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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 SEPTEMBER 30,
2002
/ / 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
(State or Other Jurisdiction of 06-1611068
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 126-2 of the Exchange Act). Yes _X_ No___
Number of shares of Imagistics Common Stock, par value $ .01 per share,
outstanding as of October 31, 2002: 18,206,057
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IMAGISTICS INTERNATIONAL INC.
INDEX
PART I - FINANCIAL INFORMATION..............................................................................................3
ITEM 1. FINANCIAL STATEMENTS..........................................................................................3
Consolidated Income Statements for the three and nine months ended September 30, 2002 and 2001 (Unaudited).............3
Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001.................................4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (Unaudited)................5
Notes to Consolidated Financial Statements.............................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................21
ITEM 4. CONTROLS AND PROCEDURES......................................................................................22
PART II - OTHER INFORMATION................................................................................................23
ITEM 1. LEGAL PROCEEDINGS............................................................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................23
SIGNATURES.................................................................................................................25
CERTIFICATIONS.............................................................................................................26
Page 2 of 27
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 FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Revenue:
Sales $ 77,081 $ 79,998 $ 232,645 $ 231,041
Rentals 58,088 58,549 172,955 174,179
Support services 20,900 19,775 63,921 62,121
-------------- -------------- -------------- --------------
Total revenue 156,069 158,322 469,521 467,341
Cost of sales 47,236 48,816 145,044 145,033
Cost of rentals 20,991 23,526 64,446 69,837
Selling, service and administrative expenses 78,707 82,956 233,042 222,718
-------------- -------------- -------------- --------------
Earnings before interest and taxes 9,135 3,024 26,989 29,753
Interest expense 2,240 2,636 6,429 8,484
-------------- -------------- -------------- --------------
Income before income taxes 6,895 388 20,560 21,269
Provision for income taxes 2,740 106 8,168 8,393
-------------- -------------- -------------- --------------
Net income $ 4,155 $ 282 $ 12,392 $ 12,876
============== ============== ============== ==============
Earnings per share:
Basic $ 0.23 $ 0.01 $ 0.66 $ 0.66
============== ============== ============== ==============
Diluted $ 0.22 $ 0.01 $ 0.64 $ 0.66
============== ============== ============== ==============
Shares used in computing earnings per share:
Basic 17,989,310 19,463,007 18,902,517 19,463,007
============== ============== ============== ==============
Diluted 18,537,611 19,479,121 19,363,662 19,479,121
============== ============== ============== ==============
See Notes to Consolidated Financial Statements
Page 3 of 27
IMAGISTICS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ----------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 24,906 $ 18,844
Accounts receivable, less allowances of $7,095 and $6,188 at
September 30, 2002 and December 31, 2001, respectively 89,335 105,913
Accrued billings 25,572 25,144
Inventories 105,998 124,006
Current deferred taxes on income 18,231 14,825
Other current assets and prepaid expenses 2,690 3,975
------------- ----------------
Total current assets 266,732 292,707
Property, plant and equipment, net 41,860 30,814
Rental equipment, net 96,368 113,924
Goodwill, net of accumulated amortization of $4,855 at
September 30, 2002 and December 31, 2001 52,600 52,600
Other assets 6,627 7,632
------------- ----------------
Total assets $ 464,187 $ 497,677
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 749 $ 1,000
Accounts payable and accrued liabilities 74,698 54,771
Advance billings 28,472 29,376
------------- ----------------
Total current liabilities 103,919 85,147
Long-term debt 73,586 116,000
Deferred taxes on income 16,285 9,161
Other liabilities 3,862 1,930
------------- ----------------
Total liabilities $ 197,652 $ 212,238
Commitments and contingencies - -
Stockholders' equity:
Preferred stock ($1.00 par value; 10,000,000 shares authorized,
none outstanding at September 30, 2002 and December 31, 2001) - -
Common stock ($0.01 par value; 150,000,000 shares authorized,
18,205,927 and 19,463,007 outstanding at September 30, 2002
and December 31, 2001, respectively) 198 195
Additional paid in capital 294,365 289,517
Retained earnings (deficit) 10,471 (1,921)
Treasury stock, at cost (1,607,460 shares at September 30, 2002
and none at December 31, 2001) (29,998) -
Unearned compensation (3,675) -
Accumulated other comprehensive loss (4,826) (2,352)
------------- ----------------
Total stockholders' equity 266,535 285,439
------------- ----------------
Total liabilities and stockholders' equity $ 464,187 $ 497,677
============= ================
See Notes to Consolidated Financial Statements
Page 4 of 27
IMAGISTICS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 12,392 $ 12,876
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 60,093 57,628
Accounts receivable write-offs 3,765 9,196
Provision for inventory obsolescence 10,139 17,372
Deferred taxes on income 3,719 2,311
Change in assets and liabilities, net of acquisitions:
Accounts receivable 12,813 (515)
Accrued billings (428) (2,376)
Inventories 7,869 12,921
Other current assets and prepaid expenses 1,286 (6,711)
Accounts payable and accrued liabilities 19,897 5,400
Advance billings (904) (859)
Other, net 1,632 (1,380)
---------- ----------
Net cash provided by operating activities 132,273 105,863
Cash flows from investing activities:
Expenditures for fixed assets (53,583) (56,419)
Other investing activities - (3,421)
---------- ----------
Net cash used in investing activities (53,583) (59,840)
Cash flows from financing activities:
Due to Pitney Bowes - 4,368
Advances to Pitney Bowes - (14,579)
Exercised stock options 35 -
Purchase of treasury stock (29,998) -
Repayment under term loan (25,665) -
Repayment under revolving credit facility (17,000) -
---------- ----------
Net cash used in financing activities (72,628) (10,211)
---------- ----------
Increase in cash 6,062 35,812
Cash at beginning of period 18,844 3,100
---------- ----------
Cash at end of period $ 24,906 $ 38,912
========== ==========
See Notes to Consolidated Financial Statements
Page 5 of 27
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. The unaudited interim consolidated financial statements of
Imagistics International Inc. ("Imagistics" or 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 prior year 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 and nine months ended
September 30, 2002 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, 2001 filed with the SEC on March 28, 2002.
