November 9, 2005
Fax (972) 821 - 4448
Room 4561
J. Cooley Clark
Chief Executive Officer
Banctec, Inc.
2701 East Grauwyler
Irving, Texas 75061
RE: Banctec, Inc.
Form 10-K
Filed on April 8, 2005
File No. 000-09859
Dear Mr. Clark:
We have reviewed the above referenced filing and have the
following comments. Please note that we have limited our review
to
the matters addressed in our comments below. We may ask you to
provide us with supplemental information so we may better
understand
your disclosure. Please be as detailed as necessary in your
explanation. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Note A-Summary of Significant Accounting Policies
Revenue Recognition, pages 28 and 29
1. We note your response to our prior comment no. 2 with regards
to
your accounting for multiple-element arrangements. In future
filings, revise the disclosures in your revenue recognition policy
to
include a discussion of the Company`s accounting for multiple-
element
arrangements pursuant to SOP 97-2 and EITF 00-21, as applicable.
Stock-based Compensation, pages 30 and 31
2. We note your response to our previous comment no. 4 where you
indicate that the Company uses a discounted cash flow model to
determine the fair value of the shares of common stock underlying
your option grants. Revise your disclosures to (a) disclose
whether
you obtained a contemporaneous valuation performed by an unrelated
valuation specialist or disclose the valuation alternative
selected
and the reason management chose not to obtain a contemporaneous
valuation by an unrelated valuation specialist and (b) include a
discussion of the significant factors, assumptions and
methodologies
used in determining fair value. See the AICPA Practice Aid
"Valuation of Privately-Held-Company Equity Securities Issued as
Compensation".
3. Please provide a sample copy of the Company`s valuation
analysis
for options granted in fiscal 2004.
Note C - Discontinued Operations, Restructuring, Impairment and
Change in Accounting Estimate
Change in Accounting Estimate, page 33
4. We note your response to prior comment 5 where you indicate
that
the Company recorded a revenue adjustment of $4.3 million in 2004
which relates to the years 2000 through 2003 and the first quarter
of
2004. With respect to such information, please provide the
following:
* Tell us the amount of revenue that was overstated or understated
for each period affected by the adjustment. Further, tell us how
you
assessed materiality for each period impacted by your adjustment.
Include in your discussion, not only the impact on total revenues
but
also include a discussion of materiality as it relates to pre-tax
net
income.
* We note your statement that the revenue adjustment was reflected
as
a change in accounting estimate. We further note that the
adjustment
resulted in part from service calls being estimated at the year
one
contract rate instead of the higher year two contract rate. Tell
us
your consideration of paragraph 13 of APB 20 in determining
whether
the use of incorrect rates was an oversight or misuse of facts
that
existed at the time the financial statements were prepared.
* We note your statement that the Company recognizes revenue
related
to Dell warranty and extended service contracts as service calls
are
run. Tell us your basis for recognizing revenue in this manner
rather than ratably over the term of the agreement and tell us the
authoritative accounting guidance you relied on.
* As previously requested, revise your Critical Accounting
Policies
disclosures to include a more detailed discussion of the estimates
and assumptions used in accounting for these service arrangements.
Discuss the factors used to arrive at the estimate, how accurate
the
estimate/assumption has been in the past, how much the
estimate/assumption has changed in the past, and whether the
estimate/assumption is reasonably likely to change in the future.
Item 9A. Controls and Procedures, page 46
5. We note your response to prior comment 7 where you indicate
that
subsequent to the fiscal 2002 audit, three new reportable
conditions
were reported to management. Tell us whether these reportable
conditions rise to the level of material weaknesses in controls
and
procedures. Further tell us why these reportable conditions where
not disclosed under Item 9A.
6. We note your response to prior comment 10. Your disclosures in
the Company`s June 30, 2005 Form 10-Q continue to indicate that
the
"Company`s disclosure controls and procedures are effective in
making
known to them material information relating to the Company
(including
its consolidated subsidiaries) required to be included in this
report". Your disclosures are significantly more limited than what
is
called for under Rule13a-15(e) of the Exchange The rule requires,
among other matters, that the disclosure controls and procedures
be
designed "to ensure that information required to be disclosed by
the
issuer in the reports that it files or submits under the Act . . .
is
recorded, processed, summarized and reported, within the time
periods
specified in the Commission`s rules and forms" and to ensure that
"information required to be disclosed by an issuer . . . is
accumulated and communicated to the issuer`s management . . . as
appropriate to allow timely decisions regarding required
disclosure."
Please confirm, if true, that your disclosure controls and
procedures
for the relevant periods met all of the requirements of this
section
and that you will conform your disclosure in future filings.
* * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
You may contact David Edgar, Staff Accountant, at (202)-551-
3459
or the undersigned at (202) 551-3730 if you have any questions
regarding comments on the financial statements and related
matters.
Sincerely,
Kathleen Collins
Accounting Branch Chief
J. Cooley Clark
Banctec, Inc.
November 9, 2005
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