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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 September 30, 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 October 29, 2004: 16,316,269
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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 and nine months ended September 30, 2004 and 2003 (Unaudited)...... 3
Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 (Unaudited)............................. 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 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.................................................................................................... 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................................... 28
ITEM 4. CONTROLS AND PROCEDURES............................................................................................ 28
PART II - OTHER INFORMATION.................................................................................................. 29
ITEM 1. LEGAL PROCEEDINGS.................................................................................................. 29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS........................................................ 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................................... 29
SIGNATURES................................................................................................................... 31
2
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 For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Sales $ 79,589 $ 84,298 $ 237,334 $ 236,227
Rentals 51,164 54,239 159,754 167,414
Support services 22,302 21,012 65,816 62,746
----------- ----------- ----------- -----------
Total revenue 153,055 159,549 462,904 466,387
Cost of sales 41,113 52,328 132,475 145,738
Cost of rentals 14,159 17,952 45,282 55,800
Selling, service and administrative expenses 85,776 76,017 250,640 231,540
----------- ----------- ----------- -----------
Operating income 12,007 13,252 34,507 33,309
Interest expense 880 4,289 2,691 7,510
----------- ----------- ----------- -----------
Income before income taxes 11,127 8,963 31,816 25,799
Provision for income taxes 4,720 3,833 13,554 10,877
----------- ----------- ----------- -----------
Net income $ 6,407 $ 5,130 $ 18,262 $ 14,922
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.40 $ 0.31 $ 1.12 $ 0.89
=========== =========== =========== ===========
Diluted $ 0.38 $ 0.30 $ 1.08 $ 0.86
=========== =========== =========== ===========
Shares used in computing earnings per share:
Basic 16,145,273 16,471,877 16,255,059 16,854,555
=========== =========== =========== ===========
Diluted 16,796,810 17,067,336 16,948,724 17,330,051
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
3
IMAGISTICS INTERNATIONAL INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
September 30, December 31,
2004 2003
------------- ------------
Assets
Current assets:
Cash $ 12,259 $ 22,938
Accounts receivable, net of allowances of $15,537 and $10,575
at September 30, 2004 and December 31, 2003, respectively 111,112 107,690
Accrued billings 27,756 20,862
Inventories 91,218 86,134
Current deferred taxes on income 28,385 24,191
Other current assets and prepaid expenses 4,635 4,806
--------- ---------
Total current assets 275,365 266,621
Property, plant and equipment, net 57,756 53,204
Rental equipment, net 63,649 67,179
Goodwill 65,881 55,447
Other assets 5,004 4,281
--------- ---------
Total assets $ 467,655 $ 446,732
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 545 $ 545
Accounts payable and accrued liabilities 87,635 79,291
Advance billings 15,310 16,323
--------- ---------
Total current liabilities 103,490 96,159
Long-term debt 71,495 62,903
Deferred taxes on income 19,916 17,919
Other liabilities 3,354 2,350
--------- ---------
Total liabilities 198,255 179,331
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, 19,992,656 and
19,871,061 issued at September 30, 2004 and December 31, 2003, respectively) 200 199
Additional paid-in-capital 297,572 295,176
Retained earnings 53,243 34,981
Treasury stock, at cost (3,627,676 and 3,096,878 shares at
September 30, 2004 and December 31, 2003, respectively) (82,746) (62,783)
Unearned compensation (1,109) (1,934)
Accumulated other comprehensive income 2,240 1,762
--------- ---------
Total stockholders' equity 269,400 267,401
--------- ---------
Total liabilities and stockholders' equity $ 467,655 $ 446,732
========= =========
See Notes to Consolidated Financial Statements
4
IMAGISTICS INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
For the nine months ended
September 30,
-------------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income $ 18,262 $ 14,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 49,763 56,547
Provision for bad debt 10,417 5,686
Provision for inventory obsolescence 2,736 5,147
Deferred taxes on income (2,196) 4,195
Change in assets and liabilities, net of acquisitions:
Accounts receivable (12,114) 7,015
Accrued billings (6,894) (1,383)
Inventories (5,656) 3,664
Other current assets and prepaid expenses 226 2,088
Accounts payable and accrued liabilities 4,986 (14,720)
Advance billings (1,504) (1,343)
Other, net (601) 2,552
-------- --------
Net cash provided by operating activities 57,425 84,370
Cash flows from investing activities:
Expenditures for rental equipment assets (34,802) (28,022)
Expenditures for property, plant and equipment (11,604) (13,679)
Acquistions, net of cash acquired (12,202) (4,139)
-------- --------
Net cash used in investing activities (58,608) (45,840)
Cash flows from financing activities:
Exercises of stock options, including sales
under employee stock purchase plan 2,389 1,964
Purchases of treasury stock (20,476) (26,186)
Repayments under term loan (409) (20,562)
Net borrowings under revolving credit facility 9,000 --
-------- --------
Net cash used in financing activities (9,496) (44,784)
-------- --------
Decrease in cash (10,679) (6,254)
Cash at beginning of period 22,938 31,325
-------- --------
Cash at end of period $ 12,259 $ 25,071
======== ========
See Notes to Consolidated Financial Statements
5
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 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 and nine months ended
September 30, 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.
6
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 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
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.
Accounts receivable
Accounts receivable are stated at net realizable value by recording
allowances for those accounts receivable amounts that the Company believes are
uncollectible. The Company's estimate of losses is based on prior collection
experience and includes evaluating the credit worthiness of each of the
Company's customers, analyzing historical bad debt write-offs and reviewing the
aging of the receivables. The Company's allowance for doubtful accounts includes
amounts for specific accounts that it believes 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 and
estimated amounts relating to delinquencies associated with the changes in the
Company's billing policies and invoice format resulting from the implementation
of the Company's enterprise resource planning ("ERP") system.
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.
7
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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.
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.
