Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 1-16449
IMAGISTICS INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1611068
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 OAKVIEW DRIVE
TRUMBULL, CONNECTICUT 06611
(Address of Principal Executive Offices) (Zip Code)
(203) 365-7000
(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 X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No __
Number of shares of Imagistics Common Stock, par value $ .01 per share,
outstanding as of April 30, 2003: 17,158,228
================================================================================
IMAGISTICS INTERNATIONAL INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION.................................................................................... 3
ITEM 1. FINANCIAL STATEMENTS.................................................................................... 3
Consolidated Income Statements for the three months ended March 31, 2003 and 2002 (Unaudited)......... 3
Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002.................... 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (Unaudited).. 5
Notes to Consolidated Financial Statements............................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................................................................... 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................. 23
ITEM 4. CONTROLS AND PROCEDURES................................................................................. 23
PART II - OTHER INFORMATION....................................................................................... 24
ITEM 1. LEGAL PROCEEDINGS....................................................................................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................ 24
SIGNATURES........................................................................................................ 26
CERTIFICATIONS.................................................................................................... 27
Page 2 of 28
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMAGISTICS INTERNATIONAL INC.
CONSOLIDATED INCOME STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------
2003 2002
-------------- ---------------
Revenue:
Sales $ 73,053 $ 75,129
Rentals 57,068 58,552
Support services 20,801 21,480
-------------- ---------------
Total revenue 150,922 155,161
Cost of sales 45,244 49,216
Cost of rentals 19,171 21,898
Selling, service and administrative expenses 76,865 75,453
-------------- ---------------
Operating income 9,642 8,594
Interest expense 1,629 2,200
-------------- ---------------
Income before income taxes 8,013 6,394
Provision for income taxes 3,247 2,538
-------------- ---------------
Net income $ 4,766 $ 3,856
============== ===============
Earnings per share:
Basic $ 0.28 $ 0.20
============== ===============
Diluted $ 0.27 $ 0.19
============== ===============
Shares used in computing earnings per share:
Basic 17,228,940 19,463,220
============== ===============
Diluted 17,780,016 19,859,172
============== ===============
See Notes to Consolidated Financial Statements
Page 3 of 28
IMAGISTICS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 26,480 $ 31,325
Accounts receivable, less allowances of $8,554 and $5,792 at
March 31, 2003 and December 31, 2002, respectively 76,443 84,142
Accrued billings 26,518 26,125
Inventories 105,516 106,002
Current deferred taxes on income 21,605 20,518
Other current assets and prepaid expenses 7,231 5,173
------------- -------------
Total current assets 263,793 273,285
Property, plant and equipment, net 47,174 43,812
Rental equipment, net 82,103 88,433
Goodwill, net 52,600 52,600
Other assets 6,286 6,776
------------- -------------
Total assets $ 451,956 $ 464,906
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 749 $ 749
Accounts payable and accrued liabilities 71,672 77,590
Advance billings 26,825 27,243
------------- -------------
Total current liabilities 99,246 105,582
Long-term debt 73,212 73,399
Deferred taxes on income 16,705 15,320
Other liabilities 5,005 6,358
------------- -------------
Total liabilities 194,168 200,659
Commitments and contingencies (see Note 8) - -
Stockholders' equity:
Preferred stock ($1.00 par value; 10,000,000 shares authorized,
none issued at March 31, 2003 and December 31, 2002) - -
Common stock ($0.01 par value; 150,000,000 shares authorized,
19,823,812 and 19,813,517 issued at March 31, 2003
and December 31, 2002, respectively) 198 198
Additional paid-in-capital 294,542 294,370
Retained earnings 19,288 14,522
Treasury stock, at cost (2,539,760 and 1,936,760 at
March 31, 2003 and December 31, 2002, respectively) (48,410) (36,549)
Unearned compensation (2,829) (3,217)
Accumulated other comprehensive loss (5,001) (5,077)
------------- -------------
Total stockholders' equity 257,788 264,247
------------- -------------
Total liabilities and stockholders' equity $ 451,956 $ 464,906
============= =============
See Notes to Consolidated Financial Statements
Page 4 of 28
IMAGISTICS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 4,766 $ 3,856
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,981 20,129
Provision for bad debt 2,602 1,162
Provision for inventory obsolescence 1,533 3,796
Deferred taxes on income 297 2,703
Change in assets and liabilities:
Accounts receivable 5,097 10,353
Accrued billings (392) 47
Inventories (1,047) (4,071)
Other current assets and prepaid expenses (2,058) 284
Accounts payable and accrued liabilities (5,919) 8,052
Advance billings (418) (884)
Other, net (966) (691)
------------- -------------
Net cash provided by operating activities 22,476 44,736
Cash flows from investing activities:
Expenditures for rental equipment assets (10,622) (10,575)
Expenditures for property, plant and equipment (4,824) (4,257)
------------- -------------
Net cash used in investing activities (15,446) (14,832)
Cash flows from financing activities:
Exercises of stock options, including purchases
under employee stock purchase plan 909 -
Purchases of treasury stock (12,597) (134)
Repayments under term loan (187) -
Repayments under revolving credit facility - (17,250)
------------- -------------
Net cash used in financing activities (11,875) (17,384)
------------- -------------
(Decrease) increase in cash (4,845) 12,520
Cash at beginning of period 31,325 18,844
------------- -------------
Cash at end of period $ 26,480 $ 31,364
============= =============
See Notes to Consolidated Financial Statements
Page 5 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
Imagistics International Inc. (the "Company" or "Imagistics") is a large
independent direct sales, service and marketing organization offering document
imaging solutions, including copiers, facsimile machines and multifunctional
products, primarily to large corporate and government customers, as well as to
mid-size and regional businesses. In addition, the Company offers specialized
document imaging options including digital, analog, color and/or networked
products and systems.
On December 11, 2000, the board of directors of Pitney Bowes Inc. ("Pitney
Bowes") initiated a plan to spin-off substantially all of its office systems
businesses to its stockholders as an independent publicly traded company. On
December 3, 2001, Imagistics was spun off from Pitney Bowes pursuant to a
contribution by Pitney Bowes of substantially all of its office systems
businesses to the Company and a distribution (the "Distribution") of the stock
of the Company to stockholders of Pitney Bowes based on a distribution ratio of
1 share of Imagistics stock for every 12.5 shares of Pitney Bowes stock held at
the close of business on November 19, 2001.
The Company was incorporated in Delaware on February 28, 2001 as Pitney
Bowes Office Systems, Inc., a wholly owned subsidiary of Pitney Bowes. On that
date, 100 shares of the Company's common stock, par value $.01 per share, were
authorized, issued and outstanding. On October 12, 2001, the Company changed its
name to Imagistics International Inc. At the Distribution, the Company's
authorized capital stock consisted of 10,000,000 shares of preferred stock, par
value $1.00 per share and 150,000,000 shares of common stock, par value $.01 per
share. The Company issued 19,463,007 shares of common stock in connection with
the Distribution.
Pitney Bowes has received a tax ruling from the Internal Revenue Service
stating that, subject to certain representations, the Distribution qualifies as
tax-free to Pitney Bowes and its stockholders for United States federal income
tax purposes.
Basis of presentation
The unaudited interim consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities and
Exchange Commission (the "SEC") and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of results of operations, financial position and cash flows as of
and for the periods presented. Certain previously reported amounts have been
reclassified to conform to the current year presentation.
The Company believes that the disclosures contained in the unaudited
interim consolidated financial statements are adequate to keep the information
presented from being misleading. The results for the three months ended March
31, 2003 are not necessarily indicative of the results for the full year. These
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K for the year ended
December 31, 2002 filed with the SEC on March 28, 2003.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenue on equipment and supplies sales is recognized when contractual
obligations have been satisfied, title and risk of loss have been transferred to
the customer and collection of the resulting receivable is reasonably assured.
