net change in the valuation reserve in the fourth quarter of 2000 was
an increase of $78.6 million.
(3) Due to changes in business conditions, management increased inventory
reserves and allowance for doubtful accounts by $1.4 million and $0.7
million respectively. Also during the 2000 fourth quarter, management
recorded $4.2 million of additional depreciation on its spares, $8.2
million of additional expenses attributable to cost of sales, and $5.1
million related to changes in its revenue recognition estimates.
50
NOTE P--SUBSEQUENT EVENTS
In February 2001, the Company issued 35,520 shares of $0.01 par value Series
B Preferred Stock to its primary owners, WCAS. In exchange, WCAS contributed an
additional $5.3 million in cash to the Company. The Series B Preferred has a
cumulative annual cash dividend rate of 25.0% of the then "Stated Value". The
Stated Value equals $150.00 per share, plus accumulated and unpaid dividends.
Dividends are paid when declared by the Company's Board of Directors. The
aggregate liquidation preference/redemption value is $5.3 million, plus
accumulated and unpaid dividends. The Company has the right to redeem the Series
B Preferred at any time. In addition, subject to the approval of a majority of
the holders of the Series B Preferred and upon the occurrence of certain events,
the Company is required to redeem the shares. Each share of Series B Preferred
is convertible into shares of Common Stock at any time. The number of shares of
Common Stock is determined by multiplying the number of shares being converted
by $150.00 and dividing the result by $8.325 per share. The conversion rate is
subject to various adjustments. The Company is required keep available
approximately 640,000 shares of Common Stock as would be issuable upon
conversion of all outstanding shares of Series B Preferred Stock.
The Company received waivers (the "Waivers") with respect to its obligation
to deliver audited consolidated financial statements to its lenders under its
Credit Agreement dated July 1999. The parties to the Waivers are the Company and
several banks and other financial institutions (the "Lenders"). Pursuant to the
Waivers, the Lenders waived, through May 31, 2001, any covenant violation or
event of default related to the delay in the delivery of the audited
consolidated financial statements to the Lenders. As of May 15, 2001, the
Company was not in compliance with the reporting requirements for the year ended
December 31, 2000 and certain financial covenants and for the three months ended
March 31, 2001. The Company is in the 60-day cure period for delivery of the
year end audited financial statements, and the delivery of the financial
statements in this Form 10-K will remedy this non-compliance condition. The
Company expects to cure the non-compliance reporting for the first quarter
within the cure period provided. The Company believes,as of March 31, 2001, it
was in violation of certain financial covenants of the bank debt facilities. The
Company resolved this non-compliance by refinancing this debt on May 31, 2001 as
further described below.
On May 31, 2001, the Company replaced its existing bank bebt facilities
provided by a syndicate of lenders led by The Chase Manhattan Bank with a New
Facility provided by Heller, which will mature on May 30, 2006. Within 90 days
after the closing, Heller intends to syndicate the New Facility to a group of
lenders for which Heller will act as agent.
The New Facility is secured by substantially all the assets of the Company,
subject to the limitations on liens contained in the Company's existing
Senior Notes. Availability under the New Facility will be determined by a
borrowing base formula equal to a specified percentage of the value of the
Company's eligible accounts receivable, inventory and real estate from time to
time. At May 31, 2001, the available borrowing base was approximately $80.0
million.
The interest rate on loans under the New Facility will be equal to, at the
Company's option, either (i) 1.25% over the "prime rate" or (ii) 2.75% over the
"LIBOR rate". Beginning August 1, 2002, the interest rate margins over the prime
rate and LIBOR rate may be increased or decreased by up to 0.50% based upon the
Company's available borrowing capacity. During the syndication of the New
Facility, the interest rate will be 1.25% over the prime rate. A commitment fee
of 0.50% per annum on the unused portion of the New Facility is payable
quarterly.
Under the New Facility, substantially all of the Company's cash flow
(including proceeds of accounts receivable and asset sales) must be applied to
repay the outstanding loans, which may be reborrowed subject to availability in
accordance with the borrowing base formula.