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," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," to stock-based employee
compensation:
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- ---------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income, as reported $ 6,407 $ 5,130 $ 18,262 $ 14,922
Add: Stock-based compensation expense
included in net income, net of related tax effects 471 423 1,349 1,226
Deduct: Total stock-based compensation expense
based on the fair value method, net of related tax effects (1,147) (956) (3,057) (2,876)
---------- ---------- ---------- ----------
Pro forma net income $ 5,731 $ 4,597 $ 16,554 $ 13,272
========== ========== ========== ==========
Basic earnings per share:
As reported $ 0.40 $ 0.31 $ 1.12 $ 0.89
Pro forma $ 0.35 $ 0.28 $ 1.02 $ 0.79
Diluted earnings per share:
As reported $ 0.38 $ 0.30 $ 1.08 $ 0.86
Pro forma $ 0.34 $ 0.27 $ 0.98 $ 0.77
3. Supplemental Information
Inventories
Inventories consisted of the following at September 30, 2004 and December
31, 2003:
September 30, December 31,
2004 2003
------------- ------------
Finished products $48,607 $50,726
Supplies and service parts 42,611 35,408
------- -------
Total inventories $91,218 $86,134
======= =======
8
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
Fixed assets and rental equipment assets
Fixed assets and rental equipment assets consisted of the following at
September 30, 2004 and December 31, 2003:
September 30, December 31,
2004 2003
------------- ------------
Land $ 1,356 $ 1,356
Buildings and leasehold improvements 12,125 10,976
Machinery and equipment 24,275 23,474
Computers and software 56,413 47,356
--------- ---------
Property, plant and equipment, gross 94,169 83,162
Accumulated depreciation (36,413) (29,958)
--------- ---------
Property, plant and equipment, net $ 57,756 $ 53,204
========= =========
Rental equipment, gross $ 313,592 $ 333,563
Accumulated depreciation (249,943) (266,384)
--------- ---------
Rental equipment, net $ 63,649 $ 67,179
========= =========
Depreciation and amortization expense was $16.1 million and $49.8 million
for the three and nine months ended September 30, 2004, respectively, and $18.5
million and $56.5 million for the three and nine months ended September 30,
2003, respectively. Unamortized software costs totaled $32.5 million as of
September 30, 2004 and $27.0 million as of December 31, 2003. Amortization
expense on account of capitalized software totaled $1.0 million and $3.0 million
for the three and nine months ended September 30, 2004, respectively, and $0.2
million and $0.6 million for the three and nine months ended September 30, 2003,
respectively.
Current liabilities
Accounts payable and accrued liabilities consisted of the following at
September 30, 2004 and December 31, 2003:
September 30, December 31,
2004 2003
------------- ------------
Accounts payable $32,846 $33,237
Income taxes payable 8,669 6,743
Group medical insurance payable 7,137 8,068
Accrued compensation and benefits 8,543 8,321
Other non-income taxes payable 5,856 6,626
Other accrued liabilities 24,584 16,296
------- -------
Accounts payable and accrued liabilities $87,635 $79,291
======= =======
Comprehensive income
Comprehensive income consisted of the following for the three and nine
months ended September 30, 2004 and 2003:
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2004 2003 2004 2003
------ ------ ------- -------
Net income $6,407 $5,130 $18,262 $14,922
Translation adjustment 399 864 478 1,736
Unrealized gain on cash flow hedges -- 791 -- 868
Reclassification adjustment for realized loss
on cash flow hedges included in net income -- 2,841 -- 2,841
------ ------ ------- -------
Comprehensive income $6,806 $9,626 $18,740 $20,367
====== ====== ======= =======
9
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 554,000 20,476
Sales to employees under employee stock purchase plan (23,202) (513)
---------- --------
Balance at September 30, 2004 3,627,676 $ 82,746
========== ========
Cash flow information
Cash paid for income taxes was $14.0 million and $12.5 million for the
nine months ended September 30, 2004 and 2003, respectively. Cash paid for
interest was $2.0 million and $7.3 million for the nine months ended September
30, 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 For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
North America $148,085 $154,778 $446,845 $451,180
United Kingdom 4,970 4,771 16,059 15,207
-------- -------- -------- --------
Total revenues $153,055 $159,549 $462,904 $466,387
======== ======== ======== ========
Income before income taxes:
North America $ 10,511 $ 8,172 $ 29,382 $ 23,021
United Kingdom 616 791 2,434 2,778
-------- -------- -------- --------
Total income before income taxes $ 11,127 $ 8,963 $ 31,816 $ 25,799
======== ======== ======== ========
Revenues from Pitney Bowes, substantially all of which are generated in
the North America segment, consisted of the following for the three and nine
months ended September 30, 2004 and 2003:
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2004 2003 2004 2003
------- ------- -------- --------
Revenues from Pitney Bowes:
Pitney Bowes of Canada $ 1,688 $ 8,714 $ 13,435 $ 21,396
Other subsidiaries of Pitney Bowes 6,364 5,849 17,366 19,210
------- ------- -------- --------
Sub-total 8,052 14,563 30,801 40,606
Pitney Bowes Credit Corporation 25,003 23,470 69,513 68,830
------- ------- -------- --------
Total $33,055 $38,033 $100,314 $109,436
======= ======= ======== ========
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.
10
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 September 30, 2004 and December 31, 2003.
September 30, December 31,
2004 2003
------------- ------------
Identifiable long-lived assets:
North America $189,193 $176,157
United Kingdom 3,097 3,954
-------- --------
Total identifiable long-lived assets $192,290 $180,111
======== ========
Total assets:
North America $451,775 $428,885
United Kingdom 15,880 17,847
-------- --------
Total assets $467,655 $446,732
======== ========
Identifiable long-lived assets in North America included goodwill of $65.9
million and $55.4 million at September 30, 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 four Japanese
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 was 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 applicable 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 applicable period. The calculation of
diluted earnings per share did not include shares underlying approximately
111,775 and 2,700 options for the three months ended September 30, 2004 and
2003, respectively, since they were antidilutive for the periods presented. The
calculation of diluted earnings per share did not include shares underlying
approximately 17,900 and 7,900 options for the nine months ended September 30,
2004 and 2003, respectively, since they were antidilutive for the periods
presented.
11
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 For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income available to common stockholders $ 6,407 $ 5,130 $ 18,262 $ 14,922
=========== =========== =========== ===========
Weighted average common shares for basic earnings per share 16,145,273 16,471,877 16,255,059 16,854,555
Add: dilutive effect of restricted stock 229,141 186,106 225,543 180,745
Add: dilutive effect of stock options 422,396 409,353 468,122 294,751
----------- ----------- ----------- -----------
Weighted average common shares and equivalents
for diluted earnings per share 16,796,810 17,067,336 16,948,724 17,330,051
=========== =========== =========== ===========
Basic earnings per share $ 0.40 $ 0.31 $ 1.12 $ 0.89
Diluted earnings per share $ 0.38 $ 0.30 $ 1.08 $ 0.86
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, 2004 using
the discounted cash flow valuation method. There was no impairment to the value
of the Company's recorded goodwill. The carrying value of goodwill as of
September 30, 2004 increased $10.1 million as a result of the Company's recent
acquisitions (see Note 10). The carrying value of goodwill of $65.9 million as
of September 30, 2004 is attributable to the North America geographic segment.
