**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **ý**                                             | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities  Exchange Act of 1934**  |
|--------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                   |                                                                                                |
| **For the quarterly period ended March 31, 2004** |
|                                                   |                                                                                                |
| **OR**                                                 |
|                                                   |                                                                                                |
| **o**                                                  | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities  Exchange Act of 1934** |
|                                                   |                                                                                                |

 

**CommissionFile Number 0-9859**

 

| **BANCTEC,  INC.**                                      |
|---------------------------------------------------------|
| (Exact name of registrant as specified in  its charter) |
|                                                    |
|                                                    | **DELAWARE** |   | **75-1559633** |   |
|                                                    | (State or other jurisdiction of incorporation  or organization) |   | (I.R.S. Employer Identification No.) |   |
|                                                    |   |   |   |   |
|                                                    | **2701 E. Grauwyler Road, Irving, Texas** |   | **75061** |   |
|                                                    | (Address of principal executive offices) |   | (Zip Code) |   |
|                                                    |   |   |   |   |
|                                                    | **(972) 579-6000** |   |
|                                                    | (Registrant’s telephone number, including  area code) |   |
|                                                         |  |  |  |  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90days.     Yes  ý     No  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the ExchangeAct).     Yes  o  No  ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 
| **Title of Each Class**                |   | **Number of  Shares Outstanding at  May 12, 2004** |
|----------------------------------------|--------|----------------------------------------------------|
|                                   |   |                                               |
| Common Stock, $0.01 par  value         |   | 17,003,838                                         |
| Class A Common Stock,  $0.01 par value |   | 1,181,946                                          |

 

 

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**PART I**

**FINANCIAL INFORMATION**

 

**ITEM1.  Financial Statements**

** **

**BANCTEC, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share data)**

 
|                                                                                                                                  |   | **March 31,  2004** |    | **December 31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|-----------------------------|--------|
|                                                                                                                                  |   | **(Unaudited)**          |    |                        |   |
| CURRENT  ASSETS:                                                                                                                      |   |                     |    |                        |   |
| Cash and cash  equivalents, including restricted cash of $14,762 and $19,578 at  March 31, 2004 and December 31, 2003       |   | $                        | 59,911  |                        | $      | 61,566 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,000 and $1,126 at  March 31, 2004 and December 31, 2003    |   | 47,318                   |    | 39,193                      |   |
| Inventories,  net                                                                                                                     |   | 24,354                   |    | 23,908                      |   |
| Prepaid  expenses                                                                                                                     |   | 7,362                    |    | 4,823                       |   |
| Other current  assets                                                                                                                 |   | 55                       |    | 21                          |   |
| Total current  assets                                                                                                                 |   | 139,000                  |    | 129,511                     |   |
|                                                                                                                                  |   |                     |    |                        |   |
| PROPERTY,  PLANT AND EQUIPMENT, net                                                                                                   |   | 42,827                   |    | 44,832                      |   |
|                                                                                                                                  |   |                     |    |                        |   |
| OTHER ASSETS:                                                                                                                         |   |                     |    |                        |   |
| Goodwill                                                                                                                              |   | 41,476                   |    | 41,476                      |   |
| Deferred  income tax benefit                                                                                                          |   | 15,202                   |    | 13,796                      |   |
| Other assets                                                                                                                          |   | 9,734                    |    | 9,900                       |   |
| Total other  assets                                                                                                                   |   | 66,412                   |    | 65,172                      |   |
|                                                                                                                                  |   |                     |    |                        |   |
| TOTAL ASSETS                                                                                                                          |   | $                        | 248,239 |                        | $      | 239,515 |   |
|                                                                                                                                  |   |                     |    |                        |   |
| CURRENT  LIABILITIES:                                                                                                                 |   |                     |    |                        |   |
| Current  obligations under capital leases                                                                                             |   | $                        | 1,033   |                        | $      | 1,105 |   |
| Trade accounts  payable                                                                                                               |   | 12,180                   |    | 13,122                      |   |
| Other accrued  expenses and liabilities                                                                                               |   | 44,805                   |    | 36,901                      |   |
| Deferred  revenue                                                                                                                     |   | 20,299                   |    | 22,179                      |   |
| Maintenance  contract deposits                                                                                                        |   | 46,909                   |    | 44,540                      |   |
| Income taxes                                                                                                                          |   | 1,777                    |    | 1,717                       |   |
| Total current  liabilities                                                                                                            |   | 127,003                  |    | 119,564                     |   |
|                                                                                                                                  |   |                     |    |                        |   |
| OTHER  LIABILITIES:                                                                                                                   |   |                     |    |                        |   |
| Long-term  debt, less current maturities                                                                                              |   | 197,823                  |    | 197,823                     |   |
| Non-current  maintenance contract deposits                                                                                            |   | 32,574                   |    | 30,837                      |   |
| Other  noncurrent liabilities                                                                                                         |   | 16,627                   |    | 16,750                      |   |
| Total other  liabilities                                                                                                              |   | 247,024                  |    | 245,410                     |   |
|                                                                                                                                  |   |                     |    |                        |   |
| Total  liabilities                                                                                                                    |   | 374,027                  |    | 364,974                     |   |
| COMMITMENTS  AND CONTINGENCIES                                                                                                        |   |                     |    |                        |   |
|                                                                                                                                  |   |                     |    |                        |   |
| SERIES A  PREFERRED STOCK (Note 3)                                                                                                    |   | —                   |    | 16,568                      |   |
| SERIES B  PREFERRED STOCK (Note 3)                                                                                                    |   | —                   |    | 10,609                      |   |
|                                                                                                                                  |   |                     |    |                        |   |
| STOCKHOLDERS’  DEFICIT:                                                                                                          |   |                     |    |                        |   |
| Cumulative  preferred stock – authorized, 1,000,000 shares of $0.01 par value at  March 31, 2004 and December 31, 2003 |   |                     |    |                        |   |
| Series A  preferred stock – issued and outstanding, 100,667 shares at March 31,  2004 and December 31, 2003            |   | 17,008                   |    | —                      |   |
| Series B  preferred stock – issued and outstanding,  35,520 shares at March 31, 2004 and  December 31, 2003            |   | 11,263                   |    | —                      |   |
| Common stock  authorized, 22,000,000 shares of $0.01 par value at  March 31, 2004 and December 31, 2003:                    |   |                     |    |                        |   |
| Common stock-issued  and outstanding  17,003,838  shares at March 31, 2004 and December 31, 2003                            |   | 170                      |    | 170                         |   |
| Class A common  stock-issued and outstanding 1,181,946 shares  at March 31, 2004 and December 31,  2003                     |   | 12                       |    | 12                          |   |
| Subscription  stock warrants                                                                                                          |   | 3,726                    |    | 3,726                       |   |
| Additional  paid-in capital                                                                                                           |   | 125,944                  |    | 127,038                     |   |
| Accumulated  deficit                                                                                                                  |   | (269,812                 | )       | (269,020                    | )      |
| Accumulated  other comprehensive loss                                                                                                 |   | (14,099                  | )       | (14,562                     | )      |
| Total  stockholders’ deficit                                                                                                     |   | (125,788                 | )       | (152,636                    | )      |
|                                                                                                                                  |   |                     |    |                        |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                     |   | $                        | 248,239 |                        | $      | 239,515 |   |

 

See notes to unaudited condensedconsolidated financial statements.

 

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**BANCTEC, INC.**

# **CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                 |   | **Three Months Ended  March 31,** |   |
|------------------------------------------------------|--------|----------------------------------------|--------|
|                                                 |   | **2004**                               |   | **2003** |   |
|                                                 |   | **(In thousands)**                     |   | **(In thousands)** |   |
| REVENUE                                              |   |                                   |   |   |   |
| Equipment and  software                              |   | $                                      | 32,526 |   | $ | 34,759 |   |
| Maintenance  and other services                      |   | 56,558                                 |   | 55,993 |   |
|                                                 |   | 89,084                                 |   | 90,752 |   |
| COST OF SALES                                        |   |                                   |   |   |   |
| Equipment and  software                              |   | 19,235                                 |   | 23,314 |   |
| Maintenance  and other services                      |   | 50,505                                 |   | 44,950 |   |
|                                                 |   | 69,740                                 |   | 68,264 |   |
|                                                 |   |                                   |   |   |   |
| Gross profit                                         |   | 19,344                                 |   | 22,488 |   |
|                                                 |   |                                   |   |   |   |
| OPERATING  EXPENSES                                  |   |                                   |   |   |   |
| Product  development                                 |   | 2,485                                  |   | 3,717 |   |
| Selling,  general and administrative                 |   | 12,892                                 |   | 14,724 |   |
|                                                 |   | 15,377                                 |   | 18,441 |   |
|                                                 |   |                                   |   |   |   |
| Income from  operations                              |   | 3,967                                  |   | 4,047 |   |
|                                                 |   |                                   |   |   |   |
| OTHER INCOME  (EXPENSE):                             |   |                                   |   |   |   |
| Interest  income                                     |   | 138                                    |   | 57 |   |
| Interest  expense                                    |   | (4,773                                 | )      | (4,822 | ) |
| Sundry, net                                          |   | (494                                   | )      | 1,203 |   |
|                                                 |   | (5,129                                 | )      | (3,562 | ) |
|                                                 |   |                                   |   |   |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                   |   | (1,162                                 | )      | 485 |   |
| INCOME TAX  (BENEFIT) EXPENSE                        |   | (370                                   | )      | 631 |   |
| NET LOSS                                             |   | (792                                   | )      | (146 | ) |
| PREFERRED  STOCK DIVIDENDS AND ACCRETION OF DISCOUNT |   | (1,094                                 | )      | (927 | ) |
| NET LOSS  APPLICABLE TO COMMON STOCK                 |   | $                                      | (1,886 | ) | $ | (1,073 | ) |

 

See notes to unaudited condensedconsolidated financial statements.