The New Facility contains various representations, warranties and covenants,
including financial covenants as to maximum capital expenditures, minimum fixed
charge coverage ratio and minimum average borrowing availability. The Company
believes this facility along with cash from operations will be sufficient to
cover the next 12 months' cash requirements.
51
BANCTEC, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements and Independent Auditors' Report
Independent Auditors' Report............................................ 21
Reports of Independent Public Accountants............................... 22
Consolidated Balance Sheets at December 31, 2000 and
December 31, 1999.................................................... 23
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998..................................... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998..................................... 26
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 2000, 1999 and 1998......................... 27
Consolidated Statements of Comprehensive Income (Loss).................. 28
Notes to Consolidated Financial Statements.............................. 29-51
Supplemental Schedules
Schedule II--Valuation and Qualifying Accounts for the years
ended December 31, 2000, 1999 and 1998............................... 68
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.
52
================================================================================
PART III
ITEM 10. Directors and Executive Officers of BancTec, Inc.
The following table sets forth the names, ages, and positions of each of the
directors and executive officers of the Company as of April 30, 2001.
The Board of Directors elects executive officers annually. No family
relationships exist among the executive officers of the Company.
Name Age Position
---- --------
John D. Staedke..................... 60 President, Chief Executive Officer and Director
Evelyn Henry Miller................. 43 Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Mark D. Fairchild................... 41 Senior Vice President
James S. Kildebeck.................. 58 Senior Vice President
Kevin L. Roper...................... 46 Senior Vice President
Chris B. Van Arsdel................. 56 Senior Vice President
James R. Wimberley.................. 60 Senior Vice President
Richard A. McDonough................ 45 Vice President, Secretary and General Counsel
Scott J. Wilson..................... 45 Vice President, Corporate Controller and Assistant
Treasurer
Robert A. Minicucci................. 48 Chairman of the Board and Director
Anthony J. de Nicola................ 36 Director
Murray Holland...................... 47 Director
Sanjay Swani........................ 34 Director
Mr. Staedke has been President and Chief Executive Officer since December
1999 and Director since December 2000. Mr. Staedke served as a Client Executive
for EDS (an information technology and systems integration company), responsible
for global information technology services provided to the Xerox Corporation,
from 1996 to December 1999. Mr. Staedke also served as President and Chief
Executive Officer of Hitachi Data Systems Corporation (a mainframe and computer
storage company) from 1992 to 1996.
Ms. Miller has been Senior Vice President and Chief Financial Officer since
March 2000. Ms. Miller served as the Senior Vice President, Chief Financial
Officer and Treasurer for CellStar Corporation (a wireless communications
company) from November 1995 through May 1999. Ms. Miller also served in various
management capacities for Ryder System Inc./Aviall, Inc. (an aviation services
company) from 1988 to 1995.
Mr. Fairchild has been Vice President since April 2000 and Senior Vice
President since August 2000. Since August 1985, Mr. Fairchild has been employed
by the Company in various management capacities.
Mr. Kildebeck has been Senior Vice President since June 2000. From May 1970
to September 1999, Mr. Kildebeck served in a variety of leadership positions at
EDS (an information technology and systems integration company), most recently
as Director of Operations and Delivery for the Manufacturing Industry Group.
53
Mr. Roper has been Vice President since May 1996 and Senior Vice President
since August 2000. Since March 1985, Mr. Roper has been employed by the Company
in various management capacities.
Mr. Van Arsdel has been Senior Vice President since July 2000. From October
1989 to May 1999, Mr. Van Arsdel served in a variety of leadership positions at
EDS (an information technology and systems integration company), most recently
as Client Services Executive. Mr. Van Arsdel has served as a director of Health
Care Recoveries Inc. (a health care subrogation and services company) since May
1997.
Mr. Wimberley has been Vice President since January 1989 and Senior Vice
President since January 1993. Since January 1984, Mr. Wimberley has been
employed by the Company in various management capacities.
Mr. McDonough has been Vice President, Secretary and General Counsel since
June 2000. Since October 1995, Mr. McDonough has been employed by the Company
in various capacities.
