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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, 2004
|_| 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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 $0.01 per share,
outstanding as of April 30, 2004: 16,650,609
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IMAGISTICS INTERNATIONAL INC.
Table of Contents
PART I - FINANCIAL INFORMATION ................................................................................... 3
ITEM 1. FINANCIAL STATEMENTS .................................................................................... 3
Consolidated Statements of Income for the three months ended March 31, 2004 and 2003 (Unaudited) ........ 3
Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003 ...................... 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (Unaudited) .... 5
Notes to Consolidated Financial Statements .............................................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ......................................................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............................................. 25
ITEM 4. CONTROLS AND PROCEDURES ................................................................................. 25
PART II - OTHER INFORMATION ...................................................................................... 26
ITEM 1. LEGAL PROCEEDINGS ....................................................................................... 26
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES ........................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................................................ 26
SIGNATURES ....................................................................................................... 28
Page 2 of 28
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMAGISTICS INTERNATIONAL INC.
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
For the three months ended
March 31,
----------------------------
2004 2003
----------- -----------
Revenue:
Sales $ 82,555 $ 73,053
Rentals 54,411 57,068
Support services 21,356 20,801
----------- -----------
Total revenue 158,322 150,922
Cost of sales 48,946 45,244
Cost of rentals 15,790 19,171
Selling, service and administrative expenses 82,567 76,865
----------- -----------
Operating income 11,019 9,642
Interest expense 935 1,629
----------- -----------
Income before income taxes 10,084 8,013
Provision for income taxes 4,337 3,247
----------- -----------
Net income $ 5,747 $ 4,766
=========== ===========
Earnings per share:
Basic $ 0.35 $ 0.28
=========== ===========
Diluted $ 0.34 $ 0.27
=========== ===========
Shares used in computing earnings per share:
Basic 16,385,689 17,228,940
=========== ===========
Diluted 17,111,771 17,780,016
=========== ===========
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,
2004 2003
----------- ------------
(Unaudited)
Assets
Current assets:
Cash $ 12,521 $ 22,938
Accounts receivable, net of allowances of $11,785 and $10,575
at March 31, 2004 and December 31, 2003, respectively 119,754 107,690
Accrued billings 22,171 20,862
Inventories 83,614 86,134
Current deferred taxes on income 26,666 24,191
Other current assets and prepaid expenses 5,835 4,806
--------- ---------
Total current assets 270,561 266,621
Property, plant and equipment, net 53,519 53,204
Rental equipment, net 63,166 67,179
Goodwill, net 59,000 55,447
Other assets 4,253 4,281
--------- ---------
Total assets $ 450,499 $ 446,732
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 545 $ 545
Accounts payable and accrued liabilities 67,053 79,291
Advance billings 15,156 16,323
--------- ---------
Total current liabilities 82,754 96,159
Long-term debt 77,768 62,903
Deferred taxes on income 17,867 17,919
Other liabilities 3,373 2,350
--------- ---------
Total liabilities 181,762 179,331
Commitments and contingencies (see Note 8)
Stockholders' equity:
Preferred stock ($1.00 par value; 10,000,000 shares authorized, none issued) -- --
Common stock ($0.01 par value; 150,000,000 shares authorized, 19,939,445
and 19,871,061 issued at March 31, 2004 and December 31, 2003, respectively) 199 199
Additional paid-in-capital 296,231 295,176
Retained earnings 40,727 34,981
Treasury stock, at cost (3,245,778 and 3,096,878 at
March 31, 2004 and December 31, 2003, respectively) (69,053) (62,783)
Unearned compensation (1,486) (1,934)
Accumulated other comprehensive income 2,119 1,762
--------- ---------
Total stockholders' equity 268,737 267,401
--------- ---------
Total liabilities and stockholders' equity $ 450,499 $ 446,732
========= =========
See Notes to Consolidated Financial Statements
Page 4 of 28
IMAGISTICS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
For the three months ended
March 31,
--------------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income $ 5,747 $ 4,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,083 18,981
Provision for bad debt 2,380 2,602
Provision for inventory obsolescence 1,368 1,533
Deferred taxes on income (2,526) 297
Change in assets and liabilities, net of acquisitions:
Accounts receivable (13,706) 5,097
Accrued billings (1,310) (392)
Inventories 1,508 (1,047)
Other current assets and prepaid expenses (1,023) (2,058)
Accounts payable and accrued liabilities (13,097) (5,919)
Advance billings (1,271) (418)
Other, net 1,153 (966)
-------- --------
Net cash (used in) provided by operating activities (3,694) 22,476
Cash flows from investing activities:
Expenditures for rental equipment assets (9,776) (10,622)
Expenditures for property, plant and equipment (2,791) (4,824)
Acquisitions (3,806) --
-------- --------
Net cash used in investing activities (16,373) (15,446)
Cash flows from financing activities:
Exercises of stock options, including sales
under employee stock purchase plan 1,056 909
Purchases of treasury stock (6,270) (12,597)
Repayments under term loan (136) (187)
Net borrowings under revolving credit facility 15,000 --
-------- --------
Net cash provided by (used in) financing activities 9,650 (11,875)
-------- --------
Decrease in cash (10,417) (4,845)
Cash at beginning of period 22,938 31,325
-------- --------
Cash at end of period $ 12,521 $ 26,480
======== ========
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
direct sales, service and marketing organization offering business document
imaging and management solutions, including copiers, multifunctional products
and facsimile machines, in the United States, Canada and United Kingdom. The
Company's primary customers include large corporate customers known as national
accounts, government entities and mid-size and regional businesses known as
commercial accounts. Multifunctional products, often referred to as MFPs, offer
the multiple functionality of printing, copying, scanning and faxing in a single
unit. In addition, the Company offers a range of 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 United States and
United Kingdom office systems businesses to the Company and a distribution of
the stock of the Company to stockholders of Pitney Bowes based on a distribution
ratio of 1 share of Imagistics common stock for every 12.5 shares of Pitney
Bowes common stock held at the close of business on November 19, 2001 (the
"Distribution").
