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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
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                                    FORM 10-K
(MARK ONE)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         FOR THE TRANSITION PERIOD FROM                  TO
                                       ------------------  -------------------

                         COMMISSION FILE NUMBER 1-16449

                          IMAGISTICS INTERNATIONAL INC.
             (Exact Name of Registrant as Specified in Its Charter)

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                DELAWARE                                   06-1611068
    (State or Other Jurisdiction of                     (I.R.S. Employer
     Incorporation or Organization)                    Identification No.)

            100 OAKVIEW DRIVE
          TRUMBULL, CONNECTICUT                               06611
(Address of Principal Executive Offices)                    (Zip Code)

                                 (203) 365-7000
              (Registrant's telephone number, including area code)

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           Securities Registered Pursuant to Section 12(b) of the Act:

           Title of each class                    Name of each exchange on which
           -------------------                              registered
                                                            ----------
COMMON STOCK, PAR VALUE $.01 PER SHARE             THE NEW YORK STOCK EXCHANGE
(TOGETHER WITH ASSOCIATED PREFERRED STOCK
PURCHASE RIGHTS)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS (1) 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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12b-2). YES X   NO__

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES WAS
$410,330,110 AS OF JUNE 28, 2002. THE AMOUNT SHOWN IS BASED ON THE CLOSING PRICE
OF IMAGISTICS COMMON STOCK AS REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE
TAPE ON THAT DATE.

NUMBER OF SHARES OF IMAGISTICS COMMON STOCK, PAR VALUE $.01, OUTSTANDING AS OF
MARCH 14, 2003: 17,446,417

                      DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE IMAGISTICS INTERNATIONAL INC. PROXY STATEMENT FOR THE 2003
ANNUAL MEETING OF STOCKHOLDERS - PART III

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                          IMAGISTICS INTERNATIONAL INC.

                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2002

                                TABLE OF CONTENTS


ITEM   DESCRIPTION                                                       PAGE
----   -----------                                                       ----
                                     PART I


1      Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
2      Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
3      Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .  . . .  12
4      Submission of Matters to a Vote of Security Holders  . . . . . . . .  12
       Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . .  13



                                     PART II


5      Market for Registrant's Common Equity and Related Stockholder
       Matters  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
6      Selected Financial Data  . . . . . . . . . . . . . . . . . . . . . .  16
7      Management's Discussion and Analysis of Financial Condition and
       Results of Operations  . . . . . . . . . . . . . . . . . . . . . . .  17
7A     Quantitative and Qualitative Disclosures About Market Risk.  . . . .  30
8      Financial Statements and Supplementary Data  . . . . . . . . . . . .  31
9      Changes in and Disagreements with Accountants on Accounting and
       Financial Disclosure.  . . . . . . . . . . . . . . . . . . . . . . .  57



                                    PART III


10     Directors and Executive Officers of the Registrant . . . . . . . . .  58
11     Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .  58
12     Security Ownership of Certain Beneficial Owners and Management and
       Related Stockholder Matters  . . . . . . . . . . . . . . . . . . . .  58
13     Certain Relationships and Related Transactions . . . . . . . . . . .  58
14     Controls and Procedures  . . . . . . . . . . . . . . . . . . . . . .  58



                                     PART IV


15     Exhibits, Financial Statement Schedules, and Reports on Form 8-K . .  59
       Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
       Certifications Pursuant to Section 302 of the Sarbanes-Oxley
       Act of 2002  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62


                                       2


Certain information contained in this filing with the Securities Exchange
Commission on Form 10-K 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 affecting the international shipment of goods,
potential disruptions in implementing information technology systems, our
ability to create brand recognition under our new name and currency and interest
rate fluctuations. Certain of these risks and uncertainties are discussed more
fully in Part II, Management's Discussion and Analysis of Financial Condition
and Results of Operations, Risk Factors That Could Cause Results to Vary and
elsewhere in this filing on Form 10-K. The forward-looking statements contained
herein are made as of the date hereof and we, except as may be required by law,
do not undertake any obligation to update any forward-looking statements,
whether as a result of future events, new information or otherwise.

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Imagistics International Inc. ("Imagistics" or the "Company") is a large
direct sales, service and marketing organization offering document imaging
solutions, including copiers, facsimile machines and multifunctional products,
sometimes referred to as MFPs, in the United States and the United Kingdom. We
provide our customers with flexible, comprehensive document imaging products and
services at competitive market prices. We market our products to large corporate
and government customers, which we refer to as major accounts, as well as to
mid-sized and regional businesses which we refer to as commercial accounts.
Historically, we have focused our marketing efforts on major national account
customers for facsimile products and commercial account customers for copiers.
We are seeking to capitalize on our proven leadership position with major
national accounts in the facsimile market to expand our sales of copier/MFPs,
both in the United States and abroad.

     Pitney Bowes Inc. began marketing and distributing copiers in 1967 and
facsimile products in 1982. Pitney Bowes' office systems division, which
combined the copier and facsimile product lines, was created in 1998. In 2000,
Pitney Bowes decided to spin-off the United States and the United Kingdom
operations of the office systems division to, among other things, enable us to
more fully realize our potential within both the copier and facsimile markets.
In connection with the planned spin-off, Pitney Bowes incorporated the Company
as Pitney Bowes Office Systems, Inc. in February 2001 and, in August 2001,
contributed substantially all of the business and assets of its office systems
division to the Company. The name of the Company was changed to Imagistics
International Inc. on October 12, 2001, and on December 3, 2001, 100% of the
common stock of the Company was distributed by Pitney Bowes to the common
shareholders of Pitney Bowes based on a distribution ratio of 1 share of the
Company's common stock for every 12.5 shares of Pitney Bowes common stock held
at the close of business on November 19, 2001 (the "Distribution").

     Our direct sales and service network, located throughout the United States
and the United Kingdom, provides a broad range of document imaging products and
services. We currently have an installed base of approximately 300,000 copiers,
facsimile and MFPs in use. We consider products in use if they are subject to a
current rental or service agreement. Based on the needs of our customers, our
representatives offer specialized document imaging options including digital,
analog, color and/or networked products and systems. We offer a full array of
copiers, facsimile and MFP products that satisfy our customers' needs ranging
from a few hundred copies to hundreds of thousands of copies per month. We have
historically offered our products under the brand name "Pitney Bowes," which we
believe is internationally recognized and associated with quality products. In
2002, we began introducing products under the "Imagistics" brand name, which has
been used in conjunction with the "Pitney Bowes Office Systems" name. All new
products are offered under the Imagistics brand name. We also provide
aftermarket support to our customers through service and supply contracts, as
well as the sale of consumable supplies, primarily toner, for all of our
products. In addition, we offer document management software systems and network
controllers to serve our digital copiers/MFPs. We have approximately 2,350 fully
trained sales and service representatives in nearly 150 locations that assist
customers with all of their product and service needs.

     For maximum flexibility in product development, we do not manufacture any
of our products, but rather we purchase equipment and software from a number of
different firms. We impose high quality standards on all of the equipment that
we offer. Historically, we have used manufacturers such as Minolta, Matsushita
and Kyocera Mita to produce our copier/MFP equipment and Matsushita, Muratec and
Brother to produce our facsimile equipment. We believe that our market position
and long-term relationships with many of the top manufacturers allow us to
negotiate favorable contracts. During 2002, we added Sharp as a manufacturer of
Imagistics copier and multifunctional equipment.

                                       3


     Our primary targets are large corporate customers and government entities.
Our client base consists of over 70% of the Fortune 500 companies and over 60%
of the Fortune 1000 companies. We serve major companies in the automotive,
financial services and information technology industries as well as others.
While continuing to strengthen and expand our relationships with our current
customers, we have also established new marketing initiatives geared
specifically toward more efficiently serving mid-sized and regional companies or
commercial users, while shifting our focus to multi-location customers. We plan
to maintain our relationships with commercial users through the use of our
trained team of commercial sales representatives. Due to our diverse customer
base and the recurring nature of our rental, service and supply revenues,
seasonal variations do not significantly impact our business.

     In connection with the spin-off, we entered into a transition services
agreement with Pitney Bowes providing for certain essential services for a
limited period following the spin-off, agreements with Pitney Bowes Management
Services and Pitney Bowes of Canada, under which they may choose to continue to
purchase and use our products and a vendor financing agreement providing for
Pitney Bowes Credit Corporation ("PBCC") to continue as our primary lease vendor
on a multi-year basis after the spin-off, an intellectual property agreement
with Pitney Bowes allowing us to continue using the "Pitney Bowes" brand name in
the United States and the United Kingdom for a period of up to two years
following the spin-off, a tax separation agreement and certain other agreements.

AVAILABLE INFORMATION

     Additional information about us is available on the Internet at our
corporate website, www.imagistics.com, or our investor website,
www.IGIinvestor.com. In addition to other information, we make available free of
charge on our investor website our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as soon as reasonably practicable after electronically filing such
material with or furnishing to, the Securities and Exchange Commission. The
Securities and Exchange Commission maintains an Internet site at
http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding us. You may also read and copy any document we
file with the SEC at its Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC can be contacted at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room.

INDUSTRY OVERVIEW

     The document imaging and management industry consists of the production and
supply of various imaging products, as well as the provision of pre-sale and
after-market product services. We have been a leader in the facsimile machine
segment of this industry for 20 years and have participated in the copier
business for over 35 years. Our competitors include the distribution units of
large office equipment manufacturers such as Ricoh, Canon and Xerox, and other
independent distributors such as Ikon, Danka and Global Imaging as well as
numerous local office equipment dealers and, as technologies continue to merge,
traditional printer companies such as Hewlett Packard and Lexmark.

     Companies in the document imaging industry sell products primarily through
three channels of distribution: direct sales, independent dealer sales and
retail sales. Direct sales involve the marketing of products by sales
representatives working directly for the company whose products they offer.
Independent dealer sales result from customer calls performed by independent
dealer outlets that generally sell manufacturer-branded products. Retail sales
include sales of low-end products, typically through national retail outlets or
local smaller retailers.

     The document imaging industry is rapidly changing. Whereas most corporate
customers have relied upon products that utilize analog technology in the past,
the majority of our customers now require products that utilize digital
technology. Currently, essentially all new copier placements are digital
machines. Digital products, unlike analog products, can connect with computer
networks and communicate with other office imaging equipment, enabling customers
to more efficiently connect and utilize their document management solutions over
a wide array of more useful features, such as higher quality copies, color
capability, finishing capability and the multifunctional capability of copying,
faxing, scanning and printing. The move toward digital products has spurred
document imaging providers to hire and train sales, service and maintenance
personnel with respect to these digital products. In addition, technological
advances and reduced pricing have led to a trend of increased placements of
color copiers and MFPs.

     Copiers and facsimile machines are no longer the only options available to
corporate customers. The use of e-mail, Internet faxing and desktop and
stand-alone printers that offer a range of document imaging options has changed
the manner in which documents are reproduced and distributed within the
workplace. As a result of recent technological advances in electronic
communication and document sharing, greater options for document imaging and
management exist within the corporate workplace. These events, in turn, have
created a new opportunity and challenge for document image providers to develop
new

                                       4


options and cost-conscious solutions for the workplace and provide their
customers with multi-faceted products in order to remain competitive.

     Today's busy corporate environment demands office machines and systems that
work faster and more efficiently than ever before, while providing high-quality
imaging solutions. The current proliferation of MFPs designed to address
copying, faxing, printing and scanning needs in the workplace is a direct result
of these demands. MFPs efficiently send, receive and print documents, thus
eliminating office bottlenecks, improving employee productivity and saving
valuable workspace in offices of all sizes. As workplaces increasingly rely on
computer networks, document imaging providers are also developing more products
that allow for shared communication and that work seamlessly with other office
systems. These networked solutions offer greater speed and, by diverting print
streams to more efficient output devices, can lower a company's imaging costs
significantly. The cost of managing documents is high for most companies and
increased use of the Internet for desktop research and printing has further
increased the volume and cost of imaging activity for most businesses. In
addition to searching for ways to minimize imaging costs, customers continue to
demand high-performance machines that produce well-finished documents. In
addition, corporations struggle with the issue of how to deploy new technology
and get users to embrace it. Currently, the industry is producing a greater
number of color machines to offer customers a range of options for their copying
needs. Color machines allow companies to increase their level of in-house
document production and produce "finished" copies for meetings, presentations
and mailings. The use of color machines may minimize or eliminate the need for
outside document production services and can offer tremendous savings to
companies.

     Corporate customers are also searching for new ways to manage their
document imaging needs. Corporations are continuing to outsource non-core
competencies, including document imaging. This is especially true as the
complexity of these solutions increases and corporations seek to avoid hiring,
training and retraining personnel to use new machines. In recent years, many
large document-imaging providers have developed management services capabilities
to address this need. Through management services relationships, document
imaging providers offer a full range of services, from installation and training
of employees to complete on-site document imaging management, including
selection of equipment and provision of personnel, allowing corporate customers
to choose the solution that is best for them.

STRATEGY

     Our strategy 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.
To that end, we plan to build on our strengths and pursue the following
initiatives:

     MAINTAIN AND FURTHER STRENGTHEN MAJOR ACCOUNT RELATIONSHIPS. We have
maintained successful relationships in the facsimile area with many large
Fortune 1000 companies for 20 years. We believe that our strong relationships
with many of these customers, as well as our integrated sales and service
organization and the broad national reach of our organization, have been the
keys to our success in acquiring new business and retaining our current
customers. In 2001 we reorganized our sales effort to create customer-centric
national account and commercial user sales organizations, each offering our full
range of products to their respective customer bases. This customer-centric
organization allows us to leverage our success in the facsimile market to sell
copier products and MFPs to these major accounts while also expanding our
product offerings to our commercial user customers.

     In light of current economic pressures, technological advances and changes
in the corporate workplace, we must strive to meet our customers' needs in new
ways. As many corporate customers seek to reduce administrative expenses through
centralized purchasing and consolidation of their vendors, we believe that we
are well positioned to offer a range of products and services, including
technological innovations and new options, from a single source. Because we have
continuity with so many of our long-standing major account customers, we believe
they will be receptive to expanding their relationships with us by purchasing
additional products and services.

     EXPAND OUR PRODUCT OFFERINGS THROUGH OUR SOURCING AND DISTRIBUTION
RELATIONSHIPS. We believe that one of our greatest strengths is our strategy of
sourcing cost-effective "families" of products from different manufacturers to
best suit our customers' requirements. We seek to form relationships with
various manufacturers, each with different specialties and different strengths.
Although we source from multiple vendors, all of our products meet demanding
specifications. In addition, we supplement our product offerings with
value-added software and service offerings to optimize ease of use and
operation.

     We continuously evaluate various imaging products from multiple
manufacturers. We believe that our supply contracts provide us access to the
best products. In 2002, we began to change the majority of new and field
installed "Pitney Bowes" branded products to the Imagistics brand name. We
expect to complete this activity during 2003.

                                       5


     We believe that the transition to digital copier/MFPs provides an important
opportunity for us to reach new customers as manufacturers develop machines with
increased capabilities. We continue to launch new digital products that offer
faster, more efficient multifunctional features for our high-volume corporate
customers. These new digital products offer increased document imaging options
and capabilities as well as overall savings. We will continue to expand our
digital document imaging product offerings in order to meet the needs of our
current customers and to allow us to reach a new customer base. In order to
remain competitive in light of the many technological options that are available
to our customers, we will continue to collaborate with companies that develop
integrated document solutions. Our success will also depend on our ability to
accurately gauge shifts in market demand and to anticipate potentially
unforeseen changes in market dynamics that may result from new technologies.

     INCREASE OUTREACH OF OUR DIRECT SALES AND SERVICE FORCE TO THE COPIER
MARKET. Our sales and service business aims to provide major account customers
with one point of contact for their product needs. Regardless of their location
in the United States, our customers can contact one of our representatives in
their geographic area and receive consistent sales and service assistance. This
allows us to control the quality of our sales and service effort and ensure a
consistent experience for our customers. It also provides us with an opportunity
to keep in regular contact with our customers, which we believe often leads to
future sales. In some remote areas, however, we rely on Imagistics-trained
Pitney Bowes employees for service of our products. Our marketing strategy is to
not only offer an extensive portfolio of product offerings and diverse
technology to our Fortune 1000 customers, but to establish the same kind of
long-term, copier-based relationships with our customers as we have established
with our facsimile customers by utilizing our national direct sales and service
organization to meet their needs as well.

     FOCUS ON CUSTOMER NEEDS. Since we have direct access to our end user
customers through our direct sales force, we are able to monitor their changing
needs and requirements and respond in an appropriate manner. Although many of
our customers use digital products and have reacted favorably to the digital
products we offer and we expect that they will continue to grow in the future,
not all of our customers have migrated to digital systems at the fast pace that
many in our industry predicted. Our goal is to meet all of our customers' needs
and where price is particularly critical, we offer them refurbished and
remanufactured analog and refurbished digital systems. Because of our purchasing
structure, we believe that we will be able to provide digital equipment and
solutions as our customers require them. Because we source digital products and
train our workforce on the sales, use and service of these products, and because
we continue to research and source new products, we believe that we will be able
to respond effectively as the industry changes in the future. However, if we
fail to accurately predict changes in market demand we may lose sales or incur
losses due to excess inventories.

     PURSUE AN EXPANSION STRATEGY. In order to remain competitive, we will
continue to expand both our copier and our facsimile businesses in geographic
markets in the United States and abroad. Our direct sales and service strategy
has been an effective method for attracting and retaining customers and we
believe we can use it to further expand our copier business. Although the
facsimile market as a whole is in decline, we will seek to capture competitive
copier accounts while maintaining and leveraging our existing facsimile customer
base. We currently supply document imaging products and services to a variety of
large corporations, many of which have an international presence and seek global
sourcing of their document imaging needs. In order to serve these clients more
effectively, we intend to use our United Kingdom operation as a platform for
expansion of our business into the larger European market. Our United Kingdom
product offerings, which were limited to facsimile products, were expanded to
include MFPs in 2001 and copiers in January 2003.

BUSINESS SEGMENTS

     We operate in two reportable segments based on geographic area: the United
States and the United Kingdom. Revenues from external customers and from Pitney
Bowes are attributed to geographic regions based on where the revenues are
derived. Financial information by segment is set forth in Note 5, "Business
Segment Information", of the Notes to Consolidated Financial Statements included
elsewhere herein.

PRODUCTS

     We offer a broad range of copiers, facsimile machines, MFPs and related
products to major account customers, government entities and mid-size and
regional commercial users. These products serve a wide range of customer needs
from departmental to workgroup solutions. The utilization of digital technology
has led to development of equipment that contains multiple capabilities and
greater options for document imaging and management applications. Although, by
definition, our multifunctional product offerings contain the multiple
capabilities of copying, scanning, faxing and printing, certain of our copier
and facsimile product offerings also incorporate these multiple capabilities. We
classify our equipment product offerings as part of either the copier product
line or the facsimile product line based upon the primary function of the
equipment.