7. Long-Term Debt
Long-term debt consisted of the following at September 30, 2004 and
December 31, 2003:
September 30, December 31,
2004 2003
------------- ------------
Revolving Credit Facillity $ 19,000 $ 10,000
Term Loan 53,040 53,448
Less: current maturities (545) (545)
-------- --------
Total long-term debt $ 71,495 $ 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
$225.0 million, comprised of a $125.0 million Revolving Credit Facility (the
"Revolving Credit Facility") and a $100.0 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 $50.0 million and $30.0 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.
On March 19, 2002, the Credit Agreement was amended to increase the total
amount of the Company's stock permitted to be repurchased from $20.0 million to
$30.0 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 $30.0
million to $58.0 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 $58.0 million to $78.0
million, to reduce the minimum earnings before interest, taxes, depreciation and
amortization covenant to $100.0 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
12
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
Facility from $125.0 million to $95.0 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 amended (the "Fifth Amendment") to increase the
amount of the Company's stock permitted to be repurchased from $78.0 million to
$108.0 million, to increase the aggregate amount of acquisition consideration
payable for acquisitions from $30.0 million to $60.0 million and to remove the
requirement for annual borrowing base audits so long as $50.0 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. Effective June 1, 2004, the
Credit Agreement was further amended (the "Sixth Amendment") to reduce and fix
the Term Loan interest rate to LIBOR plus a margin of 1.25%, from LIBOR plus a
margin of 2.25%, 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 1.25%.
During the third quarter of 2003, the Company revised its cash flow
estimates and prepaid $20.0 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 $50.0 million and $22.0 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.
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.
It is not possible to predict the maximum potential future payments under
these agreements. As of September 30, 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.
13
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
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 related to these and other
subsequent proceedings 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 implemented Phase II of its 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. The Company believes that it has satisfactorily resolved the issues
relating to delays in product shipments and service responsiveness initially
experienced in connection with the ERP system implementation. However, as the
Company stabilizes the ERP system, it continues to experience certain processing
inefficiencies affecting billings, which in turn have negatively impacted
accounts receivable levels and the calculation of sales compensation. In
addition, delays in the implementation of certain automated tools to assist in
collection activities have contributed to the increase in accounts receivable.
The Company's ability to return accounts receivable to historical levels has
been impacted by delays in collections resulting from customer inquiries
relating to changes to billing policies and invoice format, an increase in
billing adjustment activity, the temporary suspension of account statement and
collection notice mailings on delinquent amounts and delays in processing
customer invoicing. In August 2004, the Company resumed mailing account
statements and delinquent account notices to customers. The Company believes
that much of the increase in accounts receivable will not be permanent. However,
a portion of the Company's increase in accounts receivable results from the
standardization of its billing practices and schedules across all product lines
and the continuing shift in product mix towards the copier/MFP product line, for
which the usage-based billing is more complex. The Company believes that the
portion of the increase in accounts receivable related to changes in billing
schedules and product mix represents a permanent structural change. The Company
has provided for collection losses on the increase in accounts receivable at
rates higher than its historical experience. However, if collection losses
related to accounts receivable are higher than the amounts provided, the Company
would recognize an additional increase in its provision for bad debt.
With respect to the calculation of sales compensation, the Company
continues to work through certain of the processing inefficiencies resulting in
data inaccuracies and potential inaccuracies in calculated sales compensation.
Due to these issues, the Company has continued to apply alternate methodologies
to calculate and pay sales compensation. The Company believes that it has
recognized the proper amount of sales compensation. However, there is a
potential that the resolution of these data inaccuracies could result in
additional expense for sales compensation.
The Company remains engaged in a period of stabilization and clean up, as
is typical of a large ERP system implementation. During the fourth quarter of
2004 and the first quarter of 2005, the Company will be implementing Phase III
of its ERP system, primarily comprised of certain automated tools to assist in
invoice dispute resolution and collection activities. The Company believes that
the implementation of these automated tools will assist the Company's progress
in collecting its accounts receivable beginning in the fourth quarter of 2004.
In the month of October, the Company experienced certain unforeseen system
performance issues, which have resulted in delays in invoicing the Company's
customers. While the Company believes that the performance issues are temporary,
the Company expects to experience delays in customer cash receipts negatively
impacting accounts receivable during the fourth quarter as a result of the
delayed October invoicing. The Company believes it has identified the causes of
these performance issues and that it has implemented appropriate remedies.
The Company anticipates that it will resolve the issues related to its ERP
system implementation that are impacting its customer billings, accounts
receivable and sales compensation. However, if the Company is unable to do so in
a reasonable time frame, these issues could have a negative impact on customer
and employee satisfaction and retention, which could result in a potential loss
of business. Although no assurance can be given that these efforts related to
customer billings, accounts receivable and sales compensation 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.
14
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
The Company is in the process of evaluating and documenting its internal
control systems and performing the testing required to comply with Section 404
of the Sarbanes-Oxley Act of 2002. Section 404 requires management to document,
test and report on the Company's internal controls over financial reporting in
its Annual Report on Form 10-K for the year ending December 31, 2004 and for the
Company's Independent Auditors to attest to management's assertions. Over the
past twelve months, the Company implemented a new ERP system, which has
significantly impacted customer billings, accounts receivable and sales
compensation. The Company is in a period of stabilization and clean up and
additional system implementations are being undertaken in the fourth quarter of
2004 to address issues encountered to date. Management intends to complete its
assessment of internal controls over financial reporting in order to comply with
the Section 404 requirements. However, during the course of the Company's
testing the Company may identify deficiencies or weaknesses and can provide no
assurance that any remediation required will be successful or completed in the
time required.
9. Distribution 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
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, the initial term of which expired on July 1, 2004, had been
extended under the same terms and conditions, through September 30, 2004.
Effective October 1, 2004, the Company and Pitney Bowes entered into a
three-year service agreement under similar terms and conditions. This agreement
expires on September 30, 2007. Services provided under this agreement are at
negotiated prices.