Imagistics is a large independent direct sales, service and marketing
organization offering document imaging solutions, including copiers, facsimile
machines and multi-functional products, primarily to large corporate and
government customers, as well as to mid-sized and regional businesses. In
addition, the Company offers a range of copier and multi-functional product
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 consolidated financial statements include
certain historical assets, liabilities and related operations of the United
States and United Kingdom office systems businesses, which were contributed to
the Company from Pitney Bowes prior to the Distribution. Accordingly, the
consolidated financial statements prior to December 3, 2001 were derived from
the financial statements and accounting records of Pitney Bowes using the
historical results of operations and historical basis of assets and liabilities
of the United States and United Kingdom office systems businesses. Prior to the
formation of the Company, the office systems business was operated as a division
of Pitney Bowes. The Company began accumulating retained earnings on December 3,
2001, the date of the Distribution. Management believes the assumptions
underlying the consolidated financial statements are reasonable. However, the
consolidated financial statements included herein may not necessarily reflect
the Company's financial position, results of operations and cash flows in the
future or what its financial position, results of operations and cash flows
would have been had the Company operated as a stand-alone entity in prior
periods.
Page 6 of 27
2. GOODWILL AND GOODWILL AMORTIZATION
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("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 subject to
periodic testing for impairment. The Company has completed a transitional review
of its goodwill for impairment and, based on that review, has determined that
its recorded goodwill was not impaired.
For the three and nine month periods ended September 30, 2001, goodwill
amortization amounted to $0.4 million and $1.1 million, respectively. If the
Company had adopted SFAS 142 at the beginning of fiscal 2001 and discontinued
goodwill amortization, net income and income per common share on a pro forma
basis would have been as follows:
---------------------------------------
PRO FORMA
---------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2001
------------------ -----------------
Net income $ 541 $ 13,563
Income per common share
Basic $ 0.03 $ 0.70
Diluted $ 0.03 $ 0.70
The carrying value of goodwill of $52.6 million as of September 30, 2002 is
attributable to the United States geographic segment.
3. SUPPLEMENTAL INFORMATION
Inventories
Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------- ----------------
Supplies and service parts $ 34,860 $ 35,905
Finished products 71,138 88,101
---------------- ----------------
Total inventories $ 105,998 $ 124,006
================ ================
Fixed assets
Fixed assets consist of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------- ----------------
Land $ 1,356 $ 1,356
Buildings and leasehold improvements 9,903 9,515
Machinery and equipment 54,626 39,854
----------------- ----------------
Property, plant and equipment, gross 65,885 50,725
Accumulated depreciation (24,025) (19,911)
----------------- ----------------
Property, plant and equipment, net $ 41,860 $ 30,814
================= ================
Rental equipment, gross $ 377,252 $ 378,391
Accumulated depreciation (280,884) (264,467)
----------------- ----------------
Rental equipment, net $ 96,368 $ 113,924
================= ================
Depreciation expense was $19.8 million and $60.1 million for the three and
nine months ended September 30, 2002, respectively, and $18.0 million and $56.6
million for the three and nine months ended September 30, 2001, respectively.
Page 7 of 27
Current liabilities
Accounts payable and accrued liabilities consist of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------- ---------------
Accounts payable $ 20,458 $ 22,679
Accrued compensation and benefits 18,908 10,848
Other non-income taxes payable 6,731 7,566
Miscellaneous accrued liabilities 28,601 13,678
----------------- ---------------
Accounts payable and accrued liabilities $ 74,698 $ 54,771
================= ===============
Comprehensive income
Comprehensive income consists of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income $ 4,155 $ 282 $ 12,392 $ 12,876
Translation adjustment 998 95 1,289 108
Unrealized loss on cash flow hedges (1,995) $ - (3,762) $ -
------- ----- -------- --------
Comprehensive income $ 3,158 $ 377 $ 9,919 $ 12,984
======= ===== ======== ========
The Company had interest rate swap agreements in the aggregate notional
amount of $72 million and $80 million at September 30, 2002 and December 31,
2001, respectively, designated as cash flow hedges. At September 30, 2002, the
Company recorded a liability of $3,461 for the fair market value of the interest
rate swap agreements. At December 31, 2001, the Company recorded an asset of
$301 for the fair market value of the interest rate swap agreements. The
unrealized gain or loss on the change in the market value of the interest rate
swap agreements was included in accumulated other comprehensive loss in
stockholders' equity.
Treasury Stock
Treasury stock consists of 1,607,460 shares of the Company's common stock
repurchased at a cost of $29,998.
Cash flow information
Cash paid for income taxes was $2,846 and cash paid for interest was $6,605
for the nine months ended September 30, 2002.
Page 8 of 27
4. 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.