Mr. Wilson has been Vice President since December 2000. Since January 1998,
Mr. Wilson has been employed by the Company in various management capacities.
Prior to that time, Mr. Wilson was employed by Occidental Chemical Corporation
(a chemical manufacturing company) since 1980, where he was most recently Vice
President, Finance - Specialty Business Group.
Mr. Minicucci has been a director of the Company since July 1999. Mr.
Minicucci also serves as a General Partner of Welsh, Carson, Anderson & Stowe
VIII, L.P. (a private investment company) and as a director of Amdocs Limited (a
telecom customer care and billing software and services company). Mr. Minicucci
has served as a General Partner of Welsh, Carson, Anderson & Stowe since 1993.
Mr. de Nicola has been a director of the Company since July 1999. Mr. de
Nicola also serves as a General Partner of Welsh, Carson, Anderson & Stowe VIII,
L.P. (a private investment company), and as a director of Centennial
Communications (a wireless rural telephone systems and integrated communications
services company), of Ntelos Communications (an integrated communications
provider) and BTI Telecommunications Sources, Inc. (an integrated
telecommunications provider). Mr. de Nicola has served as a General Partner of
Welsh, Carson, Anderson & Stowe since 1994.
Mr. Holland has been a director of the Company since July 1999. Mr. Holland
has also served as Principal of Convergent Equity Partners L.P. (a private
investment company) and as Chairman and Chief Executive Officer of Convergent
Media Systems Corporation (a provider of interactive distance learning
solutions) since 1992. Mr. Holland also served as Chairman of Convergent Group
Corporation (an independent systems integrator for geographic information
systems) from June 1993 through August 1999, when the company was sold, and as
Chairman and Chief Executive Officer of BTI Americas, Inc. (a travel agency)
from February 1995 through June 1998, when the company was sold.
54
Mr. Swani has been a director of the Company since December 2000. Mr. Swani
joined Welsh, Carson, Anderson & Stowe (a private investment company) in July
1999 and serves as a principal of the firm. Mr. Swani also served as a director
of Fox Paine & Company (a San Francisco-based buyout firm) from June 1998 to
June 1999 and worked in the mergers and acquisitions department of Morgan
Stanley & Co. (a global financial services firm) from August 1994 to June 1998.
Mr. Swani is also a director of BTI Telecommunications Services, Inc. (an
integrated telecommunications provider).
Effective May 7, 2001, Mr. Staedke was elected Chairman of the Board of
Directors of the Company and Craig D. Crisman was elected President and Chief
Executive Officer. Mr. Crisman was previously Chief Executive Officer of Applied
Magnetics Corporation. Prior to joining Applied Magnetics Corporation, Mr.
Crisman was Chief Executive Officer of several companies.
Effective May 7, 2001, Brian R. Stone was elected Senior Vice President and
Chief Financial Officer of the Company and Ms. Miller remained as a Senior Vice
President. Mr. Stone has previously served as Chief Executive Officer of
Magnetic Data Technologies and Chief Financial Officer of Applied Magnetics
Corporation, and has provided management consulting services to several U.S.
companies.
Section 16(a) Beneficial Ownership Reporting Compliance
Not applicable.
ITEM 11. Executive Compensation
Summary Compensation Table
The following table sets forth certain information regarding compensation
earned during 2000, the year ended December 31, 1999 ("1999"), and the fiscal
year ended December 31, 1998 ("1998"), by the Company's Chief Executive Officer
and each of the Company's four other most highly compensated executive officers
(based upon salary and bonus earned during 2000).