 

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**BANCTEC, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 
|                                                                            |   | **Three Months Ended March 31** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                            |   | **2004**                             |   | **2003** |   |
|                                                                            |   | **(In thousands)**                   |   |
| CASH FLOWS  FROM OPERATING ACTIVITIES                                           |   |                                 |   |   |   |
| Net loss                                                                        |   | $                                    | (792   | ) | $ | (146 | ) |
| Adjustments to  reconcile to cash flows provided by operations:                 |   |                                 |   |   |   |
| Depreciation  and amortization                                                  |   | 3,974                                |   | 5,286 |   |
| Provision for  doubtful accounts                                                |   | (163                                 | )      | 94 |   |
| Deferred  income tax benefit                                                    |   | (1,406                               | )      | — |   |
| Loss on disposition  of property, plant and equipment                           |   | 131                                  |   | 233 |   |
| Gain on  extinguishment of long-term debt                                       |   | —                               |   | (996 | ) |
| Other non-cash  items                                                           |   | 104                                  |   | 73 |   |
| Changes in  operating assets and liabilities:                                   |   |                                 |   |   |   |
| (Increase)  Decrease in accounts receivable                                     |   | (7,962                               | )      | 6,250 |   |
| Increase in  inventories                                                        |   | (529                                 | )      | (5,085 | ) |
| Increase in  other assets                                                       |   | (2,407                               | )      | (52 | ) |
| Increase  (decrease) in trade accounts payable                                  |   | (942                                 | )      | 2,014 |   |
| Increase in  deferred revenue & maintenance contracts deposits              |   | 489                                  |   | 12,235 |   |
| Increase  (decrease) in other accrued expenses and liabilities                  |   | 9,772                                |   | (2,728 | ) |
| Cash flows  provided by operating activities                                    |   | 247                                  |   | 17,178 |   |
|                                                                            |   |                                 |   |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES                                           |   |                                 |   |   |   |
| Purchases of  property, plant and equipment                                     |   | (2,039                               | )      | (1,819 | ) |
| Cash flows  used in investing activities                                        |   | (2,039                               | )      | (1,819 | ) |
|                                                                            |   |                                 |   |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES                                           |   |                                 |   |   |   |
| Payments of  current maturities of long-term debt and capital lease obligations |   | (266                                 | )      | (346 | ) |
| Payments on  long-term borrowing                                                |   | —                               |   | (2,387 | ) |
| Debt issuance  costs                                                            |   | —                               |   | (81 | ) |
| Cash flows  used in financing activities                                        |   | (266                                 | )      | (2,814 | ) |
|                                                                            |   |                                 |   |   |   |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH                                        |   | 403                                  |   | (169 | ) |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                           |   | (1,655                               | )      | 12,376 |   |
| CASH AND CASH  EQUIVALENTS—BEGINNING OF PERIOD                             |   | 61,566                               |   | 31,595 |   |
|                                                                            |   |                                 |   |   |   |
| CASH AND CASH  EQUIVALENTS—END OF PERIOD                                   |   | $                                    | 59,911 |   | $ | 43,971 |   |
|                                                                            |   |                                 |   |   |   |
| SUPPLEMENTAL  DISCLOSURES INFORMATION:                                          |   |                                 |   |   |   |
| Cash paid  (refunded) during the period for:                                    |   |                                 |   |   |   |
| Interest                                                                        |   | $                                    | 2,682  |   | $ | 4,519 |   |
| Taxes                                                                           |   | $                                    | 1,006  |   | $ | (494 | ) |

 

See notes to unaudited condensedconsolidated financial statements.

 

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**BANCTEC,INC.**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****                                      NATURE OF BUSINESS AND BASIS OFPRESENTATION**

 

BancTec, Inc. is a worldwide systems integration and services companywith a 30-year history in imaging technology, financial transaction processingand workflow productivity improvement. Serving a variety of industries, including banking, financial services,insurance, healthcare, governmental agencies and others, the Company offers aportfolio of payment and document processing systems and services, workflow andimage management software products, and computer and network support services.

 

The accompanying unaudited condensedconsolidated balance sheet at March 31, 2004, and the unaudited condensed consolidated statements ofoperations and cash flows for the interim periods ended March 31, 2004 and2003, should be read in conjunction with BancTec, Inc. and subsidiaries(“BancTec” or the “Company”) consolidated financial statements and notesthereto in the most recent Annual Report on Form 10-K filed with the Securitiesand Exchange Commission.  In the opinionof management, the accompanying condensedconsolidated financial statements contain all material adjustments, consistingprincipally of normal recurring adjustments, necessary for a fair presentationof the financial position and results of operations of the Company. Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

 

**2.****                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The significant accounting principles and practices used in thepreparation of the accompanying financial statements are summarized below:

 

**Cashand Cash Equivalents and Short-Term Investments**

 

Cash and cash equivalents include cash onhand and on deposit, including highly liquid investments with originalmaturities of three months or less. Short-term investments or similarinstruments with original maturities in excess of three months are valued atcost, which approximates market. Restricted cash atMarch 31, 2004, of $14.8 million represents the cash pledged under theterms of the Revolver.

 

**Allowancefor Doubtful Accounts**

 

The allowance for doubtful accounts is an estimate prepared bymanagement based on evaluation of the collectibility of specific accounts andthe overall condition of the receivable portfolios. The Company analyzes tradereceivables, and analyzes historical bad debts, customer credits, customerconcentrations, customer credit-worthiness, current economic trends and changesin customer payment terms, when evaluating the adequacy of the allowance fordoubtful accounts. The allowance for doubtful accounts is reviewed periodicallyand adjustments are recorded as deemed necessary.

 

**Inventories**

 

Inventories are valued at the lower of costor market and include the cost of raw materials, labor, factory overhead, andpurchased subassemblies. Cost is determined using the first-in, first-out andweighted average methods. At least quarterly, the Companyevaluates the carrying amount of inventory based on the identification ofexcess and obsolete inventory. The Company’s evaluation involves amulti-element approach incorporating the stratification of inventory by timeheld and the stratification of inventory by risk category, among otherelements.  The approach incorporatesboth recent historical information and management estimates of trends. TheCompany’s approach is intended to take into consideration potential excess andobsolescence caused by a decreasing installed base, engineering changes and endof manufacture.  If any of the elementsof the Company’s estimate were to deteriorate, write-downs may be required. Theinventory write-down calculations are reviewed periodically and additionalwrite-downs are recorded as deemed necessary. Inventory reserves as of March 31, 2004, and December 31,2003, were $14.8 million and $15.0 million respectively.  Inventoryreserves establish a new cost basis for inventory and are not reversed infuture periods.

 

**Property,Plant, and Equipment**

 

Property, plant, and equipment are recordedat cost and are depreciated or amortized principally on a straight-line basisover the estimated useful lives of the related assets. Estimated useful livesrange from three to five years for field support spare parts, three to eightyears for systems and software, five to seven years for machinery andequipment, leasehold improvements, and furniture and fixtures. Buildings aredepreciated over 40 years.  Depreciationexpense for the three months ended March 31, 2004 and 2003, were $4.0million and $5.3 million respectively.

 

5

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**RevenueRecognition**

 

The Company derives revenue from primarily two sources- 1) productsales- hardware and software which address complex data and paper-intensivework processes, including advanced web-enabled imaging and workflowtechnologies with both BancTec-manufacturedequipment and third-party equipment,and 2) services- which consist primarily of application design,development and maintenance, all aspects of desktop outsourcing, includingfield engineering, as well as help desk and LAN/WAN network outsourcing.

 

The Company applies the provisions of Statement of Position 97-2,“Software Revenue Recognition,” as amended by Statement of Position 98-9“Modification of SOP 97-2, Software Revenue Recognition, With Respect toCertain Transactions” to all transactions involving the sale of software productsand sales of hardware where the software is not incidental. For thosetransactions that involve acceptance certificates, the Company recognizesrevenue upon receipt of the acceptance certificate, or when it can beobjectively demonstrated that acceptance criteria have been met.  For hardware transactions where software isconsidered incidental, or no software is included, revenue is recognized whenthe product has been delivered and all obligations have been fulfilled.