Identifiable long-lived assets in the United States at September 30, 2002 and
December 31, 2001 include goodwill of $52.6 million.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
United States:
Sales $ 73,718 $ 77,152 $ 223,441 $ 221,963
Rentals 56,289 56,687 167,818 168,914
Support services 20,361 19,447 62,129 60,997
-------- -------- --------- ---------
Total United States revenues $150,368 $153,286 $ 453,388 $ 451,874
-------- -------- --------- ---------
United Kingdom:
Sales $ 3,363 $ 2,846 $ 9,204 $ 9,078
Rentals 1,799 1,862 5,137 5,265
Support services 539 328 1,792 1,124
-------- -------- --------- ---------
Total United Kingdom revenues 5,701 5,036 16,133 15,467
-------- -------- --------- ---------
Total revenues $156,069 $158,322 $ 469,521 $ 467,341
======== ======== ========= =========
Income before income taxes:
United States $ 6,129 $ (122) $ 18,226 $ 22,480
United Kingdom 766 510 2,334 (1,211)
-------- -------- --------- ---------
Total income before income taxes $ 6,895 $ 388 $ 20,560 $ 21,269
======== ======== ========= =========
Revenues from Pitney Bowes, substantially all of which are generated in the
United States segment, were approximately $37.1 million and $106.3 million
during the three and nine months ended September 30, 2002 and $35.8 million and
$88.4 million during the three and nine months ended September 30, 2001. Of the
2002 revenues from Pitney Bowes, approximately $22.7 million and $65.4 million
were for equipment sold to Pitney Bowes Credit Corporation ("PBCC") for lease to
the end user, approximately $4.7 million and $18.2 million were for equipment
and supplies sold to Pitney Bowes Canada and approximately $9.6 million and
$22.8 million were for equipment, supplies and services sold to other Pitney
Bowes subsidiaries during the three and nine months ended September 30,
respectively. In 2001, approximately $28.0 million and $71.7 million were for
equipment sold to PBCC, approximately $0.5 million and $2.4 million were for
equipment and supplies sold to Pitney Bowes Canada and approximately $7.3
million and $14.3 million were for equipment, supplies and services sold to
other Pitney Bowes subsidiaries during the three and nine month periods ended
September 30, respectively. No other single customer or controlled group
represents 10% or more of the Company's revenues.
SEPTEMBER 30, DECEMBER 31,
2002 2001
-------------- ----------------
Identifiable long-lived assets
United States $ 192,441 $ 199,837
United Kingdom 5,014 5,133
-------------- ----------------
Total identifiable long-lived assets $ 197,455 $ 204,970
============== ================
Total assets
United States $ 439,449 $ 477,710
United Kingdom 24,738 19,967
-------------- ----------------
Total assets $ 464,187 $ 497,677
============== ================
Page 9 of 27
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
one supplier although the Company has recently added a new supplier, in part, to
mitigate this risk. If this supplier 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 its significant supplier is unable to deliver sufficient
product.
5. 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. Since the Distribution was not effective until December 3,
2001, the weighted average number of common shares outstanding for periods prior
to the Distribution was assumed to be the number of shares issued in the
Distribution.
A reconciliation of the basic and diluted earnings per share computation is
as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income available to common stockholders $ 4,155 $ 282 $ 12,392 $ 12,876
=========== =========== =========== ===========
Weighted average common shares outstanding 18,336,310 19,463,007 19,230,878 19,463,007
Less: non-vested restricted stock 347,000 - 328,361 -
----------- ----------- ----------- -----------
Weighted average common shares for basic earnings per share 17,989,310 19,463,007 18,902,517 19,463,007
Add: dilutive effect of restricted stock 347,000 - 328,361 -
Add: dilutive effect of stock options 201,301 16,114 132,784 16,114
----------- ----------- ----------- -----------
Weighted average common shares and equivalents
for diluted earnings per share 18,537,611 19,479,121 19,363,662 19,479,121
=========== =========== =========== ===========
Basic earnings per share $ 0.23 $ 0.01 $ 0.66 $ 0.66
Diluted earnings per share $ 0.22 $ 0.01 $ 0.64 $ 0.66
6. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- --------------
Revolving credit facility $ - $ 17,000
Term loan 74,335 100,000
--------------- --------------
Total debt 74,335 117,000
Less: current maturities 749 1,000
--------------- --------------
Total long-term debt $ 73,586 $ 116,000
=============== ==============
Page 10 of 27
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, 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 $386 from accumulated
other comprehensive loss into interest expense. We also unwound $8 million of
the $30 million interest rate swap agreement.
7. COMMITMENTS AND CONTINGENCIES
Legal matters. In connection with the Distribution, 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, including
lawsuits relating to the Company's business. In the normal course of business,
the Company and Pitney Bowes have been named as a party to occasional lawsuits
relating to the Company's business. These lawsuits and other claims may involve
disputes relating to, among other things, contractual rights under vendor,
insurance or other contracts, trademark, patent or 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. In the opinion of the Company's
management, none of these proceedings, individually or in the aggregate, should
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
Risks and uncertainties. The Company has a limited history operating as an
independent entity, 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
segment 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's business had not previously been operated 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. 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 the ERP system, the Company has entered into discussions with
Pitney Bowes regarding the extension until December 2003, of the transition
services agreement as it relates to IT related services. Before entering into
any extension of these transition services beyond June 2003 we will seek the
approval by the Internal Revenue Service (IRS) of a ruling request confirming
that such extension will not affect the tax-free nature of the spin-off. The
Company is working together with Pitney Bowes to prepare and file the necessary
ruling request. Although the Company expects that the ruling request will be
granted in the ordinary course and that Pitney Bowes will continue to provide
the IT related services during the period necessary for the Company to implement
business critical ERP applications, there can be no assurance that the IRS will
provide the requested ruling or that Pitney Bowes will grant the necessary
extension of the IT related services. Any failure to obtain a favorable IRS
ruling or to extend the required IT related services for the period required to
permit the Company to implement replacement systems would have a material
adverse affect on the operations and financial position of the Company.