For copier equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the copier equipment at the customer location. For facsimile equipment and
facsimile supplies, the satisfaction of contractual obligations and the passing
of title and risk of loss to the customer occur upon the delivery of the
facsimile equipment and the
Page 6 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
facsimile supplies to the customer location. We record a provision for estimated
sales returns and other allowances based upon historical experience.
Rental contracts, which often include supplies, are generally for an
initial term of three years with automatic renewals unless we receive prior
notice of cancellation. Under the terms of rental contracts, we bill our
customers either a flat periodic charge or a usage-based fee. Revenues related
to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.
Support services contracts, which often include supplies, are generally for
an initial term of one year with automatic renewals unless we receive prior
notice of cancellation. Under the terms of support services contracts, we bill
our customers either a flat periodic charge or a usage-based fee. Revenues
related to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.
Certain rental and support services contracts provide for invoicing in
advance, generally quarterly. Revenue on contracts billed in advance is deferred
and recognized as earned revenue over the billed period. Certain rental and
support services contracts provide for invoicing in arrears, generally
quarterly. Revenue on contracts billed in arrears is accrued and recognized in
the period in which it is earned.
We enter into arrangements that include multiple deliverables, which
typically consist of the sale of equipment with a support services contract. We
account for each element within an arrangement with multiple deliverables as
separate units of accounting. Revenue is allocated to each unit of accounting
based on the residual method, which requires the allocation of the revenue based
on the fair value of the undelivered items. Fair value of support services is
primarily determined by reference to renewal pricing.
Stock-based employee compensation
The Company accounts for its stock-based employee compensation plans under
the recognition and measurement provisions of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. The Company recognizes stock-based compensation expense on its
restricted stock over the vesting period. The Company does not recognize
stock-based compensation expense in its reported results as all options granted,
other than adjustment options in connection with the Distribution, had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation:
THREE MONTHS ENDED MARCH 31,
2003 2002
------------ ------------
Net income, as reported $ 4,766 $ 3,856
Compensation expense based on the
fair value method, net of related tax effects 449 447
------------ ------------
Pro forma net income $ 4,317 $ 3,409
============ ============
Basic earnings per share:
As reported $ 0.28 $ 0.20
Pro forma $ 0.25 $ 0.18
Diluted earnings per share:
As reported $ 0.27 $ 0.19
Pro forma $ 0.24 $ 0.17
Page 7 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and hedging relationships
designated after June 30, 2003 and all provisions should be applied
prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. Certain provisions relating to forward purchases or
sales of when-issued securities or other securities that do not yet exist,
should be applied to existing contracts as well as new contracts entered into
after June 30, 2003. The Company is evaluating the provisions of SFAS No. 149
and whether the implementation of this statement will have a material impact on
the Company's financial position, results of operations or cash flows.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
and disposal activities that are initiated after December 31, 2002 and provides
guidance on the recognition and measurement of liabilities associated with
disposal activities. The Company adopted SFAS No. 146 on January 1, 2003. The
adoption of SFAS No. 146 did not have a material impact on the Company's
financial position, results of operations or cash flows.
In November 2002, the FASB Emerging Issues Task Force reached a consensus
on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 00-21 applies to certain contractually
binding arrangements under which a company performs multiple revenue generating
activities and requires that all companies account for each element within an
arrangement with multiple deliverables as separate units of accounting if (a)
the delivered item has value on a stand-alone basis, (b) there is objective and
reliable evidence of fair value and (c) the amount of the total arrangement
consideration is fixed. EITF 00-21 is effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21
will not have a material impact on the Company's financial position, results of
operations or cash flows.
3. GOODWILL AND GOODWILL AMORTIZATION
Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be tested for impairment annually as well as on an interim basis if
events or changes in circumstances indicate that goodwill might be impaired. The
Company performed its annual test for impairment using the discounted cash flow
valuation method as of October 1, 2002, and, based on that review, has
determined that its recorded goodwill was not impaired. For the three months
ended March 31, 2003, there were no events or changes in circumstances that
would indicate that goodwill might be impaired. For the three months ended March
31, 2003 and 2002, there was no goodwill amortization. The carrying value of
goodwill of $52.6 million as of March 31, 2003 is attributable to the United
States geographic segment.
4. SUPPLEMENTAL INFORMATION
Inventories
Inventories consisted of the following at March 31, 2003 and December 31,
2002:
MARCH 31, DECEMBER 31,
2003 2002
--------------- ----------------
Finished products $ 79,918 $ 77,447
Supplies and service parts 25,598 28,555
--------------- ----------------
Total inventories $ 105,516 $ 106,002
=============== ================
Page 8 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Fixed assets
Fixed assets consisted of the following at March 31, 2003 and December 31,
2002:
MARCH 31, DECEMBER 31,
2003 2002
---------------- ----------------
Land $ 1,356 $ 1,356
Buildings and leasehold improvements 10,184 10,088
Machinery and equipment 22,646 21,372
Computers and software 39,949 36,483
---------------- ----------------
Property, plant and equipment, gross 74,135 69,299
Accumulated depreciation (26,961) (25,487)
---------------- ----------------
Property, plant and equipment, net $ 47,174 $ 43,812
================ ================
Rental equipment, gross $ 361,628 $ 365,793
Accumulated depreciation (279,525) (277,360)
---------------- ----------------
Rental equipment, net $ 82,103 $ 88,433
================ ================
Depreciation and amortization expense was $19.0 million and $20.1 million
for the three months ended March 31, 2003 and 2002, respectively. Unamortized
software costs totaled $22.8 million as of March 31, 2003 and $18.8 million as
of December 31, 2002. Amortization expense on account of capitalized software
totaled $0.1 million for the three months ended March 31, 2003. There was no
amortization expense on account of capitalized software for the three months
ended March 31, 2002.
Current liabilities
Accounts payable and accrued liabilities consisted of the following at
March 31, 2003 and December 31, 2002:
MARCH 31, DECEMBER 31,
2003 2002
---------------- ----------------
Accounts payable $ 19,195 $ 21,553
Accrued compensation and benefits 4,904 8,631
Other non-income taxes payable 6,599 6,973
Other accrued liabilities 40,974 40,433
---------------- ----------------
Accounts payable and accrued liabilities $ 71,672 $ 77,590
================ ================
Comprehensive income
Comprehensive income consisted of the following for the three months ended
March 31, 2003 and 2002:
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- -----------
Net income $ 4,766 $ 3,856
Translation adjustment 47 (447)
Unrealized gain on cash flow hedges 29 644
----------- -----------
Comprehensive income $ 4,842 $ 4,053
=========== ===========
The Company had interest rate swap agreements in the aggregate notional
amount of $72 million at both March 31, 2003 and December 31, 2002 designated as
cash flow hedges. The Company recorded a liability of $3,680 and $3,709 for the
fair market value of the interest rate swap agreements at March 31, 2003 and
December 31, 2002, respectively. The changes in the fair value of the
outstanding swap agreements are included in accumulated other comprehensive loss
in stockholders' equity.
Page 9 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Treasury stock
The following table summarizes the Company's treasury stock transactions:
TREASURY STOCK
SHARES COST
----------- -----------
Balance at December 31, 2002 1,936,760 $ 36,549
Repurchases under stock buy back program 642,000 12,597
Purchases under employee stock purchase plan (39,000) (736)
----------- -----------
Balance at March 31, 2003 2,539,760 $ 48,410
=========== ===========
Cash flow information
Cash paid for income taxes was $1,898 and $1,078 for the three months ended
March 31, 2003 and 2002, respectively. Cash paid for interest was $1,424 and
$2,285 for the three months ended March 31, 2003 and 2002, respectively.
5. BUSINESS SEGMENT INFORMATION
Geographic information
The Company operates in two reportable segments based on geographic area:
the United States and the United Kingdom. Revenues are attributed to geographic
regions based on where the revenues are derived.