                                       6


     Departmental Solutions

     We offer a broad range of copiers and MFPs for departmental applications
including black and white, color, analog, digital, networked and stand-alone
copiers and MFPs. Our departmental solutions product line extends from a 15
page-per-minute multifunctional color copier to an 85 page-per-minute
multifunctional high-volume copier. In addition to our more traditional line of
products, we have worked with third party developers to introduce additional
document imaging functions that complement our other product offerings. One
example is Connex(TM), a platform controller for digital copiers that functions
within the computer network and allows customers to print and fax directly from
their own networked desktop computers and produce "finished" copies that are,
for example, collated, stapled or produced in multiple sets, or scan documents
at the digital copier into electronic format for delivery to the network or
desktop.

     The new model DL200/270/370 series of digital multifunctional devices (21,
25 and 35 pages-per-minute, respectively) introduced in 2002 offers benefits
such as lower enterprise-wide print costs, full network integration, and the
added convenience of supplemental faxing and scanning which are unavailable in
older analog copiers. The DL200/270/370 series offers customers many different
application options as it can be installed as a stand-alone copier or
factory-equipped to handle walk-up faxing needs. In networked installations, the
DL200/270/370 series also functions as a high-volume laser printer that offers
finishing features such as stapling and hole punching, while controlling print
jobs directly from the desktop. This system offers seamless transition from
analog-to-digital technology without slowdowns or compatibility issues.

     In 2002, we also introduced models DL650 and DL850 (65 and 85
pages-per-minute, respectively) serving the high volume office environment by
providing speed, versatility, cost-effectiveness and simplicity in a heavy-duty
machine with a powerful suite of digital features that integrate the most
advanced print functions including tandem copying, network printing, scanning,
duplexing and finishing.

     The new model im4510 MFP (45 pages-per-minute) introduced in 2002, offers
fully embedded single processor architecture with multi-tasking operating
systems that include features such as network printing, digital copying and
scanning and a single-pass dual scanning document feeder that will scan an
original on both sides simultaneously enhancing document input-throughput
productivity. This feature is the first of its type on a digital multifunctional
copier product in this speed range.

     In 2002, our CD1500 and CD2000 (15 and 20 color pages-per-minute,
respectively) were awarded a "Recommended" status from Buyers Laboratory Inc and
the Digital Test Laboratory "Five-Star Exceptional" rating from Business
Equipment Research and Test Laboratories. Additional 2002 recipients of the
Buyers Laboratories "Recommended Status" awards were the DL200 w/9754 Controller
(20 pages-per-minute) black and white digital copier, the DL270 w/9754
Controller (25 pages-per-minute) digital copier and the DL370 w/Fax and 9754
Controller (35 pages-per-minute) digital copier. The DL460 w/Fiery X3 Controller
(45 pages-per-minute) digital copier received Buyers Laboratories 2002 "Pick of
the Year" award as an "Outstanding Segment 4 Multifunctional Imaging System".

     Digital color copier models cm2020 and cm3120 (20 and 31 color
pages-per-minute, respectively) introduced in January 2003, both received an
"Editors Choice" award from Better Buys For Business. These multifunctional
digital copiers offer copying and networking functionality and are designed to
support both color and monochrome applications and offer enhanced image quality
color printing and copying, a wide range of digital art functions and enhanced
finishing options that include booklet making capabilities. In addition, in
2002, our DL750 (75 pages-per-minute) digital copier/printer also received the
"Editors Choice" award from Better Buys for Business.

     Workgroup Solutions

     We are also a leader in workgroup facsimile systems and related product
offerings and we are currently one of the largest suppliers of facsimile
equipment to the Fortune 1000. We believe we were among the first document
imaging providers to offer plain paper facsimile products as an option to the
slower and less efficient thermal facsimile machines. We were the first company
to offer the 14,400 bits per second and 33,600 bits per second plain paper
facsimile machines to customers. The 33,600 bits per second machines continue to
be among our most popular products. We currently offer a full range of plain
paper facsimile machines that range from traditional facsimile equipment to
MFPs.

     Because telecommunication expenses are one of the most costly components in
operating a facsimile system in the corporate workplace, we strive to provide
our customers with the fastest available facsimile machines so that they can
minimize their telecommunication costs. The model 2050 facsimile machine system
makes advanced facsimile features easy to use since it incorporates an intuitive
LCD touch screen, scans originals at 60 pages-per-minute and is one of the
fastest machines in the industry. In addition, our models 2030 and 2050 offer
some of the fastest transmission speeds in the industry through the use of 33.6
KBPS with JBIG data compression technology. The machines' display shows all
features and functions at a glance and its "photo" option allows users to
optimize half-tone images.

                                       7


     We also offer several multifunctional devices with standard feature sets
that provide total office solutions to our customers. With the reliance of
today's businesses on the Internet, e-commerce and associated technologies, our
MFPs allow companies to efficiently share document input and output capabilities
among small or large corporate workgroups.

     We introduced the models DL155 and DL185 digital copier/printers in 2002.
The new DL155 and DL185 digital copier/printers are two low-volume small
workgroup copier/printers designed to fill a need between existing analog
copiers and our higher volume DL Series devices. The DL155 and DL185 are
targeted to small office/home office needs of our large corporate customers as
well as small workgroups and businesses looking to improve image quality and
printing performance. In 2002, Buyers Laboratory awarded our DL185 its "Pick of
the Year" as an "Outstanding Segment One Multifunctional Imaging System".

     The model ix2600 introduced in 2002, is a digital, multifunctional desktop
device that combines high-speed facsimile, copy, scan and print capabilities. It
also supports network printing with its network interface printer option. The
ix2600 incorporates a platen to accommodate book-top copying and faxing along
with its standard 50-page automatic document feeder. Not only will it function
as a black and white scanner, but it offers color-scanning capabilities as well.
It is positioned to meet the needs of the mid-volume, work range area and
provides 15 page-per-minute print and copy speed.

     The new model 1500 and 2500 MFP series of multifunctional Fax/Printer/
Scanner/Copier devices introduced in 2002 offer solutions for the low and
mid-volume office workgroup environments within Fortune 1000 companies. These 15
page-per-minute print and convenience copy devices offer the ability to function
in both stand-alone and connected environments and should allow customers to
further boost their office productivity. The units' standard components include
multi-suite software capabilities that include both printing and scanning
features.

     In addition, in 2002 we introduced the models 3500 and 5000 MFPs,
multifunctional Fax/Printer/Scanner/Copier. The models 3500 and 5000 MFPs are 12
page-per-minute and 17 page-per-minute, respectively, multifunctional devices
offering outstanding fax, print, scan and copy capabilities with a small
footprint, network capabilities and 600 dots-per-inch printer resolution. This
fax-centric multifunctional device offers an economic alternative to multiple
single function office devices. Its internet option allows any hard copy
document to be scanned and forwarded to an email address.

     The new model im3510 MFP (35 pages-per-minute) introduced in 2002, offers
fully embedded single processor architecture with multi-tasking operating
systems that include features such as network printing, digital copying and
scanning and a single-pass dual scanning document feeder that will scan an
original on both sides simultaneously enhancing document input-throughput
productivity. This feature is the first of its type on a digital multifunctional
copier product.

SUPPLIES

     We offer a full complement of consumable supplies for our products, such as
copier and facsimile toner and cartridges and paper. Supplies are an important
component of our overall business and accounted for $156 million and $155
million, or 25% of each of our 2002 and 2001 revenues, respectively.

     Many of our copier/MFP customers enter into cost-per-copy rental and/or
maintenance agreement plans that include supplies. This accounts for a constant
source of copier supply revenue and ensures high customer retention. Demand for
facsimile supplies has decreased with the use of e-mail and the availability of
third-party refilled toner cartridges. In response to this decrease in demand,
we introduced our own line of refilled cartridges under the "ECO" brand.
Refilled ECO cartridges work with many of our own facsimile machines and also
with many competitor fax machines and laser printers.

SERVICE

     Our continued commitment to our products and customers is evident in the
many aftermarket service options that we provide. Our copier products are
serviced by our nationwide service organization of approximately 1,275
representatives. We believe that this dedicated service force provides us with a
distinct advantage over many of our competitors. These representatives are
trained to service our product line and are managed through a central dispatch
system to meet strict customer response time requirements. These representatives
provide a full range of preventative maintenance and repair services to major
account customers and commercial users.

     We support our facsimile machine, digitally network connected copier and
MFP customers through our 24 hour-a-day, 7 day-a-week diagnostic center. Located
in Melbourne, Florida, the diagnostic center is staffed with Imagistics
employees who are experts in the use and servicing of our products and who help
minimize any downtime or disruption to our customers. The diagnostic center
usually handles over 3,500 calls each day from customers, many regarding use of
facsimile products and 75

                                       8


percent of the time our employees are able to handle customers' service calls
without a technician being dispatched. We successfully manage a number of these
calls with our automated services that include recorded tutorials for machine
operations and programming. We currently have over 40,000 individual customer
facsimile machine programs archived in our diagnostic center database, which can
be delivered remotely. We are able to respond to a number of calls requiring
programming assistance by remotely programming customers' facsimile units. When
repair or refurbishment of our facsimile equipment is necessary, the customer
can be talked through the corrective action remotely, or we will send a service
representative to repair the product. The diagnostic center also provides
support to our customers using networked digital copiers.

FINANCING OPTIONS

     We provide our customers with flexible financing options that allow for the
sale, lease or rental of our products. In the past, we have sold products to
commercial users either directly to the end user or to a leasing company that,
in turn, leases the product to the end user. Where leasing is involved, we sell
equipment to either Pitney Bowes' wholly owned subsidiary, PBCC, or to other
finance companies. Currently, PBCC is the primary source of lease financing for
our products. We have entered into an agreement with PBCC that provides for an
ongoing lease-purchase equipment-financing program for our products. In 2002 and
2001, approximately 13% and 15% respectively, of our revenues were derived from
sales to PBCC for lease to the end user.

     Historically, in offering products to our major account customers, we have
used a rental strategy. These major account customers have been customers of our
facsimile products. Most often, we rent our facsimile machines at a flat rate.
We are increasingly renting copier products to our large major account customers
as well. We typically rent our copiers on either a cost-per-copy basis, with
minimum monthly page volumes, or at a flat rate with allowance and overage plans
for certain services and other options. In the case of rentals, we seek to
negotiate a master rental contract with our customers that can be revised to
reflect rental of additional products and upgrades to current products or
additional services. Generally, our rental contracts are for 36-month terms with
renewal options that are automatic unless the customer gives prior notice of
cancellation. These rental contracts also cover service and, in most cases,
include supplies for use with our equipment. We believe that this approach
provides the flexibility this customer base requires.

CUSTOMERS

     We market and distribute our products to the following customers:

     o    major national accounts, including large corporate customers,

     o    government entities and

     o    commercial accounts, including mid-size and regional businesses.

     National account customers include major national and international
corporations that require full document imaging and management throughout the
customer's entire organization, whether that organization is regional or
national. Because we began our business by serving major account customers in
the facsimile market 20 years ago and have maintained steady relationships with
many of these same customers, our major accounts provide us with recurring
rental revenues over longer-term contracts. In addition, because of their
individual and complex needs, we are able to provide our major account customers
with cutting-edge products as well as customized approaches to their specific
needs.

     We target a range of governmental entities from large federal bureaus to
small local government offices. These customers provide a long-term source of
business and, because of our experience, we can anticipate their document
imaging needs. Federal government entities may source products through the
competitive bidding process or through flat rate contracts. The federal
government may also issue a separate bid for large placements pertaining to a
specific department or location. Our government contracts are generally for a
period of four to five years. State and local government entities typically
acquire products through their own varied bidding processes. Although many of
these contracts are terminable for non-appropriations of funds by our customers,
we have not had a significant number of early terminations of these contracts
for non-appropriation.

     We also target commercial accounts, which generally have more discrete
document imaging needs for one specific area or portion of their business or
workplace. We customarily sell or lease equipment to these customers and, in
most instances, our contracts provide ongoing supplies and service to them.

     Because of our approach of providing a system of national direct sales and
service, our ability to provide a range of products, system options and
after-market arrangements to our major account customers and our attention to
maintaining our relationships with customers through consistent product service,
we believe that we can expand these markets in the future.

                                       9


SALES AND MARKETING

     We believe that our sales and marketing approach is uncommon in our
industry. While many of our competitors offer products either by dealer sales or
retail sales, we rely solely on direct sales. Our direct sales and service
personnel are located throughout the United States. These employees market and
service our products to our customers and potential customers all over the
nation. Our representatives use national sales and service standards so that our
customers receive consistent and reliable assistance regardless of where they
are located or which one of our locations they call. We employ a sales force of
approximately 1,075 sales personnel.

     Historically, we have marketed our products under the "Pitney Bowes" brand
name. We have retained the right to use this name for up to two years following
the spin-off and we believe that the continued use of the "Pitney Bowes" brand
or the phrase "formerly Pitney Bowes Office Systems" in conjunction with the
"Imagistics" brand for up to two years following the spin-off will provide
stability to our business as we work to establish the "Imagistics" brand. In
furtherance of that effort, in 2002 we began to introduce new products under the
"Imagistics" brand name and we launched a major brand awareness advertising
campaign that included placements in broadcast and cable television, radio and
print media.

     In addition to our United States business, we currently operate in the
United Kingdom. Until recently, our U.K. business was limited to our facsimile
product lines. In 2001 we introduced our digital MFPs in the U.K. and we began
offering copier products to our U.K. customers in January 2003. We plan to
increase the international marketing of our products. Our goal is to increase
our service to our current customers as well as broaden our existing customer
base by providing our products throughout Europe over time. Our U.K. business is
headquartered in Harlow, England. Our products are also offered in Canada
through Pitney Bowes of Canada, a subsidiary of Pitney Bowes. In connection with
the spin-off, we entered into an agreement with Pitney Bowes of Canada that
provided for a supply relationship with Pitney Bowes' Canadian operations.

SUPPLIERS AND DISTRIBUTION

     We source our equipment from suppliers throughout the world including
Minolta, Matsushita, Muratec, Brother, Kyocera Mita and Sharp. In addition,
suppliers such as EFI, Advanced Hi-Tech and Cypress provide us with controllers
and document management software for use in or with our products. We have
contractual relationships with these manufacturers, although we continue to
search for the best products and do not enter into exclusive relationships with
any of our suppliers.

     Using third-party suppliers allows us to offer our customers products with
the most current features and technologies. We believe that this sourcing
strategy also offers us maximum flexibility. As we expand or upgrade our product
line, we are able to choose from the best available products for each product
range. We select products by balancing costs and availability of features with
ease of customer use, service personnel training, parts availability,
reliability and serviceability. Because of these benefits, in most cases, we
purchase similar products from one manufacturer to cover several product levels.

     Although we do not have minimum order quantities with any of our suppliers,
Minolta currently supplies a significant portion of our new copier/MFP
equipment. If Minolta were unable to deliver products for a significant period
of time, we would be required to find replacement products, which may not be
available on a timely or cost-effective basis. This could have a material
adverse effect on our business, financial condition and results of operations.
We do not believe that we are materially dependent upon any other supplier of
products, whether new products, parts or consumable supplies. To mitigate
against disruptions to our business, we keep an adequate level of inventory on
hand to meet the needs of our customers for several months. In addition, during
2002, we added Sharp as a manufacturer and are currently procuring two of our
primary copier/MFPs from them.

     We generally require manufacturers to build our products to order with 60
day or less lead times. We usually take title to the goods at the factory, or in
the case of Asian factories, at the closest seaport. Finished goods are shipped
by ocean freight to a United States port, primarily in California, and then
trans-shipped to one of approximately 10 warehouses in the United States. In the
normal course of business, when a customer order is received, equipment is
unpacked, set up and tested in the warehouse prior to shipping to the customer
location. Supplies are stored primarily at two warehouse locations and are
shipped via UPS or overnight delivery directly to our customers. Parts are
warehoused at a single Pitney Bowes location and are delivered via UPS to
replenish our service representatives car stocks or shipped overnight for
emergency repairs. We plan to open our own parts warehouse in 2003 and will
eliminate our dependence on Pitney Bowes to manage our parts warehousing and
shipping functions. The United Kingdom business uses similar manufacturing and
shipping procedures and finished goods are shipped directly to one of two
contract warehouses in the United Kingdom. Our reliance on Asian manufacturing
could make our business susceptible to disruptions in international
transportation due to port strikes, acts of war or other factors beyond our
control.

                                       10


PATENTS, TRADEMARKS AND COPYRIGHTS

     In connection with the spin-off, we have entered into a trademark license,
patent license and copyright license agreement that provides us with a
non-exclusive license to the Pitney Bowes trademark for a period of up to two
years following the spin-off. In addition, the agreement provides for us to
license the patents and patent applications on a non-exclusive basis in
connection with our business in the United States and the United Kingdom, for
the term of the relevant patents, none of which are material to our business.
Finally, the agreement provides for us to license all copyrighted material used
in connection with our business in the United States and the United Kingdom for
the term of the relevant copyrights.

     We have historically distributed our products principally under the Pitney
Bowes trademark. We are transitioning to the use of the "Imagistics" brand name
and we have filed applications to register "Imagistics" as a trademark in the
United States, the European Community and other jurisdictions. In addition, as a
reseller of equipment supplied to us by major manufacturers of imaging
equipment, we benefit from the use of patents and patent licenses secured by our
suppliers.

EMPLOYEES

     We employ approximately 3,300 individuals throughout the world including
approximately 1,075 sales personnel. We employ approximately 125 people in the
United Kingdom, almost all of whom are subject to the European Works Council
regulations. None of our other employees is covered by a collective bargaining
agreement. We believe that we have good relations with our employees.

COMPETITION

     We are primarily involved in the supply of document imaging equipment to
corporate, governmental and commercial customers. The document imaging equipment
supply industry is highly competitive.

     Although certain of our competitors have experienced financial difficulties
and the overall number of our competitors has decreased due to ongoing industry
consolidation, the industry remains highly competitive. Customers rigorously
evaluate suppliers on the basis of product reliability and quality, service
expertise, geographic reach and price competitiveness. Many of our competitors
manufacture their own products. Although we believe that our reliance on third
parties for manufacturing provides us with certain benefits, it is possible that
our competitors' guaranteed access to product supply through captive
manufacturing operations may provide them with a competitive advantage. In
addition, some of our competitors have substantially greater financial resources
than we do.

     Our primary competitors are Xerox, Ikon, Danka, Canon, Ricoh, Global
Imaging, Hewlett Packard and Lexmark.

ENVIRONMENTAL MATTERS

     We are subject to Federal, state and local laws intended to protect the
environment. We believe that, as a general matter, our policies, practices and
procedures are properly designed to reasonably prevent the risk of environmental
damage and financial liability to the Company.

BACKLOG

     Generally, equipment sales and rental orders are shipped within 30 days and
supplies orders are shipped immediately. Accordingly, our backlog is not
significant.