55
Long Term
Annual Compensation Compensation Awards
--------------------- -------------------------------
Restricted All Other
Fiscal Bonus Long-Term Stock Options Compensa-
Name and Principal Position(s) Year Salary($) ($)(1) Bonus(2) Award(s)($) (#)(3) tion($)(4)
- ------------------------------ ------ ---------- ---------- ------------ ------------ ---------- -------------
John D. Staedke 2000 300,014 150,000 0 0 400,000 274,233
President, Chief Executive 1999 0 0 0 0 0 0
Officer and Director 1998 0 0 0 0 0 0
Kevin L. Roper 2000 200,000 37,468 0 0 100,000 0
Senior Vice President 1999 187,652 50,000 0 15,754 0 519,240
1998 158,169 89,250 26,250 396,999 89,000 0
Mark D. Fairchild 2000 177,009 51,328 0 0 100,000 54,165
Senior Vice President 1999 156,410 50,000 0 0 0 116,961
1998 132,463 37,805 0 0 18,127 31,111
Evelyn H. Miller 2000 162,692 42,953 0 0 60,000 0
Senior Vice President, Chief 1999 0 0 0 0 0 0
Financial Officer and Tresurer 1998 0 0 0 0 0 0
James R. Wimberley 2000 149,228 48,009 0 0 50,000 222,856
Senior Vice President 1999 133,229 20,000 0 9,381 0 196,750
1998 117,549 53,125 28,125 15,925 34,000 0
____________
(1) Reflects bonus earned for the fiscal year.
(2) Bonus vested ratably over a period of three years and was not
available to the individual until the later of retirement from the Company or
attainment of the age of 62. Bonus was paid in 1999 as a consequence of the
acquisition of the Company.
(3) Options to acquire shares of Common Stock. Options granted in 1998 were
surrendered in July 1999.
(4) Includes cash compensation received for: surrender of vested and
unexercised stock options by Messrs. Roper, Fairchild, and Wimberley; surrender
of unexercised option to purchase Employee Stock Purchase Plan shares by Mr.
Fairchild; relocation expense reimbursement by Mr. Staedke; one-time signing
bonus by Mr. Staedke; housing allowance by Mr. Fairchild; commissions by Mr.
Fairchild; and severance by Mr. Wimberley. Mr. Wimberley was subsequently
rehired by the Company.
56
____________
Option Grants in 2000
The following table sets forth information related to options granted to the
named executive officers during 2000.
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term(1)
----------------------------
Options Percent of Total Options Exercise or
Granted Granted to Employees Base Price Expiration
Name (#) In Fiscal Year (%) ($/Sh) Date 5%($) 10%($)
---- ------- ------------------- ----------- --------- ---------
John D. Staedke 100,000(2) 5.9 9.25 July 1, 2010 581,728 1,474,211
John D. Staedke 300,000(3) 17.8 9.25 July 1, 2010 1,745,182 4,422,635
Kevin L. Roper 100,000(3) 5.9 9.25 July 1, 2010 581,728 1,474,212
Mark D. Fairchild 100,000(3) 5.9 9.25 July 1, 2010 581,728 1,474,211
Evelyn H. Miller 60,000(3) 3.6 9.25 July 1, 2010 349,037 884,527
James R. Wimberley 50,000(3) 2.9 9.25 July 1, 2010 290,864 737,106
____________
(1) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compound
rates of appreciation of the Common Stock over the term of the options.
These amounts do not take into account provisions of certain options
providing for termination of the options following termination of
employment, nontransferability, or vesting periods of up to four years.
These amounts represent certain assumed rates of appreciation only. Since
the Company's Common Stock is not publicly traded, the exercise price has
been used for calculating appreciation. Actual gains on stock option
exercises are dependent on the future performance of the Common Stock and
overall stock market conditions. There can be no assurance that the
potential values reflected in this table will be achieved. All amounts
have been rounded to the nearest whole dollar amount.
(2) Options to acquire shares of Common Stock granted in July 2000 under the
BancTec, Inc. 2000 Stock Plan were vested in their entirety on the grant
date pursuant to Mr. Staedke's employment agreement.
(3) Options to acquire shares of Common Stock were granted on July 1, 2000,
under the BancTec, Inc. 2000 Stock Plan. Fifty percent of the options to
acquire shares of Common Stock vest ratably over four years beginning
January 1, 2001 and continuing annually thereafter. The remaining fifty
percent of the options to acquire shares of Common Stock vest according to
the Company's performance.