THREE MONTHS ENDED MARCH 31,
------------------------------
2003 2002
------------- -------------
Revenues:
United States $ 145,503 $ 149,732
United Kingdom 5,419 5,429
------------- -------------
Total revenues $ 150,922 $ 155,161
============= =============
Income before income taxes:
United States $ 6,901 $ 5,548
United Kingdom 1,112 846
------------- -------------
Total income before income taxes $ 8,013 $ 6,394
============= =============
Revenues from Pitney Bowes, substantially all of which are generated in the
United States segment, consisted of the following for the three months ended
March 31, 2003 and 2002:
THREE MONTHS ENDED
MARCH 31,
2003 2002
------------- -------------
Revenues from Pitney Bowes:
Pitney Bowes Canada $ 6,369 $ 5,540
Other subsidiaries of Pitney Bowes 6,421 6,124
------------- -------------
Sub-total 12,790 11,664
Pitney Bowes Credit Corporation 21,436 22,158
------------- -------------
Total $ 34,226 $ 33,822
============= =============
For the periods presented, Pitney Bowes Credit Corporation ("PBCC") was
the Company's primary lease vendor and the Company expects PBCC to continue as
the Company's primary lease vendor in the future. However, if PBCC were to cease
being
Page 10 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Company's primary lease vendor, the Company is confident that it could
obtain a replacement primary lease vendor with substantially the same lease
terms as PBCC. No other single customer or controlled group represented 10% or
more of the Company's revenues.
MARCH 31, DECEMBER 31,
2003 2002
----------------- ----------------
Identifiable long-lived assets:
United States $ 184,050 $ 187,310
United Kingdom 4,113 4,311
----------------- ----------------
Total identifiable long-lived assets $ 188,163 $ 191,621
================= ================
Total assets:
United States $ 426,989 $ 440,508
United Kingdom 24,967 24,398
----------------- ----------------
Total assets $ 451,956 $ 464,906
================= ================
Identifiable long-lived assets in the United States at March 31, 2003 and
December 31, 2002 include goodwill of $52.6 million.
Concentrations
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers and relatively small account
balances within the majority of the Company's customer base and their dispersion
across different businesses. The Company periodically evaluates the financial
strength of its customers and believes that its credit risk exposure is limited.
Most of the Company's product purchases are from overseas vendors, the
majority of which are from a limited number of Japanese suppliers. Although the
Company currently sources products from a number of manufacturers throughout the
world, a significant portion of new copier equipment is currently obtained from
two suppliers. If these suppliers were unable to deliver products for a
significant period of time, the Company would be required to find replacement
products from an alternative supplier or suppliers, which may not be available
on a timely or cost effective basis. The Company's operating results could be
adversely affected if a significant supplier is unable to deliver sufficient
product.
6. EARNINGS PER SHARE CALCULATION
Basic earnings per share was calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period. The calculation of diluted earnings per share did not include
312,250 common shares and 23,395 common shares for the three months ended March
31, 2003 and 2002, respectively since they were antidilutive for the periods
presented.
Page 11 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A reconciliation of the basic and diluted earnings per share computation is
as follows:
THREE MONTHS ENDED
MARCH 31,
2003 2002
------------- -------------
Net income available to common stockholders $ 4,766 $ 3,856
============= =============
Weighted average common shares outstanding 17,568,605 19,773,220
Less: non-vested restricted stock 339,665 310,000
------------- -------------
Weighted average common shares for basic earnings per share 17,228,940 19,463,220
Add: dilutive effect of restricted stock 339,665 309,722
Add: dilutive effect of stock options 211,411 86,230
------------- -------------
Weighted average common shares and equivalents
for diluted earnings per share 17,780,016 19,859,172
============= =============
Basic earnings per share $ 0.28 $ 0.20
Diluted earnings per share $ 0.27 $ 0.19
7. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 2003 and December
31, 2002:
MARCH 31, DECEMBER 31,
2003 2002
--------------- ----------------
Term loan $ 73,961 $ 74,148
Less: current maturities 749 749
--------------- ----------------
Total long-term debt $ 73,212 $ 73,399
=============== ================
On November 9, 2001 the Company entered into a Credit Agreement with a
group of lenders (the "Credit Agreement") that provided for secured borrowings
and the issuance of letters of credit in an aggregate amount not to exceed $225
million, comprised of a $125 million Revolving Credit Facility (the "Revolving
Credit Facility") and a $100 million Term Loan (the "Term Loan"). The Credit
Agreement requires us to manage our interest rate risk with respect to at least
50% of the aggregate principal amount of the Term Loan for a period of at least
36 months. Accordingly, we entered into two interest rate swap agreements in
notional amounts of $50 million and $30 million to convert the variable interest
rate payable on the Term Loan to a fixed interest rate in order to hedge the
exposure to variability in expected future cash flows. These interest rate swap
agreements have been designated as cash flow hedges.
On March 19, 2002, the Credit Agreement was amended to increase the total
amount of the Company's stock permitted to be repurchased from $20 million to
$30 million. On July 19, 2002, the Credit Agreement was further amended to
increase the total amount of the Company's stock permitted to be repurchased
from $30 million to $58 million and to reduce the Term Loan interest rates to
LIBOR plus a margin of from 2.75% to 3.75%, from LIBOR plus a margin of from
3.50% to 3.75%, depending on our leverage ratio, or to the Fleet Bank base
lending rate plus a margin of from 1.75% to 2.75%, from the Fleet Bank base
lending rate plus a margin of from 2.50% to 2.75%, depending on our leverage
ratio.
During the third quarter of 2002, we revised our cash flow estimates and
prepaid $8 million of the amount outstanding under the Term Loan. This
prepayment was covered by a portion of the $30 million interest rate swap
agreement that had been designated as a cash flow hedge. Since it is no longer
probable that the hedged forecasted transactions related to the $8 million Term
Loan prepayment will occur, we recognized a loss related to that portion of the
swap agreement underlying the amount of the prepayment by reclassifying $0.4
million from accumulated other comprehensive loss into interest expense. We also
unwound $8 million of the $30 million interest rate swap agreement.
Page 12 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At March 31, 2003, two interest rate swap agreements in the notional
amounts of $50 million and $22 million were outstanding, the aggregate fair
value of which was an obligation of $3.7 million. This obligation is reported in
other liabilities in the consolidated balance sheet and the unrealized loss
relating to the outstanding swap agreements was included in other comprehensive
loss in stockholders' equity. The Company routinely reviews its cash flow
estimates in the normal course of business. Currently, the Company does not
expect to realize any gains or losses relating to the interest rate swap
agreements in the near term. Accordingly, the Company does not expect to
reclassify any gains or losses from Accumulated Other Comprehensive Income into
earnings in the near term.
On March 5, 2003, the Credit Agreement was amended to increase the total
amount of the Company's stock permitted to be repurchased from $58 million to
$78 million, to reduce the minimum earnings before interest, taxes, depreciation
and amortization (EBITDA) covenant to $100 million for the remainder of the term
of the Credit Agreement and to revise the limitation on capital expenditures.
8. COMMITMENTS AND CONTINGENCIES
Guarantees and indemnifications
The Company has applied the disclosure provisions of FASB Interpretation
("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Direct Guarantees of Indebtedness of Others", to its
agreements that contain guarantee or indemnification clauses. FIN No. 45 expands
the disclosure provisions required by SFAS No. 5, "Accounting for
Contingencies", by requiring the guarantor to disclose certain types of
guarantees, even if the likelihood of requiring the guarantor's performance is
remote. The following is a description of the arrangements in which the Company
is a guarantor.
In connection with the Distribution, the Company entered into certain
agreements pursuant to which it may be obligated to indemnify Pitney Bowes with
respect to certain matters. The Company agreed to assume all liabilities
associated with the Company's business, and to indemnify Pitney Bowes for all
claims relating to the Company's business. These may be claims by or against
Pitney Bowes or the Company relating to, among other things, contractual rights
under vendor, insurance or other contracts, trademark, patent and other
intellectual property rights, equipment, service or payment disputes with
customers and disputes with employees.