                                       11


ITEM 2.  PROPERTIES

The following table provides information regarding our primary owned and leased
properties:




                                 OWN/         SQUARE        EXPIRATION
            LOCATION             LEASE        FOOTAGE           DATE                         FACILITY TYPE
-----------------------------  ---------   --------------  ---------------   -----------------------------------------------
                                                                 
United States:
     Columbus, Ohio              Lease           217,864        2009         Warehouse and distribution center
     Columbus, Ohio              Lease           128,522        2003         Warehouse and distribution center
     Trumbull, Connecticut        Own             74,000        N/A          Corporate headquarters
     Beacon Falls, CT            Lease            66,050        2007         Warehouse and refurbishing center
     Milford, Connecticut         Own             41,000        N/A          Warehouse and refurbishing center
     Denver, Colorado            Lease            29,178        2007         Administration and customer support call center
     Melbourne, Florida          Lease            17,000        2007         Diagnostic call and refurbishing center
     Shelton, Connecticut        Lease            13,314        2007         Administrative office

United Kingdom:
     Harlow                      Lease            11,866        2007         Headquarters and sales office


     The lease on our existing Columbus, Ohio warehouse expires in 2003 and we
are relocating our existing Columbus, Ohio distribution operations to a new
Columbus, Ohio leased facility, which will also incorporate the parts
warehousing and distribution operations previously provided by Pitney Bowes out
of the Pitney Bowes Newtown, Connecticut facility. We also lease space in
approximately 150 other sales and service locations throughout the United States
totaling approximately 595,000 square feet. Leases relating to approximately 31
of our sales and service locations expire in 2003. We plan to renew or replace
these leases to the extent they are for stand-alone facilities, and for certain
other facilities, we plan to relocate and enter into new leases with less square
footage. In the United Kingdom, we relocated to a newly leased facility, and no
longer lease a facility from Pitney Bowes. In addition, in the United Kingdom,
we lease a warehouse from a third party on a six-month rolling term and also
lease two sales offices near Birmingham and Glasgow on two-year leases that
aggregate approximately 1,100 square feet.

ITEM 3.  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.

     On October 4, 2002, Imagetec L.P., ("Imagetec"), a dealer of copiers,
printers and fax machines located in McHenry, Illinois, filed suit against the
Company in the United States District Court, Northern District of Illinois for
unfair competition under the Lanham Act and Illinois common law. The suit
alleges that the Company's trademark is confusingly similar with Imagetec's
federally registered trademarks and creates a likelihood of confusion with
Imagetec's marks. The suit seeks injunctive relief and monetary damages in an
unspecified amount, including treble damages for alleged willful and deliberate
conduct. We believe that plaintiff's complaint is without merit and we intend to
defend the lawsuit vigorously.

     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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                       12


SUPPLEMENTAL ITEM:         EXECUTIVE OFFICERS OF THE REGISTRANT

     Information concerning the executive officers of Imagistics is set forth
below:



NAME                                                      AGE  POSITION
----                                                      ---  --------
                                                         
Marc C. Breslawsky......................................  60   Chairman and Chief Executive Officer; Director
Christine B. Allen......................................  53   Chief Human Resources Officer
John C. Chillock........................................  46   Vice President, Customer Service Operations
George E. Clark.........................................  56   Vice President and General Manager, Business Product Centers
Chris C. Dewart.........................................  48   Vice President, Commercial Sales
Mark S. Flynn...........................................  48   Vice President, General Counsel and Secretary
Nathaniel M. Gifford....................................  50   Vice President, Product Development and Marketing
Joseph W. Higgins.......................................  51   Vice President, National Sales
Doris J. Owens..........................................  50   Vice President, Worldwide Administration
Joseph D. Skrzypczak....................................  47   Chief Financial Officer


     Marc C. Breslawsky. Mr. Breslawsky has served as Chairman and Chief
Executive Officer of Imagistics since February 2001. In connection with the
spin-off, Mr. Breslawsky was elected to our board of directors as Chairman. From
1996 to 2001, Mr. Breslawsky was President and Chief Operating Officer of Pitney
Bowes. From 1994 to 1996, Mr. Breslawsky was Vice Chairman of Pitney Bowes. Mr.
Breslawsky is a director of C. R. Bard, Inc., The Pittston Company, Cytyc
Corporation, and UIL Holdings Corporation.

     Christine B. Allen. Ms. Allen became our Chief Human Resources Officer in
January 2002. From 1995 to 2001, she was with The Hartford Financial Services
Group, Inc.; she joined The Hartford as Director, Human Resources, Commercial
Market and subsequently assumed responsibilities as Vice President, Human
Resources, Commercial Lines. Ms. Allen served as Vice President of Human
Resources for The Walden Book Company from 1988 until 1994. She began her career
with Macy's New York in 1973 and served in a variety of human resources related
capacities for large retailing companies, such as Caldor and Abraham & Straus
prior to joining Waldenbooks.

     John C. Chillock. In October 2000, Mr. Chillock assumed the role of our
Vice President, Customer Service Operations. Mr. Chillock joined Pitney Bowes'
office systems division in 1998 as Vice President, Field Operations. Prior to
joining office systems, Mr. Chillock served in various management positions at
Dictaphone Corporation from 1977 to 1998. Prior to joining Dictaphone
Corporation, Mr. Chillock was a Director of Operations for Intellisys Electronic
Commerce, a division of the Chase Manhattan Bank.

     George E. Clark .In October 2000, Mr. Clark assumed the role of Vice
President and General Manager, Business Product Centers. Prior to the spin-off,
Mr. Clark was employed by Pitney Bowes for over 25 years in varying capacities
pertaining to the sales and marketing of imaging equipment at Pitney Bowes. Mr.
Clark served as Vice President of Copier Systems for the Northeast Region from
1988 to 1990, Vice President of Marketing for Copier Systems from 1990 to 1997
and Vice President of Business Products Centers East Region from 1997 to 2000.
Prior to joining Pitney Bowes, Mr. Clark was employed by Regenesys, Inc., a
financial reorganization firm in Boston, Massachusetts.

     Chris C. Dewart. Mr. Dewart is currently our Vice President, Commercial
Sales. Prior to the spin-off he was employed by Pitney Bowes in the office
systems division since 1983, and served as Vice President since 1990. Mr. Dewart
served as Vice President of European Operations--facsimile systems division from
1990 to 1991, Vice President and General Manager of Canadian Operations from
1991 to 1998 and Vice President of U.S. Sales for Facsimile Systems from 1998 to
August 2000. In August 2000, he assumed the position of Vice President of Sales
for Commercial Markets. Prior to joining office systems, Mr. Dewart held various
positions at General Electric Corporation and Monroe/Litton.

     Mark S. Flynn. Mr. Flynn became our Vice President, General Counsel and
Secretary on April 2, 2001. Most recently, he was a partner in the corporate
department of the law firm Wiggin & Dana LLP from 1999 to 2001. From 1997 to
1999, Mr. Flynn served as Senior Deputy General Counsel to Olin Corporation. Mr.
Flynn held the position of Executive Vice President, General Counsel and
Secretary at ServiceMaster Diversified Health Services, a subsidiary of the
ServiceMaster Company, from 1993 to 1997 and Vice President, General Counsel and
Secretary at Arcadian Corporation/Arcadian Partners, L.P. from 1989 to 1993.
Prior to those positions, Mr. Flynn served in various counsel positions at Olin
Corporation from 1986 to 1989, as an attorney at Intercontinental Hotels
Corporation from 1983 to 1986 and as an associate at the law firm of Hughes
Hubbard & Reed from 1980 to 1983. Mr. Flynn serves on the advisory board of
Integra Ventures, a Seattle-based venture fund specializing in life sciences and
health care services.

                                       13


     Nathaniel M. Gifford. Mr. Gifford is currently our Vice President, Product
Development and Marketing. Prior to the spin-off he was employed in the Pitney
Bowes office products business for over 20 years in varying capacities
pertaining to product management, planning and marketing. Prior to joining
Pitney Bowes, Mr. Gifford worked at Travelers Insurance Company and Cititrust
Bank in the area of securities analysis and investments.

     Joseph W. Higgins. Mr. Higgins is currently our Vice President, National
Sales. Prior to the spin-off he was employed by Pitney Bowes in the office
systems division for nearly 20 years, and has served as Vice President in sales
for more than 13 years. He served as Vice President of National Accounts since
August 2000. Previously, he served as Vice President of U.S. Facsimile Sales
from 1988 through July 1998 and as Vice President of U.S. Copier Sales from July
1998 to August 2000. Prior to joining Pitney Bowes, Mr. Higgins held various
management positions with Burroughs Office Products.

     Doris J. Owens. In January 2003, Ms. Owens was appointed to the role of
Vice President, Worldwide Administration. Prior to this appointment, Ms. Owens
held the title of Vice President of Administration. Prior to the spin-off, Ms.
Owens was employed by Pitney Bowes for over 25 years in varying capacities
pertaining to administrative operations.

     Joseph D. Skrzypczak. Mr. Skrzypczak has served as our Chief Financial
Officer since February 2001. Prior to assuming this position, Mr. Skrzypczak was
the Chief Operating Officer and acting Chief Financial Officer at Dictaphone
Corporation from October 1998 until December 2000. Prior to being elected Chief
Operating Officer, Mr. Skrzypczak served as Senior Vice President and Chief
Financial Officer from October 1997 to October 1998 and served as Vice President
and Chief Financial Officer from May 1994 to October 1997 at Dictaphone. After
being acquired by Lernout & Hauspie in May 2000, Dictaphone declared bankruptcy
in November 2000, as part of Lernout & Hauspie's overall bankruptcy filing. Mr.
Skrzypczak initially joined Pitney Bowes in 1981 and held various management
positions until May 1994. Prior to working for Dictaphone Corporation, Mr.
Skrzypczak served as Vice President of Finance for Pitney Bowes' office systems
division, and was directly responsible for all financial and administrative
activities. Prior to initially joining Pitney Bowes in 1981, Mr. Skrzypczak
worked for Price Waterhouse. He is a certified public accountant.

                                       14


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     We anticipate that future earnings will be used principally to support
operations and finance the growth of our business. Thus, we do not intend to pay
cash dividends on our common stock in the foreseeable future. We have entered
into a senior secured credit facility providing for both term and revolving
credit borrowings, which allows us to borrow funds for general corporate
purposes, including the repayment of other debt, working capital and
acquisitions. The credit facility contains affirmative and negative covenants
that, among other things, require us to satisfy certain financial tests and
maintain certain financial ratios. The credit facility also limits our ability
to declare and pay dividends on our shares. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." If our lenders permit us to declare dividends, the dividend
amounts, if any, will be determined by our board. Our board will consider a
number of factors, including our financial condition, capital requirements,
funds generated from operations, future business prospects, applicable
contractual restrictions and any other factors our board may deem relevant.

     Imagistics common stock (trading symbol "IGI") is listed for trading on the
New York Stock Exchange. Information on the high and low sales prices for the
Imagistics common stock is included in Note 17 of the "Notes to Consolidated
Financial Statements" included elsewhere herein. At March 14, 2003 there were
approximately 17.4 million shares outstanding and 17,688 stockholders of record.
Except for the special cash dividend paid to Pitney Bowes in connection with the
spin-off, Imagistics has not declared or paid any cash dividends on its common
stock.

     During the year ended December 31, 2002, we repurchased 1,936,760 shares of
Imagistics common stock at a weighted average purchase price of $18.87 per
share.

     Securities Authorized for Issuance Under Equity Compensation Plans

     The following table provides information regarding our equity compensation
plans as of December 31, 2002:



                                            Number of securities                                      Number of securities
                                             to be issued upon          Weighted-average         remaining available for future
                                                exercise of             exercise price of             issuance under equity
            Plan Category                   outstanding options        outstanding options             compensation plans
--------------------------------------    ------------------------   ------------------------   ----------------------------------
                                                                                                               
Equity compensation plans
   approved by security holders                         1,235,368      $               10.67                            2,027,000

Equity compensation plans
   not approved by security holders                           -                            -                                  -
                                          ------------------------   ------------------------   ----------------------------------
Total                                                   1,235,368      $               10.67                            2,027,000
                                          ========================   ========================   ==================================



                                       15


ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents our selected financial data. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes thereto included elsewhere herein.




                                                                         YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------------------
                                                                                           
                                                         2002         2001        2000         1999        1998
                                                         ----         ----        ----         ----        ----
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Sales                                                 $ 316,328    $ 310,258   $ 326,046    $ 322,947   $ 299,440
Rentals                                                 229,677      233,180     227,790      211,353     199,525
Support services                                         83,925       82,638      88,922       92,177      90,736
                                                      ---------    ---------   ---------    ---------   ---------
     Total revenue                                      629,930      626,076     642,758      626,477     589,701
                                                      ---------    ---------   ---------    ---------   ---------

Cost of sales (1)                                       198,437      197,300     184,265      154,529     142,431
Cost of rentals                                          84,114       92,191      88,506       74,245      68,819
Selling, service and administrative                     311,924      305,799     252,799      232,627     213,712
                                                      ---------    ---------   ---------    ---------   ---------
     Operating income                                    35,455       30,786     117,188      165,076     164,739
Interest expense                                          8,106        9,825      11,281        8,646       5,780
                                                      ---------    ---------   ---------    ---------   ---------
Income before income taxes                               27,349       20,961     105,907      156,430     158,959
Provision for income taxes                               10,906        8,402      41,903       62,728      63,783
                                                      ---------    ---------   ---------    ---------   ---------
     Net income                                       $  16,443    $  12,559   $  64,004    $  93,702   $  95,176
                                                      =========    =========   =========    =========   =========
Basic earnings per share (2)                          $    0.88    $    0.65   $    3.29    $    4.81   $    4.89
Diluted earnings per share (2)                        $    0.86    $    0.65   $    3.29    $    4.81   $    4.89

CONSOLIDATED BALANCE SHEET DATA
Total current assets                                  $ 273,285    $ 292,706   $ 306,168    $ 286,811   $ 257,269
Total assets                                          $ 464,906    $ 497,676   $ 503,100    $ 467,424   $ 407,811
Total current liabilities, including amounts due to
  Pitney Bowes                                        $ 105,582    $  85,146   $ 181,787    $ 155,099   $ 138,966
Total long-term liabilities                           $  95,077    $ 127,091   $  11,285    $  13,353   $  13,716
Stockholders' equity                                  $ 264,247    $ 285,439   $ 310,028    $ 298,974   $ 255,075

OTHER DATA
Net cash provided by operating activities             $ 158,451    $ 147,813   $ 137,789    $ 112,461   $ 108,886
Depreciation and amortization                         $  81,593    $  82,725   $  73,755    $  67,219   $  58,364
Capital expenditures                                  $  66,599    $  84,347   $  83,615    $  91,705   $  73,906


     (1) On December 31, 2001 the Company changed its method of accounting for
the cost of inventory from the Last-in, First-out (LIFO) method to the First-in,
First-out (FIFO) method. In accordance with Accounting Principles Board Opinion
No. 20, "Accounting Changes", this change in accounting method has been applied
retroactively by restating the prior years financial statements for all periods
presented.

     (2) The basic and diluted earnings per share amounts for the years ended
December 31, 2000, 1999 and 1998 are for comparative purposes only as common
shares were not issued until December 2001. Outstanding shares for 2000, 1999
and 1998 are based on actual shares issued plus assumed conversions, at
spin-off. See Note 7 in "Notes to Consolidated Financial Statements" for further
explanation.

                                       16


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     Imagistics International Inc. ("Imagistics" or the "Company") is a large
direct sales, service and marketing organization offering document imaging
solutions, including copiers, facsimile machines and multifunctional products,
sometimes referred to as MFPs, primarily to large corporate customers known as
national accounts, government entities and mid-size and regional businesses
known as commercial accounts. In addition, we offer a range of document imaging
options including digital, analog, color and/or networked products and systems.

     Our strategic vision is to become the leading independent direct provider
of enterprise office imaging and document solutions by providing world-class
products and services with unparalleled customer support and satisfaction with a
focus on multiple location customers, thus building value for our shareholders.
Our strategic initiatives include:

     o   Executing our unique business model,
     o   Leveraging product and marketplace strengths to drive market share,
     o   Leveraging strengths in customer support to drive customer loyalty,
     o   Achieving operational excellence and benchmark productivity and
     o   Pursuing opportunistic expansion and investments.

IMAGISTICS SPIN-OFF FROM PITNEY BOWES

     On December 11, 2000, the board of directors of Pitney Bowes Inc. ("Pitney
Bowes") approved the spin-off of the U.S. and U.K. operations of its office
systems business to its common 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 Pitney Bowes' office
systems businesses to us and a distribution of our common stock to common
stockholders of Pitney Bowes based on a distribution ratio of 1 share of our
common stock for every 12.5 shares of Pitney Bowes common stock held at the
close of business on November 19, 2001 (the "Distribution" or "Spin-off").

     Pitney Bowes no longer has a financial investment in our business. We
entered into a transition services agreement with Pitney Bowes providing for
certain essential services to us for a limited period following the
Distribution. These services were provided at cost and included information
technology, computing, telecommunications, accounting, field service of
equipment and dispatch call center services. For 2002 and for the period from
December 3, 2001 through December 31, 2001, we paid Pitney Bowes $20.4 million
and $3.5 million, respectively, in connection with these services under the
transition services agreement. We and Pitney Bowes have agreed to an extension
until June 30, 2003 or, upon our request, December 31, 2003, of the transition
services agreement as it relates to information technology and related services
due to unanticipated delays in our implementation of Phase II of the enterprise
resource planning ("ERP") system. Services provided under this extension are at
negotiated market rates.

     We also entered into certain other agreements covering intellectual
property, commercial relationships, leases and licensing arrangements and tax
separation matters. The pricing terms of the products and services covered by
the other commercial agreements reflect negotiated prices.

     The consolidated financial statements for the periods prior to the
Distribution include allocations of certain Pitney Bowes corporate expenses.
Corporate expense allocations were charged based generally on the ratio of our
costs and expenses to Pitney Bowes' costs and expenses. Pitney Bowes' allocated
expenses primarily included administrative expenses such as accounting services,
real estate costs, customer service support in remote geographic areas and
information technology and amounted to $25 million for the period from January
1, 2001 through the Distribution and $26 million for 2000. We believe the costs
of these services charged to us were a reasonable representation of the services
provided or benefits received by us. In addition, interest expense was charged
to us from Pitney Bowes based upon the proportion of our net assets to Pitney
Bowes' net assets. We believe that this is a reasonable method of allocation.

     As part of Pitney Bowes, we also benefited from various economies of scale,
including shared global administrative functions and shared facilities. Our
costs and expenses have and may continue to increase as a result of the loss of
these economies of scale and we may incur greater expenses associated with our
status as a stand-alone public company.

