CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-9859

BANCTEC, INC.
(Exact name of registrant as specified in its charter)

DELAWARE		75-1559633
(State or other jurisdiction of 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 reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No ý

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

Title of Each Class		Number of Shares Outstanding at October 24, 2002

Common Stock, $0.01 par value		17,003,838
Class A Common Stock, $0.01 par value		1,181,946

BANCTEC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	June 30, 2002			December 31, 2001
	(Unaudited)

CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $1,613 at June 30, 2002 and $2,050 at December 31, 2001	$	27,137		$	28,577
Accounts receivable, less allowance for doubtful accounts of $6,313 at June 30, 2002 and $7,675 at December 31, 2001	62,961			81,942
Inventories	44,188			51,712
Prepaid expenses	7,129			6,374
Other current assets	1,442			810
Total current assets	142,857			169,415

PROPERTY, PLANT AND EQUIPMENT, net	67,588			76,213

GOODWILL	48,408			48,281
OTHER ASSETS	21,145			21,140
TOTAL ASSETS	$	279,998		$	315,049

CURRENT LIABILITIES:
Revolving credit facilities	$	8,000		$	28,838
Trade accounts payable	17,435			22,016
Other accrued expenses and liabilities	53,643			62,147
Deferred revenue	56,415			61,218
Income taxes	4,438			4,166
Total current liabilities	139,931			178,385
LONG-TERM DEBT, less current maturities	300,173			304,798

OTHER LIABILITIES	38,094			31,232

COMMITMENTS AND CONTINGENCIES

MANDATORY REDEEMABLE PREFERRED STOCK-Series A	13,936			13,151

STOCKHOLDERS’ DEFICIT:
Cumulative convertible preferred stock - authorized, 1,000,000 shares of $0.01 par value at June 30, 2002 and December 31, 2001:
Series B preferred stock - issued and outstanding, 35,520 shares at June 30, 2002 and December 31, 2001	7,366			6,532
Common stock authorized, 32,000,000 shares of $0.01 par value at June 30, 2002 and December 31, 2001:
Common stock-issued and outstanding 17,003,838 shares at June 30, 2002 and December 31, 2001	170			170
Class A common stock-issued and outstanding 1,181,946 shares at June 30, 2002 and December 31, 2001	12			12
Subscription stock warrants	3,726			3,726
Additional paid-in capital	132,813			134,432
Accumulated deficit	(347,259		)	(345,972		)
Accumulated other comprehensive loss	(8,964		)	(11,417		)
Total stockholders’ deficit	(212,136		)	(212,517		)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	279,998		$	315,049

See notes to unaudited condensed consolidated financial statements.

BANCTEC, INC.

Date: October 28, 2002

Craig D. Crisman

President and Chief Executive Officer

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(In thousands)
REVENUE
Equipment and software	$	47,754		$	61,499		$	98,314		$	111,025
Maintenance and other services	65,957			67,032			131,798			135,386
	113,711			128,531			230,112			246,411
COST OF SALES
Equipment and software	37,938			48,041			76,162			88,644
Maintenance and other services	48,923			55,633			99,241			113,910
	86,861			103,674			175,403			202,554
Gross profit	26,850			24,857			54,709			43,857

OPERATING EXPENSES
Product development	4,147			3,698			7,454			8,190
Selling, general and administrative	16,934			20,743			35,337			40,879
Goodwill amortization	—			806			—			1,608
	21,081			25,247			42,791			50,677
Income (loss) from operations	5,769			(390		)	11,918			(6,820		)

OTHER INCOME (EXPENSE):
Interest income	59			363			100			711
Interest expense	(7,635		)	(9,566		)	(15,240		)	(18,892		)
Sundry, net	4,408			(1,666		)	4,055			(1,046		)
	(3,168		)	(10,869		)	(11,085		)	(19,227		)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	2,601			(11,259		)	833			(26,047		)
INCOME TAX EXPENSE	1,093			839			2,120			1,891
INCOME (LOSS) FROM CONTINUING OPERATIONS	1,508			(12,098		)	(1,287		)	(27,938		)
NET INCOME (LOSS)	$	1,508		$	(12,098	)	$	(1,287	)	$	(27,938	)

PREFERRED STOCK DIVIDENDS AND ACCRETION OF DISCOUNT	(829		)	(701		)	(1,619		)	(1,065		)

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	679		$	(12,799	)	$	(2,906	)	$	(29,003	)

See notes to unaudited condensed consolidated financial statements.

BANCTEC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2002			2001
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations	$	(1,287	)	$	(27,938	)
Adjustments to reconcile net loss from continuing operation to cash flows provided by operating activities:
Depreciation and amortization	13,251			18,729
Provision for doubtful accounts, net of recoveries	(1,416		)	1,491
Interest paid in-kind	—			9,339
Loss on disposition of property, plant and equipment	498			537
(Gain) loss on extinguishment of long-term debt	(2,842		)	1,840
Other non-cash items	239			189
Changes in operating assets and liabilities
Decrease in accounts receivable	20,397			16,561
Decrease in inventories	7,425			1,330
Increase in other assets	(1,272		)	(6,675		)
Decrease in trade accounts payable	(4,581		)	(5,116		)
Increase (decrease) in deferred revenue	(4,803		)	19,920
Decrease in other accrued expenses and liabilities	(1,370		)	(5,294		)
Cash flows provided by operating activities	24,239			24,913
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(4,421		)	(6,945		)
Cash flows used in investing activities	(4,421		)	(6,945		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings	—			8,000
Payments of long-term borrowings	(1,783		)	(70,000		)
Proceeds from (payments of) short-term borrowings, net	(20,855		)	35,036
Debt issuance costs	(120		)	(2,458		)