The Company and Pitney Bowes entered into a tax separation agreement, which
governs the Company's and Pitney Bowes' respective rights, responsibilities and
obligations after the Distribution with respect to taxes for the periods ending
on or before the Distribution. In addition, the tax separation agreement
generally obligates the Company not to enter into any transaction that would
adversely affect the tax-free nature of the Distribution for the two-year period
following the Distribution, and obligates the Company to indemnify Pitney Bowes
and affiliates to the extent that any action the Company takes or fails to take
gives rise to a tax liability with respect to the Distribution.
In each of these circumstances, payment by the Company is contingent on
Pitney Bowes making a claim. As such, it is not possible to predict the maximum
potential future payments under these agreements. As of March 31, 2003, the
Company has not paid any amounts pursuant to the above indemnifications other
than expenses incurred in connection with the defense and settlement of assumed
claims asserted in connection with the operation of the Company in the ordinary
course of business. The Company believes that if it were to incur a loss in any
of these matters, such loss would not have a material effect on the Company's
financial position, results of operations or cash flows.
Legal matters
In connection with the Distribution, the Company agreed to assume all
liabilities associated with its business, and to indemnify Pitney Bowes for all
claims relating to its business. In the course of normal business, the Company
has been party to occasional lawsuits relating to the Company's business. These
may involve litigation or other claims by or against Pitney Bowes or the Company
relating to, among other things, contractual rights under vendor, insurance or
other contracts, trademark, patent and other intellectual property rights,
equipment, service or payment disputes with customers and disputes with
employees.
In connection with the Distribution, liabilities were transferred to the
Company for matters where Pitney Bowes was a plaintiff or a defendant in
lawsuits, relating to the business or products of the Company. The Company has
not recorded liabilities for loss contingencies since the ultimate resolutions
of the legal matters cannot be determined and a minimum cost or amount of loss
cannot be reasonably estimated. In the opinion of the Company's management, none
of these proceedings, individually or in
Page 13 of 28
IMAGISTICS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the aggregate, should have a material adverse effect on the Company's financial
position, results of operations or cash flows. There have been no significant
changes in pending litigation since the filing of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2002.
Risks and uncertainties
The Company has a limited history operating as an independent entity and
may be unable to make the changes necessary to operate successfully as a
stand-alone entity, or may incur greater costs as a stand-alone entity that may
cause the Company's profitability to decline.
Prior to the Distribution, the Company's business was operated by Pitney
Bowes as a division of its broader corporate organization rather than as a
separate stand-alone entity. Pitney Bowes assisted the Company by providing
corporate functions such as legal, tax and information technology functions.
Following the Distribution, Pitney Bowes has no obligation to provide assistance
to the Company other than certain interim and transitional services to be
provided by Pitney Bowes. Because the Company has a limited history operating as
a stand-alone entity, there can be no assurance that the Company will be able to
successfully implement the changes necessary to operate independently or will
not incur additional costs as a result of operating independently. Each of these
events would cause the Company's profitability to decline.
The Company is implementing an enterprise resource planning ("ERP") system
intended to replace the information technology ("IT") services provided by
Pitney Bowes under the transition services agreement. Due to unanticipated
delays in implementation of Phase II of the ERP system, the Company and Pitney
Bowes have agreed to an extension until June 30, 2003 or, upon our request,
December 31, 2003 of the transition services agreement as it relates to IT
services. In January 2003, the Company received a favorable ruling from the
Internal Revenue Service indicating that the extension of the transition
services agreement as it relates to IT services, through December 2003, will not
affect the tax-free nature of the spin-off. Any failure to implement the
critical ERP applications appropriately by the given extension date would have a
material adverse affect on our financial position, results of operations and
cash flows.
9. SEPARATION AGREEMENTS
The Company and Pitney Bowes entered into a transition services agreement
that provides for Pitney Bowes to supply certain services to the Company at cost
for a limited time following the Distribution. These services include
information technology, computing, telecommunications, accounting, field service
of equipment and dispatch call center services. The Company and Pitney Bowes
have agreed to an extension until June 30, 2003 or, upon our request, December
31, 2003, of the transition services agreement as it relates to information
technology and related services. Services provided under this extension are at
negotiated market rates. For the three months ended March 31, 2003 and 2002, the
Company paid Pitney Bowes $6.4 million and $7.2 million, respectively, in
connection with the transition services agreement.
The Company also entered into certain other agreements covering
intellectual property, commercial relationships and leases and licensing
arrangements. The pricing terms of the products and services covered by the
other commercial agreements reflect negotiated prices.
The Company and Pitney Bowes entered into a tax separation agreement, which
governs the Company's and Pitney Bowes' respective rights, responsibilities and
obligations after the Distribution with respect to taxes for the periods ending
on or before the Distribution. In addition, the tax separation agreement
generally obligates the Company not to enter into any transaction that would
adversely affect the tax-free nature of the Distribution for the two-year period
following the Distribution, and obligates the Company to indemnify Pitney Bowes
and affiliates to the extent that any action the Company takes or fails to take
gives rise to a tax liability with respect to the Distribution.
Page 14 of 28
IMAGISTICS INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements and the notes thereto, included in the
Company's latest Annual Report on Form 10-K for the year ended December 31, 2002
filed with the Securities and Exchange Commission on March 28, 2003, as well as
the unaudited consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q. This Management's Discussion
and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. Please see
"Risk Factors That Could Cause Results To Vary" and "Special Note About
Forward-Looking Statements" for a discussion of the uncertainties, risks and
assumptions associated with these forward-looking statements. Our actual results
could differ materially from those forward-looking statements discussed in this
section. For the purposes of the following discussion, unless the context
otherwise requires, "Imagistics International Inc.", "Imagistics", and the"
Company" refer to Imagistics International Inc. and subsidiary.
The unaudited consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
results of operations, financial position and cash flows as of and for the
periods presented. The Company believes that the disclosures contained in the
unaudited consolidated financial statements are adequate to keep the information
presented from being misleading. The results for the three months ended March
31, 2003 are not necessarily indicative of the results for the full year.
OVERVIEW
Imagistics is a large direct sales, service and marketing organization
offering document imaging solutions, including copiers, facsimile machines and
multifunctional products, sometimes referred to as MFPs, primarily to large
corporate customers known as national accounts, government entities and mid-size
and regional businesses known as commercial accounts. In addition, we offer a
range of document imaging options, including digital, analog, color and/or
networked products and systems.
Our strategic vision is to become the leading independent direct provider
of enterprise office imaging and document solutions by providing world-class
products and services with unparalleled customer support and satisfaction with a
focus on multiple location customers, thus building value for our shareholders.
Our strategic initiatives include:
o Executing our unique business model,
o Leveraging product and marketplace strengths to drive market share,
o Leveraging strengths in customer support to drive customer loyalty,
o Achieving operational excellence and benchmark productivity and
o Pursuing opportunistic expansion and investments.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Revenue Recognition
Revenue on equipment and supplies sales is recognized when contractual
obligations have been satisfied, title and risk of loss have been transferred to
the customer and collection of the resulting receivable is reasonably assured.
For copier equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the copier equipment at the customer location. For facsimile equipment and
facsimile supplies, the satisfaction of contractual obligations and the passing
of title and risk of loss to the customer occur upon the delivery of the
facsimile equipment and the facsimile supplies to the customer location. We
record a provision for estimated sales returns and other allowances based upon
historical experience.
Rental contracts, which often include supplies, are generally for an
initial term of three years with automatic renewals unless we receive prior
notice of cancellation. Under the terms of rental contracts, we bill our
customers either a flat periodic charge or a usage-based fee. Revenues related
to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.
Page 15 of 28
IMAGISTICS INTERNATIONAL INC.
Support services contracts, which often include supplies, are generally for
an initial term of one year with automatic renewals unless we receive prior
notice of cancellation. Under the terms of support services contracts, we bill
our customers either a flat periodic charge or a usage-based fee. Revenues
related to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.