                                       17


BASIS OF FINANCIAL STATEMENT PRESENTATION

     The consolidated financial statements include certain historical assets,
liabilities and related operations of the United States and United Kingdom
office systems businesses, which were contributed to us from Pitney Bowes prior
to the Distribution. The consolidated financial statements as of and for the
year ended December 31, 2002 depict our results as a stand-alone company. The
consolidated financial statements for periods prior to the Distribution were
derived from the financial statements and accounting records of Pitney Bowes
using the historical results of operations and historical basis of assets and
liabilities of the United States and United Kingdom office systems businesses.
Prior to the formation of Imagistics, the office systems business was operated
as a division of Pitney Bowes, and, as such, Pitney Bowes' investment in
Imagistics is shown in lieu of stockholders' equity in the consolidated
financial statements for 2000. We began accumulating retained earnings on the
date of the Distribution. We believe the assumptions underlying the consolidated
financial statements for the years ended December 31, 2001 and 2000 are
reasonable. However, the consolidated financial statements included herein may
not necessarily reflect our financial position, results of operations and cash
flows in the future or what our financial position, results of operations and
cash flows as of and for the years ended December 31, 2001 and 2000 would have
been for periods prior to the Distribution had we operated as a stand-alone
entity during those periods.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

     The preparation of our consolidated 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 reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates include
assessing the allocation of costs from Pitney Bowes, the collectibility of
accounts receivable, the use and recoverability of inventory, the useful lives
of tangible assets, the realization of deferred taxes and an evaluation of the
potential impairment, if any, of goodwill, among others. The markets for our
products are characterized by intense competition, rapid technological
development and pricing pressures, all of which could affect the future
realizability of our assets. Estimates and assumptions are reviewed periodically
and the effects of revisions are reflected in the consolidated financial
statements in the period they are determined to be necessary. Actual results
could differ from these estimates. We have identified certain accounting
policies that are critical to the understanding of our results of operations due
to the judgment management must make in their application. These significant
accounting policies are outlined below.

Revenue recognition

     Revenue on equipment and supplies sales is recognized when contractual
obligations have been satisfied, title and risk of loss have been transferred to
the customer and collection of the resulting receivable is reasonably assured.
For copier equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the copier equipment at the customer location. For facsimile equipment and
facsimile supplies, the satisfaction of contractual obligations and the passing
of title and risk of loss to the customer occur upon the delivery of the
facsimile equipment and the facsimile supplies to the customer location. We
record a provision for estimated sales returns and other allowances based upon
historical experience.

     Rental contracts, which often include supplies, are generally for an
initial term of three years with automatic renewals unless we receive prior
notice of cancellation. Under the terms of rental contracts, we bill our
customers either a flat periodic charge or a usage-based fee. Revenues related
to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.

     Support services contracts, which often include supplies, are generally for
an initial term of one year with automatic renewals unless we receive prior
notice of cancellation. Under the terms of support services contracts, we bill
our customers either a flat periodic charge or a usage-based fee. Revenues
related to these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.

     Certain rental and support services contracts provide for invoicing in
advance, generally quarterly. Revenue on contracts billed in advance is deferred
and recognized as earned revenue over the billed period. Certain rental and
support services contracts provide for invoicing in arrears, generally
quarterly. Revenue on contracts billed in arrears is accrued and recognized in
the period in which it is earned.

     We enter into arrangements that include multiple deliverables, which
typically consist of the sale of equipment with a support services contract. We
account for each element within an arrangement with multiple deliverables as
separate units of accounting. Revenue is allocated to each unit of accounting
based on the residual method, which requires the allocation of the revenue based
on the fair value of the undelivered items. Fair value of support services is
primarily determined by reference to renewal pricing.

                                       18


Accounts Receivable

     Accounts receivable are stated at net realizable value by recording
allowances for those accounts receivable amounts that we believe are
uncollectible. Our estimate of losses is based on prior collection experience
including evaluating the credit worthiness of each of our customers, analyzing
historical bad debt write-offs and reviewing the aging of the receivables. Our
allowance for doubtful accounts includes amounts for specific accounts that we
believe are uncollectible, as well as amounts that have been computed by
applying certain percentages based on historic loss trends, to certain accounts
receivable aging categories.

Inventories

     Inventories are valued at the lower of cost or market. Provisions, when
required, are made to reduce excess and obsolete inventories to their estimated
net realizable values. Inventory provisions are calculated using management's
best estimates of inventory value based on the age of the inventory, quantities
on hand compared with historical and projected usage and current and anticipated
demands.

Depreciation of rental equipment

     Rental equipment is comprised of equipment on rent to customers and is
depreciated on the straight-line method over the estimated useful life of the
equipment. Copier equipment is depreciated over three years and facsimile
equipment is depreciated over five years.

Capitalized computer software costs

     We capitalize certain costs of internally developed software. Internal
capitalized costs include purchased materials and services and payroll and
payroll related costs. Costs for general and administrative, overhead,
maintenance and training, as well as the cost of software that does not add
functionality to the existing system, are expensed as incurred. The cost of
internally developed software is amortized on a straight-line basis over
appropriate periods, principally three to seven years. The unamortized balance
of internally developed software is included in fixed assets in the consolidated
balance sheets.

Goodwill

     We evaluate goodwill in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 142. SFAS No. 142 requires the use of a nonamortization
approach to account for purchased goodwill and certain intangibles. Under a
nonamortization approach, goodwill and certain intangibles are not amortized
into results of operations, but instead would be reviewed periodically for
impairment with any resulting impairment charged to results of operations only
in the periods in which the recorded value of goodwill and intangibles is more
than their fair value. SFAS No.142 prescribes a two-step method for determining
goodwill impairment. In the first step, the fair value of the reporting unit is
compared to the carrying amount. If the carrying amount is greater than the fair
value, the second step of the impairment test is required and the implied fair
value of the reporting unit's goodwill is determined by allocating the reporting
unit's fair value to all of the assets and liabilities in the same manner
performed in a purchase price allocation. The fair value of the goodwill is then
compared to its carrying amount to determine if there is goodwill impairment. We
completed our review of goodwill in accordance with SFAS No. 142 effective
October 1, 2002 and have determined that our recorded goodwill is not impaired.

Deferred taxes on income

     Income taxes are accounted for under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities based on the
estimated future tax consequences of differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the periods the temporary differences are expected to be settled.
A valuation allowance is established, as needed, to reduce net deferred tax
assets to realizable value. A valuation allowance has not been established for
our deferred tax assets as we believe it is more likely than not, they will be
realized.

Financial instruments

     We use interest rate swap agreements to manage and reduce risk related to
interest payments on our debt instruments. We recognize all derivative financial
instruments as assets and liabilities and measure them at fair value. All
derivative financial instruments are designated and qualify as cash flow hedges
and, accordingly, the effective portions of changes in fair value of the
derivative are recorded in other comprehensive income and are recognized in the
income statement when the hedged item affects earnings. Ineffective portions of
changes in the fair value of cash flow hedges are recognized currently in
earnings.

                                       19


OVERVIEW OF 2002 FINANCIAL RESULTS

     Total revenue for 2002 increased 1% to $630 million from 2001 revenue of
$626 million. Net income in 2002 was $16 million, or $0.86 per diluted common
share, compared with net income of $13 million, or $0.65 per diluted common
share in 2001.

REVENUES

     The following table shows our revenue sources by product line for the
periods indicated.

Dollars in millions                              YEAR ENDED DECEMBER 31,
                                             2002           2001          2000
                                           -------        -------        ------
Copier product line                         $ 375          $ 357         $ 362
Facsimile product line                        255            269           281
                                           -------        -------       -------
   Total revenue                            $ 630          $ 626         $ 643
                                           =======        =======       =======


     Sales to Pitney Bowes Canada included above amounted to $28 million, $6
million and $3 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

     The following table shows our revenue by geographic segment for the periods
indicated.

Dollars in millions                              YEAR ENDED DECEMBER 31,
                                             2002           2001          2000
                                           -------        -------       -------
United States                               $ 608          $ 606         $ 621
United Kingdom                                 22             20            22
                                           -------        -------       -------
   Total revenue                            $ 630          $ 626         $ 643
                                           =======        =======       =======


     The following table shows the growth rates by revenue type and product line
for the periods indicated.

                                                 YEAR ENDED DECEMBER 31,
                                             2002           2001          2000
                                           -------        -------       -------
Sales
       Copier products                       4%            (3%)            2%
       Facsimile products                    1%            (8%)           (1%)
Total sales                                  2%            (5%)            1%

Rentals
       Copier products                       9%             9%            20%
       Facsimile products                   (8%)           (1%)            3%
Total rentals                               (2%)            2%             8%

Support services                             2%            (7%)           (4%)

Total revenue                                1%            (3%)            3%


     We consider revenue from equipment rentals, supplies sales and support
services to be recurring. In the years ended December 31, 2002, 2001 and 2000,
equipment rental revenue totaled $230 million, $233 million and $228 million,
supplies sales totaled $156 million, $155 million and $165 million and support
services revenue totaled $84 million, $83 million and $89 million, respectively.
We consider these types of revenue to be recurring because they typically are
derived from equipment rentals subject to multi-year contracts and from supplies
sales and support services, which are a natural consequence of the use of our
installed base of equipment. Although the initial term of our rental contracts
are generally three years, they typically provide a continuing stream of revenue
resulting from automatic renewal options or new rental contracts for replacement
equipment. Historically, our recurring revenue has consistently been
approximately 75% of total revenue. However, we cannot provide any

                                       20


assurance that our recurring revenue will continue at these rates. We believe
this information is useful because it indicates our ability to generate a
consistent revenue base.

RESULTS OF OPERATIONS

     The following table shows our statement of operations 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 the effective income tax rate.



                                                                          AS A % OF TOTAL REVENUE,
                                                                             EXCEPT AS NOTED
                                                                          YEAR ENDED DECEMBER 31,
                                                                  2002              2001              2000
                                                                 ------            ------            ------
                                                                                              
Equipment sales                                                    25%               25%               25%
Supplies sales                                                     25%               25%               26%
                                                                 ------            ------            ------
      Total sales                                                  50%               50%               51%
Equipment Rentals                                                  37%               37%               35%
Support services                                                   13%               13%               14%
                                                                 ------            ------            ------
      Total revenue                                                100%              100%             100%

Cost of sales                                                      32%               31%               29%
Cost of rentals                                                    13%               15%               14%
Selling, service and administrative                                50%               49%               39%
                                                                 ------            ------            ------
      Operating income                                              5%                5%               18%

Interest expense                                                    1%                2%                2%
                                                                 ------            ------            ------
      Income before income taxes                                    4%                3%               16%
Provision for income taxes                                          2%                1%                6%
                                                                 ------            ------            ------
      Net income                                                    2%                2%               10%
                                                                 ======            ======            ======
Cost of sales as a percentage of sales revenue                    62.7%             63.6%             56.5%
                                                                 ======            ======            ======
Cost of rentals as a percentage of rental revenue                 36.6%             39.5%             38.9%
                                                                 ======            ======            ======
Effective tax rate                                                39.9%             40.1%             39.6%
                                                                 ======            ======            ======


YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

     Revenue. In 2002, total revenue of $630 million increased 1% over the prior
year total revenue of $626 million, reflecting higher sales and support services
revenue, partially offset by lower rental revenue. Revenue attributable to sales
to Pitney Bowes Canada pursuant to the reseller agreement that became effective
upon the Distribution amounted to $28 million. Prior to the Distribution, sales
to Pitney Bowes Canada were primarily accounted for as intercompany sales at
cost. Excluding the impact of sales to Pitney Bowes Canada, revenue declined 3%
versus 2001. We believe the revenue comparison excluding sales to Pitney Bowes
Canada eliminates any changes in revenue resulting from the different accounting
treatment of sales to Pitney Bowes Canada in 2002 and reflects a more meaningful
comparison of our revenue performance.

     Equipment and supplies sales revenue of $316 million increased 2% in 2002
from $310 million in 2001. Excluding the impact of sales to Pitney Bowes Canada,
sales revenue declined 5% compared with the prior year. Copier sales revenue
declined 3% resulting from the continued implementation of our strategy to shift
the marketing focus of our copier product line from sales to rentals. Facsimile
sales revenue declined 10% due to lower equipment and supply sales resulting
from lower facsimile equipment usage in the U.S. marketplace.

                                       21


     Equipment rental revenue of $230 million decreased 2% in 2002 from $233
million in 2001, reflecting a decline in facsimile rental revenue partially
offset by an increase in copier rental revenue resulting from a continuing
copier marketing focus on national accounts, which prefer a rental placement
strategy. Rental revenue derived from our copier product line increased 9%
reflecting growth in the overall installed rental population as well as the
impact of increased placements of our high-end copiers and MFPs. Rental revenue
from our facsimile product line decreased 8% versus the prior year resulting
from lower pricing and a lower installed base.

     Support services revenue, primarily derived from stand-alone service
contracts, increased 2% to $84 million in 2002 from $83 million in 2001,
reflecting the combination of higher contract pricing associated with the
increased placement of high-end digital products in the United States and
increased facsimile placements in the United Kingdom.

     Cost of sales. Cost of sales was $198 million in 2002 compared with $197
million in 2001 and as a percentage of sales revenue declined to 62.7% in 2002
from 63.6% in 2001. This decline resulted from lower product costs and lower
provision for obsolete inventory, partially offset by the impact of equipment
sales to Pitney Bowes Canada under the reseller agreement and an increase in the
mix of copier equipment and MFPs, which have a higher cost of sales percentage
than facsimile sales. The provision to write our inventory down to net
realizable value declined $6 million to $15 million in 2002 from $21 million in
2001.

     Cost of rentals. Cost of rentals was $84 million in 2002 compared with $92
million in 2001 and as a percentage of rental revenue declined to 36.6% in 2002
from 39.5% in 2001. This decline resulted from the impact of our disciplined
focus on improving profit margins coupled with product cost improvements,
partially offset by an increase in the mix of copier and multifunctional product
rentals which have a higher cost as a percentage of rental revenue than
facsimile machines.

     Selling, service and administrative expenses. Selling, service and
administrative expenses of $312 million were 50% of total revenue in 2002
compared with $306 million or 49% of total revenue in 2001. Selling, service and
administrative expenses increased 2% over the prior year resulting from
increased finance and administration costs associated with becoming an
independent public company ($14 million) and advertising expenditures associated
with our brand awareness campaign ($9 million), partially offset by the impact
of fewer employees ($10 million) and lower bad debt write-offs ($7 million).

     Purchasing and receiving costs, inspection costs, warehousing costs and
other distribution costs are included in selling, service and administrative
costs because no meaningful allocation of these expenses to cost of sales or
cost of rentals is practicable. These costs amounted to $16.3 million and $15.9
million for the years ended December 31, 2002 and 2001, respectively.

     Included in selling, service and administrative expenses in 2001 are
allocated amounts from Pitney Bowes, reflecting our share of overhead costs
related to shared selling, service and administrative expenses. Field sales and
service operating expenses are included in selling, service and administrative
expenses because no meaningful allocation of these expenses to cost of sales,
cost of rentals or cost of support services is practicable.

     Interest expense. Interest expense decreased to $8 million in 2002 from $10
million in 2001, primarily as a result of lower debt levels. Interest expense
for 2002 included a loss of $0.4 million resulting from the prepayment of $8
million of the Term Loan and associated unwinding of a portion of one of the
interest rate swap agreements. Prior to the Distribution, we participated in
Pitney Bowes' centralized cash management program, which was used to finance our
operations. Interest expense for the first nine months of 2001 represented an
allocation from Pitney Bowes based upon the proportion of our net assets to
Pitney Bowes' net assets. The Pitney Bowes' weighted average borrowing rate was
approximately 6.7% in the first nine months of 2001. Interest expense for the
last three months of 2001, when we no longer participated in the Pitney Bowes
centralized cash management program, was $1.3 million. The weighted average
interest rate was 7.1% for 2002 and 6.3% for the last three months of 2001.

     Effective tax rate. Our effective tax rate was 39.9% in 2002 compared with
40.1% in 2001. Prior to the Distribution, our income was included in the Pitney
Bowes consolidated income tax returns and our tax expense was calculated as if
Imagistics and Pitney Bowes filed separate income tax returns. Our future
effective tax rate will depend on our structure and tax strategies as a
separate, independent entity as well as any future jurisdictional rate changes
and could vary from our historical effective tax rates.


YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

     Revenue. In 2001, total revenue of $626 million declined 3% versus the
prior year total revenue of $643 million, reflecting lower sales and support
service revenue, partially offset by increased rental revenue.

     Equipment and supplies sales revenue of $310 million declined 5% in 2001
from $326 million in 2000 due to lower copier and facsimile equipment sales and
lower supply sales. The decline in copier equipment sales reflects the shift in
our copier marketing focus toward national accounts, which emphasizes equipment
rentals as opposed to equipment sales. The decline in

                                       22


facsimile equipment sales reflects both volume and price declines. Lower supply
sales reflects declining facsimile usage caused by the use of other new
technologies, such as e-mail, as well as lower prices associated with our
environmentally friendly ECO toner cartridges.

     Equipment rental revenue of $233 million increased 2% in 2001 from $228
million in 2000, reflecting the shift in our copier marketing focus to national
accounts, which require a rental placement strategy similar to that of our
facsimile product placement strategy. We continued to implement this strategic
shift in our copier systems product line by increasing the focus on renting our
copiers, responding to a need for financing flexibility in the major account
marketplace. During 2001, rental revenue derived from our copier product line
increased 9% reflecting growth in the overall installed rental population as
well as the impact of increased placements of our high-end digital products.
Rental revenue from our facsimile product line declined 1% versus the prior
year.

     Support services revenue of $83 million, primarily derived from stand-alone
service contracts, decreased 7% in 2001 from $89 million in 2000, reflecting the
strategic decision to focus on renting, which includes service, rather than on
selling our copier and MFPs with associated service contracts.

     Cost of sales. Cost of sales was $197 million in 2001 compared with $184
million in 2000 and as a percentage of sales revenue increased to 63.6% in 2001
from 56.5% in 2000. This increase resulted from $21 million of inventory
provisions to write down to market the carrying value of (a) our analog copier
and related parts inventory in response to the continuing market shift from
analog to digital copiers, (b) our service parts inventory to reflect quantities
on hand in excess of projected usage and (c) our sales demonstration equipment
which devalues with age. The increase was partially offset by a decrease in our
product costs from suppliers located in Japan, reflecting the weakening of the
yen against the dollar in 2001.

     Cost of rentals. Cost of rentals was $92 million in 2001 compared with $89
million in 2000 and as a percentage of rental revenue increased to 39.5% in 2001
from 38.9% in 2000, reflecting the impact of lower industry-wide pricing on new
rental additions and contract renewals.

     Selling, service and administrative expenses. Selling, service and
administrative expenses of $306 million were 49% of total revenue in 2001
compared with $253 million or 39% of total revenue in 2000. Selling, service and
administrative expenses increased 21% over the prior year. The increase reflects
higher costs associated with the geographic expansion of sales and service
capabilities ($12 million), higher finance and administrative costs associated
with becoming an independent public company ($10 million), higher operating
costs associated with our investment in our ERP project ($4 million), higher
warehousing and distribution costs ($3 million) and higher employee benefit
costs ($1 million). We also recorded higher severance costs of $3 million
associated with reducing our staffing overhead and administrative costs and
increased our allowance for doubtful accounts receivable in response to the
weaker economic environment and a higher delinquency rate resulting in
incremental accounts receivable write-offs of $8 million.

     Purchasing and receiving costs, inspection costs, warehousing costs and
other distribution costs are included in selling, service and administration
costs because no meaningful allocation of these expenses to cost of sales or
cost of rentals is practicable. These costs amounted to $15.9 million and $14.9
million for the years ended December 31, 2001 and 2000, respectively.