 

The Company recognizes revenue from sales ofequipment and supplies upon delivery and transfer of title or upon customeracceptance.

 

The Company recognizes hardware and software revenue when persuasiveevidence of an arrangement exists, delivery has occurred, the sales price isfixed or determinable and collectibility is probable. At the time of thetransaction, the Company determines whether the fee associated with revenuetransactions is fixed or determinable and whether or not collection isreasonably assured. The Company determines whether the fee is fixed ordeterminable based on the payment terms associated with the transaction. If asignificant portion of a fee is due after the normal payment terms, which aregenerally 30 days from invoice date, the Company recognizes revenue as the feesare collected. The Company assesses collectibility based on a number offactors, including past transaction history with the customer and thecredit-worthiness of the customer. The Company does not request collateral fromcustomers. If the Company determines that collection of the fee is notreasonably assured, the Company defers the revenue and recognizes revenue atthe time collection becomes reasonably assured, which is generally upon receiptof cash. For all sales, the Company generally uses either a binding purchaseorder or signed sales agreement as evidence of an arrangement.

 

Maintenance contracts are primarily at leastone year in duration and the revenue generated is generally recognized ratablyover the term of the contract.

 

The Company’s services revenue is primarily billed based on contractualrates and terms, and the Company generally recognizes revenue as these servicesare performed which, in some cases is ratably over the contract term. Certain customers advance funds prior to theperformance of the services. The Company recognizes revenue related tothese advances over time or as services are performed on a “per call”basis.  These current and non-currentportions of these advances are shown as Deferred Revenue or MaintenanceContract Deposits on the Consolidated Balance Sheets.

 

**Researchand Development**

 

Research and development costs are expensedas incurred.  Research and developmentcosts for the three months ended March 31, 2004, and 2003, were $2.5million and $3.7 million respectively.

 

**IncomeTaxes**

 

The Company and its domestic subsidiaries file a consolidated Federal income tax return with BancTec Intermediate Holding as the parent company. The Company’s foreign subsidiaries file separate income tax returns in the countries in which their operations are based.

 

Income taxes are accounted for under theasset and liability method.  Deferredtax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operatingloss and tax credit carryforwards. The Company records valuation allowancesrelated 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 taxassets will not be realized. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date.

 

**ForeignCurrency Translation**

 

Foreign assets and liabilities are translatedusing the exchange rate in effect at the balance sheet date, and results ofoperations are translated using an average rate for the period. Translationadjustments are accumulated and reported as a component of stockholders’

 

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deficit and comprehensive income (loss).Transaction gains and losses are included in results of operations in “Sundry,net”.

 

**Stock-BasedCompensation**

 

The Company accounts for stock-basedcompensation using the intrinsic value method prescribed in AccountingPrinciples Board (“APB No. 25”), Accounting for Stock Issued to Employees. TheCompany has adopted the disclosure requirements of Statement of FinancialAccounting Standards (“SFAS No. 123”), Accounting for Stock-Based Compensation.

 

2000 Stock Plan:

 

Effective July 1, 2000, the Companyadopted the 2000 Stock Plan (the Plan), which provides for the grant toemployees of incentive options, non-qualified stock options, and restrictedstock awards.

 

Incentive Options. During the year ended December 31,2003, the Company granted 45,000 incentive options.  During the three months ended March 31, 2004, 369,500incentive options were granted.  Underthe Plan, incentive options are granted at a fixed exercise price not less than100% of the fair market value of the shares of stock on the date of grant (or110% of the fair market value in certain circumstances). A portion of theincentive options vest over a four-year period at 25% per year beginningJanuary 2, 2001; the remainder vest based on the performance of theCompany. As a part of an employee retention program, vesting of 20.0% of theperformance-based incentive options was accelerated in October 2000.

 

Non-qualified stock options. During the yearended December 31, 2003 and the three months ended March 31, 2004, nonon-qualified options were granted. Under the Plan, non-qualified options are granted at a fixed exerciseprice equal to, more than, or less than 100% of the fair market value of the sharesof stock on the date of grant. A portion of the non-qualified options vest overa four-year period at 25% per year beginning January 2, 2001; theremainder vest based on the performance of the Company. As a part of anemployee retention program, vesting of 20.0% of the performance-based incentiveoptions was accelerated in October 2000.

 

Restricted stock option awards. The amount,if any, to be paid by the award recipient to acquire the shares of stockpursuant to a restricted stock option award is a fixed exercise price equal to,more than, or less than 100% of the fair market value of the shares of stocksubject to the award on the date of grant. The restricted stock option awardsare subject to vesting provisions determined by the Company’s Board ofDirectors. As of March 31, 2004, 50,000 stock options vesting over athree-year period were granted.

 
|                                             |   | **Incentive  Shares** |   | **Non-qualified  Shares** |   | **Restricted  Stock** |   | **Weighted  Average  Exercise  Price** |   |
|--------------------------------------------------|--------|-----------------------|--------|---------------------------|--------|-----------------------|--------|----------------------------------------|--------|
| Options  outstanding–December 31, 2002 |   | 497,240               |   | 31,760                    |   | —                |   | 9.25                                   |   |
| Granted                                          |   | 45,000                |   | —                    |   | —                |   | 9.25                                   |   |
| Forfeited                                        |   | (60,000               | )      | —                    |   | —                |   | 9.25                                   |   |
| Options  outstanding–December 31, 2003 |   | 482,240               |   | 31,760                    |   | —                |   | 9.25                                   |   |
| Granted                                          |   | 369,500               |   | —                    |   | 50,000                |   | 9.25                                   |   |
| Forfeited                                        |   | (24,500               | )      | —                    |   | —                |   | 9.25                                   |   |
| Options  outstanding–March 31, 2004    |   | 827,240               |   | 31,760                    |   | 50,000                |   | 9.25                                   |   |

 

Options and awards expire and terminate theearlier of ten years from the date of grant or one month after the date theemployee ceases to be employed by the Company.

 

At March 31, 2004, options to purchase909,000 shares were outstanding, of which 266,700 were vested.  All options outstanding have an exerciseprice of $9.25.  No options have beenexercised.

 

Under the intrinsic-value method,compensation expense is recorded only to the extent that the strike price isless than market price on the measurement date.  All options granted in 2003 and 2004 were issued at or abovemarket price, and therefore no stock-based compensation was recorded.

 

7

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The following table illustrates the effect onnet income as if compensation for the Company’s stock option plans had beendetermined consistent with SFAS No. 123:

 
|                                                                                                                  |   | **Three Months Ended March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                  |   | **2004**                              |   | **2003** |   |
| Net loss as  reported                                                                                                 |   | $                                     | (792   | ) | $ | (146 | ) |
| Total stock-based employee compensation  expense determined under fair-value-based method for all rewards, net of tax |   | (20                                   | )      | — |   |
| Pro Forma net  loss                                                                                                   |   | $                                     | (812   | ) | $ | (146 | ) |

 

**3.****                                      RECLASSIFICATION**

 

Certain amounts have been reclassified fromthe prior years to conform to the current year presentation.

 

The Company has two issues of Preferred Stockas described in Note 13 – Preferred Stock, contained in Notes to the CondensedConsolidated Financial Statements. Series A Preferred Stock has been historically classified in themezzanine section of the Consolidated Balance Sheets due to the provisionproviding for mandatory redemption.  OnMarch 31, 2004, the Board of Directors and the holder of the Series APreferred Stock approved an amendment to the Series A Preferred Stock agreementto remove the mandatory redemption provision.

 

Both the Series A Preferred and the Series BPreferred include provisions for redemption at the option of holders in certaincircumstances including a sale or merger of the Company and redemption at theoption of the Company.  AtDecember 31, 2003, the Series B Preferred was classified in the mezzaninesection as provided by guidance contained in EITF Topic D-98, “Classificationand Measurement of Redeemable Securities.” Under this guidance, classification in the permanent equitysection is not considered appropriate if the preferred stock is redeemableupon majority vote of the Board of Directors and such board is controlled bythe preferred security holders.  AtDecember 31, 2003, preferred security holders comprised 50% of the Boardof Directors.  On March 31, 2004,the Board of Directors elected a seventh member who is not a preferred securityholder.  As a result of the removal ofthe mandatory redemption provisions for Series A Preferred Stock and the additionof the seventh board member whereby the preferred security holders no longercontrol the Board of Directors, the Series A and Series B Preferred Stock arebeing reclassified into the permanent equity section of the ConsolidatedBalance Sheets at March 31, 2004.