Page 11 of 27
8. 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, on a
transitional basis. These services include information technology, computing,
telecommunications, accounting, field service of equipment and dispatch call
center services. In 2002, the Company will pay Pitney Bowes for its costs for
the services provided, including a proportionate share of its overhead, if
applicable, computed in accordance with Pitney Bowes' internal charge back
practices. For the three and nine months ended September 30, 2002, the Company
paid Pitney Bowes $4.9 million and $17.1 million, respectively, in connection
with the transition services agreement.
Upon extension of the transition services agreement for IT related services
as discussed in note 7, Commitments and Contingencies, above, the fees for such
services would be set at a rate negotiated at arms length and would likely be
significantly higher than the cost based fees for such services currently
applicable.
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.
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, 2001
filed with the Securities and Exchange Commission on March 28, 2002, 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 and nine months ended
September 30, 2002 are not necessarily indicative of the results for the full
year.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
REVENUE RECOGNITION
Our revenues include revenues from the sale, rental and service of copiers,
facsimile machines, multi-functional products and other document imaging
equipment, including related supplies. Sales revenue 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. Certain rental contracts provide for invoicing in advance,
generally quarterly. The revenue billed in advance is deferred and recognized as
earned revenue over the billed period. Certain rental 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. Rental
terms generally range from one to three years. Support services revenue is
recognized over the term of the service contract.
Page 12 of 27
OVERVIEW
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 known as national accounts, as well as to mid-size and
regional businesses known as commercial accounts. In addition, we offer a range
of copier and multi-functional product document imaging options, including
digital, analog, color and/or networked products and systems.
Our strategy is to become the leading independent provider of enterprise
office imaging and document solutions by leveraging our product and marketplace
strengths in customer support to drive customer loyalty. Our goal is also to
achieve operational excellence and benchmark productivity and to pursue
opportunistic expansion and investments.
REVENUES
(Dollars in thousands)
The following table shows our revenue sources by product line for the
periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Copier product line $ 91,440 $ 91,999 $266,407 $264,751
Facsimile product line 59,904 65,800 184,951 200,220
Sales to Pitney Bowes Canada 4,725 523 18,163 2,370
---------- ---------- ---------- ----------
Total revenue $156,069 $158,322 $469,521 $467,341
========== ========== ========== ==========
The following table shows our revenue sources by segment for the periods
indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
United States $150,368 $153,286 $453,388 $451,874
United Kingdom 5,701 5,036 16,133 15,467
---------- ---------- ---------- ----------
Total revenue $156,069 $158,322 $469,521 $467,341
========== ========== ========== ==========
The following table shows the growth rates by revenue type and product line
for the three and nine months ended September 30, 2002 compared with the same
period in the prior year.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ----------------------
Sales
Copier products (3.4%) 2.0%
Facsimile products (4.2%) (1.8%)
Total sales (3.6%) 0.7%
Rentals
Copier products 13.2% 9.6%
Facsimile products (8.8%) (6.3%)
Total rentals (0.8%) (0.7%)
Support services 5.7% 2.9%
Total revenue (1.4%) 0.5%
Page 13 of 27
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
Revenue:
Sales 49.4 % 50.5 % 49.6 % 49.4 %
Rentals 37.2 37.0 36.8 37.3
Support services 13.4 12.5 13.6 13.3
---------------- ---------------- ---------------- ----------------
Total revenue 100.0 100.0 100.0 100.0
Cost of sales 30.3 30.8 30.9 31.0
Cost of rentals 13.4 14.9 13.7 14.9
Selling, service and administrative 50.4 52.4 49.6 47.7
---------------- ---------------- ---------------- ----------------
Earnings before interest and taxes 5.9 1.9 5.8 6.4
Interest expense 1.4 1.7 1.4 1.8
---------------- ---------------- ---------------- ----------------
Income before income taxes 4.5 0.2 4.4 4.6
Provision for income taxes 1.8 - 1.7 1.8
---------------- ---------------- ---------------- ----------------
Net income 2.7 % 0.2 % 2.7 % 2.8 %
---------------- ---------------- ---------------- ----------------
Cost of sales as a percentage of sales revenue
Including Pitney Bowes Canada 61.3 % 61.0 % 62.3 % 62.8 %
================ ================ ================ ================
Excluding Pitney Bowes Canada 59.0 % 60.8 % 59.5 % 62.5 %
================ ================ ================ ================
Excluding inventory obsolescence and
Pitney Bowes Canada 55.1 % 55.2 % 54.8 % 54.9 %
================ ================ ================ ================
Cost of rentals as a percentage of rental revenue 36.1 % 40.2 % 37.3 % 40.1 %
================ ================ ================ ================
Effective tax rate 39.7 % 27.3 % 39.7 % 39.5 %
================ ================ ================ ================
Page 14 of 27
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
Revenue. For the three months ended September 30, 2002, total revenue of
$156,069 declined 1% versus revenue of $158,322 for the three months ended
September 30, 2001 reflecting lower sales and rental revenue, partially offset
by higher support service revenue. Revenue attributable to sales to Pitney Bowes
Canada pursuant to a reseller agreement between the Company and Pitney Bowes
Canada that became effective upon the Distribution, amounted to $4,725.
Excluding the impact of sales to Pitney Bowes Canada, total revenue declined 4%
versus the prior year.
Equipment and supply sales revenue of $77,081 declined 4% for the three
months ended September 30, 2002 from $79,998 for the three months ended
September 30, 2001. Excluding the impact of sales to Pitney Bowes Canada, total
sales revenue declined 9% compared with the prior year. Total copier sales
revenue declined 8% due to lower equipment and supply sales. Total facsimile
sales revenue declined 12% on reduced equipment and supply sales.