     Included in selling, service and administrative expenses are allocated
amounts from Pitney Bowes, reflecting our share of overhead costs related to
shared selling, service and administrative expenses. Operating expenses of field
sales and service offices 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 was $10 million and $11 million,
respectively, in 2001 and 2000. Prior to the Distribution, we participated in
Pitney Bowes' centralized cash management program, which was used to finance our
operations. Interest expense for 2000 and the first nine months of 2001
represents an allocation from Pitney Bowes based upon the proportion of our net
assets to Pitney Bowes' net assets. The Pitney Bowes' weighted average borrowing
rate was approximately 6.9% in 2000 and 6.7% in the first nine months of 2001,
respectively. Interest expense for the last three months of 2001, when we no
longer participated in the Pitney Bowes centralized cash management program, was
$1.3 million and the weighted average interest rate was 6.3%.

     Effective tax rate. Our effective tax rate was 40.1% in 2001 and 39.6% in
2000. Prior to the Distribution, our income was included in the Pitney Bowes
consolidated income tax returns and our tax expense was calculated as if
Imagistics and Pitney Bowes filed separate income tax returns. Our future
effective tax rate will depend on our structure and tax strategies as a
separate, independent entity as well as any future jurisdictional rate changes
and could vary from our historical effective tax rates.

                                       23


EXPANSION OF SALES AND SERVICE CAPABILITIES

     During 2001 and 2000, we acquired certain assets and assumed certain
liabilities of ten independent dealers for sales and service capabilities in
remote geographic areas. These acquisitions, individually or in the aggregate,
were not significant to our financial position or results of operations. These
acquisitions were accounted for using the purchase method of accounting. The
purchase price, including direct costs of the acquisitions, was allocated to
acquired assets and assumed liabilities. The excess of the purchase price over
the net tangible assets acquired was recorded as goodwill. The operating results
of these acquisitions are included in our financial statements from the date of
the respective acquisition.

LIQUIDITY AND CAPITAL RESOURCES

     On November 9, 2001 we entered into a Credit Agreement with a group of
lenders (the "Credit Agreement") that provided for secured borrowings or the
issuance of letters of credit in an aggregate amount not to exceed $225 million,
comprised of a $125 million Revolving Credit Facility (the "Revolving Credit
Facility") and a $100 million Term Loan (the "Term Loan"). The term of the
Revolving Credit Facility is five years and the term of the Term Loan is six
years. Our Credit Agreement has a rating of Ba3 from Moody's Investor Services
and a BB+ rating from Standard & Poor's.

     We have pledged substantially all of our assets plus 65% of the stock of
our subsidiary as security for our obligations under the Credit Agreement.
Available borrowings and letter of credit issuance under the Revolving Credit
Facility are determined by a borrowing base consisting of a percentage of our
eligible accounts receivable, inventory, rental assets and accrued and advance
billings, less outstanding borrowings under the Term Loan.

     The Credit Agreement contains financial covenants that require the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA") and a maximum leverage ratio (total debt to EBITDA), as
well as other covenants, which, among other things, place limits on dividend
payments and capital expenditures. The Credit Agreement allowed us to originally
repurchase up to $20 million of our stock and to make acquisitions up to an
aggregate consideration of $30 million. At December 31, 2002 and 2001, we were
in compliance with all of the financial covenants.

     Originally, amounts borrowed under the Revolving Credit Facility bore
interest at variable rates based, at our option, on either the LIBOR rate plus a
margin of from 2.25% to 3.00%, depending on our leverage ratio, or the Fleet
Bank base lending rate plus a margin of from 1.25% to 2.00%, depending on our
leverage ratio. Amounts borrowed under the Term Loan bore interest at variable
rates based, at our option, on either the LIBOR rate plus a margin of 3.50% or
3.75%, depending on our leverage ratio, or the Fleet Bank base lending rate plus
a margin of 2.50% to 2.75%, depending on our leverage ratio. A commitment fee of
from 0.375% to 0.500% on the average daily unused portion of the Revolving
Credit Facility is payable quarterly, in arrears, depending on our leverage
ratio.

     On March 19, 2002, the Credit Agreement was amended to increase the total
amount of our stock permitted to be repurchased from $20 million to $30 million.
On July 19, 2002, the Credit Agreement was further amended to increase the total
amount of our stock permitted to be repurchased from $30 million to $58 million
and to reduce the Term Loan interest rates to LIBOR plus a margin of from 2.75%
to 3.75%, depending on our leverage ratio, or to the Fleet Bank base lending
rate plus a margin of from 1.75% to 2.75%, depending on our leverage ratio.

     On March 5, 2003, the Credit Agreement was further amended to increase the
total amount of stock permitted to be repurchased from $58 million to $78
million, to reduce the minimum EBITDA covenant to $100 million for the remainder
of the term of the Credit Agreement and to revise the limitation on capital
expenditures.

     The Credit Agreement requires us to manage our interest rate risk with
respect to at least 50% of the aggregate principal amount of the Term Loan for a
period of at least 36 months. Accordingly, we entered into two interest rate
swap agreements in the notional amounts of $50 million and $30 million expiring
in February 2005 to convert the variable interest rate payable on the Term Loan
to a fixed interest rate in order to hedge the exposure to variability in
expected future cash flows. These interest rate swap agreements have been
designated as cash flow hedges. The counterparties to the interest rate swap
agreements are major international financial institutions. We monitor the credit
quality of these financial institutions and do not anticipate any losses as a
result of counterparty nonperformance. Under the terms of the swap agreements,
we will receive payments based upon the 90-day LIBOR rate and remit payments
based upon a fixed rate. The fixed interest rates are 4.17% and 4.32% for the
$50 million and the $30 million swap agreements, respectively.

     Our initial borrowings of $150 million under the Credit Agreement,
consisting of $100 million under the Term Loan and $50 million under the
Revolving Credit Facility, were used to repay amounts due to Pitney Bowes and to
pay a dividend to Pitney Bowes. At December 31, 2001, Pitney Bowes Credit
Corporation ("PBCC") provided substantially all of our Term Loan. During 2002,
PBCC disposed of its commitments under the Credit Agreement and is no longer a
participant in the Credit Agreement.

                                       24


     During the third quarter of 2002, we revised our cash flow estimates and
prepaid $8 million of the amount outstanding under the Term Loan. This
prepayment was covered by a portion of the $30 million interest rate swap
agreement that had been designated as a cash flow hedge. Since it is no longer
probable that the hedged forecasted transactions related to the $8 million Term
Loan prepayment will occur, we recognized a loss related to that portion of the
swap agreement underlying the amount of the prepayment by reclassifying $0.4
million from accumulated other comprehensive loss into interest expense. We also
unwound $8 million of the $30 million interest rate swap agreement.

     At December 31, 2002, two interest rate swap agreements in the notional
amounts of $50 million and $22 million were outstanding, the aggregate fair
value of which was an obligation of $3.7 million. This obligation is reported in
other liabilities in the consolidated balance sheet and the unrealized loss
relating to the outstanding swap agreements was included in other comprehensive
loss in stockholders' equity. The interest rate swap agreements were 100%
effective in 2002.

     At December 31, 2002, $74 million of borrowings were outstanding under the
Credit Agreement, consisting solely of borrowings under the Term Loan and the
borrowing base amounted to approximately $125 million. The Term Loan is payable
in 16 consecutive equal quarterly installments of $0.2 million due March 31,
2003 through December 31, 2006, three consecutive equal quarterly installments
of $17.8 million due March 31, 2007 through September 30, 2007 and a final
payment of $17.8 million due at maturity. At December 31, 2001, $117 million of
borrowings were outstanding under the Credit Agreement, consisting of $17
million of borrowings under the Revolving Credit Facility and $100 million of
borrowings under the Term Loan, and the borrowing base amounted to approximately
$126 million. As of February 28, 2003, $74 million of borrowings were
outstanding under the Credit Agreement, consisting solely of $74 million of
borrowings under the Term Loan and the borrowing base amounted to approximately
$124 million. The weighted average interest rate on borrowings outstanding under
the Credit Agreement was approximately 7.10% and 6.30% during 2002 and 2001,
respectively, after giving effect to the interest rate swap agreements.

     The ratio of current assets to current liabilities declined to 2.6 to 1 at
December 31, 2002 compared to 3.4 to 1 at December 31, 2001 due to reductions in
accounts receivable and inventory and an increase in accounts payable and
accrued liabilities. At December 31, 2002, our total debt as a percentage of
total capitalization declined to 21.9% from 29.1% at December 31, 2001 due to
debt repayments offset in part by stock repurchases.

     Historically, our cash flow has been positive. We expect our cash flow to
remain positive although we do expect our cash generation to moderate as our
ability to continue to provide cash through changes in working capital is
reduced.

     Net cash provided by operating activities was $158 million, $148 million
and $138 million for the years ended December 31, 2002, 2001 and 2000,
respectively. Net income was $16 million, $13 million and $64 million in 2002,
2001 and 2000, respectively. Non-cash charges for depreciation and amortization
and provisions for bad debt and inventory obsolescence in the aggregate provided
cash of $102 million, $116 million and $81 million for 2002, 2001 and 2000,
respectively. The provision for bad debt of $12 million in 2001 was
significantly higher than historical levels reflecting an increase in the rate
of delinquencies. In 2002 and 2001 the provision to write down excess and
obsolete inventory amounted to $15 million and $21 million, respectively, and
was higher than historical levels to recognize the impact of the continuing
market shift from analog to digital equipment on the market value of our
inventory. Changes in the principal components of working capital provided cash
of $38 million and $21 million in 2002 and 2001, respectively and resulted in a
usage of cash of $5 million in 2000. Of the $38 million of cash provided by
working capital changes in 2002, approximately $17 million was due to improved
collection results. In addition, approximately $18 million resulted from the
accrual in our accounts of costs that had been included in amounts due to Pitney
Bowes prior to the Distribution and included $7 million in income taxes, $5
million in employee medical and benefit costs and $6 million of higher accrual
levels for administrative costs associated with becoming and independent public
company. In addition, approximately $3 million of the increase in accounts
payable and accrued liabilities resulted from costs associated with the ERP
project.

     We used $67 million, $85 million and $95 million in investing activities
for the years ended December 31, 2002, 2001 and 2000, respectively. Investment
in rental equipment assets totaled $48 million, $66 million and $80 million in
2002, 2001 and 2000, respectively. The lower level of rental equipment
expenditures in 2002 primarily reflects lower product costs. Capital
expenditures for property, plant and equipment were $19 million, $18 million and
$4 million in 2002, 2001 and 2000, respectively. Investment in our ERP system
accounted for $10 million and $7 million of the capital expenditures for
property, plant and equipment for 2002 and 2001, respectively. In 2001 and 2000,
other investing activities consisted of the acquisition of independent dealers
to expand our sales and service capabilities as described above.

     Cash used in financing activities was $79 million, $47 million and $44
million for the years ended December 31, 2002, 2001 and 2000, respectively. Cash
used in financing activities in 2002 reflects repayments of $17 million under
the Revolving Credit Facility and $26 million under the Term Loan and the
repurchase of 1.9 million shares of our stock at a cost of $37 million. In

                                       25


March 2002, the Board of Directors approved a $30 million stock buy back
program. In October 2002, the Board of Directors authorized the repurchase of an
additional $28 million of our stock, raising the total authorization to $58
million. Currently, we intend to continue repurchasing our stock. In 2001, cash
used in financing activities reflects advances to Pitney Bowes offset by
increases in amounts due to Pitney Bowes for corporate allocations and other
intercompany charges, as well as borrowings of $100 million under the Term Loan
and net borrowings of $17 million under the Revolving Credit Facility. In 2001,
we used borrowings under the Term Loan and Revolving Credit Facility to repay
amounts due to Pitney Bowes and to pay a dividend to Pitney Bowes. Cash used in
financing activities in 2000 reflects advances to Pitney Bowes offset by
increases in amounts due to Pitney Bowes for corporate allocations and other
intercompany charges.

     The following table depicts our future payments under material contractual
obligations:



                                                 PAYMENTS DUE BY PERIOD
                       -------------------------------------------------------------------------
                                     LESS THAN           1 - 3           4 - 5         AFTER 5
                         TOTAL          1 YEAR           YEARS           YEARS          YEARS
                        -------     -----------         -------         -------       ---------
                                                                        
Long-term debt           $  74       $      1            $   2           $  71         $     -
Operating leases            32              9               18               3               2


     Long-term debt payments are related to the Credit Agreement. Payments under
operating leases relate to the lease and sub-lease of properties including sales
and service offices under long-term lease agreements with initial terms
extending from three to fifteen years as described in "Properties" located in
Part I, Item 2 of this 2002 Annual Report on Form 10-K. We have no material
commitments other than supply agreements with vendors that extend only to
equipment ordered under purchase orders; there are no long-term purchase
requirements. We do not have any capital leases or off-balance sheet
arrangements to finance our business.

     We will continue to make additional investments in facilities, rental
equipment, computer equipment and systems and our distribution network as
required to support our revenue growth. We anticipate investments in rental
equipment assets for new and replacement programs in amounts consistent with
prior years. We estimate that we will invest approximately $30 million to $35
million over the next 12 - 18 months to enhance our information systems
infrastructure and implement our ERP system.

     In connection with the Distribution, we entered into certain agreements
pursuant to which we may be obligated to indemnify Pitney Bowes with respect to
certain matters.

     We agreed to assume all liabilities associated with our business, and to
indemnify Pitney Bowes for all claims relating to our business. These may be
claims by or against Pitney Bowes or us 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.

     We and Pitney Bowes entered into a tax separation agreement, which governs
our and Pitney Bowes' respective rights, responsibilities and obligations after
the Distribution with respect to taxes for the periods ending on or before the
Distribution. In addition, the tax separation agreement generally obligates us
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 us to indemnify Pitney Bowes and affiliates to the extent that any
action we take or fail to take gives rise to a tax liability with respect to the
Distribution.

     In each of these circumstances, payment by us is contingent on Pitney Bowes
making a claim. As such, it is not possible to predict the maximum potential
future payments under these agreements. As of December 31, 2002, we had not paid
any amounts to Pitney Bowes pursuant to the above indemnifications. However, we
have paid amounts to defend and resolve claims and litigation related to our
business that we assumed as part of the Spin-off. We believe that if we were to
incur a loss in any of these matters, such loss would not have a material effect
on our financial position, results of operations or cash flows.

     Our cash flow from operations, together with borrowings under the Credit
Agreement, are expected to adequately finance our operating cash requirements
and capital expenditures for the foreseeable future. We expect to fund further
expansion and long-term growth primarily with cash flows from operations,
borrowings under the Credit Agreement and possible future sales of additional
equity or debt securities.

RISK FACTORS THAT COULD CAUSE RESULTS TO VARY

     Risk Factors Relating to Separating Our Company from Pitney Bowes

     We have a limited history operating as an independent entity and may be
unable to make the changes necessary to operate successfully as a stand-alone
entity, or may incur greater costs as a stand-alone entity that may cause our
profitability to decline.

                                       26


     Prior to the Distribution, our business was operated by Pitney Bowes as a
division of its broader corporate organization, rather than as a separate
stand-alone entity. Pitney Bowes assisted us by providing corporate functions
such as legal, tax and information technology functions. Following the
Distribution, Pitney Bowes has no obligation to provide assistance to us other
than certain interim and transitional services to be provided by Pitney Bowes.
Because our business had not previously been operated as a stand-alone entity,
there can be no assurance that we will be able to successfully implement the
changes necessary to operate independently or will not incur additional costs as
a result of operating independently. We are implementing an ERP system intended
to replace the information technology ("IT") services provided by Pitney Bowes
under the transition services agreement. Due to unanticipated delays in
implementation of Phase II of the ERP system, we and Pitney Bowes have agreed to
an extension until June 30, 2003 or, upon our request, December 31, 2003, of the
transition services agreement as it relates to IT related services. In January
2003, we received a favorable ruling from the Internal Revenue Service
indicating that the extension of the transition services agreement as it relates
to IT services, through December 2003, will not affect the tax-free nature of
the Spin-off. Any failure to implement the critical ERP applications
appropriately by the given extension date would have a material adverse affect
on our financial position, results of operations and cash flows.

     Pitney Bowes has been and is expected to continue to be a significant
customer. In 2002 and 2001, revenues from Pitney Bowes, exclusive of equipment
sales to PBCC for lease to the end user, accounted for approximately 9% and 4%,
respectively, of our total revenue. However, no assurance can be given that
Pitney Bowes will continue to purchase our products and services.

     In connection with the Distribution, Imagistics and Pitney Bowes entered
into a non-exclusive intellectual property agreement that allows us to operate
under the "Pitney Bowes" brand name for a term of up to two years after the
Distribution. However, this agreement may be terminated if we or Pitney Bowes
elect to terminate the non-competition obligations contained in the distribution
agreement. In 2002, we began introducing new products under the "Imagistics"
brand name and we initiated a major brand awareness advertising campaign to
establish our new brand name. Brand name recognition is an important part of our
overall business strategy and we cannot assure you that customers will maintain
the same level of interest in our products when we can no longer use the Pitney
Bowes brand name.

     Risk Factors Relating to Our Business

     The document imaging and management industry is undergoing an evolution in
product offerings, moving toward the use of digital and color technology in a
multifunctional office environment. Our continued success will depend to a great
extent on our ability to respond to this rapidly changing environment by
developing new options and document imaging solutions for our customers.

     The proliferation of e-mail, multifunctional products and other
technologies in the workplace may lead to a reduction in the use of traditional
copiers and fax machines. We cannot anticipate whether other technological
advancements will substantially minimize the need for our products in the
future.

     Many of our rental customers have contract provisions allowing for
technology and product upgrades during the term of their contract. If we have
priced these upgrades improperly, this may have an adverse effect on our
profitability and future business. If many of our customers exercise their
contractual rights to upgrade to digital equipment, we may experience returns of
a large number of analog machines and a subsequent loss of book value on these
machines.

     The document imaging solutions industry is very competitive; we may be
unable to compete favorably, causing us to lose sales to our competitors. Our
future success depends, in part, on our ability to deliver enhanced products,
service packages and business processes such as e-commerce capabilities, while
also offering competitive price levels.

     We rely on outside suppliers to manufacture the products that we
distribute, many of whom are located in the Far East. In addition, one
manufacturer supplies a significant portion of our new copier and
multifunctional equipment. If this manufacturer discontinues its products or is
unable to deliver us products in the future or if political changes, economic
disruptions or natural disasters occur where its production facilities are
located, we will 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 will experience some delay in
obtaining the product. Other events that disrupt the shipment to or receipt of
ocean freight at U.S. ports, such as labor unrest, war or terrorist activity
could delay, prevent or add substantial cost to the Company's receipt of such
products. Any of these events would cause disruption to our customers and could
have an adverse effect on our business.

                                       27


     Inflation

     Inflation, although moderate in recent years, continues to affect worldwide
economies and the ways companies operate. Although the cost of copier, facsimile
and multifunctional equipment has been declining for the last two years,
inflation increases labor costs and operating expenses and may, in the future,
raise costs associated with replacement of fixed assets such as rental
equipment. In addition to inflation pressures, industry-wide pricing pressures
have negatively impacted our profit margins. Despite these growing costs and
industry-wide pricing pressures, we have generally been able to partially offset
declining profit margins through productivity and efficiency improvements and
control of operating expense levels.