 

**4.****                                      SUPPLEMENTAL SCHEDULE OF NONCASH INVESTINGAND FINANCING TRANSACTIONS**

 

The Consolidated Statement of Cash Flowsincluded the following noncash investing and financing transactions:

 
|                                                              |   | **Three  Months Ended March 31,** |   |
|-------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                              |   | **2004**                               |   | **2003** |   |
|                                                              |   | **(In  thousands)**                    |   |
| Capital lease obligation incurred for lease  of computer hardware |   | $                                      | — |   | $ | 2,048 |   |
| Inventory put in service as fixed asset                           |   | 83                                     |   | — |   |
|                                                                   |        |                                        |        |  |  |  |  |

 

**5.****                                      INVENTORIES**

 

Inventory consists of the following:

 
|             |   | **March 31,  2004** |   | **December 31,  2003** |   |
|------------------|--------|--------------------------|--------|-----------------------------|--------|
|             |   | **(In thousands)**       |   |
| Raw materials    |   | $                        | 5,916  |                        | $      | 6,035 |   |
| Work-in-progress |   | 8,746                    |   | 7,168                       |   |
| Finished goods   |   | 9,692                    |   | 10,705                      |   |
|             |   | $                        | 24,354 |                        | $      | 23,908 |   |

 

8

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**6.****                                      PROPERTY, PLANT AND EQUIPMENT**

 

Property, plant and equipment consist of thefollowing:

 
|                                       |   | **March 31,  2004** |   | **December 31,  2003** |   |
|--------------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                                       |   | **(In thousands)**       |   |
| Land                                       |   | $                        | 2,860  |                        | $      | 2,860 |   |
| Field support  spare parts                 |   | 60,253                   |   | 59,789                      |   |
| Systems and  software                      |   | 59,837                   |   | 58,927                      |   |
| Machinery and  equipment                   |   | 21,505                   |   | 21,075                      |   |
| Furniture,  fixtures and other             |   | 19,338                   |   | 19,514                      |   |
| Buildings                                  |   | 27,676                   |   | 27,653                      |   |
|                                       |   | 191,469                  |   | 189,818                     |   |
| Accumulated  depreciation and amortization |   | 148,642                  |   | 144,986                     |   |
| Property,  plant and equipment, net        |   | $                        | 42,827 |                        | $      | 44,832 |   |

 

**7.****                                      OTHER ACCRUED EXPENSES AND LIABILITIES**

 

Other accrued expenses and liabilitiesconsist of the following:

 
|                                    |   | **March 31,  2004** |   | **December 31,  2003** |   |
|-----------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                                    |   | **(In thousands)**       |   |
| Salaries,  wages and other compensation |   | $                        | 12,638 |                        | $      | 12,843 |   |
| Accrued taxes,  other than income taxes |   | 4,882                    |   | 5,312                       |   |
| Advances from  customers                |   | 9,697                    |   | 907                         |   |
| Accrued  interest payable               |   | 4,969                    |   | 3,211                       |   |
| Accrued  invoices and costs             |   | 1,326                    |   | 2,114                       |   |
| Other                                   |   | 11,293                   |   | 12,514                      |   |
|                                    |   | $                        | 44,805 |                        | $      | 36,901 |   |

 

**8.****                                      DEBT AND OTHER OBLIGATIONS**

 

Debt and other obligations consist of thefollowing:

 
|                                            |   | **March 31,  2004** |    | **December 31,  2003** |   |
|-------------------------------------------------|--------|--------------------------|---------|-----------------------------|--------|
|                                            |   | **(In thousands)**       |    |
| 7.5% Senior  Notes, due 2008                    |   | $                        | 93,975  |                        | $      | 93,975 |   |
| Subordinated  Sponsor Note, unsecured, due 2009 |   | 103,848                  |    | 103,848                     |   |
|                                            |   | 197,823                  |    | 197,823                     |   |
| Less:  Current portion                     |   | —                   |    | —                      |   |
|                                            |   | $                        | 197,823 |                        | $      | 197,823 |   |

 

9

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Revolving Credit Facility.  TheCompany has a revolving credit facility (the “Revolver”) provided by HellerFinancial, Inc. (“Heller”), which will mature on May 30, 2006.  Effective May 7, 2003, the Companyand Heller entered into an amendment to the Revolver which reduced thecommitted amount from $60 million to $40 million, while increasing theletter-of-credit sub-limit from $30 million to $40 million.  The Revolver is secured by substantially allthe assets of the Company, subject to the limitations on liens contained in theCompany’s existing Senior Notes.  Fundsavailability under the Revolver is determined by a borrowing-base formula equalto a specified percentage of the value of the Company’s eligible accountsreceivable, inventory and pledged cash. At March 31, 2004, the Company had no balance outstanding under theRevolver and an outstanding balance on letters-of-credit totaling $14.8million.  The balance remaining underthe Revolver that the Company can draw was $15.5 million at March 31, 2004($19.5 million in availability less a $4.0 million reserve).  A commitment fee of 0.5% per annum on theunused portion of the Revolver is payable quarterly.

 

The interest rate on loans under the Revolver is, at the Company’soption, either (1) 0.75% over prime or (2) 2.25% over LIBOR.  Under an amendment effectiveSeptember 1, 2003, the interest rate margins over prime and LIBOR may beincreased by 0.25% increments when the fixed charge coverage ratio falls below(1) 2.0 to 1.0, (2) 1.75 to 1.0, (3) 1.5 to 1.0 and (4) 1.25 to 1.0 and (totalrate increase of 1.00%) or decreased by 0.25% increments when the fixed chargecoverage ratio is greater than 2.25 to 1.0 (total rate decrease of 0.25%).  The interest rate was remeasured as of theeffective date of September 1, 2003 under this amendment.  At March 31, 2004, the Company’sweighted average rate on the Revolver was 4.75%.

 

Under the Revolver, substantially all of the Company’s domestic cashreceipts (including proceeds from accounts receivable and asset sales) must be appliedto repay the outstanding loans, which may be re-borrowed subject toavailability in accordance with the borrowing base formula. The Revolvercontains restrictions on the use of cash for dividend payments or non-scheduledprincipal payments on certain indebtedness. Restricted cash at March 31, 2004 of $14.8 million represents cashpledged under the terms of the Revolver.

 

The Revolver contains various representations, warranties andcovenants, including financial covenants as to maximum capital expenditures,minimum fixed charge coverage ratio and minimum average borrowingavailability.  At March 31, 2004,the Company was in compliance with all covenants under the Revolver.

 

Senior Notes. Interest on the Senior Notes is fixed at 7.5% and is due and payable insemi-annual installments. Payments began December 1, 1998. The Notescontain covenants placing limitations on the Company’s ability to permitsubsidiaries to incur certain debts, incur certain loans, and engage in certainsale and leaseback transactions. During thefirst quarter of 2003, the Company repurchased Senior Notes with a face amountof $3.4 million. The Company wrote off a proportionate share of deferredfinancing-fees, resulting in a gain of approximately $1.0 million, which wasreported as sundry (other) income in the condensed consolidatedstatements of operations for the interim period ended March 31, 2003.  Theestimated fair value of the Senior Notes as of March 31, 2004, isapproximately $66.9 million based on an average value of the most recentlycompleted market trades, resulting in a yield-to-maturity of approximately20%.  The number of actual trades islimited; therefore the result may vary if a widely traded market environmentexisted.

 

Subordinated Unsecured Sponsor Note. TheCompany’s Sponsor Note bears interest at 10.0%, due and payable quarterly. TheSponsor Note is subordinate only upon bankruptcy or insolvency of the Company,or if upon maturity of the Senior Notes, the Senior Notes remain unpaid.  The payments began September 30, 1999.As provided under the agreement, however, the Sponsor Note holder, Welsh,Carson, Anderson & Stowe (“WCAS’), elected to defer quarterly interestpayments of $4.0 million for each of the September 2000 through September 2001quarterly periods resulting in an increase in the principal amount of theSponsor Note totaling $33.8 million. Such election required a deferred financing-fee of 30.0% of each of theinterest payments being deferred.  TheCompany accounts for the additional financing fees as a change in the effectiveinterest rate of the debt. WCAS may, at its election, defer each futurequarterly payment under similar terms. WCAS has not elected to defer the quarterly payments since September 2001.  In accordance with the terms of the SponsorNote, on December 6, 2002, the Company made a $90.0 million principalpayment on the Sponsor Note.  A holderof the Senior Note had sought to contest this payment.  See discussion under Legal Proceedings.  The estimated fair-value of the Sponsor Noteand deferred interest and fees as of March 31, 2004, is approximately$64.4 million assuming a yield-to-maturity of 25%.

 

The Company had no outstanding balances onforeign credit agreements at March 31, 2004.

 

Capital Leases.  During the first quarter of 2003, the Company entered into acapital lease for $2.0 million that pertained to computer hardware.  Amounts due under capital leases arerecorded as liabilities. The Company’s interest in assets acquired under capitalleases is recorded as property and equipment on the Condensed ConsolidatedBalance Sheets. Amortization of assets recorded under capital leases isincluded in depreciation expense.  Thecurrent obligations under capital leases are classified in the currentliabilities section of the Condensed Consolidated Balance Sheets and thenon-current portion of capital leases are included in Other Liabilities.

 

10

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**9.****                                      GOODWILLAND INTANGIBLE ASSETS**

 

Beginning January 1, 2002, the Companyadopted Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwilland Other Intangible Assets” (See “New Accounting Pronouncements”).  SFAS No. 142 requires that goodwill andintangible assets with indefinite useful lives no longer be amortized butinstead be tested for impairment at least annually.  SFAS No. 142 also requires that intangible assets with definiteuseful lives be amortized over their respective estimated useful lives to theirestimated residual values.