Net proceeds issuance of preferred stock	—			5,328
Cash flows used in financing activities	(22,758		)	(24,094		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	1,500			(1,237		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(1,440		)	(7,363		)
CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD	28,577			23,841
CASH AND CASH EQUIVALENTS—END OF PERIOD	$	27,137		$	16,478
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest	$	14,050		$	8,565
Taxes	$	2,459		$	2,931
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
DEFERRAL OF SPONSOR NOTES QUARTERLY INTEREST PAYMENTS	$	—		$	11,634

See notes to unaudited condensed consolidated financial statements.

BANCTEC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION

The accompanying unaudited condensed consolidated balance sheet at June 30, 2002, and the condensed consolidated statements of operations and cash flows for the interim periods ended June 30, 2002 and 2001, should be read in conjunction with BancTec, Inc. and subsidiaries (“BancTec” or the “Company”) consolidated financial statements and notes thereto in the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. As disclosed in the notes to that report, the condensed consolidated statements of operations and cash flows for the interim periods ended June 30, 2001 have been restated. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.

2. INVENTORIES

Inventory consists of the following:

	June 30, 2002		December 31, 2001
	(In thousands)

Raw materials	$	5,403	$	9,053
Work-in-progress	20,829		24,793
Finished goods	17,956		17,866
	$	44,188	$	51,712

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	June 30, 2002			December 31, 2001
	(In thousands)
Land	$	2,860		$	2,860
Field support spare parts	70,256			78,055
Systems and software	64,191			64,294
Machinery and equipment	52,841			53,261
Furniture, fixtures and other	24,574			24,108
Buildings	28,665			28,358
	243,387			250,936
Accumulated depreciation and amortization	(175,799		)	(174,723		)
Property, plant and equipment, net	$	67,588		$	76,213

4. OTHER ACCRUED EXPENSES AND LIABILITIES

Other accrued expenses and liabilities consist of the following:

	June 30, 2002		December 31, 2001
	(In thousands)
Salaries, wages and other compensation	$	15,311	$	17,602
Accrued taxes, other than income taxes	5,171		8,446
Advances from customers	1,989		1,859
Accrued interest payable	733		5,939
Accrued invoices and costs	1,948		5,534
Accrued contract completion costs	4,049		2,599
Other	24,442		20,168
Total	$	53,643	$	62,147

5. DEBT AND OTHER OBLIGATIONS

Debt and other obligations consist of the following:

	June 30, 2002			December 31, 2001
	(in thousands)

7.5% Senior Notes, due 2008	$	106,325		$	110,950
Revolver	8,000			25,040
Subordinated Sponsor Notes, unsecured, due 2009	193,848			193,848
Other	—			3,798
	308,173			333,636
Less: Current portion	(8,000		)	(28,838		)
	$	300,173		$	304,798

Revolving Credit Facility. The Company has a $60.0 million revolving credit facility (the “Revolver”) provided by Heller Financial, Inc. (“Heller”), which will mature on May 30, 2006. The Revolver is secured by substantially all the assets of the Company, subject to the limitations on liens contained in the Company’s existing Senior Notes. Funds availability under the Revolver is determined by a borrowing base formula equal to a specified percentage of the value of the Company’s eligible accounts receivable, inventory and real estate. At June 30, 2002, the Company had $8.0 million outstanding under the Revolver and an outstanding balance on letters of credit totaling $8.5 million. The balance remaining under the Revolver that the Company can draw was $6.9 million at June 30, 2002. A commitment fee of 0.5% per annum on the unused portion of the Revolver is payable quarterly.

The interest rate on loans under the Revolver is, at the Company’s option, either (i) 1.25% over prime or (ii) 2.75% over LIBOR. At June 30, 2002, the Company’s weighted average rate on the Revolver was 6.0%.

The Revolver contains various representations, warranties and covenants, including financial covenants as to maximum capital expenditures, minimum fixed charge coverage ratio and minimum average borrowing availability. At June 30, 2002, the Company was in compliance with all financial covenants under the Revolver.

Senior Notes. Interest on the Senior Notes is fixed at 7.5% and is due and payable in semi-annual installments. Payments began December 1, 1998. The Notes contain covenants placing limitations on the Company’s ability to permit subsidiaries to incur certain debts, incur certain loans, and engage in certain sale and leaseback transactions. During the second quarter of 2002, the Company repurchased Senior Notes with a face amount of $4.6 million. The Company wrote off a proportionate share of deferred financing fees, resulting in a gain of approximately $2.8 million, which was reported as sundry (other) income in the condensed consolidated statements of operations for the interim periods ended June 30, 2002. As of August 14, 2002, the Company was not in compliance with the Senior Notes’ reporting requirements for the quarters ended March 31, 2002 and June 30, 2002. The Company is in a 60-day cure period, and delivery of the financial statements in the Company’s Form 10-Q filing remedied this non- compliance condition for the quarter ended March 31, 2002. Delivery of the financial statements in this Form 10-Q will remedy this non- compliance condition for the quarter ended June 30, 2002 within the cure period provided and therefore the Company continues to classify the Senior Notes as long term debt. The estimated fair value of the Senior Notes as of June 30, 2002, is approximately $41 million based on an average value of recently completed market trades, resulting in a yield to maturity of approximately 30%.