The Company paid Pitney Bowes $1.3 million and $3.9 million for the three
and nine months ended September 30, 2004, respectively, in connection with field
service of equipment. The Company paid Pitney Bowes $3.3 million and $13.7
million for the three and nine months ended September 30, 2003, respectively, in
connection with the transition services agreement including 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 August 30, 2004, the Company acquired of all of the stock 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 $2.4
million, of which $0.4 million was allocated to the net liabilities assumed at
the date of acquisition and $2.8 million was allocated to goodwill.
Effective June 15, 2004, the Company acquired substantially all of the
assets and business of an independent dealer of copier and multifunctional
equipment and related support services in the United States, to expand the
Company's geographic sales and service capabilities. The aggregate purchase
price was $7.4 million, consisting of $6.0 million cash paid at closing, $0.3
million payable 120 days from closing and four equal annual installments of $0.3
million payable June 15, 2005 through June 15, 2008. Of the aggregate purchase
price, $2.3 million was allocated to the assets acquired and liabilities assumed
at the date of acquisition and $5.1 million was allocated to intangible and
other assets, of which $3.8 million was allocated to goodwill.
15
IMAGISTICS INTERNATIONAL INC.
Notes to Consolidated Financial Statements - (continued)
Effective March 16, 2004, the Company acquired 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
allocated to goodwill.
Effective August 30, 2003, 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 the United States,
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
allocated to 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.
16
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.," "Imagistics," "We" and
"Our," refers to Imagistics International Inc. and subsidiaries.
OVERVIEW
Imagistics is a 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
stand-alone 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/MFP product
line. As a result, the decrease in facsimile product line revenues 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.
17
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
and includes 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 and estimated amounts relating to
delinquencies associated with the changes in our billing policies and invoice
format resulting from the implementation of our enterprise resource planning
("ERP") system.
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 segment for the periods
indicated.
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2004 2003 2004 2003
-------- -------- -------- --------
North America $148,085 $154,778 $446,845 $451,180
United Kingdom 4,970 4,771 16,059 15,207
-------- -------- -------- --------
Total revenue $153,055 $159,549 $462,904 $466,387
======== ======== ======== ========
18
Our revenue is generated from three lines of business: copier/MFP,
facsimile and sales to Pitney Bowes of Canada. The following table shows our
revenue and growth rates versus the prior year by revenue type for our three
business lines, for the periods indicated. Sales to Pitney Bowes of Canada are
presented separately as it operates under a separate reseller agreement. There
is no rental or support service revenue associated with Pitney Bowes of Canada.
For the three months ended For the nine months ended
September 30, September 30,
-------------------------------------------- --------------------------------------------
2004 2003 2004 2003
-------------------- ------------------- ------------------- --------------------
Growth Growth Growth Growth
Revenue Rate Revenue Rate Revenue Rate Revenue Rate
--------- ------ --------- ------ --------- ------ --------- ------
Sales
Copier/MFP products $ 59,085 8.3% $ 54,581 11.9% $ 167,473 11.6% $ 150,010 6.5%
Facsimile products 18,816 (10.4%) 21,003 (10.9%) 56,426 (13.0%) 64,821 (10.2%)
Pitney Bowes of Canada 1,688 (80.6%) 8,714 84.4% 13,435 (37.2%) 21,396 17.8%
--------- --------- --------- ---------
Total sales 79,589 (5.6%) 84,298 9.4% 237,334 0.5% 236,227 2.2%
Rentals
Copier/MFP products 28,812 13.1% 25,465 5.8% 82,313 9.6% 75,095 7.2%
Facsimile products 22,352 (22.3%) 28,774 (15.4%) 77,441 (16.1%) 92,319 (12.4%)
--------- --------- --------- ---------
Total rentals 51,164 (5.7%) 54,239 (6.6%) 159,754 (4.6%) 167,414 (4.6%)
Support services
Copier/MFP products 20,540 7.2% 19,154 3.0% 60,441 7.0% 56,484 1.9%
Facsimile products 1,762 (5.2%) 1,858 (19.5%) 5,375 (14.2%) 6,262 (15.0%)
--------- --------- --------- ---------
Total support services 22,302 6.1% 21,012 0.5% 65,816 4.9% 62,746 (0.1%)
--------- --------- --------- ---------
Total revenue $ 153,055 (4.1%) $ 159,549 2.2% $ 462,904 (0.7%) $ 466,387 (0.7%)
========= ========= ========= =========
The following table shows our revenue and growth rates versus the prior
year for our three business lines, for the periods indicated. Sales to Pitney
Bowes of Canada are presented separately as it operates under a separate
reseller agreement.
For the three months ended For the nine months ended
September 30, September 30,
--------------------------------------------- ---------------------------------------------
2004 2003 2004 2003
-------------------- -------------------- ------------------- ---------------------
Growth Growth Growth Growth
Revenue Rate Revenue Rate Revenue Rate Revenue Rate
--------- ------ --------- ------- --------- ------ --------- ------
Revenue
Copier/MFP products $ 108,437 9.3% $ 99,200 8.5% $ 310,227 10.2% $ 281,589 5.7%
Facsimile products 42,930 (16.9%) 51,635 (13.8%) 139,242 (14.8%) 163,402 (11.7%)
--------- --------- --------- ---------
Revenue excluding
Pitney Bowes of Canada 151,367 0.4% 150,835 (0.3%) 449,469 1.0% 444,991 (1.4%)
Pitney Bowes of Canada 1,688 (80.6%) 8,714 84.4% 13,435 (37.2%) 21,396 17.8%
--------- --------- --------- ---------
Total revenue $ 153,055 (4.1%) $ 159,549 2.2% $ 462,904 (0.7%) $ 466,387 (0.7%)
========= ========= ========= =========
Sales to Pitney Bowes of Canada are pursuant to a reseller agreement and
are at margins significantly below the typical margins on sales to our direct
customers. We expect to maintain a reseller agreement with Pitney Bowes of
Canada, however, we are unable to predict the future level of sales to Pitney
Bowes of Canada. Although revenue, excluding sales to Pitney Bowes of Canada
represents a non-GAAP financial measure, we believe it is useful to analyze
revenue 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.