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 $0.01 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 $0.01
per share. The Company issued 19,463,007 shares of common stock in connection
with the Distribution described above.
Pitney Bowes received tax rulings from the Internal Revenue Service
stating that, subject to certain representations, the Distribution qualified 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 the rules and regulations of the United
States Securities and Exchange Commission (the "SEC") and do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of the management of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of results of
operations, financial position and cash flows as of and for the periods
presented have been included. 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, 2004 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, 2003 filed with the SEC on March 12, 2004.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Page 6 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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/MFP equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the 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. The Company
records 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 the Company receives
prior notice of cancellation. Under the terms of rental contracts, the Company
bills its customers a flat periodic charge and/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. The Company records a
provision for estimated usage adjustments on rental contracts based upon
historical experience.
Support services contracts, which often include supplies, are generally
for an initial term of one year with automatic renewals unless the Company
receives prior notice of cancellation. Under the terms of support services
contracts, the Company bills its 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. The Company records a provision for estimated usage adjustments on
service contracts based upon historical experience.
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.
The Company enters into arrangements that include multiple deliverables,
which typically consist of the sale of equipment with a support services
contract. The Company accounts 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 of support services contracts when sold on a stand-alone basis.
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 on a straight-line basis over the vesting period. The Company
does not recognize stock-based compensation expense on its stock options 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.
Page 7 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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:
For the three months ended
March 31,
--------------------------
2004 2003
--------- ---------
Net income, as reported $ 5,747 $ 4,766
Add: Stock-based compensation expense
included in net income, net of related tax effects 449 388
Deduct: Total stock-based compensation expense
based on the fair value method, net of related tax effects (1,012) (837)
--------- ---------
Pro forma net income $ 5,184 $ 4,317
========= =========
Basic earnings per share:
As reported $ 0.35 $ 0.28
Pro forma $ 0.31 $ 0.25
Diluted earnings per share:
As reported $ 0.34 $ 0.27
Pro forma $ 0.30 $ 0.24
3. Supplemental Information
Inventories
Inventories consisted of the following at March 31, 2004 and December 31,
2003:
March 31, December 31,
2004 2003
--------- ------------
Finished products $48,313 $50,726
Supplies and service parts 35,301 35,408
------- -------
Total inventories $83,614 $86,134
======= =======
Page 8 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
Fixed assets
Fixed assets consisted of the following at March 31, 2004 and December 31,
2003:
March 31, December 31,
2004 2003
--------- ------------
Land $ 1,356 $ 1,356
Buildings and leasehold improvements 11,220 10,976
Machinery and equipment 24,135 23,474
Computers and software 49,317 47,356
--------- ---------
Property, plant and equipment, gross 86,028 83,162
Accumulated depreciation (32,509) (29,958)
--------- ---------
Property, plant and equipment, net $ 53,519 $ 53,204
========= =========
Rental equipment, gross $ 323,592 $ 333,563
Accumulated depreciation (260,426) (266,384)
--------- ---------
Rental equipment, net $ 63,166 $ 67,179
========= =========
Depreciation and amortization expense was $17.1 million and $19.0 million
for the three months ended March 31, 2004 and 2003, respectively. Unamortized
software costs totaled $27.8 million as of March 31, 2004 and $27.0 million as
of December 31, 2003. Amortization expense on account of capitalized software
totaled $1.0 million and $0.2 million for the three months ended March 31, 2004
and 2003, respectively.
Current liabilities
Accounts payable and accrued liabilities consisted of the following at
March 31, 2004 and December 31, 2003:
March 31, December 31,
2004 2003
--------- ------------
Accounts payable $20,252 $33,237
Accrued compensation and benefits 5,562 8,321
Other non-income taxes payable 6,160 6,626
Other accrued liabilities 35,079 31,107
------- -------
Accounts payable and accrued liabilities $67,053 $79,291
======= =======
Comprehensive income
Comprehensive income consisted of the following for the three months ended
March 31, 2004 and 2003:
For the three months ended
March 31,
--------------------------
2004 2003
------ ------
Net income $5,747 $4,766
Translation adjustment 357 47
Unrealized gain on cash flow hedges -- 29
------ ------
Comprehensive income $6,104 $4,842
====== ======
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, 2003 3,096,878 $62,783
Purchases under stock buy back program 148,900 6,270
--------- -------
Balance at March 31, 2004 3,245,778 $69,053
========= =======
Cash flow information
Cash paid for income taxes was $637 and $1,898 for the three months ended
March 31, 2004 and 2003, respectively. Cash paid for interest was $682 and
$1,424 for the three months ended March 31, 2004 and 2003, respectively.
4. Business Segment Information
The Company operates in two reportable segments based on geographic area:
North America and the United Kingdom. Revenues are attributed to geographic
regions based on where the revenues are derived.
For the three months ended
March 31,
--------------------------
2004 2003
-------- --------
Revenues:
North America $152,633 $145,503
United Kingdom 5,689 5,419
-------- --------
Total revenues $158,322 $150,922
======== ========
Income before income taxes:
North America $ 9,033 $ 6,901
United Kingdom 1,051 1,112
-------- --------
Total income before income taxes $ 10,084 $ 8,013
======== ========
Revenues from Pitney Bowes, substantially all of which are generated in
the North America segment, consisted of the following for the three months ended
March 31, 2004 and 2003:
For the three months ended
March 31,
--------------------------
2004 2003
------- -------
Revenues from Pitney Bowes:
Pitney Bowes of Canada $10,143 $ 6,369
Other subsidiaries of Pitney Bowes 5,407 6,421
------- -------
Sub-total 15,550 12,790
Pitney Bowes Credit Corporation 19,648 21,436
------- -------
Total $35,198 $34,226
======= =======
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 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.
