IGI Western Asset Investment Grade Defined Opportunity Trust Inc

Imagistics International Inc. (NYSE:IGI): -- EPS of $0.41, up 24%, after previously announced severance charge of $0.02 -- Copier/MFP revenue up 6%; facsimile revenue down 24% -- Selling, service and administrative expenses reduced by $7.2 million -- Affirming 2005 guidance Imagistics International Inc. (NYSE: IGI) today announced second quarter of 2005 diluted earnings per share of $0.41, up 24 percent, and net income of $6.7 million, up 19 percent. This compares with second quarter 2004 diluted earnings per share of $0.33 and net income of $5.6 million. All prior periods have been restated for the expensing of stock options, which was adopted effective January 1, 2005. Total revenue for the second quarter of 2005 decreased 4 percent to $145.7 million. Revenue is generated from three business lines: copier/MFP (multifunctional products), facsimile, and sales to PB Canada under a reseller agreement. For the quarter, copier/MFP revenue increased 6 percent to $109.8 million, facsimile revenue declined 24 percent to $34.7 million, and sales to PB Canada decreased 25 percent to $1.2 million, compared with the prior year's second quarter. Marc C. Breslawsky, Imagistics Chairman and Chief Executive Officer, said, "We are pleased with our performance in the second quarter of 2005 with strong EPS growth, as the cost reduction actions we took earlier this year have greatly improved results. Our key financial metrics were very good in the second quarter of 2005 -- copier/MFP revenue grew 6 percent, we maintained a high level of recurring revenue, selling, service and administrative expenses were significantly reduced, and facsimile revenue continued its expected rate of decline. "We are back on track - delivering results, growing our core copier/MFP business, and strengthening our product, distribution and service capabilities. We affirm our earnings per share guidance for 2005." Imagistics President and Chief Operating Officer, Joseph Skrzypczak, commented, "Diluted EPS of $0.41 in the second quarter of 2005 was up 24 percent, compared with $0.33 in the second quarter last year, on an as reported basis. The second quarter of 2005 included a severance charge of $0.02 per share, excluding that, normalized diluted EPS was $0.43. The second quarter of 2004 included a benefit from an insurance recovery of $0.05, excluding that, normalized diluted EPS was $0.28. On a normalized basis, diluted EPS of $0.43 in the second quarter of 2005 was up 54 percent compared with $0.28 in the second quarter of 2004. "In the second quarter of 2005, we generated strong cash from operations of $29.6 million, which we used to invest in our rental asset base, acquire two copier dealerships, and repurchase 653,000 Imagistics shares. We accomplished all of this while increasing debt by only $1.4 million from the first quarter of 2005, and maintaining debt as a percentage of total capital at a conservative 23 percent. "Our collection efforts continue to show good results. Days sales outstanding improved to 61 days in the second quarter of 2005, compared with 63 days in the first quarter of 2005 and 65 days in the fourth quarter of 2004." Mr. Skrzypczak added, "We continue to strengthen our product line. To date, we introduced more products in the first half of 2005 than in all of 2004. We are excited about the potential of the im3511 and im4511 products introduced in May, and we have more new products in the pipeline - both color and black and white. Color enabled products continue to be an important component of our strategy. Color copier/MFP placements continued strong in the second quarter of 2005, and were up over 200 percent year-over-year and increased nearly 20 percent sequentially. "The ERP implementation is also winding down. In the second quarter of 2005, total direct ERP-related expenditures, including those that were capitalized, were approximately $1 million. We continue to expect that we will complete the ERP implementation this year." Results for the Second Quarter of 2005 Revenue Total copier/MFP revenue of $109.8 million increased 6 percent for the second quarter 2005, compared with the prior year. Copier/MFP sales of $60.0 million increased 7 percent in the second quarter 2005 due to continued unit volume growth, including strong demand for color copier/MFP products, and growth in aftermarket supplies. Rental revenue from the copier/MFP product line of $28.3 million grew 3 percent in the second quarter, compared to the prior year, and 3 percent sequentially. Year-over-year copier/MFP rental growth continued to be impacted by the expiration of certain contracts with the Federal government that were not renewed. The company expects that year-over-year copier/MFP rental growth will continue to be modest in the third quarter