Subordinated Unsecured Sponsor Notes. The Company’s $160.0 million in Sponsor Notes are issued in U.S. dollars, with interest at 10.0% due and payable quarterly. The payments began September 30, 1999. However, as provided under the agreement, the Sponsor Notes’ holder, WCAS, elected to defer quarterly interest payments of $4.0 million for each of the June 2000 through September 2001 quarterly periods. Such election required a deferred financing fee of 30.0% of each of the interest payments being deferred. The Company accounts for the additional financing fees as a change in the effective interest rate of the debt. At June 30, 2002, the Company had $33.8 million outstanding in WCAS notes representing deferred interest. WCAS may, at its election, defer each future quarterly payment under similar terms. WCAS did not elect to defer the December 2001, March 2002 or June 2002 quarterly payments. The estimated fair value of the Sponsor Notes and deferred interest and fees as of June 30, 2002, is approximately $70 million assuming a yield to maturity of 35%.

The Company had no outstanding balances on foreign credit agreements at June 30, 2002.

6. GOODWILL AND INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has adopted the provisions of SFAS No. 142 effective January 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated 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 to determine whether an indication of impairment exists. If impairment is indicated, then under the second step the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value. During the six months ended June 30, 2002, the Company completed its analysis of the first step of the impairment test of goodwill measured as of January 1, 2002.

Upon completion of the second step of the analysis, the Company anticipates recording as a cumulative effect of a change in accounting principle, a non-cash charge of between $9 and $21 million, after applicable income taxes, to write off a portion of the carrying value of goodwill. This non-cash charge will be recorded before December 31, 2002, and will not affect the Company’s operations.

Components of the Company’s goodwill include amounts that are foreign currency denominated. These goodwill amounts are subject to translation at each balance sheet date. The Company records the change to its Accumulated Other Comprehensive Loss on the balance sheet. Goodwill previously classified as unallocated has been allocated to the reporting units as required by SFAS No. 142. The following is a summary of changes in the carrying amount of goodwill by segment for the six months ended June 30, 2002:

	US Solutions		Computer & Network Services		International		Unallocated			Total
	(In thousands)
Balance at December 31, 2001	$	40,211	$	—	$	2,229	$	5,841		$	48,281
Changes due to foreign Currency translation	—		—		127		—			127
Allocation of previously unallocated Goodwill	1,025		—		4,816		(5,841		)	—
Balance at June 30, 2002	$	41,236	$	—	$	7,172	$	—		$	48,408

The following is a summary comparison of net loss for the three and six months ended June 30, 2002 and 2001, as adjusted to remove the amortization of goodwill and intangible assets with indefinite useful lives for the three and six months ended June 30, 2001:

	Three Months Ended June 30,					Six Months Ended June 30,
	2002		2001			2002			2001
	(In thousands)					(In thousands)
Net income (loss) – as reported	$	1,508	$	(12,098	)	$	(1,287	)	$	(27,938	)
Goodwill amortization	—		806			—			1,608
Net income (loss) – as adjusted	$	1,508	$	(11,292	)	$	(1,287	)	$	(26,330	)

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The Company’s adoption of SFAS No. 144 on January 1, 2002 did not have a material impact on its financial condition or results of operations.

7. COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss) were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2002		2001			2002			2001
	(In thousands)					(In thousands)
Net income (loss)	$	1,508	$	(12,098	)	$	(1,287	)	$	(27,938	)
Foreign currency translation adjustments	2,149		148			2,453			(2,070		)
Total comprehensive income (loss)	$	3,657	$	(11,950	)	$	1,166		$	(30,008	)

8. BUSINESS SEGMENT DATA

The Company segments its operations based on geographical areas (U.S. Solutions (“USS”) and International Solutions (“INTL”)) and product lines (Computer and Network Services (“CNS”)). INTL offers similar products as USS and consists primarily of operations throughout the world excluding United States. The Company recently realigned its reporting structure and began reporting under the new alignment in the first quarter of 2002. Under this new structure, USS includes the operations of Advanced Enterprise Solutions (“AES”) and INTL reporting includes both the U.S. and international operations of Plexus® products (“Plexus”). The operations of AES and Plexus are not material to USS or to INTL operations. Under the new structure, the composition of CNS remains unchanged. Prior period information has been reclassified to reflect the new alignment.

	US Solutions			Computer & Network Services			International		Corp/Elims			Total
	(In thousands)
For the three months ended June 30, 2002

Revenue from external customers	$	36,673		$	36,481		$	40,557	$	—		$	113,711
Intersegment revenues	2,183			—			1,332		(3,515		)	—
Segment gross profit (loss)	5,272			9,381			11,438		759			26,850
Segment operating income (loss)	(2,208		)	8,378			1,988		(2,389		)	5,769
Segment identifiable assets	107,858			33,317			92,027		46,796			279,998
Capital expenditures	832			202			1,069		38			2,141

For the three months ended June 30, 2001

Revenue from external customers	$	44,606		$	35,894		$	48,031	$	—		$	128,531
Intersegment revenues	9,348			—			1,212		(10,560		)	—
Segment gross profit (loss)	7,894			3,761			12,880		322			24,857
Segment operating income (loss)	(206		)	(1,084		)	2,849		(1,949		)	(390		)
Segment identifiable assets	164,060			47,224			113,859		43,917			369,060
Capital expenditures	1,358			592			1,498		654			4,102