Page 10 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
The following tables show identifiable long-lived assets and total assets
for each reportable segment at March 31, 2004 and December 31, 2003.
March 31, December 31,
2004 2003
--------- ------------
Identifiable long-lived assets:
North America $176,164 $176,157
United Kingdom 3,775 3,954
-------- --------
Total identifiable long-lived assets $179,939 $180,111
======== ========
Total assets:
North America $435,388 $428,885
United Kingdom 15,111 17,847
-------- --------
Total assets $450,499 $446,732
======== ========
Identifiable long-lived assets in North America included goodwill of $59.0
million and $55.4 million at March 31, 2004 and December 31, 2003, respectively.
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 who operate
manufacturing facilities in Asia. Although the Company currently sources
products from a number of manufacturers throughout the world, a significant
portion of new copier/MFP equipment is currently obtained from three 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 were 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. Diluted earnings per share was calculated by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding plus all dilutive common stock equivalents
outstanding during the period. The calculation of diluted earnings per share did
not include shares underlying approximately 7,300 and 312,250 options for the
three months ended March 31, 2004 and 2003, 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:
For the three months ended
March 31,
----------------------------
2004 2003
----------- -----------
Net income available to common stockholders $ 5,747 $ 4,766
=========== ===========
Weighted average common shares outstanding 16,735,389 17,568,605
Less: non-vested restricted stock 349,700 339,665
----------- -----------
Weighted average common shares for basic earnings per share 16,385,689 17,228,940
Add: dilutive effect of restricted stock 211,994 339,665
Add: dilutive effect of stock options 514,088 211,411
----------- -----------
Weighted average common shares and equivalents
for diluted earnings per share 17,111,771 17,780,016
=========== ===========
Basic earnings per share $ 0.35 $ 0.28
=========== ===========
Diluted earnings per share $ 0.34 $ 0.27
=========== ===========
6. Goodwill and Goodwill Amortization
The Company accounts for goodwill in accordance with 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 and on an interim basis
if events or changes in circumstances indicate that goodwill might be impaired.
The Company performed its annual test for impairment as of October 1, 2003 using
the discounted cash flow valuation method.There was no impairment to the value
of the Company's recorded goodwill. As of March 31, 2004, there were no events
or changes in circumstances that would indicate that goodwill might be impaired.
The carrying value of goodwill as of March 31, 2004 increased $3.5 million as a
result of an acquisition (see Note 10). The carrying value of goodwill of $59.0
million as of March 31, 2004 is attributable to the North America geographic
segment.
7. Long-Term Debt
Long-term debt consisted of the following at March 31, 2004 and December
31, 2003:
March 31, December 31,
2004 2003
--------- ------------
Revolving Credit Facillity $25,000 $10,000
Term Loan 53,313 53,448
Less: current maturities 545 545
------- -------
Total long-term debt $77,768 $62,903
======= =======
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 required the Company to manage its 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, the Company 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 were designated as cash flow hedges.
Page 12 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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 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 the Company's leverage ratio, or 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 the Company's leverage ratio. 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 covenant to $100 million for the remainder of the term of the
Credit Agreement and to revise the limitation on capital expenditures. On May
16, 2003, the Credit Agreement was amended (the "Fourth Amendment") to reduce
the aggregate amount of the Revolving Credit Facility from $125 million to $95
million, to delete the requirement that the Company maintain interest rate
protection with respect to at least 50% of the aggregate principal amount of the
Term Loan, to reduce and fix the Term Loan interest rate to LIBOR plus a margin
of 2.25%, from LIBOR plus a margin of from 2.75% to 3.75%, depending on the
Company's leverage ratio, or to the Fleet Bank base lending rate plus a margin
of 1.25%, from the Fleet Bank base lending rate plus a margin of from 1.75% to
2.75%, depending on the Company's leverage ratio, to reduce and fix the
Revolving Credit Facility interest rate to LIBOR plus a margin of 1.25%, from
LIBOR plus a margin of from 2.25% to 3.00%, depending on the Company's leverage
ratio, or to the Fleet Bank base lending rate plus a margin of 0.25%, from the
Fleet Bank base lending rate plus a margin of from 1.25% to 2.00%, depending on
the Company's leverage ratio and to fix the commitment fee at 0.375% on the
average daily unused portion of the Revolving Credit Facility from 0.375% to
0.500% on the average daily unused portion of the Revolving Credit Facility,
depending on the Company's leverage ratio. On May 7, 2004, the Credit Agreement
was further amended (the "Fifth Amendment") to increase the amount of the
Company's stock permitted to be repurchased from $78 million to $108 million, to
increase the aggregate amount of acquisition consideration paid for acquisitions
from $30 million to $60 million and to remove the requirement for annual
borrowing base audits so long as $50 million or more of borrowings are available
under the Credit Agreement and the fixed charge ratio, as defined in the Fifth
Amendment, is 2.0 or higher.
During the third quarter of 2002, the Company revised its 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, the Company 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 income (loss)
into interest expense. The Company also unwound $8 million of the $30 million
interest rate swap agreement.
During the third quarter of 2003, the Company revised its cash flow
estimates and prepaid $20 million of the amount outstanding under the Term Loan.
In light of this revision, the deletion of the interest rate protection
requirement resulting from the Fourth Amendment and the Company's consistent
historical positive cash flow and near term estimated operating and capital
expenditure requirements, the Company disposed of its two interest rate swap
agreements in the notional amounts of $50 million and $22 million. Accordingly,
the Company reclassified $2.8 million from accumulated other comprehensive
income (loss) into interest expense because it was no longer probable that the
hedged forecasted transactions would occur.
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.