57
__________
Aggregated Option Exercises in 2000 and Fiscal Year-End Option Values
The following table sets forth information related to the number of options
exercised in 2000 and the value realized by the named executive officers.
Further, the table provides information related to the number and value of
options held by the named executive officers at the end of 2000.
Value of Unexercised
Number of Unexercised Options In-the-Money Options
Shares at Fiscal Year-End at Fiscal Year-End(1)
Acquired Value -------------------------------- --------------------------------
Name on Exercise(#) Realized($) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---------------------------- -------------- ----------- -------------- ---------------- -------------- ----------------
John D. Staedke 0 0 130,000 270,000 - -
Kevin L. Roper 0 0 10,000 90,000 - -
Mark D. Fairchild 0 0 10,000 90,000 - -
Evelyn H. Miller 0 0 6,000 54,000 - -
James R. Wimberley 0 0 5,000 45,000 - -
____________
(1) The Company's Common Stock is not publicly traded.
Compensation of Directors
Except for the Chairman of the board of directors, directors of the Company
are not compensated for their services.
Employment Agreements
The Company entered into a five-year employment agreement with John D.
Staedke beginning December 8, 1999 which provides for the payment of a base
salary and annual bonus. The agreement also provides for severance in the case
of termination for reasons other than cause; $900,000 if termination occurs
before Mr. Staedke's first anniversary with the Company, $600,000 if termination
occurs between Mr. Staedke's first and second anniversary, and 150% of base
salary if termination occurs between Mr. Staedke's second anniversary and the
end of the five-year term of the agreement. As stated in Item 10, effective May
7, 2001, Mr. Staedke ceased to be President and Chief Executive Officer, but
continued his employment as Chairman of the Board of Directors of the Company.
The Company also entered into employment agreements (the "Agreements") with
Kevin L. Roper, and Scott J. Wilson. Each of the Agreements provides for the
payment of base salary amounts and the participation in any employee benefit or
bonus plan or arrangement made available by the Company on a basis consistent
with the terms, conditions, and overall administration of such plan or
arrangement. The Agreements expire on October 23, 2003. On July 22, 1999, a
Triggering Event, as defined in the Agreements, occurred. Mr. Roper has
submitted his resignation pursuant to the terms of the Agreement and is expected
to terminate his employment during the summer of 2001.
Upon the death of an executive during the term of the executive's Agreement,
the Company is obligated to pay the executive's base salary for a period of
months (not to exceed twelve months) determined by multiplying two times the
number of complete
58
twelve-month periods of employment of the executive with the Company. If the
Company terminates the executive's employment for any reason other than for
cause (and at a time when the executive is not eligible to receive benefits
under the Company's long term disability plan) or the executive terminates his
employment upon 30 days' notice for specified types of changes in duties or
compensation or due to the Company's breach of material obligations without
cure, then the Company will pay the executive severance payments over a period
of twelve months equal to the sum of the executive's annualized base salary and
the amount of the executive's targeted bonus for the fiscal year in which the
termination occurs.
Each Agreement further provides that if the executive's employment is
terminated (whether such termination is by the executive or by the Company)
within three years after a Triggering Event (which, generally speaking, is
defined in the Agreement as a change in control of the Company) for any reason
other than (i) termination by the Company for cause (as defined in the
Agreement), (ii) the executive having reached the age of 65, or (iii) the
executive's death, the Company is obligated to make a lump sum cash payment
equal to either 2.99, 2.00, or 1.00 times the average of the executive's
annualized includable compensation (as defined in the Agreement) received from
the Company during the period consisting of the five full taxable years ending
immediately preceding the Triggering Event. The Company is obligated to
transfer to an irrevocable trust upon the occurrence of a Triggering Event, or
as soon thereafter as the Company knows of the Triggering Event, the amount of
cash that the Company would be obligated to pay under the Agreement if such
executive's employment were terminated on that date.
Executive officers of the Company are covered by the Company's Special
Severance Plan for Corporate Officers which provides for severance in the case
of termination for reasons other than cause. The severance amount ranges from
six to twelve months of base salary, plus a prorated annual bonus.