19
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 For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Equipment sales 30% 29% 29% 27%
Supplies sales 22% 24% 23% 24%
----------- ----------- ----------- -----------
Total sales 52% 53% 52% 51%
Equipment rentals 33% 34% 34% 36%
Support services 15% 13% 14% 13%
----------- ----------- ----------- -----------
Total revenue 100% 100% 100% 100%
Cost of sales 27% 33% 28% 31%
Cost of rentals 9% 11% 10% 12%
Selling, service and administrative expenses 56% 48% 54% 50%
----------- ----------- ----------- -----------
Operating income 8% 8% 8% 7%
Interest expense 1% 3% 1% 2%
----------- ----------- ----------- -----------
Income before income taxes 7% 5% 7% 5%
Provision for income taxes 3% 2% 3% 2%
----------- ----------- ----------- -----------
Net income 4% 3% 4% 3%
=========== =========== =========== ===========
Cost of sales as a percentage of sales revenue 51.7% 62.1% 55.8% 61.7%
=========== =========== =========== ===========
Cost of rentals as a percentage of rental revenue 27.7% 33.1% 28.3% 33.3%
=========== =========== =========== ===========
Effective tax rate 42.4% 42.8% 42.6% 42.2%
=========== =========== =========== ===========
Three months ended September 30, 2004 and September 30, 2003
Revenue. For the three months ended September 30, 2004, total revenue of
$153.1 million decreased 4.1% versus revenue of $159.5 million for the three
months ended September 30, 2003 reflecting lower sales to Pitney Bowes of Canada
and lower facsimile revenue, partially offset by higher copier/MFP rentals,
sales and support services revenue. Excluding the impact of revenue attributable
to sales to Pitney Bowes of Canada, which operates under a reseller agreement,
total revenue for the third quarter was 0.4% higher versus the prior year.
Equipment and supplies sales revenue of $79.6 million decreased 5.6% for
the three months ended September 30, 2004 from $84.3 million for the three
months ended September 30, 2003, reflecting lower sales to Pitney Bowes of
Canada and lower facsimile sales, partially offset by higher copier/MFP sales.
Excluding the impact of sales to Pitney Bowes of Canada, total sales revenue
increased 3.1% compared with the prior year. Copier/MFP sales increased 8.3%
reflecting growth across all market segments including our geographic expansion
of sales as described in Note 10 of our "Notes to Consolidated Financial
Statements." Facsimile sales declined 10.4% compared with the prior year
primarily due to lower supplies sales from the acceleration in the expected
continuing industry-wide reduction in facsimile usage.
Equipment rental revenue of $51.2 million for the three months ended
September 30, 2004 declined 5.7% versus equipment rental revenue of $54.2
million for the three months ended September 30, 2003, reflecting acceleration
of the continuing expected decline in facsimile 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 13.1% primarily reflecting the impact of additional rental placements
and a continuing increase in page volumes. The rate of growth in copier/MFP
rental revenue is expected to moderate in the fourth quarter as certain
copier/MFP rental contracts with the federal government are expiring and are not
expected to be renewed. Rental revenue from our facsimile product line declined
22.3% versus the prior year reflecting acceleration of the decline in the rental
installed base due in part to rental to sale conversions and lower per unit
pricing.
Support services revenue for the three months ended September 30, 2004 of
$22.3 million, primarily derived from stand-alone service contracts, increased
6.1% versus support services revenue of $21.0 million for the three months ended
September
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30, 2003, reflecting higher copier/MFP service revenue in response to copier/MFP
equipment sales growth, partially offset by lower facsimile service revenue.
Cost of sales. Cost of sales was $41.1 million for the three months ended
September 30, 2004 compared with $52.3 million for the same period in 2003 and
cost of sales as a percentage of sales revenue decreased to 51.7% for the three
months ended September 30, 2004 from 62.1% for the three months ended September
30, 2003. This decrease was primarily due to lower copier/MFP product cost,
lower inventory obsolescence charges and a lower proportion of sales to Pitney
Bowes of Canada, which are at substantially lower gross margins than direct
sales, partially offset by the continuing shift in product mix toward copier/MFP
products, which have a higher cost as a percentage of sales revenue than the
facsimile product line.
Cost of rentals. Cost of rentals was $14.2 million for the three months
ended September 30, 2004 compared with $18.0 million for the three months ended
September 30, 2003 and cost of rentals as a percentage of rental revenue
declined 5.4 percentage points to 27.7% for the three months ended September 30,
2004 from 33.1% for the three months ended September 30, 2003. This decline was
due to product cost improvements and 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 $85.8 million were 56.0% of total revenue for the
three months ended September 30, 2004 compared with $76.0 million, or 47.6% of
total revenue for the three months ended September 30, 2003. Selling, service
and administrative expenses increased 12.8% versus the prior year primarily
resulting from higher compensation costs related to the increase in copier/MFP
revenue coupled with increased sales headcount, higher ERP-related
administrative costs, increased bad debt expense, higher operating expenses
associated with expansion of direct distribution capabilities and the absence of
a property damage insurance claim recovery we recorded in the third quarter of
2003 related to the World Trade Center.
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 $0.9 million for the three
months ended September 30, 2004 from $4.3 million for the three months ended
September 30, 2003 primarily resulting from the reclassification of $2.8 million
to interest expense from other comprehensive income (loss) related to our
interest rate swap agreements in the third quarter of 2003 as well as lower
interest rates, partially offset by higher debt levels. The weighted average
interest rate for the three months ended September 30, 2004 was 2.8% versus 6.0%
for the three months ended September 30, 2003.
Effective tax rate. Our effective tax rate was 42.4% for the three months
ended September 30, 2004 compared with 42.8% for the three months ended
September 30, 2003 due to a decrease in state and local income taxes.
Nine months ended September 30, 2004 and September 30, 2003
Revenue. For the nine months ended September 30, 2004, total revenue of
$462.9 million decreased slightly versus revenue of $466.4 million for the nine
months ended September 30, 2003 reflecting lower sales to Pitney Bowes of Canada
and lower facsimile revenue, partially offset by higher copier/MFP revenue.
Excluding the impact of revenue attributable to sales to Pitney Bowes of Canada,
which operates under a reseller agreement, total revenue for the nine months
ended September 30, 2004 increased 1.0% versus the same period in the prior
year.
Equipment and supplies sales revenue of $237.3 million increased 0.5% for
the nine months ended September 30, 2004 from $236.2 million for the nine months
ended September 30, 2003, reflecting higher copier/MFP sales, partially offset
by lower sales to Pitney Bowes of Canada and lower facsimile sales. Excluding
the impact of sales to Pitney Bowes of Canada, total sales revenue increased
4.2% compared with the prior year. Copier/MFP sales increased 11.6% primarily
due to growth in the mid market black and white product segments, our geographic
expansion of sales as described in Note 10 of our "Notes to Consolidated
Financial Statements" and increased copier/MFP supplies sales. Facsimile
equipment and supplies sales declined 13.0% compared with the prior year
reflecting the expected continuing industry-wide reduction in facsimile usage.