Page 13 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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 obligated 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, 2004, the
Company has not paid any material 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 adverse 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 normal course of 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 the aggregate, should have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
Risks and uncertainties
In October 2003, the Company began the implementation of Phase II of its
enterprise resource planning ("ERP") system, consisting of order management,
order fulfillment, billing, cash collection, service management and sales
compensation. As a result of this implementation, the Company has experienced,
as expected, certain temporary processing inefficiencies, which have resulted in
a short-term increase in working capital requirements, particularly accounts
receivable, due to the standardization of the Company's billing practices and
schedules across all product lines, the initial temporary suspension in
invoicing the Company's customers during the conversion to the new ERP system
and delays in collections resulting from customer inquiries relating to changes
to the Company's billing policies and invoice format and an increase in
rebilling activity to satisfy customer requirements. The Company believes that
the increase in accounts receivable is temporary and that its collection losses
related to these temporarily suspended amounts will not be materially different
than its historical experience. However, if collection losses related to these
amounts are significantly higher than the Company's historical experience, the
Company would recognize an increase in its provision for bad debt in the near
future. In addition, certain of the temporary processing inefficiencies have
resulted in delays in certain product shipments, service responsiveness and
potential inaccuracies in calculated sales compensation. These issues, coupled
with certain revisions to the Company's billing practices, could have a negative
impact on customer service and satisfaction and employee retention, which could
result in a potential loss of business. The Company is engaged in a period of
stabilization and clean up, as is typical of a large ERP implementation and the
Company anticipates that this transition will be completed during 2004. Although
no assurance can be given that these efforts will be successful in the time
periods expected, other than the temporary increase in working capital
requirements, the Company does not anticipate that these issues will have a
material adverse effect on its financial position, results of operations or
future cash flows.
9. Separation Agreements
The Company and Pitney Bowes entered into a transition services agreement
that provided for Pitney Bowes to provide certain services to the Company for a
limited time following the Distribution. These services were provided at cost
and included information technology, computing, telecommunications, certain
accounting, field service of equipment and dispatch call center services. The
Company and Pitney Bowes had agreed to an extension until December 31, 2003, of
the transition services agreement as it related to information technology and
related services. Services provided under this extension were at negotiated
Page 14 of 28
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
market rates. Except for field service of equipment, all of the services
provided by Pitney Bowes under these agreements have ceased in accordance with
the terms of the agreements.
The Company and Pitney Bowes entered into a one-year service agreement on
an arms-length basis relating to field service of equipment in certain remote
geographic locations not covered by the Company's direct service organization.
This agreement expires on July 1, 2004. Services provided under this agreement
are at negotiated prices.
The Company paid Pitney Bowes $1.3 million for the three months ended
March 31, 2004 in connection with field service of equipment. The Company paid
Pitney Bowes $6.4 million for the three months ended March 31, 2003 in
connection with the transition services agreement, field service of equipment
and other administrative expenses.
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 obligated 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.
10. Acquisitions
Effective March 16, 2004, the Company completed its acquisition of
substantially all of the assets and business of an independent dealer of copier
and multifunctional equipment and related support services in Canada, to
continue to expand the Company's geographic sales and service capabilities. The
aggregate purchase price was $4.4 million, consisting of $3.8 million cash paid
at closing, $0.3 million payable 120 days from closing and $0.3 million payable
24 months after closing. Of the aggregate purchase price, $0.6 million was
allocated to the assets acquired and liabilities assumed at the date of
acquisition and $3.8 million was allocated to intangible and other assets, of
which $3.5 million was goodwill.
Effective August 30, 2003, the Company completed its acquisition of
substantially all of the assets and business of one independent dealer of copier
and multifunctional equipment and related support services, to expand the
Company's geographic sales and service capabilities. The aggregate purchase
price was $4.1 million, of which $0.8 million was allocated to the assets
acquired and liabilities assumed at the date of acquisition and $3.3 million was
allocated to intangible and other assets, of which $2.8 million was goodwill.
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of the acquired businesses have been
included in the Company's consolidated financial statements from the respective
dates of acquisition.
Page 15 of 28
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 our latest
Annual Report on Form 10-K for the year ended December 31, 2003 filed with the
United States Securities and Exchange Commission on March 12, 2004, 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." and "Imagistics," refers to
Imagistics International Inc. and subsidiaries.
OVERVIEW
Imagistics is a large direct sales, service and marketing organization
offering business document imaging and management solutions, including copiers,
multifunctional products and facsimile machines, in the United States, Canada
and United Kingdom. Our primary customers include large corporate customers
known as national accounts, government entities and mid-size and regional
businesses known as commercial accounts. Multifunctional products, often
referred to as MFPs, offer the multiple functionality of printing, copying,
scanning and faxing in a single unit. 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,
customers and employees. Our strategic initiatives include:
o Maintaining and further strengthening major account
relationships,
o Expanding our product offerings through our sourcing and
distribution relationships,
o Increasing outreach of our direct sales and service force to
the copier/MFP market,
o Focusing on customer needs and
o Pursuing opportunistic expansion and investments.
The principal evolution in our industry and business has been the
transition to networked digital copiers/MFPs, away from single-function
standalone facsimile machines and analog copiers. This transition has resulted
in decreased demand for and usage of single function facsimile equipment in the
marketplace. We have responded to this market development by focusing our
efforts on the growth opportunities existing in our digital copier and MFP
product lines. The decrease in facsimile usage and our focus on the digital
copier and MFP growth potential has resulted in a decrease in facsimile product
line revenues, which has been offset by an increase in our copier/MFP product
line revenues.
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/MFP equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the 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 a flat periodic charge and/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. We record a provision
for estimated usage adjustments on rental contracts based upon historical
experience.
Page 16 of 28
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. We record a provision
for estimated usage adjustments on service contracts based upon historical
experience.
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 of support services
contracts when sold on a stand-alone basis.