     Foreign Currency

     Much of our international business is transacted in local currency.
Approximately 21% and 68% of our total product purchases, based on costs, were
denominated in yen in 2002 and 2001. Our margins were negatively impacted in
2002 because the strong Japanese yen resulted in higher product costs on yen
denominated purchases from our Japanese vendors. Our margins were positively
impacted in 2001 as the weak Japanese yen resulted in lower product costs on yen
denominated purchases from our Japanese vendors. In 2002, the value of the yen
increased approximately 8% against the U.S. dollar while in 2001, the value of
the yen declined approximately 12% against the U. S. dollar. 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.

LEGAL MATTERS

     In connection with the Distribution, we agreed to assume all liabilities
associated with our business, and to indemnify Pitney Bowes for all claims
relating to our business. In the course of normal business, Pitney Bowes has
been party to occasional lawsuits relating to our business. These may involve
litigation by or against Pitney Bowes or Imagistics relating to, among other
things, contractual rights under vendor, insurance or other contracts,
intellectual property or patent rights, equipment, service or payment disputes
with customers and disputes with employees.

     On October 4, 2002, Imagetec L.P., ("Imagetec"), a dealer of copiers,
printers and fax machines located in McHenry, Illinois, filed suit against us in
the United States District Court, Northern District of Illinois for unfair
competition under the Lanham Act and Illinois common law. The suit alleges that
our trademark is confusingly similar with Imagetec's federally registered
trademarks and creates a likelihood of confusion with Imagetec's marks. The suit
seeks injunctive relief and monetary damages in an unspecified amount, including
treble damages for alleged willful and deliberate conduct. We believe that the
plaintiff's complaint is without merit and we intend to defend the lawsuit
vigorously.

     In connection with the Distribution, liabilities were transferred to us for
matters where Pitney Bowes was a plaintiff or a defendant in lawsuits, relating
to our business or products. We have not recorded liabilities for loss
contingencies since the ultimate resolutions of the legal matters cannot be
determined and a minimum cost or amount of loss cannot be reasonably estimated.
In our opinion, none of these proceedings, individually or in the aggregate,
should have a material adverse effect on our consolidated financial position,
results of operations or cash flows.

ENVIRONMENTAL MATTERS

     We are subject to Federal, state and local laws intended to protect the
environment. We believe that, as a general matter, our policies, practices and
procedures are properly designed to reasonably prevent the risk of environmental
damage and financial liability to the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is
effective for financial statements of both interim and annual periods ending
after June 15, 2002 and requires the recognition of an asset retirement
obligation when an entity incurs a legal obligation associated with the
retirement of a tangible long-lived asset and the amount of the liability can be
reasonably estimated. We adopted SFAS No. 143 in 2002. The adoption of SFAS No.
143 did not have a material impact on our financial position, results of
operations or cash flows.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" and establishes accounting and reporting standards for
long-lived assets, excluding goodwill, to be used, held for sale or disposed of
other than by sale. SFAS No. 144 is effective for financial statements of both
interim and annual periods

                                       28


ending after December 15, 2002 and requires an entity to recognize an impairment
loss in an amount equal to the difference between the carrying amount of the
long-lived asset and its fair value if the carrying amount of the asset is not
recoverable from undiscounted cash flows. We adopted SFAS No. 144 effective
January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on
our financial position, results of operations or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements. As a result of rescinding SFAS No. 4 and SFAS No. 64, the
criteria in Accounting Principles Board Opinion ("APB") No. 30 will be used to
classify gains and losses from extinguishment of debt. The provisions of SFAS
No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years
ending after May 15, 2002. The provisions of SFAS No. 145 related to SFAS No. 13
are effective for transactions occurring after May 15, 2002 and all other
provisions of SFAS No. 145 are effective for financial statements of both
interim and annual periods ending after May 15, 2002. We adopted the required
provisions of SFAS No. 145 in 2002. The adoption of the required provisions of
SFAS No. 145 did not have a material impact on our financial position, results
of operations or cash flows. The implementation of all other provisions of SFAS
No. 145 is not expected to have a material impact on our financial position,
results of operations or cash flows.

     In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
and disposal activities initiated after December 31, 2002 and provides guidance
on the recognition and measurement of liabilities associated with disposal
activities. We adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No.
146 did not have a material impact on our financial position, results of
operations or cash flows.

     In November 2002, the FASB Emerging Issues Task Force reached a consensus
on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 00-21 applies to certain contractually
binding arrangements under which a company performs multiple revenue generating
activities and requires that all companies account for each element within an
arrangement with multiple deliverables as separate units of accounting if (a)
the delivered item has value on a stand-alone basis, (b) there is objective and
reliable evidence of fair value and (c) the amount of the total arrangement
consideration is fixed. EITF 00-21 is effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. We are evaluating the
provisions of EITF 00-21 and whether its implementation will have a material
impact on our financial position, results of operations or cash flows.

     In November 2002, the FASB approved FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
existing disclosure requirements for certain guarantees and clarifies that at
the time a company issues a guarantee, a liability must be recognized for the
fair value of the obligations assumed under that guarantee. In addition, certain
disclosures are required in interim and annual financial statements. FIN No. 45
is effective on a prospective basis for guarantees issued after December 31,
2002. The disclosure requirements are effective for financial statements of both
interim and annual periods ending after December 15, 2002. We adopted the
disclosure provisions of FIN No. 45 as of December 31, 2002. The adoption of the
disclosure provisions of FIN No. 45 did not have a material impact on our
financial position, results of operations or cash flows. The adoption of the
liability recognition provisions of FIN No. 45 are not expected to have a
material impact on our financial position, results of operations or cash flows.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for companies that voluntarily change to the fair value based method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and APB No. 28, "Interim Financial
Reporting", to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. The disclosure provisions of SFAS
No. 148 are effective for both interim and annual periods ending after December
15, 2002. We adopted the disclosure provisions of SFAS No. 148 as of December
31, 2002. The adoption of the disclosure provisions of SFAS No. 148 did not have
a material impact on our financial position, results of operations or cash
flows.

                                       29


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information concerning market risk is set forth under the headings
"Liquidity and Capital Resources" and "Risk Factors That Could Cause Results to
Vary" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.

INTEREST RATE RISK

     The Company uses interest rate swap agreements to manage and reduce risk
related to interest payments on its debt instruments and to hedge the exposure
to variability in expected future cash flows. These interest rate swap
agreements have been designated as cash flow hedges. As a result, we are not
subject to significant risk related to changes in interest rates.

                                       30


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEX TO FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

  Report of Independent Accountants  . . . . . . . . . . . . . . . . . . .   32
  Consolidated Statements of Operations for the years ended
   December 31, 2002, 2001 and 2000  . . . . . . . . . . . . . . . . . . .   33
  Consolidated Balance Sheets as of December 31, 2002 and 2001 . . . . . .   34
  Consolidated Statement of Changes in Stockholders' Equity for the years
   ended December 31, 2002, 2001, and 2000 . . . . . . . . . . . . . . . .   35
  Consolidated Statements of Cash Flows for the years ended
   December 31, 2002, 2001 and 2000  . . . . . . . . . . . . . . . . . . .   36
  Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .   37


                                       31


                        REPORT OF INDEPENDENT ACCOUNTANTS

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF IMAGISTICS INTERNATIONAL INC.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and comprehensive income (loss) and of cash flows present fairly, in all
material respects, the financial position of Imagistics International Inc. and
its subsidiary (the "Company") at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     As discussed in Note 3 to the consolidated financial statements, the
Company adopted Financial Accounting Standards Board Statement No. 142,
"Goodwill and Other Intangible Assets."




/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 4, 2003, except for Note 16, as to which the date is March 5, 2003

                                       32


                          IMAGISTICS INTERNATIONAL INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                               YEARS ENDED DECEMBER 31,
                                                        2002             2001             2000
                                                  -------------    -------------    -------------
                                                                              
Revenue:
     Sales                                         $   316,328      $   310,258      $   326,046
     Rentals                                           229,677          233,180          227,790
     Support services                                   83,925           82,638           88,922
                                                  -------------    -------------    -------------
Total revenue                                          629,930          626,076          642,758
     Cost of sales                                     198,437          197,300          184,265
     Cost of rentals                                    84,114           92,191           88,506
     Selling, service and administrative expenses      311,924          305,799          252,799
                                                  -------------    -------------    -------------
Operating income                                        35,455           30,786          117,188
     Interest expense                                    8,106            9,825           11,281
                                                  -------------    -------------    -------------
Income before income taxes                              27,349           20,961          105,907
     Provision for income taxes                         10,906            8,402           41,903
                                                  -------------    -------------    -------------
Net income                                         $    16,443      $    12,559      $    64,004
                                                  =============    =============    =============



Earnings per share:
     Basic                                         $      0.88      $      0.65      $      3.29
                                                  =============    =============    =============
     Diluted                                       $      0.86      $      0.65      $      3.29
                                                  =============    =============    =============

Shares used in computing earnings per share:
     Basic                                          18,631,895       19,463,007       19,463,007
                                                  =============    =============    =============
     Diluted                                        19,134,158       19,479,899       19,479,121
                                                  =============    =============    =============



                 See Notes to Consolidated Financial Statements

                                       33


                          IMAGISTICS INTERNATIONAL INC.

                           CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)



                                                                                               DECEMBER 31,
                                                                                          2002            2001
                                                                                       ----------      ----------
                                                                                                 
ASSETS
Current assets:
     Cash                                                                              $  31,325       $  18,844
     Accounts receivable, less allowances of $5,792 and $6,188 at
         December 31, 2002 and 2001, respectively                                         84,142         105,913
     Accrued billings                                                                     26,125          25,144
     Inventories                                                                         106,002         124,005
     Current deferred taxes on income                                                     20,518          14,825
     Other current assets and prepaid expenses                                             5,173           3,975
                                                                                      ------------    -----------
         Total current assets                                                            273,285         292,706
Property, plant and equipment, net                                                        43,812          30,814
Rental equipment, net                                                                     88,433         113,924
Goodwill, net of amortization of $4,855                                                   52,600          52,600
Other assets                                                                               6,776           7,632
                                                                                      ------------    -----------
         Total assets                                                                  $ 464,906       $ 497,676
                                                                                      ============    ===========

LIABILITIES AND EQUITY
Current liabilities:
     Current portion of long-term debt                                                     $ 749       $   1,000
     Accounts payable and accrued liabilities                                             77,590          54,770
     Advance billings                                                                     27,243          29,376
                                                                                      ------------    -----------
         Total current liabilities                                                       105,582          85,146
Long-term debt                                                                            73,399         116,000
Deferred taxes on income                                                                  15,320           9,161
Other liabilities                                                                          6,358           1,930
                                                                                      ------------    -----------
         Total liabilities                                                               200,659         212,237
Commitments and contingencies (see Note 10)                                                    -               -
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, 19,813,517
         and 19,463,007 issued at December 31, 2002 and 2001, respectively)                  198             195
     Additional paid in capital                                                          294,370         289,517
     Retained earnings (deficit)                                                          14,522          (1,921)
     Treasury stock, at cost (1,936,760 shares and none at December 31, 2002
         and 2001, respectively)                                                         (36,549)              -
     Unearned compensation                                                                (3,217)              -
     Accumulated other comprehensive loss                                                 (5,077)         (2,352)
                                                                                      ------------    -----------
         Total stockholders' equity                                                      264,247         285,439
                                                                                      ------------    -----------
         Total liabilities and stockholders' equity                                    $ 464,906       $ 497,676
                                                                                      ============    ===========



                 See Notes to Consolidated Financial Statements

                                       34


                          IMAGISTICS INTERNATIONAL INC.

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
                          COMPREHENSIVE INCOME (LOSS)
                             (DOLLARS IN THOUSANDS)



                                             COMMON STOCK        ADDITIONAL   RETAINED      TREASURY STOCK
                                        ----------------------    PAID IN     EARNINGS    -------------------       UNEARNED
                                         SHARES     PAR VALUE     CAPITAL     (DEFICIT)    SHARES       COST      COMPENSATION
                                         ------     ---------     -------    -----------   ------       ----      ------------
                                                                                                    
BALANCE AT JANUARY 1, 2000

Net income
Net advances to Pitney Bowes
Translation adjustment
                                        ------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000

Net income (loss)                                                                (1,921)
Net advances to Pitney Bowes
Translation adjustment
Unrealized gain on cash flow hedges
Recapitalization upon Distribution       19,463,007        195       289,517
                                        ------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001             19,463,007        195       289,517     (1,921)

Net income                                                                       16,443
Translation adjustment
Unrealized loss on cash flow hedges
Issuance of stock under
   restricted stock plans                   347,000          3         4,823                                               (4,826)
Exercise of stock options                     3,510                       30
Purchase of treasury stock                                                                 1,936,760    (36,549)
Amortization of unearned compensation                                                                                       1,609
                                        ------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002             19,813,517      $ 198     $ 294,370    $14,522    1,936,760    (36,549)         $ (3,217)
                                        ==========================================================================================




                                                                           ACCUMULATED
                                                                              OTHER
                                       OWNER'S NET     COMPREHENSIVE      COMPREHENSIVE
                                        INVESTMENT         INCOME             (LOSS)
                                        ----------         ------             ------
                                                                  
BALANCE AT JANUARY 1, 2000              $ 299,033      $                   $     (59)

Net income                                 64,004      $  64,004
Net advances to Pitney Bowes              (50,286)
Translation adjustment                                    (2,664)             (2,664)
                                        -----------------------------------------------
BALANCE AT DECEMBER 31, 2000              312,751      $  61,340              (2,723)
                                                      ===========
Net income (loss)                          14,480      $  12,559
Net advances to Pitney Bowes              (37,519)
Translation adjustment                                        70                  70
Unrealized gain on cash flow hedges                          301                 301
Recapitalization upon Distribution       (289,712)
                                        -----------------------------------------------
BALANCE AT DECEMBER 31, 2001                    -      $  12,930              (2,352)
                                                      ===========
Net income                                             $  16,443
Translation adjustment                                     1,285               1,285
Unrealized loss on cash flow hedges                       (4,010)             (4,010)
Issuance of stock under
   restricted stock plans
Exercise of stock options
Purchase of treasury stock
Amortization of unearned compensation
                                        -----------------------------------------------
BALANCE AT DECEMBER 31, 2002            $       -      $  13,718           $  (5,077)
                                        ===============================================



                 See Notes to Consolidated Financial Statements

                                       35


                          IMAGISTICS INTERNATIONAL INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)



                                                                                    YEAR ENDED DECEMBER 31,
                                                                          2002               2001              2000
                                                                       ----------        -----------        ----------
                                                                                                    
Cash flows from operating activities:
     Net income                                                          $ 16,443         $  12,559          $  64,004
     Adjustments to reconcile net income to net cash
         provided by operating activities:
         Depreciation and amortization                                     81,593            82,725             73,755
         Provision for bad debt                                             4,886            12,089              3,801
         Provision for inventory obsolescence                              15,153            20,956              3,384
         Deferred taxes on income                                             467             3,216               (130)
         Change in assets and liabilities, net of acquisitions:
            Accounts receivable                                            16,886            (2,818)             6,534
            Accrued billings                                                 (981)           (3,335)            (2,004)
            Inventories                                                     2,850             5,074            (29,387)
            Other current assets and prepaid expenses                      (1,198)           (2,186)             4,622
            Accounts payable and accrued liabilities                       22,819            24,946             15,143
            Advance billings                                               (2,133)             (404)               (88)
         Other, net                                                         1,666            (5,009)            (1,845)
                                                                       -----------       ------------       -----------
            Net cash provided by operating activities                     158,451           147,813            137,789
Cash flows from investing activities:
     Expenditures for rental equipment assets                             (48,062)          (65,936)           (81,938)
     Expenditures for property, plant and equipment                       (18,537)          (18,411)            (1,677)
     Other investing activities                                                 -              (676)           (11,657)
                                                                       -----------       ------------       -----------
            Net cash used in investing activities                         (66,599)          (85,023)           (95,272)
Cash flows from financing activites:
     Due to Pitney Bowes                                                        -          (122,182)             6,716
     Advances to Pitney Bowes                                                   -           (37,519)           (50,286)
     Exercise of stock options                                                 30                 -                  -
     Purchase of treasury stock                                           (36,549)                -                  -
     (Repayments) borrowings under term loan                              (25,852)          100,000                  -
     Net (repayments) borrowings under revolving credit facility          (17,000)           17,000                  -
     Payments of financing fees                                                 -            (4,345)                 -
                                                                       -----------       ------------       -----------
            Net cash used in financing activities                         (79,371)          (47,046)           (43,570)
                                                                       -----------       ------------       -----------
Increase (decrease) in cash                                                12,481            15,744             (1,053)
Cash at beginning of period                                                18,844             3,100              4,153
                                                                       -----------       ------------       -----------
Cash at end of period                                                    $ 31,325         $  18,844          $   3,100
                                                                       ===========       ============       ===========



                 See Notes to Consolidated Financial Statements


                                       36


                          IMAGISTICS INTERNATIONAL INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED)

1. BACKGROUND AND BASIS OF PRESENTATION

Background

     Imagistics International Inc. (the "Company" or "Imagistics") is a large
independent direct sales, service and marketing organization offering document
imaging solutions, including copiers, facsimile machines and multifunctional
products, primarily to large corporate and government customers, as well as to
mid-size and regional businesses. In addition, the Company offers specialized
document imaging options including digital, analog, color and/or networked
products and systems.

     On December 11, 2000, the board of directors of Pitney Bowes Inc. ("Pitney
Bowes") initiated a plan to spin-off substantially all of its office systems
businesses to its stockholders as an independent publicly traded company. On
December 3, 2001, Imagistics was spun off from Pitney Bowes pursuant to a
contribution by Pitney Bowes of substantially all of its office systems
businesses to the Company and a distribution of the stock of the Company to
stockholders of Pitney Bowes based on a distribution ratio of 1 share of
Imagistics stock for every 12.5 shares of Pitney Bowes stock held at the close
of business on November 19, 2001 (the "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 $.01 per share, were
authorized, issued and outstanding. On October 12, 2001, the Company changed its
name to Imagistics International Inc. At the Distribution, the Company's
authorized capital stock consisted of 10,000,000 shares of preferred stock, par
value $1.00 per share and 150,000,000 shares of common stock, par value $.01 per
share. The Company issued 19,463,007 shares of common stock in connection with
the Distribution described above.

     Pitney Bowes has received tax rulings from the Internal Revenue Service
stating that, subject to certain representations, the Distribution qualifies as
tax-free to Pitney Bowes and its stockholders for United States federal income
tax purposes.