Certain rental and support services contracts provide for invoicing in
advance, generally quarterly. Revenue on contracts billed in advance is deferred
and recognized as earned revenue over the billed period. Certain rental and
support services contracts provide for invoicing in arrears, generally
quarterly. Revenue on contracts billed in arrears is accrued and recognized in
the period in which it is earned.
We enter into arrangements that include multiple deliverables, which
typically consist of the sale of equipment with a support services contract. We
account for each element within an arrangement with multiple deliverables as
separate units of accounting. Revenue is allocated to each unit of accounting
based on the residual method, which requires the allocation of the revenue based
on the fair value of the undelivered items. Fair value of support services is
primarily determined by reference to renewal pricing.
Accounts Receivable
Accounts receivable are stated at net realizable value by recording
allowances for those accounts receivable amounts that we believe are
uncollectible. Our estimate of losses is based on prior collection experience
including evaluating the credit worthiness of each of our customers, analyzing
historical bad debt write-offs and reviewing the aging of the receivables. Our
allowance for doubtful accounts includes amounts for specific accounts that we
believe are uncollectible, as well as amounts that have been computed by
applying certain percentages based on historic loss trends, to certain accounts
receivable aging categories.
Inventories
Inventories are valued at the lower of cost or market. Provisions, when
required, are made to reduce excess and obsolete inventories to their estimated
net realizable values. Inventory provisions are calculated using management's
best estimates of inventory value based on the age of the inventory, quantities
on hand compared with historical and projected usage and current and anticipated
demands.
Rental Equipment
Rental equipment is comprised of equipment on rent to customers and is
depreciated on the straight-line method over the estimated useful life of the
equipment. Copier equipment is depreciated over three years and facsimile
equipment is depreciated over five years.
REVENUES
(Dollars in thousands)
The following table shows our revenue sources by product line for the
periods indicated.
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------- -------------
Copier product line $ 92,223 $ 91,065
Facsimile product line 58,699 64,096
------------- -------------
Total revenue $ 150,922 $ 155,161
============= =============
Page 16 of 28
IMAGISTICS INTERNATIONAL INC.
The following table shows our revenue sources by segment for the periods
indicated.
THREE MONTHS ENDED
MARCH 31,
------------------------------
2003 2002
------------- --------------
United States $ 145,503 $ 149,732
United Kingdom 5,419 5,429
------------- -------------
Total revenue $ 150,922 $ 155,161
============= ==============
The following table shows the growth rates by revenue type and product line
for the three months ended March 31, 2003 compared with the same period in the
prior year.
FOR THE THREE MONTHS ENDED
MARCH 31,
2003 2002
------------- --------------
Sales
Copier products (0.8%) 10.9%
Facsimile products (6.5%) (4.0%)
Total sales (2.8%) 5.4%
Rentals
Copier products 8.2% 6.7%
Facsimile products (9.4%) (5.0%)
Total rentals (2.5%) (0.9%)
Support services (3.2%) 3.2%
Total revenue (2.7%) 2.6%
Page 17 of 28
IMAGISTICS INTERNATIONAL INC.
RESULTS OF OPERATIONS
The following table shows our statement of income data, expressed as a
percentage of total revenue, for the periods indicated. The table also shows
cost of sales as a percentage of sales revenue and cost of rentals as a
percentage of rental revenue:
AS A % OF TOTAL REVENUE, EXCEPT AS NOTED,
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------
2003 2002
------------------- ------------------
Equipment sales 24% 24%
Supplies sales 24% 24%
------------------- ------------------
Total sales 48% 48%
Equipment rentals 38% 38%
Support services 14% 14%
------------------- ------------------
Total revenue 100% 100%
Cost of sales 30% 32%
Cost of rentals 13% 14%
Selling, service and administrative 51% 48%
------------------- ------------------
Operating income 6% 6%
Interest expense 1% 1%
------------------- ------------------
Income before income taxes 5% 5%
Provision for income taxes 2% 2%
------------------- ------------------
Net income 3% 3%
=================== ===================
Cost of sales as a percentage of sales revenue 61.9% 65.5%
=================== ===================
Cost of rentals as a percentage of rental revenue 33.6% 37.4%
=================== ===================
Effective tax rate 40.5% 39.7%
=================== ===================
THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
Revenue. For the three months ended March 31, 2003, total revenue of
$150,922 declined 3% versus revenue of $155,161 for the three months ended March
31, 2002 reflecting lower sales, rental revenue and support service revenue.
Equipment and supply sales revenue of $73,053 declined 3% for the three
months ended March 31, 2003 from $75,129 for the three months ended March 31,
2002. Copier sales declined slightly resulting from the continued implementation
of our strategy to shift the marketing focus of our copier product line from
sales to rentals coupled with soft economic conditions. Facsimile sales declined
7% due to lower supply sales resulting from the lower facsimile usage in the
U.S. marketplace.
Equipment rental revenue of $57,068 for the three months ended March 31,
2003 declined 3% versus equipment rental revenue of $58,552 for the three months
ended March 31, 2002, reflecting lower facsimile rental revenues, partially
offset by an increase in copier rental revenues resulting from a continuing
copier marketing focus on national accounts, which prefer a rental placement
strategy similar to that of our historic facsimile product placement strategy.
Rental revenue derived from our copier product line increased 8% reflecting
growth in the overall installed rental population as well as the impact of
increased placements of our high-end copiers and MFPs. Rental revenue from our
facsimile product line declined 9% versus the prior year reflecting lower
pricing and a lower installed base.
Support services revenue for the three months ended March 31, 2003 of
$20,801, primarily derived from stand-alone service contracts, declined 3%
versus support services revenue of $21,480 for the three months ended March 31,
2002, reflecting lower facsimile service revenue due to lower pricing and a
lower installed base of copier placements as we continue to focus on renting
copiers, which include service.
Page 18 of 28
IMAGISTICS INTERNATIONAL INC.
Cost of sales. Cost of sales was $45,244 for the three months ended March
31, 2003 compared with $49,216 for the same period in 2002 and as a percentage
of sales revenue declined to 61.9% for the three months ended March 31, 2003
from 65.5% for the three months ended March 31, 2002. This decline resulted from
the impact of our disciplined focus on improving profit margins as well as lower
provision of obsolete inventory and lower product cost, partially offset by the
increase in the mix of copier and multifunctional products, which have a higher
cost of sales percentage than facsimile sales and to a lesser extent, the
weakening of the U.S. dollar against the yen.
Cost of rentals. Cost of rentals was $19,171 for the three months ended
March 31, 2003 compared with $21,898 for the three months ended March 31, 2002
and as a percentage of rental revenue declined 3.8 percentage points to 33.6%
for the three months ended March 31, 2003 from 37.4% for the three months ended
March 31, 2002. This decline was due to the impact of our disciplined focus on
improving profit margins coupled with product cost improvements, partially
offset by an increase in the mix of copier and multifunctional product rentals
which have a higher cost as a percentage of rental revenue than facsimile
machines.
Selling, service and administrative expenses. Selling, service and
administrative expenses of $76,865 were 50.9% of total revenue for the three
months ended March 31, 2003 compared with $75,453, or 48.6% of total revenue for
the three months ended March 31, 2002. Selling, service and administrative
expenses increased 2% over the prior year primarily resulting from expenses
associated with our advertising campaign, which was initiated in the second
quarter of 2002, higher information technology expenses related to maintaining
legacy systems as we implement our enterprise resource planning ("ERP") system
and higher provisions for bad debts, partially offset by the impact of fewer
employees.
Interest expense. Interest expense decreased to $1,629 for the three months
ended March 31, 2003 from $2,200 for the three months ended March 31, 2002,
primarily as a result of lower debt levels. The weighted average interest rate
for the three months ended March 31, 2003 was 6.9% versus 6.8% for the three
months ended March 31, 2002.