	US Solutions			Computer & Network Services			International		Corp/Elims			Total
	(In thousands)
For the six months ended June 30, 2002

Revenue from external customers	$	75,478		$	72,927		$	81,707	$	—		$	230,112
Intersegment revenues	6,094			—			2,878		(8,972		)	—
Segment gross profit (loss)	14,512			17,214			22,652		331			54,709
Segment operating income (loss)	204			13,056			4,860		(6,202		)	11,918
Segment identifiable assets	107,858			33,317			92,027		46,796			279,998
Capital expenditures	1,989			588			1,625		219			4,421

For the six months ended June 30, 2001

Revenue from external customers	$	81,926		$	72,980		$	91,505	$	—		$	246,411
Intersegment revenues	16,447			—			2,727		(19,174		)	—
Segment gross profit (loss)	11,666			7,763			24,438		(10		)	43,857
Segment operating income (loss)	(5,389		)	(922		)	3,399		(3,908		)	(6,820		)
Segment identifiable assets	164,060			47,224			113,859		43,917			369,060
Capital expenditures	2,187			970			2,627		1,161			6,945

9. PREFERRED STOCK

REDEEMABLE PREFERRED STOCK

The Company allocated the proceeds from its Series A preferred stock issuance based upon the relative fair value of the preferred stock and warrants issued. The related discount is being accreted such that the carrying amount of the mandatory redeemable preferred stock will equal the mandatory redemption amount at September 22, 2008. For the six months ended June 30, 2002, accretion of the related discount and accrued but unpaid dividends totaled $0.8 million, increasing the carrying amount to $13.9 million. As of June 30, 2002, the stated value of the Series A preferred stock, including accumulated but unpaid dividends, was $169.36 per share.

SERIES B PREFERRED STOCK

For six months ended June 30, 2002, the Company accrued additional unpaid dividends for its Series B preferred stock totaling $0.8 million, increasing the carrying amount to $7.3 million. As of June 30, 2002, the stated value of the Series B preferred stock, including accumulated but unpaid dividends, was $207.39 per share.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The Company will adopt SFAS No. 143 in fiscal year 2003. The Company has not determined the impact of the provisions of SFAS No. 143 on its financial condition or results of operations.

In May 2002, the FASB issued SFAS No. 145 , “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections” . Among other things, SFAS 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transaction”, are met. The Company adopted the provisions SFAS 145 regarding early extinguishment of debt during the second quarter of 2002. During the second quarter of 2002, the Company repurchased Senior Notes with a face amount of $4.6 million. The Company wrote off a proportionate share of deferred financing fees, resulting in a gain of approximately $2.8 million, which was reported as sundry (other) income in the condensed consolidated statements of operations for the interim periods ended June 30, 2002.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS 146 will be effective for the Company for disposal activities initiated after December 31, 2002. The Company has not determined the impact of the provisions of SFAS No. 146 on its financial condition or results of operations.

11. SUBSEQUENT EVENTS

Since June 30, 2002, the Company repurchased Senior Notes with a total face amount of $1.9 million. The Company wrote off a proportionate share of deferred financing fees, resulting in a gain of approximately $1.2 million, which will be reflected in other income as a result of the early adoption of SFAS No. 145.

On July 30, 2002, the Company and Heller amended the Revolver, which reduced the Company’s fixed charge coverage ratio covenant during quarters 1, 2 and 3 of 2002, and reduced the minimum undrawn availability requirement from $10.0 million to $4.0 million. The amendment also waived the reporting requirement violation upon submission of the audited financial statements in the Company’s Form 10-K, which was filed on August 9, 2002.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including Factors Affecting the Company’s Business and Prospects set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure About Market Risk, contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of BancTec, Inc. and its consolidated subsidiaries (the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the ability of the Company to retain and motivate key employees; the timely development, production and acceptance of products and services and their feature sets; the challenge of managing asset levels, including inventory; the flow of products into third-party distribution channels; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks that are described from time to time in the Company’s Securities and Exchange Commission reports, including but not limited to the items discussed in “Factors Affecting the Company’s Business and Prospects” set forth in this report, and items described in the Company’s other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated results or changes to future operating results over time.

The Company believes several factors continued to create a challenging and competitive sales and cost containment environment during the six months ended June 30, 2002. These factors include: general economic conditions and reduced corporate customer technology spending; ongoing competitive pressures; an ongoing planned change in revenue mix within the Company’s U.S. Solutions (“USS”) and International Solutions (“INTL”) segments; and a highly leveraged financial position. The Company has undertaken a process of evaluating the recovery of all its investments in inventory and long-lived assets. This evaluation has resulted in write-downs and impairments of inventory and other long-lived assets in response to current business conditions and other decisions reached during the planning process.

Expected economic and business conditions for the remainder of 2002 indicate a cautious outlook regarding the Company’s near-term revenue and earnings growth prospects. Most of the Company’s product offerings represent a significant capital expenditure for its customers. The general economic conditions have recently caused a significant weakening in demand for systems solutions products offered by USS and INTL. The Company has concentrated its emphasis on cost reductions and on existing offerings. Product Development efforts are currently focused on payment, check and document processing technologies, in addition to investments in Electronic Document Management (“EDM”) vertical solutions and an investment in archiving solutions for all markets, as well as hardware enhancements. By incorporating more third-party products into the Company’s solutions rather than developing the products, the Company can more easily target its efforts and expenditures to these core products and solutions.