Equipment rental revenue of $58,088 for the three months ended September
30, 2002 declined slightly versus equipment rental revenue of $58,549 for the
three months ended September 30, 2001, 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 facsimile product placement
strategy. We continued to implement this strategic shift in our copier systems
product line by increasing the focus on renting our copiers, responding to a
need for flexible office equipment procurement options in the national account
marketplace. Rental revenue derived from our copier product line increased 13%
reflecting growth in the overall installed rental population as well as the
impact of increased placements of our high-end digital products. 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 September 30, 2002 of
$20,900, primarily derived from stand-alone service contracts, increased 6%
versus support services revenue of $19,775 for the three months ended September
30, 2001, reflecting the combination of higher contract pricing associated with
the increased placement of high end digital products in the United States and
increased facsimile placements in the United Kingdom.
Cost of sales. Cost of sales was $47,236 for the three months ended
September 30, 2002 compared with $48,816 for the same period in 2001 and as a
percentage of sales revenue increased to 61.3% from 61.0%. This increase
resulted from lower pricing on equipment sales to Pitney Bowes Canada under the
reseller agreement and an increase in the mix of copier and multifunctional
products which have a higher cost of sales percentage than facsimile sales,
partially offset by lower product costs and lower provision for obsolete
inventory. The provision for obsolete inventory declined $1,735 in the United
States geographic segment and increased $48 in the United Kingdom geographic
segment. Excluding the provision for obsolete inventory and sales to Pitney
Bowes Canada, cost of sales as a percentage of revenue declined 0.1 percentage
points to 55.1%.
Cost of rentals. Cost of rentals was $20,991 for the three months ended
September 30, 2002 compared with $23,526 for the three months ended September
30, 2001 and as a percentage of rental revenue declined 4.1 percentage points to
36.1% for the three months ended September 30, 2002 from 40.2% for the three
months ended September 30, 2001. 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 $78,707 were 50.4% of total revenue for the three
months ended September 30, 2002 compared with $82,956, or 52.4% of total revenue
for the three months ended September 30, 2001. Selling, service and
administrative expenses declined 5% versus prior year reflecting lower accounts
receivable write-offs, the impact of fewer employees and the absence of
severance charges recorded during the third quarter of 2001, partially offset by
advertising expense associated with a major brand awareness campaign and the
expenditures for Enterprise Resource Planning ("ERP") technology designed to
improve long term operational efficiency and deliver higher levels of customer
support and service. Of the $4,249 decline in selling, service and
administrative expenses, United States geographic segment expenses declined
$4,329, while United Kingdom geographic segment expenses increased $80. Field
sales and service operating expenses are included in selling, service and
administrative expenses because no meaningful allocation of these expenses to
cost of sales, cost of rentals or cost of support services is practicable.
Earnings before interest and taxes. Earnings before interest and taxes were
$9,135 or 5.9% of total revenue for the three months ended September 30, 2002
compared with $3,024 or 1.9% of total revenue for the three months ended
September 30, 2001.
Page 15 of 27
Interest expense. Interest expense was $2,240 for the three months ended
September 30, 2002 compared with $2,636 for the three months ended September 30,
2001, primarily as a result of lower debt levels. Interest expense for the three
months ended September 30, 2002 includes a loss of $386 resulting from the
prepayment of $8 million of the Term Loan and associated unwinding of a portion
of the interest rate swap agreements. Prior to the Distribution, we participated
in Pitney Bowes' centralized cash management program, which was used to finance
our operations and interest expense for the three months ended September 30,
2001 represents an allocation from Pitney Bowes based upon the proportion of our
net assets to Pitney Bowes' net assets. The weighted average interest rate for
the three months ended September 30, 2002 was 7.1%. The Pitney Bowes weighted
average borrowing rate for the three months ended September 30, 2001 was 6.7%.
Effective tax rate. Our effective tax rate was 39.7% for the three months
ended September 30, 2002 compared with 27.3% for the three months ended
September 30, 2001. The low effective tax rate for the three months ended
September 30, 2001 results from the tax provision associated with the United
Kingdom geographic segment, offset by the tax benefit associated with the United
States geographic segment, which is at a higher rate. For the three months ended
September 30, 2001, our income was included in the Pitney Bowes consolidated
income tax returns and income tax expense was calculated as if Imagistics and
Pitney Bowes filed separate income tax returns.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
Revenue. For the nine months ended September 30, 2002, total revenue of
$469,521 increased slightly versus revenue for the nine months ended September
30, 2001 of $467,341 reflecting higher sales and support service revenue,
partially offset by lower rental revenue. The increase in revenue is
attributable to sales to Pitney Bowes Canada pursuant to the reseller agreement.
Excluding the impact of sales to Pitney Bowes Canada, total revenue declined 3%
versus the prior year.
Equipment and supply sales revenue increased 1% to $232,645 for the nine
months ended September 30, 2002 from $231,041 for the nine months ended
September 30, 2001. Excluding the impact of sales to Pitney Bowes Canada, total
sales revenue declined 6% compared with the prior year. Total copier sales
revenue declined 4% due to lower equipment and supply sales. Total facsimile
sales revenue declined 11% on reduced equipment and supply sales.
Equipment rental revenue declined 1% to $172,955 for the nine months ended
September 30, 2002 from $174,179 for the nine months ended September 30, 2001,
reflecting a decline in facsimile rental revenue largely offset by an increase
in copier rental revenue associated with the continuing copier marketing focus
on national account placements. Rental revenue derived from our copier product
line increased 10% reflecting growth in the overall installed rental population
as well as the impact of increased placements of our high-end digital products.
Rental revenue from our facsimile product line declined 6% versus the prior year
reflecting lower pricing and a lower installed base.