Basis of presentation

     The consolidated financial statements as of and for the year ended December
31, 2002 depict Imagistics' results as a stand-alone company. The consolidated
financial statements as of and for the years ended December 31, 2001 and 2000
include certain historical assets, liabilities and related operations of the
United States and United Kingdom office systems business, which were contributed
to the Company from Pitney Bowes prior to the Distribution. Accordingly, the
consolidated financial statements prior to December 3, 2001 were derived from
the financial statements and accounting records of Pitney Bowes using the
historical results of operations and historical basis of assets and liabilities
of the United States and United Kingdom office systems businesses. Prior to the
formation of the Company, the office systems business was operated as a division
of Pitney Bowes, and, as such, Pitney Bowes' investment in the Company is shown
in lieu of stockholders' equity in the consolidated financial statements for
2000. The Company began accumulating retained earnings on December 3, 2001, the
date of the Distribution. Management believes the assumptions underlying the
consolidated financial statements for the years ended December 31, 2001 and 2000
are reasonable. However, the consolidated financial statements included herein
may not necessarily reflect the Company's financial position, results of
operations and cash flows in the future or what its financial position, results
of operations and cash flows would have been prior to the Distribution had the
Company operated as a stand-alone entity during those periods.

     The consolidated financial statements of the Company for the period through
the Distribution and for 2000 include allocations of certain Pitney Bowes'
corporate expenses. Corporate expense allocations have been primarily charged
based on the ratio of the Company's costs and expenses to Pitney Bowes' costs
and expenses. The Company's allocated expenses primarily include administrative
expenses such as accounting services, real estate costs, customer service
support in remote geographic areas and information technology and amounted to
$24.8 million for the period from January 1, 2001 through the Distribution and
$26.3 million in 2000. The Company's management believes the amount of these
services were a reasonable representation of the services provided or benefits
received by the Company.

     Prior to the Distribution, the Company participated in Pitney Bowes'
centralized cash management program, which was used to finance the Company's
operations. Cash deposits from the Company were transferred to Pitney Bowes on a
regular basis and were netted against the due to Pitney Bowes account. As a
result, none of Pitney Bowes' cash, cash equivalents or debt at the

                                       37


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

corporate level had been allocated to the Company in the consolidated financial
statements for periods prior to the Distribution. Cash in the consolidated
financial statements during these periods represents amounts held locally by the
Company's operations in remote geographic areas and funds unavailable for
transfer to Pitney Bowes.

     The Company's consolidated financial statements for the period through the
Distribution and for 2000 included interest expense allocated to the Company
based on a relationship between the Company's net assets and Pitney Bowes' net
assets. Interest expense allocated from Pitney Bowes totaled $8.5 million for
the period from January 1, 2001 through the Distribution and $11.3 million in
2000. The weighted average interest rate was 6.70% for the period from January
1, 2001 through the Distribution and 6.87% in 2000. The Company believes these
were reasonable estimates of the cost of financing the Company's assets and
operations in the past. However, the net asset balances used to calculate
interest expense and the interest rates associated with obligations to Pitney
Bowes are not necessarily representative of the levels the Company experiences
as a stand-alone entity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

     The consolidated financial statements include the accounts of the United
States and United Kingdom operations of the Company. All significant
transactions between the United States and the United Kingdom have been
eliminated. Transactions between the Company and Pitney Bowes are included in
these consolidated financial statements and not eliminated.

Use of estimates

     The preparation of consolidated 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 reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates include
assessing the allocation of costs from Pitney Bowes, the collectibility of
accounts receivable, the use and recoverability of inventory, the useful lives
of tangible assets, the realization of deferred taxes and an evaluation of the
potential impairment, if any, of goodwill, among others. The markets for the
Company's products are characterized by intense competition, rapid technological
development and pricing pressures, all of which could affect the future
realizability of the Company's assets. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary. Actual
results could differ from those estimates.

Revenue recognition

     Revenue on equipment and supplies sales is recognized when contractual
obligations have been satisfied, title and risk of loss have been transferred to
the customer and collection of the resulting receivable is reasonably assured.
For copier equipment, the satisfaction of contractual obligations and the
passing of title and risk of loss to the customer occur upon the installation of
the copier equipment at the customer location. For facsimile equipment and
facsimile supplies, the satisfaction of contractual obligations and the passing
of title and risk of loss to the customer occur upon the delivery of the
facsimile equipment and the facsimile supplies to the customer location. 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, customers are
billed either a flat periodic charge or a usage-based fee. Revenues related to
these contracts are recognized each month as earned, either using the
straight-line method or based upon usage, as applicable.

     Support services contracts, which often include supplies, are generally for
an initial term of one year with automatic renewals unless the Company receives
prior notice of cancellation. Under the terms of support services contracts,
customers are billed either a flat periodic charge or a usage-based fee.
Revenues related to these contracts are recognized each month as earned, either
using the straight-line method or based upon usage, as applicable.

     Certain rental and support services contracts provide for invoicing in
advance, generally quarterly. Revenue on contracts billed in advance is deferred
and recognized as earned revenue over the billed period. Certain rental and
support services contracts

                                       38


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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. The arrangement
consideration is allocated to each unit of accounting based on the residual
method, which requires the allocation of consideration based on the fair value
of the undelivered items. Fair value of support services is primarily determined
by reference to renewal pricing.

Shipping and handling fees and costs

     The Company records shipping and handling costs as part of cost of sales,
as these costs are generally absorbed by the Company. Any amounts billed to a
customer for reimbursement of shipping and handling are included in revenue.

Costs and expenses

     Inbound freight charges are included in inventory. When the inventory is
sold, the cost of the inventory, including the inbound freight charges, is
relieved and charged to cost of sales. When the inventory is rented, the cost of
the inventory, including the inbound freight charges, is relieved and
transferred to the rental equipment asset account. The cost of the rental
equipment asset is then depreciated over the estimated useful life of the
equipment. The depreciation of rental equipment assets is included in cost of
rentals.

     Purchasing and receiving costs, inspection costs, warehousing costs and
other distribution costs are included in selling, service and administration
costs because no meaningful allocation of these expenses to cost of sales or
cost of rentals is practicable. These costs amounted to $16.3 million, $15.9
million and $14.9 million for the years ended December 31, 2002, 2001 and 2000,
respectively.

Cash and cash equivalents

     The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.

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 including evaluating the credit worthiness of each of its customers,
analyzing historical bad debt write-offs and reviewing the aging of the
receivables. The allowance for doubtful accounts includes amounts for specific
accounts that the Company 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.

Inventory valuation

     Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out ("FIFO") method for inventory valuation. Provisions,
when required, are made to reduce excess and obsolete inventories to the
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 demand. As further described in Note 4, the Company
changed its method of accounting for the cost of inventory from the last-in,
first-out ("LIFO") method to the FIFO method in 2001.

Fixed assets and depreciation

     Property, plant and equipment are stated at cost and depreciated
principally using the straight-line method over appropriate periods, buildings
at fifty years, machinery and equipment principally three to fifteen years and
computers principally three to seven years. Major improvements that add to
productive capacity or extend the life of an asset are capitalized while repairs
and maintenance are charged to expense as incurred. Rental equipment is
comprised of equipment on rent to customers and is

                                       39


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

depreciated using the straight-line method over the estimated useful life of the
equipment. Copier equipment is depreciated over three years and facsimile
equipment is depreciated over five years.

Capitalized computer software costs

     The Company capitalizes certain costs of internally developed software.
Internal capitalized costs include purchased materials and services and payroll
and payroll related costs. Costs for general and administrative, overhead,
maintenance and training, as well as the cost of software that does not add
functionality to the existing system, are expensed as incurred. The capitalized
cost of internally developed software is amortized on a straight-line basis over
appropriate periods, principally three to seven years. The unamortized balance
of internally developed software is included in fixed assets in the consolidated
balance sheets.

Goodwill

     Effective January 1, 2002, the Company accounts for goodwill in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be tested for impairment annually as well as on an interim basis if
events or changes in circumstances indicate that goodwill might be impaired.
Effective October 1, 2002, the Company performed its annual test for impairment
using the discounted cash flow valuation method. There was no impairment to the
value of the Company's recorded goodwill for the year ended December 31, 2002.

Impairment of long-lived assets

     The carrying value of long-lived assets, including property and equipment,
rental equipment, and capitalized computer software costs, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. If such a change in circumstances
occurs, the related estimated future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition are compared to the
carrying amount. If the sum of the expected cash flows is less than the carrying
amount, the Company would record an impairment loss. The impairment loss would
be measured as the amount by which the carrying amount exceeds the fair value of
the asset. There was no impairment of long-lived assets recorded for the years
ended December 31, 2002, 2001 and 2000.

Income taxes

     Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized based on the
estimated future tax consequences of differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the periods the temporary differences are expected to be settled.
A valuation allowance is established, as needed, to reduce net deferred tax
assets to realizable value. A valuation allowance has not been established for
the Company's deferred tax assets as the Company believes it is more likely than
not, they will be realized. Prior to the Distribution, the Company's operations
were included in Pitney Bowes' consolidated income tax returns and income taxes
were calculated as if the Company filed separate income tax returns.

Research and development

     Research and development costs, which are expensed as incurred, consist
mainly of salaries and consulting expenditures relating to customized solutions
for document imaging products. Research and development costs, which are
included in selling, service and administrative expenses in the consolidated
statements of income, were approximately $0.4 million in each of the years ended
December 31, 2002, 2001 and 2000.

Foreign exchange

     Assets and liabilities of the Company's United Kingdom operations are
translated at rates in effect at the end of the period, and revenues and
expenses are translated at average rates during the period. Deferred translation
gains and losses are included in accumulated other comprehensive income (loss)
in stockholders' equity. Gains and losses resulting from foreign currency
transactions (transactions denominated in a currency other than the entity's
functional currency) are included in the consolidated statements of operations.

                                       40


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Reclassifications

     Certain previously reported amounts have been reclassified to conform to
the current year presentation.

Financial instruments

     The Company places temporary cash in overnight investments with two major
international financial institutions. The Company uses interest rate swap
agreements to manage and reduce risk related to interest payments on its debt
instruments. The Company recognizes all derivative financial instruments as
assets and liabilities and measures them at fair value. All derivative financial
instruments are designated and qualify as cash flow hedges and, accordingly, the
effective portions of changes in fair value of the derivative financial
instruments are recorded in other comprehensive income and are recognized in the
statement of operations when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized
currently in earnings.

     The Company monitors the creditworthiness of its financial institutions,
including depositories and counterparties to interest rate swap agreements, on a
periodic basis.

Comprehensive income (loss)

     Comprehensive income (loss) is recorded directly to a separate section of
stockholders' equity and includes unrealized gains and losses excluded from the
consolidated statement of operations. These unrealized gains and losses consist
of foreign currency translation adjustments and unrealized gains and losses on
cash flow hedges.

Stock-based employee compensation

     The Company accounts for its stock-based employee compensation plans under
the recognition and measurement provisions of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. The Company recognizes stock-based compensation expense on its
restricted stock over the vesting period. The Company does not recognize
stock-based compensation expense in its reported results as all options granted,
other than adjustment options, 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 SFAS
No. 123 to stock-based employee compensation:



                                                                    YEAR ENDED DECEMBER 31,
                                                               2002          2001           2000
                                                            ----------    ----------     ----------
                                                                                 
Net income, as reported                                      $ 16,443      $ 12,559       $ 64,004
Compensation expense based on the
   fair value method, net of related tax effects                1,789         3,524          3,415
                                                            ----------    ----------     ----------
Pro forma net income                                         $ 14,654       $ 9,035       $ 60,589
                                                            ==========    ==========     ==========

Basic earnings per share:
     As reported                                             $   0.88      $   0.65       $   3.29
     Pro forma                                               $   0.79      $   0.46       $   3.11

Diluted earnings per share:
     As reported                                             $   0.86      $   0.65       $   3.29
     Pro forma                                               $   0.77      $   0.46       $   3.11


Recent accounting pronouncements

     In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is
effective for financial statements of both interim and annual periods ending
after June 15, 2002 and requires the recognition of an asset retirement
obligation when an entity incurs a legal obligation associated with the
retirement of a tangible long-lived asset and the amount of the liability can be
reasonably estimated. The Company adopted SFAS No. 143 in 2002. The adoption of
SFAS

                                       41


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

No. 143 did not have a material impact on the Company's financial position,
results of operations or cash flows.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" and establishes accounting and reporting standards for
long-lived assets, excluding goodwill, to be used, held for sale or disposed of
other than by sale. SFAS No. 144 is effective for financial statements of both
interim and annual periods ending after December 15, 2002 and requires an entity
to recognize an impairment loss in an amount equal to the difference between the
carrying amount of the long-lived asset and its fair value if the carrying
amount of the asset is not recoverable from undiscounted cash flows. The Company
adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did
not have a material impact on the Company's financial position, results of
operations, or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements. As a result of rescinding SFAS No. 4 and SFAS No. 64, the
criteria in APB No. 30 will be used to classify gains and losses from
extinguishment of debt. The provisions of this statement related to the
rescission of SFAS No. 4 are effective for fiscal years ending after May 15,
2002. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for
transactions occurring after May 15, 2002 and all other provisions of SFAS No.
145 are effective for financial statements of both interim and annual periods
ending after May 15, 2002. The Company adopted the required provisions of SFAS
No. 145 in 2002. The adoption of the required provisions of SFAS No. 145 did not
have a material impact on the Company's financial position, results of
operations or cash flows. The implementation of all other provisions of SFAS No.
145 are not expected to have a material impact on the Company's financial
position, results of operations or cash flows.

     In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
and disposal activities that are initiated after December 31, 2002 and provides
guidance on the recognition and measurement of liabilities associated with
disposal activities. The Company adopted SFAS No. 146 on January 1, 2003. The
adoption of SFAS No. 146 did not have a material impact on the Company's
financial position, results of operations or cash flows.

     In November 2002, the FASB Emerging Issues Task Force ("EITF") reached a
consensus on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables". EITF No. 00-21 applies to certain contractually binding
arrangements under which a company performs multiple revenue generating
activities and requires that all companies account for each element within an
arrangement with multiple deliverables as separate units of accounting if (a)
the delivered item has value on a stand-alone basis, (b) there is objective and
reliable evidence of fair value and (c) the amount of the total arrangement
consideration is fixed. EITF No. 00-21 is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. The Company is
evaluating the provisions of EITF No. 00-21 and whether the implementation of
this statement will have a material impact on the Company's financial position,
results of operations or cash flows.

     In November 2002, the FASB approved FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
existing disclosure requirements for certain guarantees and clarifies that at
the time a company issues a guarantee, a liability must be recognized for the
fair value of the obligations assumed under that guarantee. In addition, certain
disclosures are required in interim and annual financial statements. FIN No. 45
is effective on a prospective basis for guarantees issued after December 31,
2002. The disclosure requirements are effective for financial statements of both
interim and annual periods ending after December 15, 2002. The Company adopted
the disclosure provisions of FIN No. 45 as of December 31, 2002. The adoption of
the disclosure provisions of FIN No. 45 did not have a material impact on the
Company's financial position, results of operations or cash flows. The adoption
of the liability recognition provisions of FIN No. 45 are not expected to have a
material impact on the Company's financial position, results of operations or
cash flows.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for companies that voluntarily change to the fair value based method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and APB No. 28, "Interim Financial
Reporting", to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. The disclosure provisions of SFAS
No. 148 are effective for both interim and annual periods ending after December
15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 as of
December 31, 2002. The adoption of the

                                       42


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

disclosure provisions of SFAS No. 148 did not have a material impact on the
Company's financial position, results of operations or cash flows.

3. GOODWILL AND GOODWILL AMORTIZATION

     Effective January 1, 2002, the Company adopted SFAS No. 142. The Company
completed its annual review of goodwill for impairment as of October 1, 2002,
and, based on that review, has determined that its recorded goodwill was not
impaired. Accordingly, for the year ended December 31, 2002, there was no
goodwill amortization or impairment. For the years ended December 31, 2001 and
2000, goodwill amortization amounted to $1.4 million and $1.3 million,
respectively.

     The following table depicts the Company's net income and earnings per share
adjusted for the impact of goodwill amortization during the reported periods:



                                                          YEAR ENDED DECEMBER 31,
                                                    2002          2001             2000
                                                 ----------    ----------       ----------
                                                                        
Reported net income                               $ 16,443      $ 12,559         $ 64,004
Add back: Goodwill amortization                          -         1,427            1,321
                                                 ----------    ----------       ----------
Adjusted net income                               $ 16,443      $ 13,986         $ 65,325
                                                 ==========    ==========       ==========

Basic earnings per share:
      Reported net income                         $   0.88      $   0.65         $   3.29
      Add back: Goodwill amortization                    -          0.07             0.07
                                                 ----------    ----------       ----------
      Adjusted net income                         $   0.88      $   0.72         $   3.36
                                                 ==========    ==========       ==========

Diluted earnings per share:
      Reported net income                         $   0.86      $   0.65         $   3.29
      Add back: Goodwill amortization                    -          0.07             0.07
                                                 ----------    ----------       ----------
      Adjusted net income                         $   0.86      $   0.72         $   3.36
                                                 ==========    ==========       ==========


     The carrying value of goodwill of $52.6 million as of December 31, 2002 is
attributable to the United States geographic segment.

4. SUPPLEMENTAL INFORMATION

Inventories

     On December 31, 2001 the Company changed its method of accounting for the
cost of inventory from the LIFO method to the FIFO method. The Company believes
the FIFO method is preferable because it results in a more appropriate inventory
valuation in an environment of declining costs, it provides more meaningful
financial information to management and stockholders by better matching current
costs with current revenues and it facilitates comparison with the Company's
competitors who primarily use the FIFO or average cost methods. In accordance
with APB No. 20, "Accounting Changes", this change in accounting method has been
applied retroactively by restating the prior years financial statements. The
effect of the change was to (decrease) increase net income by $(1.6) million and
$1.2 million and earnings per share by $(0.07) and $0.06 in 2001 and 2000,
respectively.

     Inventories consist of the following:

                                                         DECEMBER 31,
                                                       2002         2001
                                                    ----------   ----------
Finished products                                    $ 77,447     $ 88,101
Supplies and service parts                             28,555       35,904
                                                    ----------   ----------
      Total inventories                              $106,002     $124,005
                                                    ==========   ==========

                                       43


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Fixed assets

                                                             DECEMBER 31,
                                                         2002           2001
                                                     -----------    ------------
Land                                                  $   1,356      $   1,356
Buildings and leasehold improvements                     10,088          9,515
Machinery and equipment                                  21,372         17,914
Computers and software                                   36,483         21,940
                                                     -----------    ------------
      Property, plant and equipment, gross               69,299         50,725
Accumulated depreciation and amortization               (25,487)       (19,911)
                                                     -----------    ------------
      Property, plant and equipment, net              $  43,812      $  30,814
                                                     ===========    ===========

Rental equipment, gross                               $ 365,793      $ 378,391
Accumulated depreciation                               (277,360)      (264,467)
                                                     -----------    ------------
      Rental equipment, net                           $  88,433      $ 113,924
                                                     ===========    ===========

     Depreciation and amortization expense was $81.6 million, $82.7 million and
$73.8 million for the years ended December 31, 2002, 2001 and 2000,
respectively. Unamortized capitalized software costs totaled $18.8 million and
$5.9 million for the years ended December 31, 2002 and 2001, respectively.
Amortization expense on account of capitalized software totaled $0.4 million for
the year ended December 31, 2002. There was no amortization expense on account
of capitalized software for the years ended December 31, 2001 and 2000.