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2002 and Three Months Ended June 30, 2001

Consolidated revenue of $113.7 million for the three months ended June 30, 2002 decreased by $14.8 million or 11.5% from the comparable prior year period. The decrease occurred primarily in INTL of $7.4 million and USS of $7.9 million, offset partially by an increase in CNS of $0.6 million. The INTL and USS decreases resulted primarily from the impact of longer acceptance periods on highly customized products in the prior-year period. These products, scheduled for acceptance in 2000, achieved acceptance in 2001 along with those products scheduled for acceptance in 2001. In addition, USS experienced declines in maintenance revenue due to Company installed products reaching the end of their useful lives and from increased competition. The Company expects these trends to continue in the foreseeable future. Factors impacting future revenue include lower corporate customer spending for large systems solutions as a result of the continuing weakness in the economy, customer and prospective customer mergers, on-going competitive pressures, and fluctuations in international currencies, especially the euro and the yen.

Consolidated gross profit of $26.9 million increased by $2.0 million or 8.0% from the comparable prior-year period. The increase occurred primarily in CNS of $5.6 million, offset partially by decreases in INTL of $1.4 million and USS of $2.6 million. CNS’ gross profit increase was primarily attributable to an improved labor model, with additional benefit provided through a reduction in support costs, including streamlining the number of districts and the expanded automation of its call center operations. The INTL decrease resulted primarily from a decrease in the Company’s European traditional businesses, partially offset by a margin improvement by the Company’s subsidiary in Japan. The margin decline in the Company’s subsidiaries in Europe was due primarily to lower revenues without a corresponding percentage decline in fixed expenses, as well as fluctuations of the euro, yen and other international currencies. The USS decrease was principally related to the impact of decreased revenues, partially offset by lower costs resulting from the Company’s cost containment efforts. The Company is in the process of transitioning its product offering focus to proven deliverables and new targeted offerings, including EDM solutions, its other archive solutions and hardware enhancements. Incorporating more third-party products into the Company’s solutions rather than developing the products has enabled the concentration of efforts and expenditures on the targeted items which, along with the Company’s ongoing cost containment efforts, allowed for cost reductions to help offset revenue declines. The Company will continue to monitor the effects of the business climate and its strategic plans on the recoverability of its investment in inventory and long-lived assets, all of which may continue to have a negative impact on gross profit in the future.

Operating expenses of $21.1 million decreased $4.2 million compared to the comparable prior year-period. Operating expenses, by component, changed as follows: Product development expenses increased by $0.4 million or 12.1% primarily due to concentration on developing targeted new applications for the Company’s product lines, selective expansion of existing products, and the use of outsourced product development services. Selling, general, and administrative expenses decreased by $3.8 million or 18.4% due primarily to on-going efforts to realign the cost structure. Goodwill amortization ceased in 2002 as a result of the implementation of SFAS 142. Goodwill amortization for the three months ended June 30, 2001 was $0.8 million.

Interest expense for the three months ended June 30, 2002 decreased to $7.6 million from $9.6 million in the comparable prior-year period. The decrease was due mainly to the repurchase of a portion of the Senior Notes, a lower outstanding balance on the revolving credit facilities and declining interest rates, partially offset by a $6.1 million increase in debt related to Sponsor Notes subsequent to June 30, 2001.

Sundry items resulted in a net income of $4.4 million during the three months ended June 30, 2002 as compared to a net expense of $1.7 million during the comparable prior-year period. This increase is primarily due to foreign exchange gains of $2.1 million and a gain of approximately $2.8 million from the Company’s repurchase of Senior Notes during the current year period, compared to foreign exchange gains of $0.1 million and a loss of $1.8 million as a result of the extinguishment of a previous credit facility in the prior-year period.

Pre-tax income in foreign tax jurisdictions resulted in an income tax provision of $1.1 million for the three months ended June 30, 2002 compared to a corresponding prior-year period income tax provision of $0.8 million. The income tax provisions for both periods related to income from the Company’s international subsidiaries and a valuation allowance provided to reduce the Company’s deferred tax assets to an amount management believes is more likely than not to be realized. The Company’s effective tax rate was approximately 42.0% for the three months ended June 30, 2002 as compared to (7.5%) for the corresponding prior-year period.

Comparison of Six Months Ended June 30, 2002 and Six Months Ended June 30, 2001

Consolidated revenue of $230.1 million for the six months ended June 30, 2002 decreased by $16.3 million or 6.6% from the comparable prior-year period. The decrease occurred primarily in INTL of $9.8 million and USS of $6.5 million, while revenue for CNS remained flat. The INTL decrease resulted primarily from the impact of longer acceptance periods on highly customized products in the prior-year period. These products, scheduled for acceptance in 2000, achieved acceptance in 2001 along with those products scheduled for acceptance in 2001. The USS decrease was principally related to the impact of continued economic weakness, and declines in maintenance revenue due to Company installed products reaching the end of their useful lives and from increased competition. The Company expects these trends to continue in the foreseeable future. Factors impacting future revenue include lower corporate customer spending for large systems solutions as a result of the continuing weakness in the economy, customer and prospective customer mergers, on-going competitive pressures, and fluctuations in international currencies, especially the euro and the yen.