Equipment rental revenue of $159.8 million for the nine months ended
September 30, 2004 declined 4.6% versus equipment rental revenue of $167.4
million for the nine months ended September 30, 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 9.6%
primarily reflecting increased unit placements and the impact of an increase in
page volumes. Rental revenue from our facsimile product line declined 16.1%
versus the prior year reflecting a decline in the installed base and lower
pricing.
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Support services revenue for the nine months ended September 30, 2004 of
$65.8 million, primarily derived from stand-alone service contracts, increased
4.9% versus support services revenue of $62.7 million for the nine months ended
September 30, 2003, reflecting higher copier/MFP service revenue resulting
primarily from higher page volumes, partially offset by lower facsimile service
revenue.
Cost of sales. Cost of sales was $132.5 million for the nine months ended
September 30, 2004 compared with $145.7 million for the same period in 2003 and
cost of sales as a percentage of sales revenue decreased to 55.8% for the nine
months ended September 30, 2004 from 61.7% for the nine months ended September
30, 2003. This decrease was primarily due to lower copier/MFP product cost,
lower inventory obsolescence charges and a lower proportion of sales to Pitney
Bowes of Canada, which are at substantially lower gross margins than direct
sales, partially offset by the continuing shift in product mix toward copier/MFP
products, which have a higher cost as a percentage of sales revenue than the
facsimile product line.
Cost of rentals. Cost of rentals was $45.3 million for the nine months
ended September 30, 2004 compared with $55.8 million for the nine months ended
September 30, 2003 and cost of rentals as a percentage of rental revenue
declined 5.0 percentage points to 28.3% for the nine months ended September 30,
2004 from 33.3% for the nine months ended September 30, 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 $250.6 million were 54.1% of total revenue for the
nine months ended September 30, 2004 compared with $231.5 million, or 49.6% of
total revenue for the nine months ended September 30, 2003. Selling, service and
administrative expenses increased 8.2% versus the prior year primarily resulting
from higher compensation and benefit expenses relating to higher copier/MFP
revenue coupled with increased sales headcount, higher operating expenses
associated with direct distribution expansion, higher administrative costs
related to the implementation and stabilization of our ERP system and an
increase in bad debt expense. This was partially offset by lower costs resulting
from the absence of payments to Pitney Bowes for information technology charges,
lower service charges from Pitney Bowes under the transition services agreement,
lower advertising expenses and the receipt of a business interruption insurance
claim related to the World Trade Center.
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 $2.7 million for the nine
months ended September 30, 2004 from $7.5 million for the nine months ended
September 30, 2003 primarily resulting from the reclassification of $2.8 million
to interest expense from other comprehensive income (loss) related to our
interest rate swap agreements in the third quarter of 2003 as well as lower
interest rates, partially offset by higher debt levels. The weighted average
interest rate for the nine months ended September 30, 2004 was 2.9% versus 6.5%
for the nine months ended September 30, 2003.
Effective tax rate. Our effective tax rate was 42.6% for the nine months
ended September 30, 2004 compared with 42.2% for the nine months ended September
30, 2003 primarily due to an increase in state and local income taxes.
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 $225.0
million, comprised of a $125.0 million Revolving Credit Facility (the "Revolving
Credit Facility") and a $100.0 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 direct, wholly-owned 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
22
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.
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 $50.0 million and $30.0 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 $50.0
million and the $30.0 million swap agreements, respectively.
Our initial borrowings of $150.0 million under the Credit Agreement,
consisting of $100.0 million under the Term Loan and $50.0 million under the
Revolving Credit Facility, were used to repay amounts due to Pitney Bowes and to
pay a dividend to Pitney Bowes.
On March 19, 2002, the Credit Agreement was amended to increase the total
amount of our stock permitted to be repurchased from $20.0 million to $30.0
million. On July 19, 2002, the Credit Agreement was amended to increase the
total amount of our stock permitted to be repurchased from $30.0 million to
$58.0 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 $58.0 million to
$78.0 million, to reduce the minimum EBITDA covenant to $100.0 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 $125.0 million to $95.0 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 amended (the "Fifth
Amendment") to increase the amount of our stock permitted to be repurchased from
$78.0 million to $108.0 million, to increase the aggregate amount of acquisition
consideration payable for acquisitions from $30.0 million to $60.0 million and
to remove the requirement for annual borrowing base audits so long as $50.0
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.
Effective June 1, 2004, the Credit Agreement was further amended (the "Sixth
Amendment") to reduce and fix the Term Loan interest rate to LIBOR plus a margin
of 1.25%, from LIBOR plus a margin of 2.25%, 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 1.25%. At September 30, 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 $8.0 million of the amount outstanding under the Term Loan. This
prepayment was covered by a portion of the $30.0 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 $8.0 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 $8.0 million of the $30.0 million interest rate swap
agreement.
During the third quarter of 2003, we revised our cash flow estimates and
prepaid $20.0 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
$50.0 million and $22.0 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 September 30, 2004, $72.0 million of borrowings were outstanding under
the Credit Agreement, consisting of $19.0 million of borrowings under the
Revolving Credit Facility and $53.0 million of borrowings under the Term Loan,
and the borrowing base amounted to approximately $118.9 million. Approximately
$75.0 million of the Revolving Credit Facility was available for borrowing at
September 30, 2004. The Term Loan is payable in 9 consecutive equal quarterly
installments of $0.1
23
million due December 31, 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 September 30, 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.