of 2005, but will significantly improve in the fourth quarter of 2005 due to a strong level of recent business activity and the aforementioned U.S government contracts which are expected to have less of a negative year-over-year impact. Copier/MFP support services revenue of $21.5 million grew 5 percent in the second quarter of 2005. Total facsimile revenue of $34.7 million was down 24 percent in the second quarter of 2005. Facsimile sales of $15.1 million declined 13 percent, reflecting lower supply sales primarily due to the continuing industry-wide reduction in facsimile usage, partially offset by a large rental to sale conversion of facsimile equipment in the second quarter of 2005. Rental revenue from the facsimile product line of $17.9 million declined 33 percent in the second quarter of 2005, reflecting the decline in the rental installed base due in part to the impact of rental to sale conversions and lower per unit pricing. Support services revenue from facsimile of $1.7 million declined 7 percent in the second quarter of 2005. Facsimile revenue represented 24 percent of total revenue for the company in the second quarter of 2005. Sales to PB Canada of $1.2 million were down $0.4 million or 25 percent in the second quarter of 2005. Sales to PB Canada are at low margins, so the decline in revenue had little impact on profitability. Gross Margins The sales gross margin was 44.3 percent, up 0.7 percentage points compared with the second quarter of 2004. The improvement in the sales gross margin was due to a large rental to sale conversion of facsimile equipment and lower inventory obsolescence charges, partially offset by lower margin from certain competitively bid large sales transactions and the continuing shift in product mix away from the higher margin facsimile product line toward the lower margin copier/MFP product line. The rental gross margin was 68.3 percent, down 3.4 percentage points compared with the second quarter last year. This lower rental gross margin was primarily the result of the continuing shift in product revenue mix from facsimile to copier/MFP. Expenses Selling, service and administrative ("SS&A") expenses in the second quarter of 2005 were $75.9 million, down 9 percent compared with the second quarter of 2004, on an as reported basis. Selling, service and administrative expenses in the second quarter of 2005 included a previously announced severance charge of $0.6 million, or $0.02 per share. Excluding that charge, SS&A expenses were $75.3 million in the second quarter of 2005. As previously disclosed, selling, service and administrative expenses in the second quarter of 2004 included an insurance recovery of $1.4 million, or $0.05 per share, for business interruption claims related to the World Trade Center. Excluding that adjustment, SS&A expenses were $84.5 million in that period. Comparing year-over-year SS&A expenses, excluding the aforementioned severance charge and the insurance recovery, SS&A expenses in the second quarter of 2005 were down $9.2 million or 11 percent. The reduction in SS&A expenses in the second quarter of 2005 was the result of lower compensation and benefit expenses and lower ERP-implementation and related administrative support costs. This was partially offset by the absence of the previously mentioned insurance recovery received in the second quarter of 2004 and higher operating expenses associated with direct distribution expansion. Interest expense of $1.2 million increased by $0.3 million in the second quarter 2005 compared to the prior year, due to a higher level of debt and higher interest rates. Results for the First Six Months of 2005 For the first six months of 2005, total revenue decreased 7 percent to $287.8 million. Copier/MFP revenue grew 6 percent, facsimile revenue declined 26 percent and sales to PB Canada declined 72 percent, compared to the first half of 2004. Net income declined 24 percent to $8.2 million. Diluted EPS of $0.50 in the first six months of 2005 was down 21 percent, compared with $0.63 in the first six months of last year, on an as reported basis. The first six months of 2005 included restructuring and severance charges totaling $0.14 per share, excluding that, normalized diluted EPS was $0.64. The first six months of 2004 included a benefit from an insurance recovery of $0.05 per share, excluding that, normalized diluted EPS was $0.58. On a normalized basis, diluted EPS for the first six months of 2005 of $0.64 was up 10 percent compared with $0.58 for the first six months of 2004. Outlook The company affirms its 2005 guidance of $1.58-$1.63 per share. That guidance, as previously announced, reflects the restatements for the expensing of stock options, and charges for restructuring and severance. Conference Call Imagistics International will hold a conference call with Marc