Effective tax rate. Our effective tax rate was 40.5% for the three months
ended March 31, 2003 compared with 39.7% for the three months ended March 31,
2002 due to a slight increase in the amount of certain expenses that are not
deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On November 9, 2001 we entered into a Credit Agreement with a group of
lenders (the "Credit Agreement") that provided for secured borrowings or the
issuance of letters of credit in an aggregate amount not to exceed $225 million,
comprised of a $125 million Revolving Credit Facility (the "Revolving Credit
Facility") and a $100 million Term Loan (the "Term Loan"). The term of the
Revolving Credit Facility is five years and the term of the Term Loan is six
years. Our Credit Agreement has a rating of Ba3 from Moody's Investor Services
and a BB+ rating from Standard & Poor's.
We have pledged substantially all of our assets plus 65% of the stock of
our subsidiary as security for our obligations under the Credit Agreement.
Available borrowings and letter of credit issuance under the Revolving Credit
Facility are determined by a borrowing base consisting of a percentage of our
eligible accounts receivable, inventory, rental assets and accrued and advance
billings, less outstanding borrowings under the Term Loan.
The Credit Agreement contains financial covenants that require the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA") and a maximum leverage ratio (total debt to EBITDA), as
well as other covenants, which, among other things, place limits on dividend
payments and capital expenditures.
Originally, amounts borrowed under the Revolving Credit Facility bore
interest at variable rates based, at our option, on either the LIBOR rate plus a
margin of from 2.25% to 3.00%, depending on our leverage ratio, or the Fleet
Bank base lending rate plus a margin of from 1.25% to 2.00%, depending on our
leverage ratio. Amounts borrowed under the Term Loan bore interest at variable
rates based, at our option, on either the LIBOR rate plus a margin of 3.50% or
3.75%, depending on our leverage ratio, or the Fleet Bank base lending rate plus
a margin of 2.50% to 2.75%, depending on our leverage ratio. A commitment fee of
from 0.375% to 0.500% on the average daily unused portion of the Revolving
Credit Facility is payable quarterly, in arrears, depending on our leverage
ratio.
On March 19, 2002, the Credit Agreement was amended to increase the total
amount of our stock permitted to be repurchased from $20 million to $30 million.
On July 19, 2002, the Credit Agreement was further amended to increase the total
amount of our stock permitted to be repurchased from $30 million to $58 million
and to reduce the Term Loan interest rates to LIBOR plus a margin of from 2.75%
to 3.75%, depending on our leverage ratio, or to the Fleet Bank base lending
rate plus a
Page 19 of 28
IMAGISTICS INTERNATIONAL INC.
margin of from 1.75% to 2.75%, depending on our leverage ratio. On March 5,
2003, the Credit Agreement was further amended to increase the total amount of
stock permitted to be repurchased from $58 million to $78 million, to reduce the
minimum EBITDA covenant to $100 million for the remainder of the term of the
Credit Agreement and to revise the limitation on capital expenditures. At March
31, 2003, we were in compliance with all of the financial covenants.
The Credit Agreement requires us to manage our interest rate risk with
respect to at least 50% of the aggregate principal amount of the Term Loan for a
period of at least 36 months. Accordingly, we entered into two interest rate
swap agreements in the notional amounts of $50 million and $30 million expiring
in February 2005 to convert the variable interest rate payable on the Term Loan
to a fixed interest rate in order to hedge the exposure to variability in
expected future cash flows. These interest rate swap agreements have been
designated as cash flow hedges. The counterparties to the interest rate swap
agreements are major international financial institutions. We monitor the credit
quality of these financial institutions and do not anticipate any losses as a
result of counterparty nonperformance. Under the terms of the swap agreements,
we will receive payments based upon the 90-day LIBOR rate and remit payments
based upon a fixed rate. The fixed interest rates are 4.17% and 4.32% for the
$50 million and the $30 million swap agreements, respectively.
Our initial borrowings of $150 million under the Credit Agreement,
consisting of $100 million under the Term Loan and $50 million under the
Revolving Credit Facility, were used to repay amounts due to Pitney Bowes and to
pay a dividend to Pitney Bowes. At December 31, 2001, Pitney Bowes Credit
Corporation ("PBCC") provided substantially all of our Term Loan. During 2002,
PBCC disposed of its commitments under the Credit Agreement and is no longer a
participant in the Credit Agreement.
During the third quarter of 2002, we revised our cash flow estimates and
prepaid $8 million of the amount outstanding under the Term Loan. This
prepayment was covered by a portion of the $30 million interest rate swap
agreement that had been designated as a cash flow hedge. Since it was no longer
probable that the hedged forecasted transactions related to the $8 million Term
Loan prepayment would occur, we recognized a loss related to that portion of the
swap agreement underlying the amount of the prepayment by reclassifying $0.4
million from accumulated other comprehensive loss into interest expense. We also
unwound $8 million of the $30 million interest rate swap agreement.
At March 31, 2003, two interest rate swap agreements in the notional
amounts of $50 million and $22 million were outstanding, the aggregate fair
value of which was an obligation of $3.7 million. This obligation is reported in
other liabilities in the consolidated balance sheet and the unrealized loss
relating to the outstanding swap agreements was included in other comprehensive
loss in stockholders' equity. The interest rate swap agreements were 100%
effective for the three months ended March 31, 2003.
At March 31, 2003, $74 million of borrowings were outstanding under the
Credit Agreement, consisting solely of $74 million of borrowings under the Term
Loan and the borrowing base amounted to approximately $110 million. The Term
Loan is payable in 16 consecutive equal quarterly installments of $0.2 million
due March 31, 2003 through December 31, 2006, three consecutive equal quarterly
installments of $17.8 million due March 31, 2007 through September 30, 2007 and
a final payment of $17.8 million due at maturity.
The ratio of current assets to current liabilities increased to 2.7 to 1 at
March 31, 2003 compared to 2.6 to 1 at December 31, 2002 due to reductions in
accounts payable and accrued liabilities, partially offset by reductions in
accounts receivable and inventories. At March 31, 2003, our total debt as a
percentage of total capitalization increased to 22.3% from 21.9% at December 31,
2002 due to stock repurchases under our stock buy back program.
Net cash provided by operating activities was $22,476 and $44,736 for the
three months ended March 31, 2003 and 2002, respectively. Net income was $4,766
and $3,856, respectively. Non-cash charges for depreciation and amortization and
provisions for bad debt and inventory obsolescence in the aggregate provided
cash of $23,116 and $25,087 for the three months ended March 31, 2003 and 2002,
respectively. The provision for bad debt of $2,602 for the three months ended
March 31, 2003 was higher than historical levels reflecting an increase in the
rate of delinquencies. For the three months ended March 31, 2003, the provision
to write down excess and obsolete inventory amounted to $1,533 and was lower
than historical levels as substantially all of the value of the analog equipment
has been written down to its nominal net realizable value. For the three months
ended March 31, 2002, the provision to write down excess and obsolete inventory
amounted to $3,796. Changes in the principal components of working capital used
cash of $4,737 in the three months ended March 31, 2003 and provided cash of
$13,781 in the three months ended March 31, 2002. Of the $4,737 of cash used by
working capital changes in the three months ended March 31, 2003, approximately
$3.5 million was due to 2002 incentive compensation payments and $1.2 million
related to the timing of inventory and other payments.
Page 20 of 28
IMAGISTICS INTERNATIONAL INC.
We used $15,446 and $14,832 in investing activities for the three months
ended March 31, 2003 and 2002, respectively. Investment in rental equipment
assets totaled $10,622 and $10,575 for the three months ended March 31, 2003 and
2002, respectively. Capital expenditures for property, plant and equipment were
$4,824 and $4,257 for the three months ended March 31, 2003 and 2002,
respectively, of which the investment in ERP accounted for $3,236 and $2,640,
respectively.
Cash used in financing activities was $11,875 and $17,384 for the three
months ended March 31, 2003 and 2002, respectively. Cash used in financing
activities for the three months ended March 31, 2003 reflects the repurchase of
642,000 shares of our stock at a cost of $12,597. In March 2002, the Board of
Directors approved a $30 million stock buy back program. In October 2002, the
Board of Directors authorized the repurchase of an additional $28 million of our
stock, raising the total authorization to $58 million and, as of March 31, 2003,
we have accumulated approximately 2.6 million shares of treasury stock at a cost
of $49 million.