 

SFAS No. 142 requires a two-step process for testing impairment. First,the fair value of each reporting unit is compared to its carrying value todetermine whether an indication of impairment exists. If impairment isindicated, then under the second step the fair value of the reporting unit’s goodwillis determined by allocating the unit’s fair value to its assets and liabilities(including any unrecognized intangible assets) as if the reporting unit hadbeen acquired in a business combination. The amount of impairment for goodwillis measured as the excess of its carrying value over its fair value.

 

Components of the Company’s goodwill include amounts that are foreigncurrency denominated.  These goodwillamounts are subject to translation at each balance sheet date.  The Company records the change to itsAccumulated Other Comprehensive Loss on the balance sheet.  Goodwill previously classified asunallocated has been allocated to the reporting units as required by SFAS No.142.  There were no changes in the carrying amount of goodwill bysegment for the three months ended March 31, 2004 or March 31, 2003.

 

**10.****                               WARRANTYLIABILITY**

 

The Companyoffers various product warranties for hardware sold to its customers.  Thespecific terms and conditions of the warranties vary depending upon thecustomer and the product sold.  Factors that affect the Company’s warrantyliability include number of products sold, historical and anticipated rates ofwarranty claims and cost per claim.  The Company accrues for estimatedwarranty costs as sales are made and periodically assesses the adequacy of itsrecorded warranty liability and adjusts the amount as necessary.

 

Changes tothe Company’s warranty liability, which is reported as a component of otheraccrued expenses and liabilities in the accompanying condensed consolidatedbalance sheet during the three months ended March 31, 2004 are summarizedas follows:

 
|                                             |   | **(In  thousands)** |   |
|--------------------------------------------------|--------|---------------------|--------|
| Balance at December 31, 2003                |   | $                   | 140    |   |
| Warranties issued                                |   | 45                  |   |
| Claims paid/settlements                          |   | (29                 | )      |
| Changes in liability for pre-existing warranties |   | —              |   |
| Balance at March 31, 2004                   |   | $                   | 156    |   |

 

**11.****                               COMPREHENSIVELOSS**

 

The components of comprehensive loss were as follows:

 
|                                     |   | **Three  Months Ended March 31,** |   |
|------------------------------------------|--------|----------------------------------------|--------|
|                                     |   | **2004**                               |   | **2003** |   |
|                                     |   | **(In  thousands)**                    |   |
| Net loss                                 |   | $                                      | (792   | ) | $ | (146 | ) |
| Foreign currency translation adjustments |   | 463                                    |   | (103 | ) |
| Total comprehensive loss                 |   | $                                      | (329   | ) | $ | (249 | ) |

 

**12.****                               BUSINESS SEGMENT DATA**

 

The Company segments its operations based ongeographical areas  (U.S.Solutions (“USS”) and International Solutions (“INTL”)) and product lines (Computer andNetwork Services (“CNS”)). INTL offers similar products as USS and consistsprimarily of operations throughout the world excluding the United States.

 

11

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|                                            |   | **US  Solutions**  |   | **Computer  & Network Services** |   | **International** |   | **Corp/Elims** |   | **Total** |   |
|-------------------------------------------------|--------|--------------------|--------|--------------------------------------|--------|-------------------|--------|----------------|--------|-----------|--------|
|                                            |   | **(In thousands)** |   |
| For the three  months ended March 31, 2004 |   |               |   |                                 |   |              |   |           |   |      |   |
|                                            |   |               |   |                                 |   |              |   |           |   |      |   |
| Revenue from  external customers                |   | $                  | 28,932 |                                 | $      | 31,616            |   | $              | 28,536 |      | $      | — |   | $ | 89,084 |   |
| Intersegment  revenue                           |   | 746                |   | —                               |   | 2,108             |   | (2,854         | )      | —    |   |
| Segment gross  profits                          |   | 7,314              |   | 1,449                                |   | 11,001            |   | (420           | )      | 19,344    |   |
| Segment  operating income (loss)                |   | 2,121              |   | (531                                 | )      | 4,053             |   | (1,676         | )      | 3,967     |   |
| Segment  identifiable assets                    |   | 79,861             |   | 26,575                               |   | 57,799            |   | 84,004         |   | 248,239   |   |
| Capital  appropriations                         |   | 850                |   | 696                                  |   | 562               |   | 36             |   | 2,144     |   |
|                                            |   |               |   |                                 |   |              |   |           |   |      |   |
| For the three  months ended March 31, 2003 |   |               |   |                                 |   |              |   |           |   |      |   |
|                                            |   |               |   |                                 |   |              |   |           |   |      |   |
| Revenue from  external customers                |   | $                  | 32,023 |                                 | $      | 30,820            |   | $              | 27,909 |      | $      | — |   | $ | 90,752 |   |
| Intersegment  revenue                           |   | 544                |   | —                               |   | 1,202             |   | (1,746         | )      | —    |   |
| Segment gross  profits                          |   | 7,084              |   | 5,967                                |   | 9,427             |   | 10             |   | 22,488    |   |
| Segment  operating income (loss)                |   | 247                |   | 3,833                                |   | 2,351             |   | (2,384         | )      | 4,047     |   |
| Segment  identifiable assets                    |   | 102,339            |   | 29,092                               |   | 54,771            |   | 55,159         |   | 241,361   |   |
| Capital  appropriations                         |   | 915                |   | 210                                  |   | 326               |   | 2,416          |   | 3,867     |   |

 

**13.****                               PREFERRED STOCK**

 

**SERIESA PREFERRED STOCK**

 

The Company allocated the proceeds from itsSeries A preferred stock issuance based upon the relative fair value of thepreferred stock and warrants issued. The related discount is being accreted over a period of 8 years.  For the three months ended March 31,2004, accretion of the related discount andaccrued but unpaid dividends totaled $0.4 million, increasing the carryingamount to $17.0 million. As of March 31, 2004, the stated value of the Series A preferredstock, including accumulated but unpaid dividends, was $190.07 per share.

 

**SERIES B PREFERREDSTOCK**

 

For the three months ended March 31,2004, the Company accrued additional unpaiddividends for its Series B preferred stock totaling $0.7 million, increasingthe carrying amount to $11.3 million. As of March 31, 2004,the stated value of the Series B preferred stock, including accumulated butunpaid dividends, was $317.08 per share.

 

**14.****                               RECENT ACCOUNTING PRONOUNCEMENTS**

 

In June 2003, the FASB issued SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of Both Liabilities andEquity.” The statement is effective for financial instruments entered into ormodified after May 31, 2003, and otherwise is effective at the beginning of thefirst interim period beginning after June 15, 2003, except for mandatorilyredeemable financial instruments of a nonpublic entity.  For mandatorily redeemable financialinstruments of a nonpublic entity, this statement shall be effective for fiscalperiods beginning after December 15, 2003.  The Company has adopted SFAS No. 150 with no effect on theCompany’s results of operations or financial position.

 

**15.****                               SUBSEQUENT EVENTS**

 

None

 

12

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**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.**

 

THE FOLLOWING DISCUSSION SHOULD BE READ INCONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THERELATED NOTES THAT APPEAR ELSEWHERE IN THIS DOCUMENT.

 

**FORWARD-LOOKINGSTATEMENTS**

 

*This Quarterly Report on Form 10-Q, includingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and Quantitative and Qualitative Disclosure About Market Riskcontains forward-looking statements as that term is defined in the PrivateSecurities Litigation Reform Act of 1995 (the “PSLRA”) that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of BancTec, Inc. and its consolidatedsubsidiaries (the “Company”) to differ materially from those expressed orimplied by such forward-looking statements. All statements other thanstatements of historical fact are statements that could be deemedforward-looking statements, including any projections of earnings, revenues, orother financial items; any statements of the plans, strategies, and objectivesof management for future operations; any statements concerning proposed newproducts, services, or developments; any statements regarding future economicconditions or performance; statements of belief and any statement ofassumptions underlying any of the foregoing. The risks, uncertainties andassumptions referred to above include the ability of the Company to retain andmotivate key employees; the timely development, production and acceptance ofproducts and services and their feature sets; the challenge of managing assetlevels, including inventory; the flow of products into third-party distributionchannels; the difficulty of keeping expense growth at modest levels whileincreasing revenues; and other risks that are described from time to time inthe Company’s Securities and Exchange Commission reports, including but notlimited to the items discussed in “Factors Affecting the Company’s Business andProspects” set forth in this report, and items described in the Company’s otherfilings with the Securities and Exchange Commission. The Company undertakes noobligation to update or revise forward-looking statements to reflect changes inassumptions, the occurrence of unanticipated results or changes to futureoperating results over time.*

 

**Overview**

 

The Company believes severalfactors continued to create a challenging and competitive sales andcost-containment environment during the three months ended March 31,2004.  These factors include: the impactof check truncation, reduced corporate customer technology spending; ongoingcompetitive pressures; an ongoing planned change in revenue mix within theCompany’s U.S. Solutions (“USS”) and International Solutions (“INTL”) segments;and a highly leveraged financial position. The change in revenue mix is partially a result of trends in paymentprocessing, including truncation, which impacts domestic and internationalmarkets.  Additionally, during the threemonths ended March 31, 2004, the USS and INTL segments experienced revenuedeclines in the maintenance business, the duration of which the Company cannotpredict.