Compensation Committee and Option Committee Interlocks and Insider Participation
The Company did not have a Compensation Committee prior to December 4, 2000.
From December 4, 2000 through December 31, 2000, the Compensation Committee was
composed of Robert A. Minicucci and Anthony J. de Nicola. From July 1, 2000
through December 3, 2000, the Option Committee was composed of Robert A.
Minicucci, Anthony J. de Nicola, and Murray Holland and from December 4, 2000
through December 31, 2000, the Option Committee was composed of Robert A.
Minicucci and Anthony J. de Nicola. No member of the Compensation Committee or
the Option Committee was an officer of the Company. No member of the
Compensation Committee or the Option Committee was formerly an officer of the
Company.
59
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of April 30, 2001
regarding the ownership of Common Stock, Class A Common Stock, and Preferred
Stock of: (i) each person who is known by the Company to be the beneficial owner
of more than five percent of the outstanding shares of the named class of Stock;
(ii) each director of the Company; (iii) each executive officer named in the
Summary Compensation Table; and (iv) all executive officers and directors of the
Company as a group. Percentage of ownership is based on 19,575,784 shares of
Common Stock outstanding as of April 30, 2001, which shares are comprised of
17,003,838 shares of Common Stock, 1,181,946 shares of Class A Common Stock,
750,000 shares of Common Stock (Series A Preferred warrants), and 640,000 shares
of Common Stock (Series B Preferred conversion rights); 100,000 shares of Series
A Preferred Stock ("Preferred A") outstanding as of April 30, 2001; and
35,520 shares of Series B Preferred Stock ("Preferred B") outstanding as of
April 30, 2001. Included in the "Number of Shares Beneficially Owned" are
shares attributable to stock options, stock warrants, and conversion rights that
are exercisable as of, or will be exercisable within 60 days after, April 30,
2001.
Number
of Shares Percent of
Beneficially Outstanding
Class of Owned(2)(3) Class of Stock
Name of Beneficial Owner (1) Shares Held ---------- --------------
- ---------------------------
Welsh, Carson, Anderson & Stowe VIII, L.P.(4) Common 15,096,877 77.1%
320 Park Avenue, Suite 2500 Preferred A 94,880 94.9%
New York, NY 10022 Preferred B 33,700 94.9%
WCAS Capital Partners III, L.P. Common 2,508,108 12.8%
320 Park Avenue, Suite 2500
New York, NY 10022
Convergent Equity Partners, L.P.(5) Common 1,181,946 6.0%
100 Crescent Court, Suite 230
Dallas, TX 75201
WCAS Information Partners, L.P.(6) Common 57,502 *
320 Park Avenue, Suite 2500 Preferred A 373 *
New York, NY 10022 Preferred B 133 *
Robert A. Minicucci(7) Common 17,662,485 90.2%
320 Park Avenue, Suite 2500 Preferred A 95,253 95.3%
New York, NY 10022 Preferred B 33,833 95.3%
Anthony J. de Nicola(8) Common 17,619,352 90.0%
320 Park Avenue, Suite 2500 Preferred A 94,973 95.0%
New York, NY 10022 Preferred B 33,733 95.0%
60
Murray Holland(9) Common 1,181,946 6.0%
100 Crescent Court, Suite 230
Dallas, TX 75201
Sanjay Swani(10) Common 15,096,877 77.1%
320 Park Avenue, Suite 2500 Preferred A 94,880 94.9%
New York, NY 10022 Preferred B 33,700 94.9%
John D. Staedke(11) Common 167,500 *
Kevin L. Roper(11) Common 22,500 *
Mark D. Fairchild(11) Common 22,500 *
Evelyn H. Miller(11) Common 13,500 *
James R. Wimberley(11) Common 11,250 *
All executive officers and directors as a Common 19,096,505 97.5%
group (13 persons) Preferred A 95,346 95.3%
Preferred B 33,866 95.3%
____________
* Less than one percent.
(1) Except as otherwise indicated, each stockholder has sole investment and
sole voting power with respect to the shares of Stock shown.