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/MFP equipment is depreciated over three years and facsimile
equipment placed in service prior to October 1, 2003 is depreciated over five
years. Facsimile equipment placed in service on or after October 1, 2003 is
depreciated over three years.
Revenues
(Dollars in thousands)
The following table shows our revenue sources by product line for the
periods indicated.
For the three months ended
March 31,
-----------------------------
2004 2003
-------- --------
Copier/MFP product line $105,295 $ 92,223
Facsimile product line 53,027 58,699
-------- --------
Total revenue $158,322 $150,922
======== ========
Page 17 of 28
The following table shows our revenue sources by segment for the periods
indicated.
For the three months ended
March 31,
--------------------------
2004 2003
-------- --------
North America $152,633 $145,503
United Kingdom 5,689 5,419
-------- --------
Total revenue $158,322 $150,922
======== ========
The following table shows our revenue from sales to Pitney Bowes of Canada
under a reseller agreement, presented separately, for the three months ended
March 31, 2004 compared with the same period in the prior year.
For the three months ended
March 31,
--------------------------
2004 2003
-------- --------
Revenue excluding Pitney Bowes of Canada $148,179 $144,553
Sales to Pitney Bowes of Canada 10,143 6,369
-------- --------
Total revenue $158,322 $150,922
======== ========
Sales to Pitney Bowes of Canada under a reseller arrangement are at
margins significantly below the margins on sales to our direct customers. We
expect to maintain a reseller arrangement with Pitney Bowes of Canada however,
we are unable to predict the future level of sales to Pitney Bowes of Canada. We
believe it is useful to analyze sales excluding sales to Pitney Bowes of Canada
in order to better evaluate the effectiveness of our direct sales and marketing
initiatives and our pricing policies.
The following table shows our revenue and growth rates by revenue type and
product line for the periods indicated.
For the three months ended March 31,
2004 2003
-------------------- ---------------------
Growth Growth
Revenue rate Revenue rate
-------- ------ -------- -------
Sales
Copier/MFP products $ 59,623 21.4% $ 49,115 (0.8%)
Facsimile products 22,932 (4.2%) 23,938 (6.5%)
-------- --------
Total sales 82,555 13.0% 73,053 (2.8%)
Rentals
Copier/MFP products 26,149 6.1% 24,650 8.2%
Facsimile products 28,262 (12.8%) 32,418 (9.4%)
-------- --------
Total rentals 54,411 (4.7%) 57,068 (2.5%)
Support services
Copier/MFP products 19,523 5.8% 18,458 (1.7%)
Facsimile products 1,833 (21.8%) 2,343 (13.5%)
-------- --------
Total support services 21,356 2.7% 20,801 (3.2%)
-------- --------
Total revenue $158,322 4.9% $150,922 (2.7%)
======== ========
Page 18 of 28
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, cost of rentals as a percentage
of rental revenue and our effective tax rate.
As a % of total revenue, except as noted
For the three months ended March 31,
----------------------------------------
2004 2003
---- ----
Equipment sales 28% 24%
Supplies sales 24% 24%
----- -----
Total sales 52% 48%
Equipment rentals 34% 38%
Support services 14% 14%
----- -----
Total revenue 100% 100%
Cost of sales 31% 30%
Cost of rentals 10% 13%
Selling, service and administrative expenses 52% 51%
----- -----
Operating income 7% 6%
Interest expense 1% 1%
----- -----
Income before income taxes 6% 5%
Provision for income taxes 2% 2%
----- -----
Net income 4% 3%
===== =====
Cost of sales as a percentage of sales revenue 59.3% 61.9%
===== =====
Cost of rentals as a percentage of rental revenue 29.0% 33.6%
===== =====
Effective tax rate 43.0% 40.5%
===== =====
Three months ended March 31, 2004 and March 31, 2003
Revenue. For the three months ended March 31, 2004, total revenue of
$158,322 increased 5% versus revenue of $150,922 for the three months ended
March 31, 2003 reflecting higher copier/MFP sales, rentals and support services
revenue, partially offset by lower facsimile revenue. Excluding the impact of
revenue attributable to sales to Pitney Bowes of Canada, which operates under a
reseller arrangement, total revenue for the first quarter increased 3% versus
the prior year.
Equipment and supplies sales revenue of $82,555 increased 13% for the
three months ended March 31, 2004 from $73,053 for the three months ended March
31, 2003, reflecting higher copier/MFP sales, partially offset by lower
facsimile sales. Excluding the impact of sales to Pitney Bowes of Canada, total
sales revenue increased 9% compared with the prior year. Copier/MFP sales
increased 16% with particular improvement in our color product category and our
mid-market digital black-and-white multifunctional products as well as increased
copier/MFP supplies sales. Facsimile equipment and supplies sales declined 6%
compared with the prior year. The rate of decline for facsimile equipment and
supplies sales moderated during the first quarter as a result of a large sale to
a national account customer. However, we still anticipate future revenue
declines in our facsimile product line as part of the continuing decline in
industry-wide facsimile usage.
Equipment rental revenue of $54,411 for the three months ended March 31,
2004 declined 5% versus equipment rental revenue of $57,068 for the three months
ended March 31, 2003, reflecting the continuing expected decline in facsimile
rental revenues, partially offset by an increase in copier/MFP rental revenues
resulting from a continuing copier/MFP marketing focus. Rental revenue derived
from our copier/MFP product line increased 6% primarily reflecting the impact of
an increase in page volumes. Rental revenue from our facsimile product line
declined 13% versus the prior year reflecting a lower installed base and lower
pricing.
Support services revenue for the three months ended March 31, 2004 of
$21,356, primarily derived from stand-alone service contracts, increased 3%
versus support services revenue of $20,801 for the three months ended March 31,
2003, reflecting higher
Page 19 of 28
copier/MFP service revenue resulting primarily from higher page volumes,
partially offset by lower facsimile service revenue due to lower pricing.