The ratio of current assets to current liabilities decreased to 2.7 to 1
at September 30, 2004 compared to 2.8 to 1 at December 31, 2003 due to an
increase in accounts payable and accrued liabilities, partially offset by
increases in accrued billings, inventories, current deferred taxes and accounts
receivable. At September 30, 2004, our total debt as a percentage of total
capitalization increased to 21.1% 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 implemented 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. We
believe that we have satisfactorily resolved the issues relating to delays in
product shipments and service responsiveness initially experienced in connection
with the ERP system implementation. However, as we stabilize the ERP system, we
continue to experience certain processing inefficiencies affecting billings,
which in turn have negatively impacted accounts receivable levels and the
calculation of sales compensation. In addition, delays in the implementation of
certain automated tools to assist in collection activities has contributed to
the increase in accounts receivable. Our ability to return accounts receivable
to historical levels have been impacted by delays in collections resulting from
customer inquiries relating to changes to our billing policies and invoice
format, an increase in billing adjustment activity, the temporary suspension of
account statement and collection notice mailings on delinquent amounts and
delays in processing customer invoicing. In August 2004, we resumed mailing
account statements and delinquent account notices to customers. We believe that
much of the increase in accounts receivable will not be permanent. However, a
portion of our increase in accounts receivable results from the standardization
of our billing practices and schedules across all product lines and the
continuing shift in product mix towards the copier/MFP product line, for which
the usage-based billing is more complex. We believe that the portion of the
increase in accounts receivable related to changes in billing schedules and
product mix represents a permanent structural change. We have provided for
collection losses on the increase in accounts receivable at rates higher than
our historical experience. However, if collection losses related to accounts
receivable are higher than the amounts provided, we would recognize an
additional increase in our provision for bad debt.
We remain engaged in a period of stabilization and clean up, as is typical
of a large ERP system implementation. During the fourth quarter of 2004 and the
first quarter of 2005, we will be implementing Phase III of our ERP system,
primarily comprised of certain automated tools to assist in invoice dispute
resolution and collection activities. We believe that the implementation of
these automated tools will assist in our progress in collecting our accounts
receivable beginning in the fourth quarter of 2004. In the month of October, we
experienced certain unforeseen system performance issues, which have resulted in
delays in invoicing our customers. While we believe that the performance issues
are temporary, we expect to experience delays in customer cash receipts
negatively impacting accounts receivable during the fourth quarter as a result
of the delayed October invoicing. We believe we have identified the causes of
these performance issues and that we have implemented appropriate remedies.
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 provided by operating activities was $57.4 million for the nine
months ended September 30, 2004 compared with $84.4 million for the nine months
ended September 30, 2003. Net income was $18.3 million and $14.9 million for the
nine months ended September 30, 2004 and 2003, respectively. Non-cash charges
for depreciation and amortization and provisions for bad debt and inventory
obsolescence in the aggregate provided cash of $62.9 million and $67.4 million
for the nine months ended September 30, 2004 and 2003, respectively. Changes in
the principal components of working capital required $21.0 million and $4.7
million of cash in the nine months ended September 30, 2004 and 2003,
respectively. Of the $21.0 million increase in our working capital requirements
in the nine months ended September 30, 2004, $12.1 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, an increase in billing adjustment activity and the temporary
suspension of account statement and collection notice mailings on delinquent
amounts. In addition, $6.9 million resulted from an increase in accrued billings
and $1.5 million resulted from a decrease in advance billings, both related to
timing of invoicing to customers. Inventory levels increased $5.6 million
resulting from our geographic expansion of sales and service capabilities
through our dealer acquisitions (See Note 10 of our "Notes to Consolidated
Financial Statements,") and to support new product introductions made in the
fourth quarter. This was partially offset by an increase in accounts payable and
accrued liabilities of $5.0 million primarily related to the increased inventory
purchases. Of the $4.7 million of cash used by working capital changes in the
nine months ended September 30, 2003, $14.7 million resulted from a decrease in
accounts payable and accrued liabilities primarily related to timing of income
tax payments and payments related to 2002 compensation programs. In addition,
$1.4 million resulted from an increase in accrued billings and $1.3 million
resulted from a decrease in advance billings, both related to timing of
invoicing our customers. This was
24
partially offset by $7.0 million of net reductions in accounts receivable
resulting primarily from collections, $3.7 million resulting from a decrease in
inventory levels and $2.0 million resulting from a decrease in other current
assets and prepaid expenses.
We used $58.6 million and $45.8 million in investing activities for the
nine months ended September 30, 2004 and 2003, respectively. Investment in
rental equipment assets totaled $34.8 million and $28.0 million for the nine
months ended September 30, 2004 and 2003, respectively. The increased level of
rental asset expenditures results primarily from awards of new state rental
contracts, partially offset by lower facsimile placements. Capital expenditures
for property, plant and equipment were $11.6 million and $13.7 million for the
nine months ended September 30, 2004 and 2003, respectively, of which the
investment in our ERP system accounted for $8.5 million and $8.3 million,
respectively. During the nine months ended September 30, 2004, we acquired three
independent dealers to expand our sales and service capabilities as described in
Note 10 of our "Notes to Consolidated Financial Statements."
Cash used in financing activities was $9.5 million for the nine months
ended September 30, 2004 compared with $44.8 million for the nine months ended
September 30, 2003. Net borrowings under the Revolving Credit Facility were $9.0
million for the nine months ended September 30, 2004, while repayments under the
Term Loan totaled $20.6 million for the nine months ended September 30, 2003.
For the nine months ended September 30, 2004 and 2003 cash was used to
repurchase 554,000 shares of our stock at a cost of $20.5 million and 1,205,900
shares at a cost of $26.2 million, respectively.
During the nine month period ended September 30, 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 $5.0 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 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.
Because 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. Four 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.
25
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 14% 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 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.
We are in the process of evaluating and documenting our internal control
systems and performing the testing required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. Section 404 requires management to document, test
and report on our internal controls over financial reporting in our Annual
Report on Form 10-K for the year ending December 31, 2004 and for our
Independent Auditors to attest to management's assertions. Over the past twelve
months, we have implemented a new ERP system, which has significantly impacted
customer billings, accounts receivable and sales compensation. We are in a
period of stabilization and clean up and additional system implementations are
being undertaken in the fourth quarter of 2004 to address issues encountered to
date. Management intends to complete our assessment of internal controls over
financial reporting in order to comply with the Section 404 requirements.
However, during the course of our testing we may identify deficiencies or
weaknesses and we can provide no assurance that any remediation required will be
successful or completed in the time required.