(2) Each share of Series A Preferred Stock includes a warrant to purchase 7.5
shares of Common Stock.
(3) Each share of Series B Preferred Stock includes the right to convert into
Common Stock. The number of shares of Common Stock is determined by
multiplying the number of shares being converted by $150 and dividing the
result by $8.325 per share. The conversion rate is subject to various
adjustments.
(4) Common Stock includes 13,754,070 Common Stock, 735,600 shares Common Stock
(Series A Preferred warrant), and 33,700 shares Common Stock (Series B
Preferred conversion rights).
(5) Convergent Equity Partners, L.P. holds shares of Class A Common Stock. All
others hold shares of Common Stock.
(6) Common Stock includes 54,056 Common Stock, 1,050 shares Common Stock
(Series A Preferred warrant), and 2,396 shares Common Stock (Series B
Preferred conversion rights).
(7) Includes 15,096,877 shares of Common Stock, 94,880 shares of Preferred A,
and 33,700 shares of Preferred B held by Welsh, Carson, Anderson & Stowe
VIII, L.P. and 2,508,108 shares of Common Stock held by WCAS Capital
Partners III, L.P. Mr. Minicucci is a general partner of each of Welsh,
Carson, Anderson & Stowe VIII, L.P. and WCAS Capital Partners III, L.P.
Mr. Minicucci disclaims beneficial ownership of such shares.
(8) Includes 15,096,877 shares of Common Stock, 94,880 shares of Preferred A,
and 33,700 shares of Preferred B held by Welsh, Carson, Anderson & Stowe
VIII, L.P. and 2,508,108 shares of Common Stock held by WCAS Capital
Partners III, L.P. Mr. de Nicola is a general partner of each of Welsh,
Carson, Anderson & Stowe VIII, L.P. and WCAS Capital Partners III, L.P.
Mr. de Nicola disclaims beneficial ownership of such shares.
(9) Includes 1,181,946 shares of Class A Common Stock held by Convergent Equity
Partners, L.P. Mr. Holland is a principal of Convergent Equity Partners,
L.P. Mr. Holland disclaims beneficial ownership of such shares.
(10) Includes 15,096,877 shares of Common Stock, 94,880 shares of Preferred A,
and 33,700 shares of Preferred B held by Welsh, Carson, Anderson & Stowe
VIII, L.P. Mr. Swani is a principal of Welsh, Carson, Anderson & Stowe
VIII, L.P. Mr. Swani disclaims beneficial ownership of such shares.
(11) Shares that may be acquired pursuant to stock options held by the executive
officer.
61
ITEM 13. Certain Relationships and Related Transactions
None.
62
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.
(b) Reports on Form 8-K: None
(c) Exhibits:
3.1 -- Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
3.2 -- Amendment to Certificate of Incorporation, incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
3.3 -- By-Laws, incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
4.1 -- Certificate of Designations, Preferences and Rights of Series A
Preferred Stock, incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2000.
4.2 -- Securities Purchase Agreement dated as of September 22, 2000,
incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2000.
4.3 -- Certificate of Designations, Preferences and Rights of Series A
and B Preferred Stock.(*)
4.4 -- Securities Purchase Agreement dated as of February 27, 2001.(*)
4.5 -- Indenture dated May 22, 1998 by and between the Company and The
First National Bank of Chicago, incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-4
dated August 28, 1998.
4.6 -- Exchange and Registration Rights Agreement dated May 22, 1998 by
and among the Company, Chase Securities, Inc., Goldman, Sachs &
Co. and NationsBanc Montgomery Securities LLC, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-4 dated August 28, 1998.
10.1 -- Loan Documents dated July 22, 1999, among the Company, Chase
Bank of Texas, as Agent, and Welsh, Carson, Anderson & Stowe, as
amended, incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
10.2 -- First Amendment and Waiver dated January 21, 2000 to Loan
Documents, incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
10.3 -- Second Amendment and Waiver dated May 15, 2000 to Loan
Documents, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2000.