Support services revenue, primarily derived from stand-alone service
contracts, increased 3% to $63,921 for the nine months ended September 30, 2002
from $62,121 for the nine months ended September 30, 2001, reflecting higher
contract pricing associated with changing product mix coupled with increased
placements.
Cost of sales. Cost of sales was $145,044 for the nine months ended
September 30, 2002 compared with $145,033 for the same period in 2001 and as a
percentage of sales revenue declined to 62.3% from 62.8%. This decline resulted
from lower provisions for obsolete inventory and product cost reductions
partially offset by an increase in the mix of copier and multifunctional
products which have a higher cost of sales percentage than facsimile sales. The
provision for obsolete inventory declined $7,234, of which $2,696 is
attributable to the United Kingdom geographic segment and $4,538 is attributable
to the United States geographic segment. Excluding the provision for obsolete
inventory and sales to Pitney Bowes Canada, cost of sales as a percentage of
revenue declined 0.1 percentage points to 54.8%.
Cost of rentals. Cost of rentals was $64,446 for the nine months ended
September 30, 2002 compared with $69,837 for the nine months ended September 30,
2001 and as a percentage of rental revenue declined 2.8 percentage points to
37.3% for the nine months ended September 30, 2002 from 40.1% for the nine
months ended September 30, 2001. 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.
Page 16 of 27
Selling, service and administrative expenses. Selling, service and
administrative expenses of $233,042 were 49.6% of total revenue for the nine
months ended September 30, 2002 compared with $222,718, or 47.7% of total
revenue for the nine months ended September 30, 2001. Selling, service and
administrative expenses increased 5% versus prior year reflecting increased
finance and administrative costs associated with becoming an independent public
company, the expenditures for ERP technology and advertising expenditures
associated with a brand awareness campaign, partially offset by the impact of
fewer employees and lower accounts receivable write offs. Of the $10,324
increase in selling, service and administrative expenses, United States
geographic segment expenses increased $10,445 while United Kingdom geographic
segment expenses declined $121. Field sales and service operating expenses are
included in selling, service and administrative expenses because no meaningful
allocation of these expenses to cost of sales, cost of rentals or cost of
support services is practicable.
Earnings before interest and taxes. Earnings before interest and taxes were
$26,989 or 5.8% of total revenue for the nine months ended September 30, 2002
compared with $29,753 or 6.4% of total revenue for the nine months ended
September 30, 2001.
Interest expense. Interest expense was $6,429 for the nine months ended
September 30, 2002 compared with $8,484 for the nine months ended September 30,
2001, primarily as a result of lower debt levels. Interest expense for the nine
months ended September 30, 2002 includes a loss of $386 resulting from the
prepayment of $8 million of the Term Loan and associated unwinding of a portion
of the interest rate swap agreements. Prior to the Distribution, we participated
in Pitney Bowes' centralized cash management program, which was used to finance
our operations. Interest expense for the nine months ended September 30, 2001
represents an allocation from Pitney Bowes based upon the proportion of our net
assets to Pitney Bowes' net assets. The weighted average interest rate for the
nine months ended September 30, 2002 was 7.1%. The Pitney Bowes weighted average
borrowing rate for the nine months ended September 30, 2001 was 6.7%.
Effective tax rate. Our effective tax rate was 39.7% for the nine months
ended September 30, 2002 compared with 39.5% for the nine months ended September
30, 2001. For the nine months ended September 30, 2001, our income was included
in the Pitney Bowes consolidated income tax returns and income tax expense was
calculated as if Imagistics and Pitney Bowes filed separate income tax returns.
LIQUIDITY AND CAPITAL RESOURCES
On November 9, 2001 we entered into a Credit Agreement with a group of
lenders. The Credit Agreement provides for secured borrowings and the issuance
of letters of credit in an aggregate amount not to exceed $225 million and was
comprised of a $125 million Revolving Credit Facility and a $100 million Term
Loan. The term of the Revolving Credit Facility is five years and the term of
the Term Loan is six years. The original borrowings of $100 million under the
Term Loan were payable in 20 consecutive equal quarterly installments of $0.3
million due March 31, 2002 through December 31, 2006, three consecutive equal
quarterly installments of $23.8 million due March 31, 2007 through September 30,
2007 and a final payment of $23.8 million due at maturity. Our Credit Agreement
received a BB+ rating from Standard & Poors and a rating of Ba3 from Moody's
Investor Services.
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 and a maximum leverage ratio, as well as other covenants, which,
among other things, place limits on dividend payments and capital expenditures.
On March 19, 2002, we amended the Credit Agreement to increase the total amount
of our stock permitted to be repurchased from $20 million to $30 million. We
entered into a second amendment to the Credit Agreement on July 19, 2002 that
increased the amount of our stock permitted to be repurchased from $30 million
to $58 million. The Credit Agreement allows us to make acquisitions up to an
aggregate consideration of $30 million. At September 30, 2002, we were in
compliance with all financial covenants and expect to continue to be in
compliance with these covenants.
Page 17 of 27
Amounts borrowed under the Revolving Credit Facility bear 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 bear interest, as amended by the
second amendment, at variable rates based, at our option, on either the LIBOR
rate plus a margin of from 2.75% to 3.75%, depending on our leverage ratio, or
the Fleet Bank base lending rate plus a margin of from 1.75% to 2.75%, depending
on our leverage ratio. A commitment fee of from 0.375% to 0.500%, depending on
our leverage ratio, on the average daily unused portion of the Revolving Credit
Facility is payable quarterly, in arrears. From July 1, 2002 through July 18,
2002, the interest rate on our Term Loan was LIBOR plus 3.50%. Since July 19,
2002, the interest rate on our Term Loan has been LIBOR plus 2.75%.