Consolidated gross profit of $54.7 million increased by $10.9 million or 24.7% from the comparable prior-year period. The increase occurred primarily in CNS of $9.5 million and USS of $2.8 million, offset partially by a decrease in INTL of $1.8 million. CNS’ gross profit increase was primarily attributable to an improved labor model, with additional benefit provided through a reduction in support costs, including streamlining the number of districts and the expanded automation of its call center operations. The INTL decrease occurred primarily from a decrease in the Company’s European traditional businesses. The margin decline in the Company’s subsidiaries in Europe was due primarily to lower revenues without a corresponding percentage decline in fixed expenses, as well as fluctuations of the euro, yen and other international currencies. USS gross profit increased despite decreased revenues due to significantly lower cost of sales resulting from the Company’s cost containment efforts. The Company is in the process of transitioning its product offering focus to proven deliverables and new targeted offerings, including EDM solutions, its other archive solutions and hardware enhancements. Incorporating more third-party products into the Company’s solutions rather than developing the products has enabled the concentration of efforts and expenditures on the targeted items which, along with the Company’s ongoing cost containment efforts, allowed for cost reductions to help offset revenue declines. The Company will continue to monitor the effects of the business climate and its strategic plans on the recoverability of its investment in inventory and long-lived assets, all of which may continue to have a negative impact on gross profit in the future.

Operating expenses of $42.8 million decreased $7.9 million compared to the comparable prior-year period. Operating expenses, by component, changed as follows: Product development expenses decreased by $0.7 million or 9.0% primarily due to concentration on developing targeted new applications for the Company’s product lines, selective expansion of existing products, and the use of outsourced product development services. Selling, general, and administrative expenses decreased by $5.5 million or 13.6% due primarily to on-going efforts to realign the cost structure. Goodwill amortization ceased in 2002 as a result of the implementation of SFAS 142. Goodwill amortization for the six months ended June 30, 2001 was $1.6 million.

Interest expense for the six months ended June 30, 2002 decreased to $15.2 million from $18.9 million in the comparable prior-year period. The decrease was due mainly to the repurchase of a portion of the Senior Notes, a lower outstanding balance on the revolving credit facilities and declining interest rates, partially offset by a $6.1 million increase in debt related to Sponsor Notes subsequent to June 30, 2001.

Sundry items resulted in a net income of $4.1 million during the six months ended June 30, 2002 as compared to a net expense of $1.0 million during the comparable prior-year period. This increase is primarily due to foreign exchange gains of $2.5 million and a gain of approximately $2.8 million from the Company’s repurchase of Senior Notes during the current year period, compared to foreign exchange losses of $2.1 million and a loss of $1.8 million as a result of the extinguishment of a previous credit facility in the prior-year period.

Pre-tax income in foreign tax jurisdictions resulted in an income tax provision of $2.1 million for the six months ended June 30, 2002 compared to a corresponding prior-year period income tax provision of $1.9 million. The income tax provisions for both periods related to income from the Company’s international subsidiaries and a valuation allowance provided to reduce the Company’s deferred tax assets to an amount management believes is more likely than not to be realized. The Company’s effective tax rate was approximately 254.5% for the six months ended June 30, 2002 as compared to (7.3%) for the corresponding prior-year period.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s working capital requirements are generally provided by cash and cash equivalents, funds available under the Company’s revolving credit agreement, as discussed below, which matures May 30, 2006, and by internally generated funds from improved cash flows from operations. Funds availability under the revolving credit agreement is determined by a borrowing base formula equal to a specified percentage of the value of the Company’s eligible accounts receivable, inventory and real estate. General economic conditions, the current weakness in demand for the Company’s systems solutions products offered by USS and the requirement to obtain performance bonds or similar instruments for future advances from a significant customer could have a material impact on the Company’s future liquidity.

The Company’s cash and cash equivalents totaled $27.1 million at June 30, 2002, compared with $28.6 million at December 31, 2001. Working capital increased $11.9 million during the six months ended June 30, 2002 to $2.9 million compared to a working capital deficit of $9.0 million at December 31,2001. The change in working capital included a current liability decrease of $20.8 million from the revolving credit agreement and a current asset decrease in accounts receivable of $19.0 million.

During the six months ended June 30, 2002, the Company relied primarily on cash flows generated from operating activities and short-term borrowings under its revolving credit agreement to fund operations. At June 30, 2002 the Company had available $16.9 million of borrowing capacity under the Revolver, of which the Company can draw $6.9 million.

Operating activities provided $24.2 million and $24.9 million of cash in the six months ended June 30, 2002 and 2001, respectively, a decrease of $0.7 million. Although the net loss from continuing operations decreased $26.7 million, $22.5 million of this improvement resulted from lower depreciation and amortization, interest paid in-kind, and other non-cash transactions. In addition, cash generated by the conversion of operating assets and liabilities was $4.9 million less than in the prior-year period.

Investing activities used net cash of $4.4 million and $6.9 million in the six months ended June 30, 2002 and 2001, respectively. Both uses of cash related to purchases of property, plant and equipment.

Financing activities used $22.8 million and $24.1 million of net cash in the six months ended June 30, 2002 and 2001, respectively. The $1.3 million change related primarily to the reduction of the Company’s debt, offset by the issuance of preferred stock of $5.3 million in the six months ended June 30, 2001.