Breslawsky, Chairman and Chief Executive Officer, Joseph Skrzypczak, President and Chief Operating Officer, and Timothy Coyne, Chief Financial Officer, on Thursday, August 4, 2005 at 11:00 a.m. (Eastern Time) to discuss results. The conference will be available by audio webcast at our investor website, www.IGIinvestor.com, where it will also be archived. About Imagistics International Inc. Imagistics International Inc. (NYSE:IGI) is a direct sales, service and marketing organization offering document imaging solutions, including high performance, leading edge copier/MFPs and facsimile machines to Fortune 1000 companies and other organizations. Its direct sales and service network is located throughout the United States and the United Kingdom, and in parts of Canada. Imagistics International is a member of the S&P SmallCap 600 Index and the Russell 2000 Index(R) and is headquartered in Trumbull, Connecticut. For additional information about Imagistics International, please visit www.imagistics.com and www.IGIinvestor.com. The statements contained in this news release that are not purely historical are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that 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. These risks and uncertainties include, but are not limited to, general economic, business and market conditions, competitive pricing pressures, timely development and acceptance of new products, our reliance on third party suppliers, potential disruptions in implementing information technology systems, including the recent ERP implementation, potential disruptions affecting the international shipment of goods, our ability to create brand recognition and currency and interest rate fluctuations. For a more complete discussion of certain of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Imagistics 2004 Form 10-K and other SEC filings. The forward-looking statements contained in this news release are made as of the date hereof, and we do not undertake any obligation to update any forward-looking statements, whether as a result of future events, new information or otherwise. -0- *T Imagistics International Inc. Consolidated Statements of Income (Unaudited) Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- (in millions, except per share amounts) 2005 2004 B/(W) 2005 2004 B/(W) ------------------------------------------- ------------------------- Revenue Sales $ 76.3 $ 75.2 1% $ 149.2 $ 157.7 (5%) Rentals 46.2 54.2 (15%) 93.8 108.6 (14%) Support services 23.2 22.1 4% 44.8 43.5 3% ------------------------------------------- ------------------------- Total revenue 145.7 151.5 (4%) 287.8 309.8 (7%) Costs and expenses Cost of sales 42.5 42.4 - 84.8 91.3 7% Cost of rentals 14.6 15.3 4% 28.9 31.1 7% Selling, service and administrative expenses 75.9 83.1 9% 157.7 166.7 5% ------------------------------------------- ------------------------- Operating income 12.7 10.7 19% 16.4 20.7 (21%) Interest expense, net 1.2 0.9 (30%) 2.3 1.8 (25%) ------------------------------------------- ------------------------- Income before income taxes 11.5 9.8 18% 14.1 18.9 (25%) Provision for income taxes 4.8 4.2 (16%) 5.9 8.1 27% ------------------------------------------- ------------------------- Net income $ 6.7 $ 5.6 19% $ 8.2 $ 10.8 (24%) =========================================== ========================= Calculation of earnings per share Income available to common shareholders $ 6.7 $ 5.6 19% $ 8.2 $ 10.8 (24%) Basic average shares outstanding 16.048 16.249 1% 16.038 16.331 2% Diluted average shares outstanding 16.398 16.951 3% 16.419 17.035 4% ------------------------------------------- ------------------------ Basic earnings per share $ 0.42 $ 0.35 20% $ 0.51 $ 0.66 (23%) Diluted earnings per share $ 0.41 $ 0.33 24% $ 0.50 $ 0.63 (21%) =========================================== ========================= The Company adopted SFAS No. 123(R), "Share-Based Payment," as of January 1, 2005. Accordingly, certain previously reported amounts have been restated to conform to the current year presentation. Imagistics International Inc. Condensed Consolidated Balance Sheets (Unaudited) June 30, March 31, December 31, (in millions) 2005 2005 2004 ---------------------------------------------------------------------- Cash $ 11.4 $ 13.4 $ 12.8 Accounts receivable, net 99.3 99.7 105.7 Accrued billings 28.4 30.8 29.0 Inventories 82.7 89.0 94.7 Other current assets 28.8 28.9 31.4 ---------------------------------------------------------------------- Total current assets 250.6 261.8 273.6 Property, plant and equipment, net 58.5 59.5 60.3 Rental assets, net 59.0 60.1 62.8 Other assets 73.8 70.3 70.8 ---------------------------------------------------------------------- Total assets $ 441.9 $ 451.7 $ 467.5 ====================================================================== Current portion of