Risk factors relating to separating our company from Pitney Bowes
In October 2003, we implemented 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. We
believe that we have satisfactorily resolved the issues relating to delays in
product shipments and service responsiveness initially experienced in connection
with the ERP system implementation. However, as we stabilize the ERP system, we
continue to experience certain processing inefficiencies affecting billings,
which in turn have negatively impacted accounts receivable levels and the
calculation of sales compensation. In addition, delays in the implementation of
certain automated tools to assist in collection activities have contributed to
the increase in accounts receivable. Our ability to return accounts receivable
to historical levels have been impacted by delays in collections resulting from
customer inquiries relating to changes to our billing policies and invoice
format, an increase in billing adjustment activity, the temporary suspension of
account statement and collection notice mailings on delinquent amounts and
delays in processing customer invoicing. In August 2004, we resumed mailing
account statements and delinquent account notices to customers. We believe that
much of the increase in accounts receivable will not be permanent. However, a
portion of our increase in accounts receivable results from the standardization
of our billing practices and schedules across all product lines and the
continuing shift in product mix towards the copier/MFP product line, for which
the usage-based billing is more complex. We believe that the portion of the
increase in accounts receivable related to changes in billing schedules and
product mix represents a permanent structural change. We have provided for
collection losses on the increase in accounts receivable at rates higher than
our historical experience. However, if collection losses related to accounts
receivable are higher than the amounts provided, we would recognize an
additional increase in our provision for bad debt.
With respect to the calculation of sales compensation, we continue to work
through certain of the processing inefficiencies resulting in data inaccuracies
and potential inaccuracies in calculated sales compensation. Due to these
issues, we have continued to apply alternate methodologies to calculate and pay
sales compensation. We believe that we have recognized the proper amount of
sales compensation. However, there is a potential that the resolution of these
data inaccuracies could result in additional expense for sales compensation.
We remain engaged in a period of stabilization and clean up, as is typical
of a large ERP system implementation. During the fourth quarter of 2004 and the
first quarter of 2005, we will be implementing Phase III of our ERP system,
primarily comprised of certain automated tools to assist in invoice dispute
resolution and collection activities. We believe that the implementation of
these automated tools will assist in our progress in collecting our accounts
receivable beginning in the fourth quarter of 2004. In the month of October, we
experienced certain unforeseen system performance issues, which have resulted in
delays in invoicing our customers. While we believe that the performance issues
are temporary, we expect to experience delays in customer cash receipts
negatively impacting accounts receivable during the fourth quarter as a result
of the delayed October invoicing. We believe we have identified the causes of
these performance issues and that we have implemented appropriate remedies.
We anticipate that we will resolve the issues related to our ERP system
implementation that are impacting our customer billings, accounts receivable and
sales compensation. However, if we are unable to do so in a reasonable time
frame, these issues could have a negative impact on customer and employee
satisfaction and retention, which could result in a potential loss of
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business. Although no assurance can be given that these efforts related to
customer billings, accounts receivable and sales compensation 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 September 30, 2004 and 2003, revenues from
Pitney Bowes, exclusive of equipment sales to PBCC for lease to the end user,
accounted for approximately 5% and 9%, respectively, of our total revenue and
for the nine months ended September 30, 2004 and 2003, accounted for
approximately 7% and 9% of our total revenue, respectively. 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.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have certain limited 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 subsidiaries are translated into U.S. dollars
for consolidation. The effect of foreign exchange rate fluctuation for the
quarter ended September 30, 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 ensuring items are recorded,
processed, summarized and reported and alerting them to material information
required to be included in our periodic SEC filings relating to the Company,
including its consolidated subsidiaries, in a timely manner.
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.
For additional details, see Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Risk Factors that Could Cause
Results to Vary."
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.
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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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 third quarter of 2004:
(Dollars in thousands, except per share data)
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
-------------------------------------- ------------ -------------- ------------------- --------------------
July 1, 2004 - July 31, 2004 52,500 $ 33.36 52,500 $ 29,054
August 1, 2004 - August 31, 2004 191,600 $ 31.75 191,600 $ 22,970
September 1, 2004 - September 30, 2004 11,000 $ 33.01 11,000 $ 22,607
------- -------
Total 255,100 $ 32.14 255,100
======= =======
In March 2002, the Board of Directors approved a $30.0 million stock buy
back program. In October 2002, the Board of Directors authorized the repurchase
of an additional $28.0 million of our stock, raising the total authorization to
$58.0 million. In July 2003, the Board of Directors authorized the repurchase of
an additional $20.0 million of our stock, raising the total authorization to
$78.0 million. In May 2004, the Board of Directors authorized the repurchase of
an additional $30.0 million of our stock, raising the total authorization to
$108.0 million and, as of September 30, 2004, we have accumulated approximately
3.8 million shares of treasury stock at a cost of approximately $85.4 million.
The stock buy back program has no fixed termination date.
ITEM 6. 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)
29
10.9 Form of Sublease and License Agreement between Pitney Bowes Inc. and
Imagistics International Inc. (2)
10.10 Form of Assignment and Novation Agreement between Pitney Bowes Inc.
and Imagistics International Inc. (2)
10.11 Imagistics International Inc. 2001 Stock Plan (1)
10.12 Imagistics International Inc. Key Employees' Incentive Plan (3)
10.13 Imagistics International Inc. Non-Employee Directors' Stock Plan (1)
10.14 Letter Agreement between Pitney Bowes Inc. and Marc C. Breslawsky
(1)
10.15 Letter Agreement between Pitney Bowes Inc. and Joseph D. Skrzypczak
(1)
10.16 Letter Agreement between Pitney Bowes Inc. and Mark S. Flynn (1)
10.17 Credit Agreement between Imagistics International Inc. and Merrill
Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated, as
Syndication Agent, Fleet Capital Corporation, as Administrative
Agent (3)
10.18 Rights Agreement between Imagistics International Inc. and EquiServe
Trust Company, N.A. (3)
10.19 Employment Agreement between Imagistics International Inc. and Marc
C. Breslawsky (3)
10.20 Employment Agreement between Imagistics International Inc. and
Joseph D. Skrzypczak (3)
10.21 Employment Agreement between Imagistics International Inc. and
Christine B. Allen (3)
10.22 Employment Agreement between Imagistics International Inc. and John
C. Chillock (3)
10.23 Employment Agreement between Imagistics International Inc. and Chris
C. Dewart (3)
10.24 Employment Agreement between Imagistics International Inc. and Mark
S. Flynn (3)
10.25 Employment Agreement between Imagistics International Inc. and
Nathaniel M. Gifford (3)
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 (11)
10.36 Amendment No. 6 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 (12)
10.37 Second Amendment to the Imagistics International Inc. Employee Stock
Purchase Plan
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.
(11) Incorporated by reference to the Registrant's Form 10-Q filed May 10,
2004.
(12) Incorporated by reference to the Registrant's Form 10-Q filed August 3,
2004.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 9, 2004 Imagistics International Inc.
(Registrant)
By /s/ Timothy E. Coyne
-------------------------
Name: Timothy E. Coyne
Title: Chief Financial Officer
and Authorized Signatory
31