 

Expected economic and businessconditions into the remainder of 2004 indicate a cautious outlook regarding theCompany’s near-term revenue and earnings growth prospects.  Most of the Company’s product offeringsrepresent a significant capital expenditure for its customers.  As a result, demand for systems solutions productsoffered by USS and INTL continues to be weak. The Company has concentrated oncost reductions and on existing offerings. Product-development efforts are focused on payment, check and documentprocessing technologies, in addition to investments in Electronic DocumentManagement (“EDM”) vertical solutions, as well as hardware enhancements. Byincorporating more third-party products into the Company’s solutions ratherthan developing the products, the Company can more easily target its effortsand expenditures to these core products and solutions.

 

**RESULTSOF OPERATIONS**

 

**Comparisonof Three Months Ended March 31, 2004 and Three Months Ended March 31,2003**

 

Consolidated revenue of $89.1 million for thethree months ended March 31, 2004 deceased by $1.7 million or 1.9% fromthe comparable prior-year period. The US Solutions (“USS”) revenue decrease of$3.1 million was partially related to a 12.9% decline in maintenance revenuedue to the Company’s installed products reaching the end of their useful livesand from increased competition.  TheCompany expects these trends to continue in the foreseeable future.  In addition, an 8.4% decline in revenuesrelated to the sale and installation of hardware and software products wasprimarily related to a weak market for payments solutions due to the recentpassage of laws in the United States related to check truncation.  Increases in International (“INTL”) of $0.6million are the result of the introduction in the United Kingdom of documentprocessing services and the impact of the weakening dollar on the conversion ofrevenue stated in foreign currencies. An increase in Computer & Network Services (“CNS”) of $0.8 millionresulted from the expansion by CNS of operations into Europe; somewhat offsetby pricing decreases, domestic competitive pressure, and decreased volume undercertain maintenance programs.  Factorsexpected to impact future revenue include corporate-customer spending for largesystems-solutions, the continued impacts of check truncation, customer and prospectivecustomer mergers, on-going competitive pressures, and fluctuations ininternational currencies.

 

13

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Consolidated gross profit of $19.3 milliondecreased by $3.2 million or 14.2% from the comparable prior-year period.Decreases in CNS of $4.6 million were partially offset by increases in USS of$0.2 million and in INTL of $1.6 million. Although overall USS revenue decreased, the higher USS gross profit resultedfrom ongoing cost-containment efforts and manufacturing efficiencies.  As a result, the USS gross margin percentageincreased from 22.1% to 25.3%. Increases in INTL gross profit resulted partially from increasedrevenue, including the impact of currency conversion, and partially from a highergross profit percentage, increasing from 24.9% to 35.0%. Continued efforts toprovide proven deliverables as well as targeted new offerings, including EDMsolutions, archive solutions and hardware enhancements, which, along with ongoing cost-containment efforts, allowed forcost reductions to strengthen the INTL gross profit.  CNS’ gross profit percentagedecreased from 19.4% to 4.6%, resulting primarily from decreased revenueas well as margin pressure caused by increased competition and changes in the revenuemix.  CNS is the major component in themaintenance and other services category on the Consolidated Statements ofOperations, and therefore is the primary contributing factor in the decreasedgross profit in the maintenance and other services category.

 

Operating expenses of $15.4 million decreased$3.0 million compared to the prior-year period. Operating expenses, bycomponent, changed as follows: Product-development expenses decreased by $1.2million or 32.4% primarily due to the focused realignment of research anddevelopment expenditures against future product strategies and marketingplans.  The use of outsourcedproduct-development services also contributed to the reduction. Selling,general and administrative expenses (“SG&A”) decreased by $1.8 million or12.2% due to decreased SG&A depreciation expense and on-goingefforts to realign the cost structure.

 

Interest expense for the threemonths ended March 31, 2004 of  $4.8million was unchanged from the comparable prior-year period.

 

Sundry items resulted in a net loss of $0.5 million during the threemonths ended March 31, 2004 ascompared to a net income of $1.2 million during the comparable prior-year period. This decrease is primarily due to foreign-exchange losses of $0.5million during the current-year period, compared to a gain from the repurchaseof Senior Notes of approximately $1.0 million and foreign-exchange gains of$0.2 million in the prior-year period.

 

An income tax benefit of $0.4 million for the three months endedMarch 31, 2004 compared to acorresponding prior-year period income tax provision of $0.6 million.  The income tax provisions for the prior-yearperiod related primarily to income from the Company’s internationalsubsidiaries.  During the fiscal yearended December 31, 2003, a $13.8 million release of valuation allowancewas recorded to adjust the deferred taxassets to an amount management believes is more likely than not to be realized.  As a result, the net loss recorded for thethree months ended March 31, 2004 resulted in realization of a net taxbenefit.  The Company’s effective taxrate was approximately 31.8% for the three months ended March 31, 2004 as compared to 130.1% for thecorresponding prior-year period.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company’s working capitalrequirements are generally provided by cash and cash equivalents, fundsavailable under the Company’s revolving credit agreement, as discussed below,which matures May 30, 2006, and by internally generated funds from cash flowsfrom operations. Funds availability under the revolving credit agreement isdetermined by a borrowing-base formula equal to a specified percentage of thevalue of the Company’s eligible accounts receivable, inventory and pledgedcash.  General economic conditions, thecurrent weakness in demand for the Company’s systems solutions products and therequirement to obtain performance bonds or similar instruments could have animpact on the Company’s future liquidity.

 

The Company’s cash and cash equivalentstotaled $59.9 million at March 31, 2004, compared with $61.6 million atDecember 31, 2003. Working capital increased $2.1 million during the threemonths ended March 31, 2004 toworking capital of $12.0 million compared to working capital of $9.9 million atDecember 31, 2003.  The change inworking capital included a current liability increase of $7.4 million fromincreased deferred revenue and maintenance contract deposits and accruedexpenses, an accounts payable decrease of $1.0 million, an accounts receivable increase of $8.1 million anda prepaid expense increase of $2.5 million.

 

During the three months ended March 31,2004, the Company relied primarily on cashflows generated from operating activities to fund operations. At March 31,2004, the Company had available $34.3million of borrowing capacity under the Revolver, of which the Companycan draw $15.5 million.

 

Operating activities provided $0.2 millionand $17.2 million of cash in the three months ended March 31,2004 and 2003, respectively, a decreaseof  $17.0 million.  Net loss increased $0.6 million from theprior -year period.  In addition, cashgenerated by changes in working capital assets and liabilities was $14.2million less than in the prior-year period.

 

Investing activities used net cash of $2.0million and $1.8 million in the three months ended March 31,2004 and 2003, respectively. Both uses ofcash related to purchases of property, plant and equipment.

 

14

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Financing activities used $0.3 million and$2.8 million of net cash in the three months ended March 31,2004 and 2003, respectively.  Both uses of cash related primarily to thereduction of the Company’s debt.

 

At March 31, 2004, the Company’s principal outstanding debtinstruments consisted of (i) no balance outstanding under the revolving creditfacility maturing May 30, 2006 (which is more fully described below), (ii)  $94.0 million of 7.5% Senior Notes due 2008,and (iii) $103.8 million of Sponsor Notes due 2009. The Company or itsaffiliates may from time to time purchase, redeem or pay deferred interest onsome of its outstanding debt or equity securities.  The Company would only make these payments in compliance with thecovenants of its debt instruments.

 

The Company continually reviewsits various lines of business to assess their contribution to the Company’sbusiness plan and from time to time considers the sale of certain assets inorder to raise cash or reduce debt. Accordingly, the Company from time to time has explored and may explorepossible asset sales by seeking expressions of interest from potentialbidders.  However, the Company has notentered into any binding agreements or agreements in principle to sell anyassets and there can be no assurance that any such asset sales will occur or,if they occur, as to the timing or amount of proceeds that such asset sales maygenerate.

 

**Revolving CreditFacility.**TheCompany has a revolving credit facility (the “Revolver”) provided by HellerFinancial, Inc. (“Heller”), which will mature on May 30, 2006.  Effective May 7, 2003, the Companyand Heller entered into an amendment to the Revolver which reduced thecommitted amount from $60 million to $40 million, while increasing theletter-of-credit sub-limit from $30 million to $40 million.  The Revolver is secured by substantially allthe assets of the Company, subject to the limitations on liens contained in theCompany’s existing Senior Notes.  Fundsavailability under the Revolver is determined by a borrowing-base formula equalto a specified percentage of the value of the Company’s eligible accountsreceivable, inventory and pledged cash. At March 31, 2004, the Company had no balance outstanding under theRevolver and an outstanding balance on letters-of-credit totaling $14.8million.  The balance remaining underthe Revolver that the Company can draw was $15.5 million at March 31, 2004($19.5 million in availability less a $4.0 million reserve).  A commitment fee of 0.5% per annum on theunused portion of the Revolver is payable quarterly.