10.4 -- Third Amendment and Waiver dated September 15, 2000 to Loan
Documents, incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2000.
10.5 -- Stock Subscription Warrant, incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2000.
10.6 -- BancTec, Inc. 2000 Stock Plan, incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 2000.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.7 -- Special Severance Plan for Corporate Officers effective October
1, 2000.(*)
10.8 -- Employment Agreement with John D. Staedke dated November 18,
1999.(*)
10.9 -- Amendment to Employment Agreement with John D. Staedke. (*)
10.10 -- Employment Agreement with Kevin L. Roper dated October 23, 1998,
incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
63
10.11 -- Employment Agreement with Scott J. Wilson dated October 23,
1998, incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.
10.12 -- Form of Indemnification Agreement between the Company and each
of its executive officers, incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
21.1 -- Subsidiaries, incorporated by reference to Exhibit 21.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
- ------------
* Filed herewith.
64
================================================================================
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/ Craig D. Crisman
-----------------------------------------
Craig D. Crisman
President and Chief Executive Officer
Dated: May 30, 2001
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/ Craig D. Crisman President and Chief Executive May 30, 2001
- ------------------------------------------------ Officer (Principal Executive
Craig D. Crisman Officer); and Director
/s/ Brian R. Stone Senior Vice President, Chief May 30, 2001
- ------------------------------------------------ Financial Officer, and Treasurer
Brian R. Stone (Principal Accounting Officer);
and Director
/s/ John D. Staedke Chairman of the Board and May 30, 2001
- ------------------------------------------------ Director
John D. Staedke
/s/ Anthony J. de Nicola Director May 30, 2001
- ------------------------------------------------
Anthony J. de Nicola
/s/ Murray Holland Director May 30, 2001
- ------------------------------------------------
Murray Holland
/s/ Robert A. Minicucci Director May 30, 2001
- ------------------------------------------------
Robert A. Minicucci
/s/ Sanjay Swani Director May 30, 2001
- ------------------------------------------------
Sanjay Swani
65
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
BancTec, Inc:
We have audited the consolidated financial statements of BancTec, Inc. as of and
for the year ended December 31, 2000, and have issued our report thereon dated
May 15, 2001; (except with respect to the matters discussed in Notes F and P, as
to which the date is May 31, 2001) such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audit also included the
financial statement schedule of BancTec, Inc., listed in Item 14. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 15, 2001
66
To the Board of Directors and Stockholders of BancTec, Inc:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of BancTec, Inc. (the
"Company") as of December 31, 1999 and for the two years in the period ended
December 31, 1999 included in this Form 1O-K, and have issued our report thereon
dated February 16,2000. Our audits were made for the purpose of forming an
opinion on those consolidated financial statements taken as a whole. The
schedule listed in the Index to Financial Statements and Schedules is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data for the two years ended December 31, 1999, required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 16, 2000
SCHEDULE II
BANCTEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999 and 1998
Column A Column B Column C Column D Column E
- ----------------------- ------------- ------------- ------------------- --------------
Additions
Balance at charged to Balance at
beginning costs and end of
of period expenses Deductions (a)(b)(c) period
--------- -------- ------------------- ------
Allowance for Doubtful Accounts
- ----------------------------------
Year ended December 31, 2000 $ 12,790 $ 2,631 $ (7,147) $ 8,274
Year ended December 31, 1999 9,333 10,914 (7,457) 12,790
Year ended December 31, 1998 5,642 4,240 (549) 9,333
Reorganization Accrual
- ----------------------------------
Year ended December 31, 2000 215 - (100) 115
Year ended December 31, 1999 3,879 - (3,664) 215
Year ended December 31, 1998 - 4,401 (522) 3,879
Accrued Recapitalization Charges and Costs
- --------------------------------------------
Year ended December 31, 2000 - 309 (309) -
Year ended December 31, 1999 332 - (332) -
Year ended December 31, 1998 2,902 - (2,570) 332
_________________
(a) Write-off of uncollectible accounts.
(b) Severance and related payments.
(c) Payment of recapitalization charges.
68