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. The
two interest rate swap agreements expire in February 2005. 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 non-performance. Under
the terms of the swap agreements, we will receive payments based upon the 90-day
LIBOR rate and will remit payments based upon a fixed rate. The fixed interest
rates are 4.165% and 4.320% for the $50 million and the $30 million swap
agreements, respectively. During the third quarter, 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 $386
from accumulated other comprehensive loss into interest expense. We also unwound
$8 million of the $30 million interest rate swap agreement. At September 30,
2002, two swap agreements in the notional amounts of $50 million and $22 million
were outstanding, the aggregate fair value of which was an obligation of $3.5
million, which was recorded in other liabilities. The unrealized loss relating
to the outstanding swap agreements was included in accumulated other
comprehensive loss in stockholders' equity. The interest rate swap agreements
were 100% effective for the three and nine months ended September 30, 2002.
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 September 30, 2002, approximately $74 million
of borrowings were outstanding under the Credit Agreement, consisting solely of
borrowings under the Term Loan. Based upon the borrowing base at September 30,
2002, substantially all of the Revolving Credit Facility is available for
borrowing.
Historically, our cash flow has been positive as a result of our high
percentage of recurring revenues from rental, supplies and service. We expect
our cash flow to remain positive although we do expect our cash generation to
moderate as the Company's ability to continue to provide cash through changes in
working capital is reduced.
Net cash provided by operating activities was $132,273 and $105,863 for the
nine months ended September 30, 2002 and 2001, respectively. Net income was
$12,392 and $12,876, respectively. Non-cash charges for depreciation and
amortization, accounts receivable write offs and inventory obsolescence
provisions provided cash of $73,997 and $84,196 for the nine months ended
September 30, 2002 and 2001, respectively. Changes in the principal components
of working capital provided cash of $40,533 and $7,860 in the nine months ended
September 30, 2002 and 2001, respectively. Of the $40,533 of cash provided by
working capital changes in the nine months ended September 30, 2002,
approximately $16 million was a result of accruals for stand-alone expenses such
as employee benefits and incentive compensation, which had been included in
amounts due to Pitney Bowes in periods prior to the Distribution.
We used $53,583 and $59,840 in investing activities for the nine months
ended September 30, 2002 and 2001, respectively. Investment in rental equipment
assets totaled $38,723 and $48,519 for the nine months ended September 30, 2002
and 2001, respectively. Capital expenditures for property, plant and equipment
were $14,860, and $7,900 for the nine months ended September 30, 2002 and 2001,
respectively. Investment in ERP accounted for $9,138 of the capital expenditures
for property, plant and equipment for the nine months ended September 30, 2002.
Page 18 of 27
Cash used in financing activities was $72,628 for the nine months ended
September 30, 2002 reflecting repayments under the Revolving Credit Facility and
Term Loan and the repurchase of outstanding stock. As a result of repayments,
the remaining outstanding borrowings under the Term Loan at September 30, 2002
are payable in 17 consecutive equal quarterly installments of $0.2 million due
December 31, 2002 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. On March 27, 2002, we began
repurchasing our stock under the $30 million stock buy back program previously
approved by the Board of Directors and, as of September 30, 2002, accumulated
approximately 1.6 million shares of treasury stock at a cost of $30 million.
Cash used in financing activities in 2001 reflects decreases in amounts due to
Pitney Bowes for corporate allocations and other intercompany charges. 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.
The ratio of current assets to current liabilities declined to 2.6 to 1 at
September 30, 2002 compared with 3.4 to 1 at December 31, 2001 due to reductions
in accounts receivable and inventory and an increase in accounts payable and
accrued liabilities. At September 30, 2002 our total debt as a percentage of
total capitalization declined to 22% from 29% at December 31, 2001 due to debt
repayments offset in part by stock repurchases.
We had no material commitments other than supply agreements with vendors
that extend only to equipment 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 $30 million to $35 million over the next 18-24 months to enhance
our information systems infrastructure and implement our ERP system.
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 Separating Our Company From Pitney Bowes
We have only recently been operating as an independent entity and may be
unable to make the changes necessary to operate effectively as a stand-alone
entity or may incur greater costs as a stand-alone entity causing our
profitability to decline.
Prior to the Distribution our business was operated as part of Pitney
Bowes' broader corporate organization rather than as a stand-alone company. We
are in the process of creating our own, or engaging third parties to provide
systems, warehousing and distribution, service call center and dispatch services
and other business functions to replace many of the systems and business
functions historically provided by Pitney Bowes. There can be no assurance that
we will be able to successfully implement these changes or will not incur
additional costs as a result. In particular, we need to have our own IT and ERP
systems in place in order to operate our business without interruption. Due to
unanticipated delays in implementation of the ERP system, the Company has
entered into discussions with Pitney Bowes regarding the extension of the
transition services agreement as it relates to IT related services until
December 2003. Before entering into any extension of these transition services
beyond June 2003 we will seek the approval by the IRS of a ruling request
confirming that such extension will not affect the tax-free nature of the
spin-off. The Company is working together with Pitney Bowes to prepare and file
the necessary ruling request. Although the Company expects that the ruling
request will be granted in the ordinary course and that Pitney Bowes will
continue to provide the IT related services during the period necessary for the
Company to implement business critical ERP applications, there can be no
assurance that the IRS will provide the requested ruling or that Pitney Bowes
will grant the necessary extension of the IT related services. Any failure to
obtain a favorable IRS ruling or to extend the required IT related services for
the period required to permit the Company to implement replacement systems would
have a material adverse affect on the operations and financial position of the
Company.