Cost of sales. Cost of sales was $48,946 for the three months ended March
31, 2004 compared with $45,244 for the same period in 2003 and cost of sales as
a percentage of sales revenue decreased to 59.3% for the three months ended
March 31, 2004 from 61.9% for the three months ended March 31, 2003. This
decrease was primarily due to our disciplined focus on improving profit margins
and lower product cost, partially offset by an increase in lower margin sales to
Pitney Bowes of Canada and the continuing shift in product mix toward lower
margin copier/MFP products, away from the facsimile product line.
Cost of rentals. Cost of rentals was $15,790 for the three months ended
March 31, 2004 compared with $19,171 for the three months ended March 31, 2003
and cost of rentals as a percentage of rental revenue declined 4.6 percentage
points to 29.0% for the three months ended March 31, 2004 from 33.6% for the
three months ended March 31, 2003. This decline was due to product cost
improvements coupled with the impact of our disciplined focus on improving
profit margins, partially offset by an increase in the continuing mix of
copier/MFP 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 $82,567 were 52.2% of total revenue for the three
months ended March 31, 2004 compared with $76,865, or 50.9% of total revenue for
the three months ended March 31, 2003. Selling, service and administrative
expenses increased 7% versus the prior year primarily resulting from higher
compensation and benefit expenses relating to higher sales volume, increased
sales headcount and adjustments to the sales compensation plans coupled with a
higher proportion of enterprise resource planning ("ERP") and related costs
expensed versus prior year, partially offset by lower costs resulting from the
absence of payments to Pitney Bowes for information technology and related
charges under the transition services agreement and lower advertising expenses.
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.
Interest expense. Interest expense decreased to $935 for the three months
ended March 31, 2004 from $1,629 for the three months ended March 31, 2004 due
to lower interest rates, partially offset by higher debt levels. The weighted
average interest rate for the three months ended March 31, 2004 was 3.1% versus
6.9% for the three months ended March 31, 2003.
Effective tax rate. Our effective tax rate was 43.0% for the three months
ended March 31, 2004 compared with 40.5% for the three months ended March 31,
2003 due to an increase in state and local income taxes and a foreign dividend
net of foreign tax credits.
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.
We have pledged substantially all of our assets plus 65% of the stock of
our subsidiaries 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 was payable quarterly, in arrears, depending on our leverage
ratio.
Page 20 of 28
The Credit Agreement required 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 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 had been designated as cash flow
hedges. The counterparties to the interest rate swap agreements were major
international financial institutions. Under the terms of the swap agreements, we
received payments based upon the 90-day LIBOR rate and remitted payments based
upon a fixed rate. The fixed interest rates were 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.
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 margin of from 1.75% to 2.75%, depending on our leverage ratio. On
March 5, 2003, the Credit Agreement was 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. On May
16, 2003, the Credit Agreement was amended (the "Fourth Amendment") to reduce
the aggregate amount of the Revolving Credit Facility from $125 million to $95
million, to delete the requirement that we maintain interest rate protection
with respect to at least 50% of the aggregate principal amount of the Term Loan,
to reduce and fix the Term Loan interest rate to LIBOR plus a margin of 2.25%,
from 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 margin of 1.25%, from the
Fleet Bank base lending rate plus a margin of from 1.75% to 2.75%, depending on
our leverage ratio, to reduce and fix the Revolving Credit Facility interest
rate to LIBOR plus a margin of 1.25%, from LIBOR plus a margin of from 2.25% to
3.00%, depending on our leverage ratio, or to the Fleet Bank base lending rate
plus a margin of 0.25%, from the Fleet Bank base lending rate plus a margin of
from 1.25% to 2.00%, depending on our leverage ratio and to fix our commitment
fee at 0.375% on the average daily unused portion of the Revolving Credit
Facility from 0.375% to 0.500% on the average daily unused portion of the
Revolving Credit Facility, depending on our leverage ratio. On May 7, 2004, the
Credit Agreement was further amended (the "Fifth Amendment") to increase the
amount of our stock permitted to be repurchased from $78 million to $108
million, to increase the aggregate amount of acquisition consideration paid for
acquisitions from $30 million to $60 million and to remove the requirement for
annual borrowing base audits so long as $50 million or more of borrowings are
available under the Credit Agreement and the fixed charge ratio, as defined in
the Fifth Amendment, is 2.0 or higher. At March 31, 2004, we were in compliance
with all of the financial covenants.
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 income (loss) into interest
expense. We also unwound $8 million of the $30 million interest rate swap
agreement.
During the third quarter of 2003, we revised our cash flow estimates and
prepaid $20 million of the amount outstanding under the Term Loan. In light of
this revision, the deletion of the interest rate protection requirement
resulting from the Fourth Amendment and our consistent historical positive cash
flow and near term estimated operating and capital expenditure requirements, we
disposed of our two interest rate swap agreements in the notional amounts of $50
million and $22 million. Accordingly, we reclassified $2.8 million from
accumulated other comprehensive income (loss) into interest expense because it
was no longer probable that the hedged forecasted transactions would occur.
At March 31, 2004, $78 million of borrowings were outstanding under the
Credit Agreement, consisting of $25 million of borrowings under the Revolving
Credit Facility and $53 million of borrowings under the Term Loan, and the
borrowing base amounted to approximately $129 million. Approximately $69 million
of the Revolving Credit Facility was available for borrowing at March 31, 2004.
The Term Loan is payable in 11 consecutive equal quarterly installments of $0.1
million due June 30, 2004 through December 31, 2006, three consecutive equal
quarterly installments of $12.9 million due March 31, 2007 through September 30,
2007 and a final payment of $12.9 million due at maturity.
At March 31, 2004 and December 31, 2003, one irrevocable standby letter of
credit in the amount of $0.9 million was outstanding as security for our
casualty insurance program.