During the three month period ended March 31, 2003, we had no material
changes in our contractual obligations and commitments. We had no material
commitments other than supply agreements with vendors that extend only to
equipment supplies and parts ordered under purchase orders; there are no
long-term purchase requirements. We will continue to make additional investments
in facilities, rental equipment, computer equipment and systems and our
distribution network as required to support our revenue growth. We anticipate
investments in rental equipment assets for new and replacement programs in
amounts consistent with prior years. We estimate that we will spend
approximately $20 million to $25 million over the next 9 - 12 months to continue
to enhance our information systems infrastructure and implement our ERP system.
Historically, our cash flow has been positive. We expect our cash flow to
remain positive although we do expect our cash generation to moderate compared
with the same period in the prior year as our ability to continue to provide
cash through changes in working capital is reduced. Our cash flow from
operations, together with borrowings under the Credit Agreement, are expected to
adequately finance our ordinary operating cash requirements and capital
expenditures for the foreseeable future. We expect to fund further expansion and
long-term growth primarily with cash flows from operations, borrowings under the
Credit Agreement and possible future sales of additional equity or debt
securities.
RISK FACTORS THAT COULD CAUSE RESULTS TO VARY
Risk Factors Relating to Our Business
The document imaging and management industry is undergoing an evolution in
product offerings, moving toward the use of digital and color technology in a
multifunctional office environment. Our continued success will depend to a great
extent on our ability to respond to this rapidly changing environment by
developing new options and document imaging solutions for our customers.
The proliferation of e-mail, multifunctional products and other
technologies in the workplace may lead to a reduction in the use of traditional
copiers and fax machines. We cannot anticipate whether other technological
advancements will substantially minimize the need for our products in the
future.
Many of our rental customers have contract provisions allowing for
technology and product upgrades during the term of their contract. If we have
priced these upgrades improperly, this may have an adverse effect on our
profitability and future business. If many of our customers exercise their
contractual rights to upgrade to digital equipment, we may experience returns of
a large number of analog machines and a subsequent loss of book value on these
machines.
The document imaging solutions industry is very competitive; we may be
unable to compete favorably, causing us to lose sales to our competitors. Our
future success depends, in part, on our ability to deliver enhanced products,
service packages and business processes such as e-commerce capabilities, while
also offering competitive price levels.
We rely on outside suppliers to manufacture the products that we
distribute, many of whom are located in the Far East. In addition, two
manufacturers supply a significant portion of our new copier and multifunctional
equipment. If these manufacturers discontinue their products or are unable to
deliver us products in the future or if political changes, economic disruptions
or natural disasters occur where their production facilities are located, we
will be forced to identify an alternative supplier or suppliers for the affected
product. In addition, although we have worked with our suppliers and freight
forwarders to mitigate the potential impacts of an outbreak of infectious
disease affecting our supply chain, should our manufacturers become affected by
epidemics of infectious diseases, including the recent outbreak of severe acute
respiratory syndrome, we could be forced to identify an alternative supplier or
suppliers for the affected product. Although we are confident that we can
identify alternate sources of supply, we may not be successful in doing so. Even
if we are successful, the replacement product may be more expensive or may lack
certain features of the discontinued
Page 21 of 28
IMAGISTICS INTERNATIONAL INC.
product and we may experience some delay in obtaining the product. Other events
that disrupt the shipment to or receipt of ocean freight at U.S. ports, such as
labor unrest, war or terrorist activity could delay, prevent or add substantial
cost to the Company's receipt of such products. Any of these events would cause
disruption to our customers and could have an adverse effect on our business.
Much of our international business is transacted in local currency.
Currently, less than 30% of our total product purchases, based on costs, are
denominated in yen. We do not currently utilize any form of derivative financial
instruments to manage our exchange rate risk. We manage our foreign exchange
risk by attempting to pass through to our customers any cost increases related
to foreign currency exchange. However, no assurance can be given that we will be
successful in passing cost increases through to our customers in the future.
Risk Factors Relating to Separating Our Company From Pitney Bowes
We have a limited history operating as an independent entity and may be
unable to make the changes necessary to operate successfully as a stand-alone
entity, or may incur greater costs as a stand-alone entity that may cause our
profitability to decline.
Prior to the Distribution, our business was operated by Pitney Bowes as a
division of its broader corporate organization, rather than as a separate
stand-alone entity. Pitney Bowes assisted us by providing corporate functions
such as legal, tax and information technology functions. Following the
Distribution, Pitney Bowes has no obligation to provide assistance to us other
than certain interim and transitional services. Because our business had not
previously been operated as a stand-alone entity, there can be no assurance that
we will be able to successfully implement the changes necessary to operate
independently or will not incur additional costs as a result of operating
independently. We are implementing an ERP system intended to replace the
information technology ("IT") services provided by Pitney Bowes under the
transition services agreement. Due to unanticipated delays in implementation of
Phase II of the ERP system, we and Pitney Bowes have agreed to an extension
until June 30, 2003 or, upon our request, December 31, 2003, of the transition
services agreement as it relates to IT related services. In January 2003, we
received a favorable ruling from the Internal Revenue Service indicating that
the extension of the transition services agreement as it relates to IT services,
through December 2003, will not affect the tax-free nature of the spin-off. Any
failure to implement the critical ERP applications appropriately by the given
extension date would have a material adverse affect on our financial position,
results of operations and cash flows.
Pitney Bowes has been and is expected to continue to be a significant
customer. For both the three months ended March 31, 2003 and 2002, revenues from
Pitney Bowes, exclusive of equipment sales to PBCC for lease to the end user,
accounted for approximately 8% of our total revenue. However, no assurance can
be given that Pitney Bowes will continue to purchase our products and services.
In connection with the Distribution, Imagistics and Pitney Bowes entered
into a non-exclusive intellectual property agreement that allows us to operate
under the "Pitney Bowes" brand name for a term of up to two years after the
Distribution. However, this agreement may be terminated if we or Pitney Bowes
elect to terminate the non-competition obligations contained in the distribution
agreement. In 2002, we began introducing new products under the "Imagistics"
brand name and we initiated a major brand awareness advertising campaign to
establish our new brand name. Brand name recognition is an important part of our
overall business strategy and we cannot assure you that customers will maintain
the same level of interest in our products when we can no longer use the Pitney
Bowes brand name.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Statements contained in this discussion and elsewhere in this report that
are not purely historical are forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, and are based on
management's beliefs, certain assumptions and current expectations. These
statements may be identified by their use of forward-looking terminology such as
the words "expects", "projects", "anticipates", "intends" and other similar
words. Such forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those projected. The
forward-looking statements contained herein are made as of the date hereof and,
except as required by law, we do not undertake any obligation to update any
forward-looking statements, whether as a result of future events, new
information or otherwise.
Page 22 of 28
IMAGISTICS INTERNATIONAL INC.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149 "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and hedging relationships designated after June 30, 2003 and
all provisions should be applied prospectively. The provisions of SFAS No. 149
that relate to SFAS No. 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003, should continue to be applied
in accordance with their respective effective dates. Certain provisions relating
to forward purchases or sales of when-issued securities or other securities that
do not yet exist, should be applied to existing contracts as well as new
contracts entered into after June 30, 2003. We are evaluating the provisions of
SFAS No. 149 and whether the implementation of this statement will have a
material impact on our financial position, results of operations or cash flows.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
and disposal activities initiated after December 31, 2002 and provides guidance
on the recognition and measurement of liabilities associated with disposal
activities. We adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No.
146 did not have a material impact on our financial position, results of
operations or cash flows.