 

The interest rate on loans under the Revolver is, at the Company’soption, either (1) 0.75% over prime or (2) 2.25% over LIBOR.  Under an amendment effectiveSeptember 1, 2003, the interest rate margins over prime and LIBOR may beincreased by 0.25% increments when the fixed charge coverage ratio falls below(1) 2.0 to 1.0, (2) 1.75 to 1.0, (3) 1.5 to 1.0 and (4) 1.25 to 1.0 and (totalrate increase of 1.00%) or decreased by 0.25% increments when the fixed chargecoverage ratio is greater than 2.25 to 1.0 (total rate decrease of 0.25%).  The interest rate was remeasured as of theeffective date of September 1, 2003 under this amendment.  At March 31, 2004, the Company’s weightedaverage rate on the Revolver was 4.75%.

 

Under the Revolver, substantially all of the Company’s domestic cashreceipts (including proceeds from accounts receivable and asset sales) must beapplied to repay the outstanding loans, which may be re-borrowed subject toavailability in accordance with the borrowing base formula. The Revolver containsrestrictions on the use of cash for dividend payments or non-scheduledprincipal payments on certain indebtedness. Restricted cash at March 31, 2004 of $14.8 million represents cashpledged under the terms of the Revolver.

 

The Revolver contains various representations, warranties andcovenants, including financial covenants as to maximum capital expenditures,minimum fixed-charge coverage ratio and minimum average borrowingavailability.  At March 31, 2004,the Company was in compliance with all covenants under the Revolver.

 

**SeniorNotes**. InAugust 1998, the Company exchanged the public Senior Notes (the “SeniorNotes”) for the notes sold in a May 1998 Rule 144A private offering. Interestis fixed at 7.5% and is due and payable in semi-annual installments, whichbegan December 1, 1998. The Senior Notes mature on June 1, 2008.  The Senior Notes contain covenants placinglimitations on the Company’s ability to permit subsidiaries to incur certaindebts, incur certain loans, and engage in certain sale and leasebacktransactions. During the three months ended March 31, 2003, the Companyrepurchased Senior Notes with a face amount of $3.4 million. The Company wroteoff a proportionate share of deferred financing-fees, resulting in a gain ofapproximately $1.0 million, which was reported as sundry (other) income in thecondensed consolidated statements of operations for the three monthsended March 31, 2003.

 

**SubordinatedUnsecured Sponsor Note**. The Company’s Sponsor Notebears interest at 10.0%, due and payable quarterly. The Sponsor Note issubordinate only upon bankruptcy or insolvency of the Company, or if uponmaturity of the Senior Notes, the Senior Notes remain unpaid.  The payments began September 30, 1999.The Sponsor Note matures on July 22, 2009.  As provided under the agreement, however, the Sponsor Noteholder, WCAS, elected to defer quarterly interest payments of $4.0 million foreach of the September 2000 through September 2001 quarterly periodsresulting in an increase in the principal amount of the Sponsor Note totaling$33.8 million.  Such election required adeferred financing-fee of 30.0% of each of the interest payments beingdeferred.  The Company accounts for theadditional financing fees as a change in the effective interest rate of the debt.WCAS may, at its election, defer each future quarterly payment under similarterms.  WCAS has not elected to deferthe quarterly payments since September 2001.  In accordance with the terms of the Sponsor Note, onDecember 6, 2002, the Company made a $90.0 million principal payment onthe Sponsor Note.  A holder of SeniorNotes had sought to contest this payment. See discussion under Legal Proceedings.

 

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**PreferredStock – Series A**.****TheCompany allocated the proceeds from its Series A preferred stock issuance basedupon the relative fair value of the preferred stock and warrants issued. Therelated discount is being accreted over a period of 8 years. For the threemonths ended March 31, 2004,accretion of the related discount and accrued but unpaid dividends totaled $0.4million, increasing the carrying amount to $17.0 million. As ofMarch 31, 2004, the stated value ofthe Series A preferred stock, including accumulated but unpaid dividends, was$190.07 per share.

 

**PreferredStock – Series B**.****Forthe three months ended March 31, 2004, the Company accrued additional unpaid dividends for its Series Bpreferred stock totaling $0.7 million, increasing the carrying amount to $11.3million.  As of March 31, 2004, the stated value of the Series B preferredstock, including accumulated but unpaid dividends, was $317.08 per share.

 

See Note 3 – Reclassification, contained inNotes to the Condensed Consolidated Financial Statements, for a discussion ofthe reclassification of the Series A and B Preferred Stock to the permanentequity section of the Condensed Consolidated Balance Sheets under theguidance of EITF Topic D-98, “Classification and Measurement ofRedeemable Securities.”

 

**Inflation.**  Inflation has not had a material effect onthe operating results of the Company.

 

### **Contractual Obligations and Commercial Commitments.**

 

In the normal course of business, the Company enters into variouscontractual and other commercial commitments that impact, or could impact, theliquidity of operations. The following table outlines the commitments atMarch 31, 2004:

 
|                               |   | **Total  Amounts** |   | **Less than  1 Year** |   | **1-3  Years** |   | **4-5  Years** |   | **Over 5  Years** |   |
|------------------------------------|--------|--------------------|--------|-----------------------|--------|----------------|--------|----------------|--------|-------------------|--------|
|                               |   | **(In Millions)**  |   |
| Long-term debt                     |   | $                  | 197.8  |                  | $      | —         |   | $              | — |              | $      | 94.0 |   | $ | 103.8 |   |
| Capital leases                     |   | 1.0                |   | 1.0                   |   | —         |   | —         |   | —            |   |
| Operating  leases (non-cancelable) |   | 18.4               |   | 5.6                   |   | 8.6            |   | 2.7            |   | 1.5               |   |
|                               |   |               |   |                  |   |           |   |           |   |              |   |
| Total  Contractual                 |   | 217.2              |   | 6.6                   |   | 8.6            |   | 96.7           |   | 105.3             |   |
|                               |   |               |   |                  |   |           |   |           |   |              |   |
| Unused lines  of credit            |   | $                  | 19.5   |                  | $      | 19.5           |   | $              | — |              | $      | — |   | $ | — |   |
| Standby  letters of credit         |   | 14.8               |   | 14.8                  |   | —         |   | —         |   | —            |   |
|                               |   |               |   |                  |   |           |   |           |   |              |   |
| Total  Commercial                  |   | $                  | 34.3   |                  | $      | 34.3           |   | $              | — |              | $      | — |   | $ | — |   |

 

**RECENTACCOUNTING PRONOUNCEMENTS**

 

In June 2003, the FASB issued SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of Both Liabilities andEquity.” The statement is effective for financial instruments entered into ormodified after May 31, 2003, and otherwise is effective at the beginning of thefirst interim period beginning after June 15, 2003, except for mandatorilyredeemable financial instruments of a nonpublic entity.  For mandatorily redeemable financialinstruments of a nonpublic entity, this statement shall be effective for fiscalperiods beginning after December 15, 2003.  The Company has adopted SFAS No. 150 with no effect on theCompany’s results of operations or financial position.

 

**FACTORS AFFECTING THECOMPANY’S BUSINESS AND PROSPECTS**

 

Information provided by the Company in this Quarterly Report on Form10-Q and other documents filed with the Securities and Exchange Commissioninclude “forward-looking” information, as that term is defined in the PrivateSecurities Litigation Reform Act of 1995 (the “PSLRA”). All statements other than statements of historical fact are statementsthat could be deemed forward-looking statements.  The Company cautions investors that there canbe no assurance that actual results or business conditions will not differmaterially from those projected or suggested in such forward-looking statementsas a result of numerous factors beyond the Company’s control. The Companyundertakes no obligation to update or revise forward-looking statements toreflect changes in assumptions, the occurrence of unanticipated results orchanges to future operating results over time. The following is a descriptionof some of the important factors that may cause the actual results of theCompany’s operations in future periods to differ materially from thosecurrently expected or desired.

 

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***General EconomicConditions***

 

The Company’s business partially depends on general economic andbusiness conditions. The Company’s sales are to businesses in a wide variety ofindustries, including banking, financial services, insurance, health care andhigh technology, and to governmental agencies. General economic conditions that cause customers to reduce or delaytheir investments in products and solutions, such as those offered by theCompany, could have a material adverse effect on the Company, including itsbusiness, operating results, financial condition and prospects.

 

Delays or reductions in technology spending could have a materialadverse effect on demand for the Company’s products and services, andconsequently on the Company.