Page 21 of 28
The ratio of current assets to current liabilities increased to 3.3 to 1
at March 31, 2004 compared to 2.8 to 1 at December 31, 2003 due to reductions in
accounts payable and accrued liabilities, a reduction in accrued billings and an
increase in accounts receivable, partially offset by a reduction in inventories.
At March 31, 2004, our total debt as a percentage of total capitalization
increased to 22.6% from 19.2% at December 31, 2003 due to an increase in our
debt and stock repurchases under our stock buy back program.
In October 2003, we began the implementation of Phase II of our ERP
system, consisting of order management, order fulfillment, billing, cash
collection, service management and sales compensation, which replaced the
information technology services provided by Pitney Bowes under the transition
services agreement. As a result of this implementation, we have experienced, as
expected, certain temporary processing inefficiencies, which have resulted in a
short-term increase in our working capital requirements, particularly accounts
receivable, due to the standardization of our billing practices and schedules
across all product lines and the initial temporary suspension in invoicing our
customers during the conversion to our new ERP system and delays in collections
resulting from customer inquiries relating to changes to our billing policies
and invoice format and an increase in rebilling activity to satisfy our customer
requirements. We believe that the increase in accounts receivable is temporary
and that our collection losses related to these temporarily suspended amounts
will not be materially different than our historical experience. However, if
collection losses related to these amounts are significantly higher than our
historical experience, we would recognize an increase in our provision for bad
debt in the near future. In addition, certain of the temporary processing
inefficiencies have resulted in delays in certain product shipments, service
responsiveness and potential inaccuracies in calculated sales compensation.
These issues, coupled with certain revisions to our billing practices, could
have a negative impact on customer service and satisfaction and employee
retention, which could result in a potential loss of business. We are engaged in
a period of stabilization and clean up, as is typical of a large ERP
implementation and we anticipate this transition will be completed during 2004.
Although no assurance can be given that these efforts will be successful in the
time periods expected, other than the temporary increase in working capital
requirements, we do not anticipate that these issues will have a material
adverse effect on our financial position, results of operations or future cash
flows.
Our cash flows 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, together with borrowings under the Credit Agreement and possible
future sales of additional equity or debt securities.
Net cash used in operating activities was $3,694 for the three months
ended March 31, 2004 compared with net cash provided by operating activities of
$22,476 for the three months ended March 31, 2003. Net income was $5,747 and
$4,766, respectively. Non-cash charges for depreciation and amortization and
provisions for bad debt and inventory obsolescence in the aggregate provided
cash of $20,831 and $23,116 for the three months ended March 31, 2004 and 2003,
respectively. Changes in the principal components of working capital required
$28,899 and $4,737 of cash in the three months ended March 31, 2004 and 2003,
respectively. Of the $28,899 increase in our working capital requirements in the
three months ended March 31, 2004, approximately $13.7 million resulted from an
increase in accounts receivable due to delays in collections resulting from
customer inquiries related to changes to the Company's billing policies and
invoice format associated with the implementation of our ERP system and a
decrease in accounts payable and accrued liabilities of approximately $13.1
million primarily consisting of approximately $6.9 million related to timing of
payments for inventory shipped from Asia in late 2003, approximately $4.9
million of incentive compensation payments and approximately $2.4 million
related to timing of insurance payments. The $4,737 of cash used by working
capital changes in the three months ended March 31, 2003 resulted from a
decrease in accounts payable and accrued liabilities consisting of approximately
$3.5 million of incentive compensation payments and approximately $1.2 million
related to the timing of inventory and other payments.
We used $16,373 and $15,446 in investing activities for the three months
ended March 31, 2004 and 2003, respectively. Investment in rental equipment
assets totaled $9,776 and $10,622 for the three months ended March 31, 2004 and
2003, respectively. The lower level of rental asset expenditures results from
product cost improvements and lower facsimile placements. Capital expenditures
for property, plant and equipment were $2,791 and $4,824 for the three months
ended March 31, 2004 and 2003, respectively, of which the investment in ERP
accounted for $1,698 and $3,236, respectively. During the three months ended
March 31, 2004, we acquired an independent dealer to expand our sales and
service capabilities as described in Note 10 of our "Notes to Consolidated
Financial Statements."
Cash provided by financing activities was $9,650 for the three months
ended March 31, 2004 compared with cash used in financing activities of $11,875
for the three months ended March 31, 2003. Cash provided by financing activities
in the three months ended March 31, 2004 reflects net borrowings under the
Revolving Credit Facility of $15.0 million. For the three months ended March 31,
2004 and 2003 cash was used to repurchase 148,900 shares of our stock at a cost
of $6,270 and 642,000 shares at a cost of $12,597, respectively.
Page 22 of 28
During the three month period ended March 31, 2004, 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 operations. We anticipate
investments in rental equipment assets for new and replacement programs in
amounts consistent with the recent past. We estimate that we will spend
approximately $11 million over the remainder of 2004 to continue to enhance our
information systems infrastructure and implement our ERP system.
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 networked, 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 has led to a reduction in the use of traditional
copiers and facsimile machines. We must be able to continue to obtain products
with the appropriate technological advancements in order to remain successful.
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. Although many of our existing rental
placements are analog equipment, the depreciable life of this equipment is three
years and most of this equipment is reaching a fully depreciated status. All of
our new product purchases and new product placements are digital equipment.
The document imaging solutions industry is very competitive; we may be
unable to compete favorably, causing us to lose sales to our competitors, many
of whom are substantially larger and possess greater financial resources. 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 Asia. In addition, our primary suppliers
sell products in competition with us, either directly or through dealer
channels. Three 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
outbreaks such as 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 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 our
receipt of such products. Any of these events would cause disruption to our
customers and could have an adverse effect on our business.
We have a geographic dispersion of business and assets located across
North America comprised of our sales, service and distribution facilities.
Changes in international, national or political conditions, including terrorist
attacks could impact the sales, service and distribution of our products to our
customers and could have an adverse effect on our business.