In November 2002, the FASB Emerging Issues Task Force reached a consensus
on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 00-21 applies to certain contractually
binding arrangements under which a company performs multiple revenue generating
activities and requires that all companies account for each element within an
arrangement with multiple deliverables as separate units of accounting if (a)
the delivered item has value on a stand-alone basis, (b) there is objective and
reliable evidence of fair value and (c) the amount of the total arrangement
consideration is fixed. EITF 00-21 is effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21
will not have a material impact on our financial position, results of operations
or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have certain exposures to market risk related to changes in interest
rates, foreign currency exchange rates and commodities. There have been no
material changes in market risk since the filing of our Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as described in Exchange Act Rule 13a-14. In conducting the
evaluation, such officers noted that we continued to be reliant on certain
Pitney Bowes information systems for the generation of financial information.
Based upon our existing internal controls, such officers' knowledge of Pitney
Bowes' systems and internal controls and a review of Pitney Bowes' Exchange Act
filings and related certifications, the Chief Executive Officer and the Chief
Financial Officer have concluded that the information generated by the Pitney
Bowes information systems is subject to adequate controls. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic SEC filings
relating to the Company (including its consolidated subsidiary).
There were no significant changes in our internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of our most recent evaluation.
Page 23 of 28
IMAGISTICS INTERNATIONAL INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL MATTERS
In connection with the Distribution, we agreed to assume all liabilities
associated with our business, and to indemnify Pitney Bowes for all claims
relating to our business. In the normal course of business, we have been party
to occasional lawsuits relating to our business. These may involve litigation or
other claims by or against Pitney Bowes or Imagistics relating to, among other
things, contractual rights under vendor, insurance or other contracts,
trademark, patent and other intellectual property matters, equipment, service or
payment disputes with customers, bankruptcy preference claims and disputes with
employees.
We have not recorded liabilities for loss contingencies since the ultimate
resolutions of the legal matters cannot be determined and a minimum cost or
amount of loss cannot be reasonably estimated. In our opinion, none of these
proceedings, individually or in the aggregate, should have a material adverse
effect on our consolidated financial position, results of operations or cash
flows. There have been no significant changes in pending litigation since the
filing of our Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits hereto:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation (3)
3.2 Amended and Restated Bylaws (1)
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock, dated August 1, 2002 (6)
4.1 Form of Imagistics International Inc. Common Stock Certificate (1)
10.1 Tax Separation Agreement between Pitney Bowes Inc. and Imagistics International Inc. (3)
10.2 Transition Services Agreement between Pitney Bowes Inc. and Imagistics International Inc. (3)
10.3 Distribution Agreement between Pitney Bowes Inc. and Imagistics International Inc. (3)
10.4 Intellectual Property Agreement between Pitney Bowes Inc. and Imagistics International Inc. (3)
10.5 Reseller Agreement between Pitney Bowes Management Services and Imagistics International Inc. (3)
10.6 Reseller Agreement between Pitney Bowes of Canada and Imagistics International Inc. (3)
10.7 Vendor Financing Agreement between Pitney Bowes Credit Corporation and Imagistics International Inc. (3)
10.8 Form of Sublease Agreement between Pitney Bowes Inc. and Imagistics International Inc. (2)
10.9 Form of Sublease and License Agreement between Pitney Bowes Inc. and Imagistics International Inc. (2)
10.10 Form of Assignment and Novation Agreement between Pitney Bowes Inc. and Imagistics International Inc. (2)
10.11 Imagistics International Inc. 2001 Stock Plan (1)
10.12 Imagistics International Inc. Key Employees' Incentive Plan (3)
10.13 Imagistics International Inc. Non-Employee Directors' Stock Plan (1)
10.14 Letter Agreement between Pitney Bowes Inc. and Marc C. Breslawsky (1)
10.15 Letter Agreement between Pitney Bowes Inc. and Joseph D. Skrzypczak (1)
10.16 Letter Agreement between Pitney Bowes Inc. and Mark S. Flynn (1)
10.17 Credit Agreement between Imagistics International Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce Fenner & Smith
Incorporated, as Syndication Agent, Fleet Capital Corporation, as Administrative Agent (3)
10.18 Rights Agreement between Imagistics International Inc. and EquiServe Trust Company, N.A. (3)
10.19 Employment Agreement between Imagistics International Inc. and Marc C. Breslawsky (3)
10.20 Employment Agreement between Imagistics International Inc. and Joseph D. Skrzypczak (3)
10.21 Employment Agreement between Imagistics International Inc. and Christine B. Allen (3)
10.22 Employment Agreement between Imagistics International Inc. and John C. Chillock (3)
10.23 Employment Agreement between Imagistics International Inc. and Chris C. Dewart (3)
10.24 Employment Agreement between Imagistics International Inc. and Mark S. Flynn (3)
10.25 Employment Agreement between Imagistics International Inc. and Nathaniel M. Gifford (3)
Page 24 of 28
IMAGISTICS INTERNATIONAL INC.
10.26 Employment Agreement between Imagistics International Inc. and Joseph W. Higgins (3)
10.27 Amendment No. 1 to Credit Agreement between Imagistics International Inc. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as Syndication Agent, Fleet Capital Corporation, as Administrative Agent,
and the Lenders identified therein (4)
10.28 Amendment No. 2 to Credit Agreement between Imagistics International Inc. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as Syndication Agent, Fleet Capital Corporation, as Administrative Agent,
and the Lenders identified therein (5)
10.29 First Amendment to Imagistics International Inc. 2001 Stock Plan (6)
10.30 First Amendment to Rights Agreement between Imagistics International Inc. and EquiServe Trust Company, N.A. (6)
10.31 Amendment No. 3 to Credit Agreement between Imagistics International Inc. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as Syndication Agent, Fleet Capital Corporation, as Administrative Agent,
and the Lenders identified therein (7)
10.32 Amendment No. 1 to Transition Services Agreement between Pitney Bowes Inc. and Imagistics International Inc. (8)
99.1 Section 906 certification
- ------------------------
(1) Incorporated by reference to Amendment No. 1 to the Registrant's Form 10 filed July 13, 2001.
(2) Incorporated by reference to Amendment No. 2 to the Registrant's Form 10 filed August 13, 2001.
(3) Incorporated by reference to Registrant's Form 10-K filed March 28, 2002.
(4) Incorporated by reference to Registrant's Form 10-Q filed May 14, 2002.
(5) Incorporated by reference to the Registrant's Form 8-K dated July 23, 2002.
(6) Incorporated by reference to the Registrant's Form 10-Q filed August 14, 2002.
(7) Incorporated by reference to the Registrant's Form 8-K dated March 7, 2003.
(8) Incorporated by reference to the Registrant's Form 10-K dated March 28, 2003.
(b) Reports on Form 8-K.
On February 14, 2003, the Company filed a Current Report on Form 8-K, dated
February 14, 2003, to furnish under Item 9 of such Form materials used in its
presentations to the financial analyst and investment community.
On March 7, 2003, the Company filed a Current Report on Form 8-K, reporting
under Item 5 thereof, the Third Amendment to the Credit Agreement, dated as of
March 5, 2003.
Page 25 of 28
IMAGISTICS INTERNATIONAL INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2003 Imagistics International Inc.
-----------------------------
(Registrant)
By: /s/ Joseph D. Skrzypczak
-----------------------------
Name: Joseph D. Skrzypczak
Title: Chief Financial Officer
and Authorized Signatory
Page 26 of 28
IMAGISTICS INTERNATIONAL INC.
CERTIFICATION
I, Marc C. Breslawsky, certify that,
1. I have reviewed this quarterly report on Form 10-Q of Imagistics
International 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 the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 15, 2003 /s/ Marc C. Breslawsky
-----------------------
Marc C. Breslawsky
Chief Executive Officer
Page 27 of 28
IMAGISTICS INTERNATIONAL INC.
CERTIFICATION
I, Joseph D. Skrzypczak, certify that,
1. I have reviewed this quarterly report on Form 10-Q of Imagistics
International 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 the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 15, 2003 /s/ Joseph D. Skrzypczak
Joseph D. Skrzypczak
Chief Financial Officer
Page 28 of 28