At June 30, 2002, the Company’s principal outstanding debt instruments consisted of (i) $8.0 million outstanding under the revolving credit facility maturing May 30, 2006 (which is more fully described below), (ii) $106.3 million of 7.5% Senior Notes due 2008, and (iii) $193.8 million of Sponsor Notes due 2009. The Company or its affiliates may from time to time purchase, redeem or pay deferred interest on some of its outstanding debt or equity securities. The Company would only make these payments in compliance with the covenants of its debt instruments.

The Company continually reviews its various lines of business to assess their contribution to the Company’s business plan and from time to time considers the sale of certain assets in order to raise cash or reduce debt. Accordingly, the Company from time to time has explored and may explore possible asset sales by seeking expressions of interest from potential bidders. However, the Company has not entered into any binding agreements or agreements in principle to sell any assets 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 assets sales may generate.

Revolving Credit Facility. The Company has a $60 million revolving credit facility (the “Revolver”) provided by Heller Financial, Inc. (“Heller”), which will mature on May 30, 2006. The Revolver is secured by substantially all the assets of the Company, subject to the limitations on liens contained in the Company’s existing Senior Notes. Funds availability under the Revolver is determined by a borrowing base formula equal to a specified percentage of the value of the Company’s eligible accounts receivable, inventory and real estate. At June 30, 2002, the Company had $8.0 million outstanding under the Revolver and an outstanding balance on letters of credit totaling $8.5 million. The balance remaining under the Revolver that the Company can draw was $6.9 million at June 30, 2002. A commitment fee of 0.5% per annum on the unused portion of the Revolver is payable quarterly.

Under the Revolver, substantially all of the Company’s domestic cash receipts (including proceeds from accounts receivable and asset sales) must be applied to repay the outstanding loans, which may be re-borrowed subject to availability in accordance with the borrowing base formula. The Revolver contains restrictions on the use of cash for dividend payments or non-scheduled principal payments on certain indebtedness. Restricted cash at June 30, 2002 of $1.6 million represents lockbox cash receipts to be applied to the outstanding borrowings under the Revolver. The Revolver contains various representations, warranties and covenants, including financial covenants as to maximum capital expenditures, minimum fixed charge coverage ratio and minimum average borrowing availability. At June 30, 2002, the Company was in compliance with all financial covenants under the Revolver. The Company was not in compliance with the reporting requirements of the Revolver for the year ended December 31, 2001. On July 30, 2002, the Company and Heller amended the Revolver, which reduced the Company’s fixed charge coverage ratio covenant during quarters 1, 2 and 3 of 2002, and reduced the minimum undrawn availability requirement from $10.0 million to $4.0 million. The amendment also waived the reporting requirement violation upon submission of the audited financial statements in the Company’s Form 10-K, which was filed on August 9, 2002

Senior Notes. In August 1998, the Company exchanged the public Senior Notes (the “Senior Notes”) for the notes sold in a May 1998 Rule 144A private offering. Interest is fixed at 7.5% and is due and payable in semi-annual installments, which began December 1, 1998. The Senior Notes contain covenants placing limitations on the Company’s ability to permit subsidiaries to incur certain debts, incur certain loans, and engage in certain sale and leaseback transactions. During the second quarter of 2002, the Company repurchased Senior Notes with a face amount of $4.6 million. The Company wrote off a proportionate share of deferred financing fees, resulting in a gain of approximately $2.8 million, which was reported as sundry (other) income in the condensed consolidated statements of operations for the interim periods ended June 30, 2002. As of October 15, 2002, the Company was not in compliance with the Senior Notes’ reporting requirements for the quarter ended June 30, 2002. The Company is in a 60-day cure period, and delivery of the financial statements in this Form 10-Q will remedy this non- compliance condition for the quarter ended June 30, 2002, within the cure period provided, and therefore the Company continues to classify the Senior Notes as long term debt.

Subordinated Unsecured Sponsor Notes. The Company’s $160.0 million in Sponsor Notes bear interest at 10.0%, due and payable quarterly. The payments began September 30, 1999. However, as provided under the agreement, the Sponsor Notes’ holder, WCAS, elected to defer quarterly interest payments of $4.0 million for each of the June 2000 through September 2001 quarterly periods. Such election required a deferred financing fee of 30.0% of each of the interest payments being deferred. The Company accounts for the additional financing fees as a change in the effective interest rate of the debt. At June 30, 2002, the Company had $33.8 million outstanding in deferred interest notes. WCAS may, at its election, defer each future quarterly payment under similar terms. WCAS did not elect to defer the December 2001, March 2002 or June 2002 quarterly payments and currently does not intend to elect deferral of the quarterly payments in the near future.

Preferred Stock – Series A. The Company allocated the proceeds from its Series A preferred stock issuance based upon the relative fair value of the preferred stock and warrants issued. The related discount is being accreted such that the carrying amount of the mandatory redeemable preferred stock will equal the mandatory redemption amount at September 22, 2008. For the six months ended June 30, 2002, accretion of the related discount and accrued but unpaid dividends totaled $0.8 million, increasing the carrying amount to $13.9 million. As of June 30, 2002, the stated value of the Series A preferred stock, including accumulated but unpaid dividends, was $169.36 per share.

Preferred Stock – Series B. For six months ended June 30, 2002, the Company accrued additional unpaid dividends for its Series B preferred stock totaling $0.8 million, increasing the carrying amount to $7.3 million. As of June 30, 2002, the stated value of the Series B preferred stock, including accumulated but unpaid dividends, was $207.39 per share.