A portion of our international business is transacted in local currency.
Currently, approximately 20% of our total product purchases, based on costs, are
denominated in yen. The majority of our remaining product purchases are
denominated in U.S. dollars and are produced by Japanese suppliers in
manufacturing facilities located in China. Currently, the exchange rate of the
Chinese renminbi and the U.S. dollar is fixed. If the Chinese government was to
revalue the Chinese renminbi and the nominal value of the renminbi rises, the
resultant impact on the exchange rate of the Chinese renminbi and the U.S.
dollar could have a negative impact on our product cost. 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
Page 23 of 28
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
In October 2003, we began the implementation of Phase II of our ERP
system, consisting of order management, order fulfillment, billing, cash
collection, service management and sales compensation, which replaced the
information technology services provided by Pitney Bowes under the transition
services agreement. As a result of this implementation, we have experienced, as
expected, certain temporary processing inefficiencies, which have resulted in a
short-term increase in our working capital requirements, particularly accounts
receivable, due to the standardization of our billing practices and schedules
across all product lines and the initial temporary suspension in invoicing our
customers during the conversion to our new ERP system and delays in collections
resulting from customer inquiries relating to changes to our billing policies
and invoice format and an increase in rebilling activity to satisfy our customer
requirements. We believe that the increase in accounts receivable is temporary
and that our collection losses related to these temporarily suspended amounts
will not be materially different than our historical experience. However, if
collection losses related to these amounts are significantly higher than our
historical experience, we would recognize an increase in our provision for bad
debt in the near future. In addition, certain of the temporary processing
inefficiencies have resulted in delays in certain product shipments, service
responsiveness and potential inaccuracies in calculated sales compensation.
These issues, coupled with certain revisions to our billing practices, could
have a negative impact on customer service and satisfaction and employee
retention, which could result in a potential loss of business. We are engaged in
a period of stabilization and clean up, as is typical of a large ERP
implementation and we anticipate this transition will be completed during 2004.
Although no assurance can be given that these efforts will be successful in the
time periods expected, other than the temporary increase in working capital
requirements, we do not anticipate that these issues will have a material
adverse effect on our financial position, results of operations or future cash
flows.
Pitney Bowes has been and is expected to continue to be a significant
customer. For the three months ended March 31, 2004 and 2003, revenues from
Pitney Bowes, exclusive of equipment sales to PBCC for lease to the end user,
accounted for approximately 10% and 8%, respectively, 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 allowed us to operate
under the "Pitney Bowes" brand name for a term of up to two years after the
Distribution. 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. Effective December 2003, we are no longer using
the Pitney Bowes brand name and all new products are introduced under the
Imagistics 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 now that 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 24 of 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have certain exposures to market risk related to changes in interest
rates and foreign currency exchange rates. Currently, we do not utilize any form
of derivative financial instruments to manage our interest rate risk or 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. In addition, we are exposed to foreign exchange rate fluctuations with
respect to the British Pound and the Canadian Dollar as the financial results of
our U.K. subsidiary and Canadian subsidiary are translated into U.S. dollars for
consolidation. The effect of foreign exchange rate fluctuation for the quarter
ended March 31, 2004 was not material.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by 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-15. Based on our 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 subsidiaries.
We implemented an ERP system in the fourth quarter of 2003 and as a
result, we are in a period of stabilization and clean up. During this period, we
are refining our procedures surrounding order management and fulfillment,
billing, cash application, service management and sales compensation, and the
controls surrounding processing in these areas have been adjusted accordingly.
We did not implement any changes to our monitoring controls and we believe the
changes to our processing controls have not materially affected, nor are
reasonably likely to materially affect, our internal control over financial
reporting.
Page 25 of 28
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The following table provides information with respect to the purchase of
shares of our common stock under the stock buy back program during each month in
the first quarter of 2004:
Total number of Approximate dollar
Total number shares purchased value of shares that
of shares Average price as part of publicly may yet be purchased
Period purchased paid per share announced plan under the plan
--------------------------------------------------------- -------------- ------------------- --------------------
January 1, 2004 - January 31, 2004 35,800 $39.47 35,800 $11,669
February 1, 2004 - February 29, 2004 42,000 $41.64 42,000 $ 9,920
March 1, 2004 - March 31, 2004 71,100 $43.71 71,100 $ 6,812
------- -------
Total 148,900 $42.11 148,900
======= =======
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. In July 2003, the Board of Directors authorized the repurchase of
an additional $20 million of our stock, raising the total authorization to $78
million and, as of March 31, 2004, we have accumulated approximately 3.4 million
shares of treasury stock at a cost of approximately $71 million. The stock buy
back program has no fixed termination date.
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)
Page 26 of 28
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)
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)
10.33 Amendment No. 4 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 (9)
10.34 Reseller Agreement between Pitney Bowes of Canada Ltd. and
Imagistics International Inc. (10)
10.35 Amendment No. 5 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
31.1 Certification of the Chief Executive Officer Pursuant to Securities
Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Securities
Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
----------
(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 the Registrant's Form 10-K filed March 28,
2002.
(4) Incorporated by reference to the 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.
(9) Incorporated by reference to the Registrant's Form 8-K dated May 16, 2003.
(10) Incorporated by reference to the Registrant's Form 10-K filed March 12,
2004.
(b) Reports on Form 8-K.
On February 19, 2004, we filed a Current Report on Form 8-K, under Item
12, which included a copy of our press release dated February 19, 2004 in which
we announced our earnings for the fiscal quarter ended December 31, 2003 and
certain additional matters.
Page 27 of 28
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 10, 2004 Imagistics International Inc.
(Registrant)
By /s/ Joseph D. Skrzypczak
---------------------------------
Name: Joseph D. Skrzypczak
Title: Chief Financial Officer
and Authorized Signatory
Page 28 of 28