 

***TechnologicalChanges and Product Transitions***

 

The Company’s industry is characterized by continuing improvement intechnology, which results in the frequent introduction of new products, shortproduct life cycles and continual improvement in product price/performancecharacteristics.  The Company mustincorporate these new technologies into its products and solutions in order toremain competitive. There can be no assurance that the Company will be able tocontinue to manage technological transitions. A failure on the part of the Company to effectively manage thesetransitions of its product lines to new technologies on a timely basis couldhave a material adverse effect on the Company. In addition, the Company’s business depends on technology trends in itscustomers’ businesses.  Many of the Company’straditional products depend on the efficient handling of paper-basedtransactions.  To the extent thattechnological changes impact the future volume of paper transactions, theCompany’s traditional business may be adversely impacted.

 

***Dependence onSuppliers***

 

The Company’s solutions products depend on the quality of componentsthat are procured from third-party suppliers. Reliance on suppliers, as well as industry supply conditions, generallyinvolves several risks, including the possibility of defective parts (which canadversely affect the reliability and reputation of the Company’s products), ashortage of components and reduced control over delivery schedules (which canadversely affect the Company’s manufacturing efficiencies) and increases in componentcosts (which can adversely affect the Company’s profitability).

 

The Company has several single-sourced supplier relationships, eitherbecause alternative sources are not available or the relationship isadvantageous due to performance, quality, support, delivery, capacity or priceconsiderations.  If these sources areunable to provide timely and reliable supply, the Company could experiencemanufacturing interruptions, delays or inefficiencies, adversely affecting itsresults of operations. Even where alternative sources of supply are available,qualification of the alternative suppliers and establishment of reliablesupplies could result in delays and a possible loss of sales, which couldaffect operating results adversely.

 

***Indebtedness and Impacton Operating Results***

 

As a result of theCompany’s high debt to equity ratio, the Company is required to devotesignificant cash to debt service.  Thislimits the Company’s future operating flexibility and could make the Companymore vulnerable to a downturn in its operating performance or a decline ingeneral economic conditions.

 

***InternationalActivities***

 

The Company’s international operations are a significant part of theCompany’s business.  The success andprofitability of international operations are subject to numerous risks anduncertainties, such as economic and labor conditions, political instability,tax laws (including U.S. taxes on foreign subsidiaries) and changes in thevalue of the U.S. dollar versus the local currency in which products aresold.  Any unfavorable change in one ormore of these factors could have a material adverse effect on the Company.

 

***Fluctuations inOperating Results***

 

The Company’s operating results may fluctuate from period to period andwill depend on numerous factors, including: customer demand and marketacceptance of the Company’s products and solutions, new product introductions,product obsolescence, varying product mix, foreign-currency exchange rates,competition and other factors. The Company’s business is sensitive to thespending patterns of its customers, which in turn are subject to prevailingeconomic conditions and other factors beyond the Company’s control. Anyunfavorable change in one or more of these factors could have a materialadverse effect on the Company.

 

***Product DevelopmentActivities***

 

The strength of the Company’s overall business depends in part on theCompany’s ability to develop products and solutions based on new or evolvingtechnology and the market’s acceptance of those products.  There can be no assurance that the Company’sproduct

 

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development activities will be successful, that new technologies willbe available to the Company, that the Company will be able to delivercommercial quantities of new products in a timely manner, that those productswill adhere to generally accepted industry standards or that products willachieve market acceptance.  Many of theCompany’s customers use its products in highly regulated or technologically demandingindustries.  As a result of productsintroduced by the Company’s competitors, generally accepted industry standardscan change rapidly in ways that are beyond the control of the Company.

 

**ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

The Company utilizes a revolving creditfacility to support working capital needs. The interest rate onloans under the Revolver is, at the Company’s option, either (1) 0.75% overprime or (2) 2.25% over LIBOR.  Although no actual balances were outstandingunder the Revolver at March 31, 2004, assuming $1.0 million in borrowingsunder the Revolver, a one hundred basis point change in the bank’s prime orLIBOR rate would impact net interest expense by $10,000 over a twelve-monthperiod.

 

**ITEM4. CONTROLS AND PROCEDURES.**

 

During the audit of the Company’s 2000 financial statements, theCompany’s certifying accountant, Deloitte & Touche LLP (D&T) noted whatD&T considered to be material weaknesses in internal-control design and inthe operation of internal controls.  SeeCurrent Report on Form 8-K filed with the Securities and Exchange Commission onNovember 13, 2001 for additional information regarding this item and thesubsequent change in the Company’s independent accountant.  The Company’s current independentaccountant, KPMG, LLP (KPMG), also informally noted certain internal-controlweaknesses as a result of the 2001 audit, some of which are the same weaknessesas noted by D&T in their report.

 

The Company has addressed certain of the individual internal-controlweaknesses noted by D&T and KPMG, but analysis of internal control factorscontinues on an ongoing basis.  Stepsthat have been implemented to address internal-control weaknesses includepolicies covering loss contracts, inventory reserves, allowance for doubtfulaccounts, revenue recognition, and project costing.  In addition, as a result of Exchange Act Rule 13a-14, the Companyhas begun to put in place procedures addressing the adequacy of disclosure controls,including obtaining certifications from each member of management involved inthe preparation and review of this Form 10-Q. The Company is continuing its efforts to correct the internal-controlweaknesses noted by D&T and KPMG. Although the Company believes that it has implemented adequate controlsand procedures for the preparation of this report, the actions taken by theCompany to correct certain of the previously identified weaknesses will not befully tested by the Company’s independent accountants until the annual auditfor the year ended December 31, 2005.

 

Within the 90 days prior to the filing date of this report, the ChiefExecutive Officer and the Chief Financial Officer of the Company, with theparticipation of the Company’s management, began an evaluation of theeffectiveness of the Company’s disclosure controls and procedures pursuant toExchange Act Rule 13a-14.  Basedupon the evaluation completed to date, and the new procedures put in place, theChief Executive Officer and the Chief Financial Officer believe that the Company’sdisclosure controls and procedures are effective in making known to themmaterial information relating to the Company (including its consolidatedsubsidiaries) required to be included in this report.  The Company will continue to evaluate disclosure controls on anongoing basis.

 

Disclosure controls and procedures, no matter how well designed andimplemented, can provide only reasonable assurance of achieving an entity’sdisclosure objectives.  The likelihoodof achieving such objectives is affected by limitations inherent in disclosurecontrols and procedures.  These includethe fact that human judgment in decision-making can be faulty and thatbreakdowns in internal control can occur because of human failures such assimple errors or mistakes or intentional circumvention of the establishedprocess.

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect internal controls, known tothe Chief Executive Officer or the Chief Financial Officer, subsequent to thedate of the evaluation.

 

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**BANCTEC,INC.**

**PARTII**

**OTHERINFORMATION**

 

**ITEM1. Legal Proceedings**

** **

A lawsuit captioned Cerberus International, Ltd., et al. vs.BancTec, Inc., et al. (Case No. 03600287) was filed on January 28,2003 in the Supreme Court of the State of New York for the County of New Yorknaming as defendants the Company and certain of its affiliates.  The complaint alleged that the Companyimproperly made a payment to the holder of the Sponsor Note and sought damagesof not less than $89 million as a result of the alleged improper payment andthe imposition of a constructive trust on monies paid by the Company to theholder of the Sponsor Note.  TheCompany’s $90 million payment to the holder of the Sponsor Note was disclosedin the Company’s Current Report on Form 8-K dated November 27, 2002.

 

On May 5, 2004, the Supreme Court granted the Company’s motion forsummary judgment dismissing the plaintiff’s complaint in its entirety.  The plaintiff will have 30 days from thedate of entry of the judgment to file a notice of appeal.

 

The Company is a party to various other legalproceedings.  None of those currentproceedings is expected to have an outcome that is material to the financialcondition or operations of the Company.

 

**ITEM2.  Changes in Securities and Use ofProceeds**

 

None

 

**ITEM3.  Defaults Upon Senior Securities**

 

None

 

**ITEM 4.  Submission of Matters to a Vote of SecurityHolders**

 

None

 

**ITEM5. Other Information**

 

None

 

**ITEM6. Exhibits and Reports on Form 8-K**

 

(a)          Exhibits:

 

31.1 – Certificate of Chief Executive Officerpursuant to Rule 15d-14(a) under the Securities Exchange Act

 

31.2 – Certificate of Chief Financial Officerpursuant to Rule 15d-14(a) under the Securities Exchange Act

 

32.1 – Certificateof Chief Executive Officer pursuant to 18 USC 1350 and Rule 15d-14(a) under theSarbanes-Oxley Act

 

32.2 – Certificateof Chief Financial Officer pursuant to 18 USC 1350 and Rule 15d-14(a) under theSarbanes-Oxley Act

 

(b)         Reports on Form 8-K:

 

None

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

**BancTec, Inc.**

 

 
|   | *By*   | */s/*  | *Brian R. Stone*                     |   |
|--------|--------|--------|--------------------------------------|--------|
|   |   |   | *Brian R. Stone*                     |
|   |   |   | *Senior Vice President on behalf of* |
|   |   |   | *the registrant and as Chief*        |
|   |   |   | *Financial Officer*                  |

 

 

Dated: May 20, 2004

 

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