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

RECENT ACCOUNTING PRONOUNCEMENTS

Under SFAS No. 142, the Company is required to perform transitional impairment tests for its goodwill and intangible assets with indefinite useful lives as of the date of adoption. 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 to determine whether an indication of impairment exists. If impairment is indicated, then under the second step the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value. During the six months ended June 30, 2002, the Company completed its analysis of the first step of the impairment test of goodwill measured as of January 1, 2002.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS 146 will be effective for the Company for disposal activities initiated after December 31, 2002. The Company is in the process of evaluating the effect that adopting SFAS 146 will have on its financial statements.

FACTORS AFFECTING THE COMPANY’S BUSINESS AND PROSPECTS

There are many factors that affect the Company’s business and the results of its operations. The following is a description of some of the important factors that may cause the actual results of the Company’s operations in future periods to differ materially from those currently expected or desired. See “Forward Looking Statements”.

General Economic Conditions

The Company’s business partially depends on general economic and business conditions. The Company’s sales are to businesses in a wide variety of industries, including banking, financial services, insurance, health care, high technology and governmental agencies. General economic conditions that cause customers in such industries to reduce or delay their investments in products and solutions such as those offered by the Company could have a material adverse effect on the Company.

Delays or reductions in technology spending could have a material adverse effect on demand for the Company’s products and services, and consequently on the Company’s business, operating results, financial condition, and prospects.

Dependence on Suppliers

The Company’s solutions products are dependent on quality components that are procured from third-party suppliers. Reliance on suppliers, as well as industry supply conditions, generally involves several risks, including the possibility of defective parts (which can adversely affect the reliability and reputation of the Company’s products), a shortage of components and reduced control over delivery schedules (which can adversely affect the Company’s manufacturing efficiencies) and increases in component costs (which can adversely affect the Company’s profitability).

The Company has several single-sourced supplier relationships, either because alternative sources are not available or the relationship is advantageous due to performance, quality, support, delivery, capacity or price considerations. If these sources are unable to provide timely and reliable supply, the Company could experience manufacturing interruptions, delays or inefficiencies, adversely affecting its results of operations. Even where alternative sources of supply are available,

qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely.

Declining Financial Operating Results and Indebtedness

As a result of increased leverage and reduced performance over the last few years, certain negative consequences of the Company’s indebtedness could occur, such as restrictions on expenditures or other activities. The Company’s future operating flexibility may be impacted. In addition, the Company may be more vulnerable to an increase in interest rates, a downturn in its operating performance or a decline in general economic conditions.

International Activities

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

Fluctuations in Operating Results

The Company’s operating results may fluctuate from period to period and will depend on numerous factors, including: customer demand and market acceptance of the Company’s products and solutions, new product introductions, product obsolescence, varying product mix, foreign currency exchange rates, competition and other factors. The Company’s business is sensitive to the spending patterns of its customers, which in turn are subject to prevailing economic conditions and other factors beyond the Company’s control. Any unfavorable change in one or more of these factors could have a material adverse effect on the Company.

Technological Changes and Product Transitions

The Company’s industry is characterized by continuing improvement in technology, which results in the frequent introduction of new products, short product life cycles and continual improvement in product price/performance characteristics. The Company must incorporate these new technologies into its products and solutions in order to remain competitive. There can be no assurance that the Company will be able to continue to manage technological transitions. A failure on the part of the Company to effectively manage these transitions of its product lines to new technologies on a timely basis could have a material adverse effect on the Company. In addition, the Company’s business depends on technology trends in its customers’ businesses. Many of the Company’s traditional products depend on the efficient handling of paper-based transactions. To the extent that technological changes impact the future volume of paper transactions, the Company’s traditional business may be adversely impacted.

Product Development Activities

The strength of the Company’s overall business is partially dependent on the Company’s ability to develop products and solutions based on new or evolving technology and the market’s acceptance of those products. There can be no assurance that the Company’s product development activities will be successful, that new technologies will be available to the Company, that the Company will be able to deliver commercial quantities of new products in a timely manner, that those products will adhere to generally accepted industry standards or that products will achieve market acceptance. The Company believes that it is necessary for its products to adhere to generally accepted industry standards, which are subject to change in ways that are beyond the control of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

The Company utilizes a revolving credit facility to support working capital needs. The interest rate on loans under the Revolver is, at the Company’s option, either (i) 1.25% over prime or (ii) 2.75% over LIBOR. Assuming the level of outstanding variable rate borrowings at June 30, 2002 of $8.0 million, a one hundred basis point change in the bank’s prime or LIBOR rate would impact net interest expense by $80,000 over a twelve-month period.

PART II

BANCTEC, INC.

Item 5. Other Information

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

99.1 - Certificate of Chief Executive Officer *

99.2 - Certificate of Chief Financial Officer *

* Filed herewith

(b) Reports on Form 8-K:

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BancTec, Inc.

	By	/s/ Brian R. Stone
		Brian R. Stone
		Senior Vice President and Chief
		Financial Officer


Dated: October 28, 2002

Certifications

I, Craig D. Crisman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BancTec, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of BancTec, Inc. as of, and for, the periods presented in this quarterly report.

Certifications

I, Brian R. Stone, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BancTec, Inc;

Date: October 28, 2002	/s/ Brian R. Stone
	Brian R. Stone
	Senior Vice President and Chief Financial Officer