long-term debt $ 0.5 $ 0.5 $ 0.5 Accounts payable and accrued liabilities 57.6 56.9 80.3 Advance billings 13.9 14.3 14.8 ---------------------------------------------------------------------- Total current liabilities 72.0 71.7 95.6 Long-term debt 80.6 79.2 70.4 Other liabilities 15.3 17.6 18.2 ---------------------------------------------------------------------- Total liabilities 167.9 168.5 184.2 Stockholders' equity 274.0 283.2 283.3 ---------------------------------------------------------------------- Total liabilities and stockholders' equity $ 441.9 $ 451.7 $ 467.5 ====================================================================== Shares outstanding (in thousands) 15,733 16,316 16,305 ============ ============ ============ Memo: Total debt $ 81.1 $ 79.7 $ 70.9 ============ ============ ============ The Company adopted SFAS No. 123(R), "Share-Based Payment," as of January 1, 2005. Accordingly, certain previously reported amounts have been restated to conform to the current year presentation. Imagistics International Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three months Six months ended ended June 30, June 30, ----------------- ----------------- (in millions) 2005 2004 2005 2004 ---------------------------------------------------- ----------------- Cash flows from operating activities: Net income $ 6.7 $ 5.6 $ 8.2 $ 10.8 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14.8 16.2 29.9 32.8 Provision for bad debt 2.1 4.0 4.1 6.4 Reserve for inventory obsolescence (0.1) 1.1 1.2 2.5 Share-based compensation expense 0.6 1.2 2.4 2.7 Excess tax benefits from share- based compensation (0.1) (0.2) (0.6) (0.7) Deferred taxes on income (2.3) (0.4) 0.7 (3.3) Non-cash restructuring impairment charges - - 0.5 - Change in assets and liabilities, net of acquisitions: Accounts receivable (0.4) (3.6) 3.6 (17.3) Accrued billings 2.4 (2.5) 0.6 (3.8) Inventories 6.9 2.0 12.5 3.5 Other currents assets and prepayments 0.6 1.0 1.2 (0.1) Accounts payable and accrued liabilities (1.5) 6.7 (25.7) (6.4) Advance billings (0.5) (0.9) (1.1) (2.2) Other, net 0.4 (0.9) (1.9) - ---------------------------------------------------- ----------------- Net cash provided by operating activities 29.6 29.3 35.6 24.9 ---------------------------------------------------- ----------------- Cash flows from investing activities: Expenditures for rental equipment assets (10.8) (11.5) (20.2) (21.3) Expenditures for property, plant and equipment (1.0) (3.9) (3.1) (6.7) Acquisitions, net of cash acquired (4.4) (6.0) (4.4) (9.7) ---------------------------------------------------- ----------------- Net cash used in investing activities (16.2) (21.4) (27.7) (37.7) ---------------------------------------------------- ----------------- Cash flows from financing activities: Purchases of treasury stock (17.7) (6.0) (22.3) (12.3) Net borrowings (repayments) under Term Loan and Revolving Credit Facility 1.4 (5.1) 10.2 9.7 Exercises of stock options, including purchases under employee stock purchase plan 1.2 1.3 2.8 2.4 Excess tax benefits from share- based compensation 0.1 0.2 0.6 0.7 ---------------------------------------------------- ----------------- Net cash (used in) provided by financing activities (15.0) (9.6) (8.7) 0.5 ---------------------------------------------------- ----------------- Effect of exchange rates on cash (0.4) (0.1) (0.6) 0.1 Decrease in cash (2.0) (1.8) (1.4) (12.2) Cash at beginning of period 13.4 12.5 12.8 22.9 ---------------------------------------------------- ----------------- Cash at end of period $ 11.4 $ 10.7 $ 11.4 $ 10.7 ==================================================== ================= The Company adopted SFAS No. 123(R), "Share-Based Payment," as of January 1, 2005. Accordingly, certain previously reported amounts have been restated to conform to the current year presentation. Certain previously reported amounts have been reclassified to conform to the current year presentation. Imagistics International Inc. Supplemental Data Schedules Revenue (Unaudited) Three months ended Six months ended June 30, June 30, ----------------------------- ----------------------------- (in millions) 2005 2004 2005 2004 ---------------------------------------- ----------------------------- Growth Growth Growth Growth Revenue Rate Revenue Rate Revenue Rate Revenue Rate ----------------------------- ----------------------------- Sales Copier/MFP products $ 60.0 7% $ 56.3 12% $116.3 7% $108.4 14% Facsimile products 15.1 (13%) 17.3 (22%) 29.6 (21%) 37.6 (14%) Pitney Bowes of Canada 1.2 (25%) 1.6 (75%) 3.3 (72%) 11.7 (7%) ---------------------------------------- ----------------------------- Total sales 76.3 1% 75.2 (5%) 149.2 (5%) 157.7 4% Rentals Copier/MFP products 28.3 3% 27.4 9% 55.8 4% 53.5 8% Facsimile products 17.9 (33%) 26.8 (14%) 38.0 (31%) 55.1 (13%) ---------------------------------------- ----------------------------- Total rentals 46.2 (15%) 54.2 (3%) 93.8 (14%) 108.6 (4%) Support services Copier/MFP products 21.5 5% 20.3 8% 41.5 4% 39.9 7% Facsimile products 1.7 (7%) 1.8 (14%) 3.3 (7%) 3.6 (18%) ---------------------------------------- ----------------------------- Total support services 23.2 4% 22.1 6% 44.8 3% 43.5 4% ---------------------------------------- ----------------------------- Total revenue $145.7 (4%) $151.5 (3%) $287.8 (7%) $309.8 1% ======================================== ============================= Revenue Copier/MFP products $109.8 6% $104.0 10% $213.6 6% $201.8 11% Facsimile products 34.7 (24%) 45.9 (17%) 70.9 (26%) 96.3 (14%) ---------------------------------------- ----------------------------- Revenue excluding Pitney Bowes of Canada 144.5 (4%) 149.9 - 284.5 (5%) 298.1 1% Pitney Bowes of Canada 1.2 (25%) 1.6 (75%) 3.3 (72%) 11.7 (7%) ---------------------------------------- ----------------------------- Total revenue $145.7 (4%) $151.5 (3%) $287.8 (7%) $309.8 1% ======================================== ============================= Although revenue, excluding sales to Pitney Bowes of Canada, represents a non-GAAP financial measure, management considers this to be meaningful to investors as sales to Pitney Bowes of Canada under a reseller agreement are at margins significantly below the 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. We also 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. Imagistics International Inc. Supplemental Data Schedules EBITDA (Unaudited) Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- (in millions) 2005 2004 B/(W) 2005 2004 B/(W) ---------------------------------------------- ----------------------- EBITDA Net income $ 6.7 $ 5.6 19% $ 8.2 $ 10.8 (24%) Interest expense, net 1.2 0.9 (30%) 2.3 1.8 (25%) Provision for income taxes 4.8 4.2 (16%) 5.9 8.1 27% ---------------------------------------------- ----------------------- EBIT 12.7 10.7 19% 16.4 20.7 (21%) Depreciation and amortization 14.8 16.2 8% 29.9 32.8 9% ---------------------------------------------- ----------------------- EBITDA $ 27.5 $ 26.9 3% $ 46.3 $ 53.5 (13%) ============================================== ======================= The Company adopted SFAS No. 123(R), "Share-Based Payment," as of January 1, 2005. Accordingly, certain previously reported amounts have been restated to conform to the current year presentation. Free Cash Flow (Unaudited) Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- (in millions) 2005 2004 B/(W) 2005 2004 B/(W) ---------------------------------------------- ----------------------- Free cash flow Net cash provided by operating activities $ 29.6 $ 29.3 1% $ 35.6 $ 24.9 43% Expenditures for rental equipment assets (10.8) (11.5) 6% (20.2) (21.3) 5% Expenditures for property, plant and equipment (1.0) (3.9) 75% (3.1) (6.7) 54% Effect of exchange rates on cash (0.4) (0.1) (a) (0.6) 0.1 (a) ---------------------------------------------- ----------------------- Free cash flow $ 17.4 $ 13.8 27% $ 11.7 $ (3.0) (a) ============================================== ======================= (a) Not meaningful The Company adopted SFAS No. 123(R), "Share-Based Payment," as of January 1, 2005. Accordingly, certain previously reported amounts have been restated to conform to the current year presentation. Certain previously reported amounts have been reclassified to conform to the current year presentation. Free cash flow is useful to management and the Company's investors in measuring the cash generated by the Company that is available to be used to repurchase stock, repay debt obligations and invest in future growth through new business development activities or acquisitions. Free Cash Flow should not be construed as a substitute in measuring operating results or liquidity. Such metric may not be comparable to similarly titled measures used by other companies and is not a measurement recognized under generally accepted accounting principles. A reconciliation of Free Cash Flow to the appropriate measure recognized under generally accepted accounting principles (Net Cash Provided by Operating Activities) is presented above. EBITDA is defined as net income plus interest and other income, taxes, depreciation and amortization. These measures are used by management and by the Company's investors to evaluate the performance of our business. However this measure is not a substitute for or superior to net income prepared in accordance with generally accepted accounting principles. A reconciliation of EBITDA to net income prepared in accordance with generally accepted accounting principles is presented above. Although normalized diluted EPS represents a non-GAAP financial measure, management believes this measure is meaningful to evaluate the performance of the Company on a comparable basis. *T