Pitney Bowes has been and is expected to continue to be a significant
customer. For the three and nine months ended September 30, 2002, revenues from
Pitney Bowes, exclusive of equipment sales to PBCC for lease to the end user,
accounted for 9.2% and 8.7% of our total revenue, respectively. However, no
assurance can be given that Pitney Bowes will continue to purchase our products
and services.
Page 19 of 27
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 Pitney Bowes or we
elect to terminate the non-competition obligations contained in the distribution
agreement. In 2002, we began introducing products under the "Imagistics" brand
name and we may be required to expend substantial resources 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 are no longer associated with Pitney Bowes.
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
multi-functional office environment. Our continued success will depend to a
great extent on our ability to respond to this rapidly changing environment by
providing new options and document imaging solutions for our customers.
The proliferation of e-mail, multi-functional printers 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 and 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 and
service packages 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, one
manufacturer supplies a significant portion of our new copier 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 for the 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 product and we will
experience some delay in obtaining the product.
In addition, a substantial portion of the Company's equipment, supplies and
spare parts inventory is sourced from the Far East and imported through West
Coast ports. If the recent work stoppage at the West Coast docks were to resume
after the end of the Taft-Hartley cooling off period, the Company would be
required to re-route future inventory shipments to other ports, possibly
resulting in sales disruptions, increased transportation expenses for future
inventory shipments and the need to maintain higher levels of inventory. This
could adversely affect the Company's operating results.
Other events that disrupt the shipment to or receipt of ocean freight at
U.S. ports, such as future 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 new product, supplies and parts 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.
A substantial majority of our new equipment is produced in China. Products
produced in China are not currently eligible for inclusion on the Federal
Government Services Administration ("GSA") Schedule. Inclusion on the GSA
Schedule is often required before federal government and other state and local
governmental customers will consider these products for rental or purchase. If
products produced in China are not approved for listing on the GSA Schedule, our
ability to maintain our business with these governmental customers could be
impaired.
Page 20 of 27
Governmental contracts typically contain provisions permitting the
governmental customers to terminate the contract if funds for such contracts are
not appropriated by the applicable legislative body. In addition, many of our
rental agreements with governmental customers and certain other customers
contain provisions allowing early termination in whole or in part. Historically
there has not been a significant number of contract terminations, however, we
can provide no assurance that our business will not be adversely affected by
early rental contract terminations.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 requires the recognition of an asset
retirement obligation when an entity incurs a legal obligation associated with
the retirement of a tangible long-lived asset and the amount of the liability
can be reasonably estimated. We will adopt SFAS No. 143 on January 1, 2003. We
are currently assessing the effect, if any, SFAS No. 143 may have on our
financial position, results of operations, or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and of Long-Lived
Assets to be Disposed of" and establishes accounting and reporting standards for
long-lived assets, excluding goodwill, to be used, held for sale or disposed of
other than by sale. SFAS No. 144 requires an entity to recognize an impairment
loss in an amount equal to the difference between the carrying amount of the
long-lived asset and its fair value if the carrying amount of the asset is not
recoverable from undiscounted cash flows. We adopted SFAS No. 144 effective
January 1, 2002. The adoption of this accounting standard did not have a
material impact on our consolidated financial position, results of operations,
or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements. As a result of rescinding SFAS No. 4 and SFAS No. 64, the
criteria in Accounting Principles Bulletin No. 30 will be used to classify gains
and losses from extinguishment of debt. We will adopt SFAS No. 145 on January 1,
2003. The adoption of SFAS No. 145 will not 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 provides guidance on
the recognition and measurement of liabilities associated with disposal
activities. We will adopt SFAS No. 146 on January 1, 2003. We are currently
assessing the effect, if any, SFAS No. 146 may have 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, 2001.
Page 21 of 27
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 22 of 27
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 course of normal 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 rights, equipment, service or
payment disputes with customers and disputes with employees.
In connection with the Distribution, liabilities were transferred to us for
matters where Pitney Bowes was a plaintiff or a defendant in lawsuits relating
to our business or products. 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.
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,
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)
10.26 Employment Agreement between Imagistics International Inc. and
Joseph W. Higgins (3)
10.27 Amendment No. 1 to Credit Agreement between Imagistics International and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, as
Syndication Agent, Fleet Capital Corporation, as Administrative Agent,
and the Lenders identified therein (4)
Page 23 of 27
10.28 Amendment No. 2 to Credit Agreement between Imagistics International and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, 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)
13.1 Portions of the 2001 Annual Report to Stockholders (3)
18.1 Preferability letter from PricewaterhouseCoopers regarding change in
accounting principle (3)
21.1 Subsidiaries of Imagistics International Inc. (3)
23.1 Consent of PricewaterhouseCoopers LLP (3)
------------------------
(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.
(b) Reports on Form 8-K.
On July 23, 2002, the Company filed a Current Report on Form 8-K, reporting
under Item 5 thereof, the Second Amendment to the Credit Agreement, dated as of
July 19, 2002.
On September 20, 2002, the Company filed a Current Report on Form 8-K,
reporting under Item 9 thereof, the resignation of Michael J. Critelli as a
member of the board of directors and governance committee of the Company
effective as of September 30, 2002.
Page 24 of 27
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: November 13, 2002 Imagistics International Inc.
------------------------------------------
(Registrant)
By: /s/ Joseph D. Skrzypczak
------------------------------------------
Name: Joseph D. Skrzypczak
Title: Chief Financial Officer
and Authorized Signatory
Page 25 of 27
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: November 13, 2002 /s/ Marc C. Breslawsky
Chief Executive Officer
Page 26 of 27
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: November 13, 2002 /s/ Joseph D. Skrzypczak
Chief Financial Officer
Page 27 of 27