Current liabilities

     Accounts payable and accrued liabilities consist of the following:

                                                              DECEMBER 31,
                                                           2002          2001
                                                        ----------    ----------
Accounts payable                                         $ 21,553      $ 17,008
Accrued salaries, wages and commissions                     8,631         6,447
Other non-income taxes payable                              6,973         7,566
Other accrued liabilities                                  40,433        23,749
                                                        ----------    ----------
      Accounts payable and accrued liabilities           $ 77,590      $ 54,770
                                                        ==========    ==========

Cash flow information

     Cash paid for income taxes was $5.6 million and $9.0 million for the years
ended December 31, 2002 and 2001, respectively. Cash paid for interest was $7.8
million and $9.8 million for the years ended December 31, 2002 and 2001,
respectively.

                                       44


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5. BUSINESS SEGMENT INFORMATION

Geographic information

     The Company operates in two reportable segments based on geographic area:
the United States and the United Kingdom. Revenues are attributed to geographic
regions based on where the revenues are derived.

                                                   YEAR ENDED DECEMBER 31,
                                               2002         2001         2000
                                           -----------  -----------  -----------
Revenues:
     United States                          $ 608,291    $ 605,711    $ 620,714
     United Kingdom                            21,639       20,365       22,044
                                           -----------  -----------  -----------
         Total revenues                     $ 629,930    $ 626,076    $ 642,758
                                           ===========  ===========  ===========

Income before income taxes:
     United States                          $  24,524    $  22,740    $ 100,810
     United Kingdom                             2,825       (1,779)       5,097
                                           -----------  -----------  -----------
         Total income before taxes          $  27,349    $  20,961    $ 105,907
                                            =========   ===========  ===========

     Revenues from external customers were approximately $629.9 million, $503.2
million and $531.2 million for the years ended December 31, 2002, 2001 and 2000,
respectively. Revenues from Pitney Bowes, substantially all of which were
generated in the United States segment, were approximately $143.6 million,
$122.9 million and $111.6 million during the years ended 2002, 2001 and 2000,
respectively. Of the revenues from Pitney Bowes, $84.8 million, $96.8 million
and $90.1 million of equipment was sold to Pitney Bowes Credit Corporation
("PBCC") for lease to the end user, $27.8 million, $5.8 million and $3.0 million
were for equipment and supplies sold to Pitney Bowes Canada and $31.0 million,
$20.3 million and $18.5 million of equipment, supplies and services were sold to
other Pitney Bowes subsidiaries for the years ended December 31, 2002, 2001 and
2000, respectively. For these periods 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 represents 10% or more of the Company's
revenues. In connection with these revenues, the Company recorded $12.2 million
and $19.0 million due from Pitney Bowes as accounts receivable in the
consolidated balance sheets at December 31, 2002 and 2001, respectively.

                                                            DECEMBER 31,
                                                         2002            2001
                                                     -----------     -----------
Identifiable long-lived assets
      United States                                   $ 187,310       $ 199,837
      United Kingdom                                      4,311           5,133
                                                     -----------     -----------
           Total identifiable long-lived assets       $ 191,621       $ 204,970
                                                     ===========     ===========

Total assets
      United States                                   $ 440,508       $ 477,709
      United Kingdom                                     24,398          19,967
                                                     -----------     -----------
           Total assets                               $ 464,906       $ 497,676
                                                     ===========     ===========

     Identifiable long-lived assets in the United States include goodwill of
$52.6 million for the years ended December 31, 2002 and 2001.

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

                                       45


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 and a
portion are transacted in local currency. In 2002 and 2001, approximately 21%
and 68%, respectively, of the Company's total product purchases, based on costs,
were from a limited number of Japanese suppliers, a portion of which were
denominated in yen. Although the Company currently sources products from a
number of manufacturers throughout the world, a significant portion of new
copier equipment is currently obtained from one supplier. If this supplier was
unable to deliver products for a significant period of time, the Company would
be required to find replacement products from an alternative supplier or
suppliers, which may not be available on a timely or cost effective basis. The
Company's operating results could be adversely affected if a significant
supplier is unable to deliver sufficient product.

6. PROVISION FOR INCOME TAXES

     The following table presents the U.S. and foreign components of net income
before taxes and the provision (benefit) for income taxes:



                                                              YEAR ENDED DECEMBER 31,
                                                        2002            2001            2000
                                                     ----------      ----------     -----------
                                                                            
Income (loss) before income taxes
     U.S.                                             $ 24,524        $ 22,740       $ 100,810
     Outside the U.S.                                    2,825          (1,779)          5,097
                                                     ----------      ----------     -----------
         Total income before income taxes             $ 27,349        $ 20,961       $ 105,907
                                                     ==========      ==========     ===========

Provision (benefit) for income taxes
     U.S. federal
         Current                                      $  6,838        $  3,941       $  32,646
         Deferred                                        1,206           3,542             (79)
                                                     ----------      ----------     -----------
            Total U.S. federal                           8,044           7,483          32,567

     U.S. state and local
         Current                                         2,407             600           7,818
         Deferred                                         (399)            879             (51)
                                                     ----------      ----------     -----------
            Total U.S. state and local                   2,008           1,479           7,767

     Outside the U.S.
         Current                                         1,197             645           1,569
         Deferred                                         (343)         (1,205)              -
                                                     ----------      ----------     -----------
            Total outside the U.S.                         854            (560)          1,569

     Total current                                      10,442           5,186          42,033
     Total deferred                                        464           3,216            (130)
                                                     ----------      ----------     -----------
         Total provision for income taxes             $ 10,906        $  8,402       $  41,903
                                                     ==========      ==========     ===========


     For the period January 1, 2001 through December 2, 2001, the Company was
included as a member of the consolidated group in the federal income tax return
of its former parent, Pitney Bowes. Payment for taxes due or receivable between
the Company and Pitney Bowes for this time period have been made in accordance
with the tax separation agreement (see Note 14).

                                       46


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     A reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate is as follows:

                                                  YEAR ENDED DECEMBER 31,
                                            2002          2001           2000
                                          --------      --------        -------
U.S. federal statutory rate                 35.0%         35.0%          35.0%
State and local income taxes                 4.8%          4.6%           4.8%
Other, net                                   0.1%          0.5%          (0.2%)
                                          --------      --------        -------
      Effective income tax rate             39.9%         40.1%          39.6%
                                          ========      ========        =======


     The components of deferred tax assets and liabilities as of December 31,
2002 and 2001 are as follows:

                                                           DECEMBER 31,
                                                       2002            2001
                                                   ----------      ----------
Deferred tax assets:
     Inventory                                      $ 15,080        $  9,491
     State and local property taxes                    1,576           1,345
     Accounts receivable                               2,036           2,221
     Employee benefits and compensation                1,958             391
     Other                                             2,775           1,656
                                                   ----------      ----------
         Deferred tax assets                          23,425          15,104
Deferred tax liabilities:
     Fixed assets                                     13,821           7,357
     Goodwill                                          3,062           2,083
     Other                                             1,344               -
                                                   ----------      ----------
         Deferred tax liabilities                     18,227           9,440
                                                   ----------      ----------
Net deferred tax asset                               $ 5,198        $  5,664
                                                   ==========      ==========


     Deferred tax assets and liabilities are reflected on the Company's
consolidated balance sheets as follows:

                                                          DECEMBER 31,
                                                      2002           2001
                                                  ----------     ----------
Current deferred taxes on income                   $ 20,518       $ 14,825
Non-current deferred taxes on income                 15,320          9,161
                                                  ----------     ----------
      Net deferred taxes on income                 $  5,198       $  5,664
                                                  ==========     ==========


     For periods prior to the Distribution, deferred taxes associated with the
temporary differences between financial statement amounts and tax amounts were
included in the due to Pitney Bowes intercompany account. Effective with the
Distribution, the Company reclassified these amounts from the due to Pitney
Bowes intercompany account to the appropriate deferred tax accounts.

     At December 31, 2002 and at December 31, 2001, cumulative undistributed
earnings of our foreign subsidiary were $2.1 million and $0.2 million,
respectively. No provision for U.S. income taxes has been made since the Company
considers the undistributed earnings to be permanently reinvested for continued
use in their operations.

7. 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 year. Since the Distribution was not effective until December 3,
2001, the weighted average number of common shares outstanding for periods prior
to the Distribution was assumed to be the number of shares issued in the
Distribution. In addition, prior to the Distribution, capital transactions
between the Company and Pitney Bowes did not have an effect on weighted average
shares outstanding, therefore, earnings per share may not be indicative of
actual earnings per share had the Company had a separate capital structure prior
to the Distribution. The earnings per share calculation presented for 2000 is
for comparative purposes only as common shares were not issued until December 3,
2001. The

                                       47


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

calculation of diluted earnings per share did not include approximately 19,000
options since they were antidilutive for the periods presented.

     A reconciliation of the basic and diluted earnings per share computation is
as follows:



                                                                            YEAR ENDED DECEMBER 31,
                                                                      2002             2001            2000
                                                                 -------------    -------------   -------------
                                                                                          
Net income available to common stockholders                       $    16,443      $    12,559     $    64,004
                                                                 =============    =============   =============

Weighted average common shares outstanding                         18,978,895       19,463,007      19,463,007
       Less: non-vested restricted stock                              347,000                -               -
                                                                 -------------    -------------   -------------
Weighted average common shares for basic earnings per share        18,631,895       19,463,007      19,463,007
       Add: dilutive effect of restricted stock                       337,681              778               -
       Add: dilutive effect of stock options                          164,582           16,114          16,114
                                                                 -------------    -------------   -------------
Weighted average common shares and equivalents
    for dilutive earnings per share                                19,134,158       19,479,899      19,479,121
                                                                 =============    =============   =============

Basic earnings per share                                          $      0.88      $      0.65     $      3.29
Diluted earnings per share                                        $      0.86      $      0.65     $      3.29


8. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash, cash equivalents, accounts receivable and accounts payable

     The carrying amounts approximate fair value because of the short maturity
of these instruments.

Long-term debt

     The carrying amounts approximate fair value because of the floating
interest rate of the instrument.

Interest rate swap agreements

     The fair values of interest rate swaps are obtained from dealer quotes.
These values represent the estimated amount the Company would receive or pay to
terminate agreements taking into consideration current interest rates, and the
creditworthiness of the counterparties.

9. LONG-TERM DEBT

     The Company's long-term debt consists of the following:

                                                           DECEMBER 31,
                                                       2002            2001
                                                    ----------     -----------
Revolving Credit Facility                            $      -       $  17,000
Term Loan                                              74,148         100,000
                                                    ----------     -----------
      Total debt                                       74,148         117,000
Less: current maturities                                  749           1,000
                                                    ----------     -----------
      Total long-term debt                           $ 73,399       $ 116,000
                                                    ==========     ===========

     On November 9, 2001 the Company entered into a Credit Agreement with a
group of lenders (the "Credit Agreement") that provided for secured borrowings
or the issuance of letters of credit in an aggregate amount not to exceed $225
million, comprised of a $125 million Revolving Credit Facility (the "Revolving
Credit Facility") and a $100 million Term Loan (the "Term Loan").

                                       48


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The term of the Revolving Credit Facility is five years and the term of the Term
Loan is six years. The Company's Credit Agreement received a rating of Ba3 from
Moody's Investor Services and a BB+ rating from Standard & Poor's.

     The obligations under the Credit Agreement are secured by a blanket first
perfected security interest in substantially all of the Company's assets plus
the pledge of 65% of the stock of the Company's subsidiary. Available borrowings
and letter of credit issuance under the Revolving Credit Facility are determined
by a borrowing base consisting of a percentage of the Company's eligible
accounts receivable, inventory, rental equipment assets and accrued and advance
billings, less outstanding borrowings under the Term Loan.

     The Credit Agreement contains financial covenants that require the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization and a maximum leverage ratio, as well as other covenants, which,
among other things, place limits on dividend payments and capital expenditures.
The Credit Agreement allowed the Company to originally repurchase up to $20
million of the Company's stock and to make acquisitions up to an aggregate
consideration of $30 million. At December 31, 2002 and 2001, the Company was in
compliance with all financial covenants.

     Originally, amounts borrowed under the Revolving Credit Facility bore
interest at variable rates based, at the Company's option, on either the LIBOR
rate plus a margin from 2.25% to 3.00% depending on the Company's leverage
ratio, or the Fleet Bank base lending rate plus a margin of from 1.25% to 2.00%,
depending on the Company's leverage ratio. Amounts borrowed under the Term Loan
bore interest at variable rates based, at the Company's option, on either the
LIBOR rate plus a margin of 3.50% or 3.75%, depending on the Company's leverage
ratio, or the Fleet Bank base lending rate plus a margin of 2.50% to 2.75%,
depending on the Company's leverage ratio. A commitment fee of from 0.375% to
0.500% on the average daily unused portion of the Revolving Credit Facility is
payable quarterly, in arrears, depending on the Company's leverage ratio.

     On March 19, 2002, the Credit Agreement was amended to increase the total
amount of the Company's stock permitted to be repurchased from $20 million to
$30 million. On July 19, 2002, the Credit Agreement was further amended to
increase the total amount of the Company's stock permitted to be repurchased
from $30 million to $58 million and to reduce the Term Loan interest rates to
LIBOR plus a margin of from 2.75% to 3.75%, depending on the Company's 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.

     The Credit Agreement requires 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 the notional amounts of $50 million and $30
million expiring in February 2005 to convert the variable interest rate payable
on the Term Loan to a fixed interest rate in order to hedge the exposure to
variability in expected future cash flows. These interest rate swap agreements
have been designated as cash flow hedges. The counterparties to the interest
rate swap agreements are major international financial institutions. The Company
monitors the credit quality of these financial institutions and does not
anticipate any losses as a result of counterparty nonperformance. Under the
terms of the swap agreements, the Company will receive payments based upon the
90-day LIBOR rate and remit payments based upon a fixed rate. The fixed interest
rates are 4.17% and 4.32% for the $50 million and the $30 million swap
agreements, respectively.

     During the third quarter of 2002, the Company revised its cash flow
estimates and prepaid $8 million of the amount outstanding under the Term Loan.
This prepayment was covered by a portion of the $30 million interest rate swap
agreement that had been designated as a cash flow hedge. Since it is no longer
probable that the hedged forecasted transactions related to the $8 million Term
Loan prepayment will occur, the Company recognized a loss related to that
portion of the swap agreement underlying the amount of the prepayment by
reclassifying $0.4 million from accumulated other comprehensive loss into
interest expense. The Company also unwound $8 million of the $30 million
interest rate swap agreement.

     At December 31, 2002, two interest rate swap agreements in the notional
amounts of $50 million and $22 million were outstanding, the aggregate fair
value of which was an obligation of $3.7 million. This obligation is reported in
other liabilities in the consolidated balance sheet. At December 31, 2001, two
interest rate swap agreements with notional amounts of $50 million and $30
million were outstanding, the aggregate fair value of which was an asset of $0.3
million. This asset is reported in other assets in the consolidated balance
sheet. The changes in the fair value of the outstanding swap agreements are
included in other comprehensive loss in stockholders' equity. The interest rate
swap agreements were 100% effective in 2002 and 2001. The Company does not
expect any gains or losses relating to the interest rate swap agreements over
the next twelve months. Accordingly, the Company does not expect to reclassify
any gains or losses from Accumulated Other Comprehensive Income into earnings
during that period.

                                       49


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     At December 31, 2002, $74 million of borrowings were outstanding under the
Credit Agreement, consisting solely of borrowings under the Term Loan and the
borrowing base amounted to approximately $125 million. The Term Loan is payable
in 16 consecutive equal quarterly installments of $0.2 million due March 31,
2003 through December 31, 2006, three consecutive equal quarterly installments
of $17.8 million due March 31, 2007 through September 30, 2007 and a final
payment of $17.8 million due at maturity. At December 31, 2001, $117 million of
borrowings were outstanding under the Credit Agreement, consisting of $17
million of borrowings under the Revolving Credit Facility and $100 million of
borrowings under the Term Loan, and the borrowing base amounted to approximately
$226 million. The weighted average interest rate on borrowings outstanding under
the Credit Agreement was approximately 7.10% and 6.30% during 2002 and 2001,
respectively, after giving effect to the interest rate swap agreements.

10. COMMITMENTS AND CONTINGENCIES

Guarantees and indemnifications

     The Company has applied the disclosure provisions of FIN No. 45 to its
agreements that contain guarantee or indemnification clauses. FIN No. 45 expands
the disclosure provisions required by SFAS No. 5, "Accounting for
Contingencies," by requiring the guarantor to disclose certain types of
guarantees, even if the likelihood of requiring the guarantor's performance is
remote. The following is a description of the arrangements in which the Company
is a guarantor.

     In connection with the Distribution, the Company entered into certain
agreements pursuant to which it may be obligated to indemnify Pitney Bowes with
respect to certain matters.

     The Company agreed to assume all liabilities associated with the Company's
business, and to indemnify Pitney Bowes for all claims relating to the Company's
business. These may be claims by or against Pitney Bowes or the Company relating
to, among other things, contractual rights under vendor, insurance or other
contracts, trademark, patent and other intellectual property rights, equipment,
service or payment disputes with customers and disputes with employees.

     The Company and Pitney Bowes entered into a tax separation agreement, which
governs the Company's and Pitney Bowes' respective rights, responsibilities and
obligations after the Distribution with respect to taxes for the periods ending
on or before the Distribution. In addition, the tax separation agreement
generally obligates the Company not to enter into any transaction that would
adversely affect the tax-free nature of the Distribution for the two-year period
following the Distribution, and obligates the Company to indemnify Pitney Bowes
and affiliates to the extent that any action the Company takes or fails to take
gives rise to a tax liability with respect to the Distribution.

     In each of these circumstances, payment by the Company is contingent on
Pitney Bowes making a claim. As such, it is not possible to predict the maximum
potential future payments under these agreements. As of December 31, 2002, the
Company has not paid any amounts pursuant to the above indemnifications other
than expenses incurred in connection with the defense and settlement of assumed
claims asserted in connection with the operation of the Company in the ordinary
course of business. The Company believes that if it were to incur a loss in any
of these matters, such loss would not have a material effect on the Company's
financial position, results of operations or cash flows.

Legal matters

     In connection with the Distribution, the Company agreed to assume all
liabilities associated with its business, and to indemnify Pitney Bowes for all
claims relating to its business. In the course of normal business, the Company
has been party to occasional lawsuits relating to the Company's business. These
may involve litigation or other claims by or against Pitney Bowes or the Company
relating to, among other things, contractual rights under vendor, insurance or
other contracts, trademark, patent and other intellectual property rights,
equipment, service or payment disputes with customers and disputes with
employees.

     On October 4, 2002, Imagetec L.P., ("Imagetec"), a dealer of copiers,
printers and fax machines located in McHenry, Illinois, filed suit against the
Company in the United States District Court, Northern District of Illinois for
unfair competition under the Lanham Act and Illinois common law. The suit
alleges that the Company's trademark is confusingly similar with Imagetec's
federally registered trademarks and creates a likelihood of confusion with
Imagetec's marks. The suit seeks injunctive relief and monetary damages in an
unspecified amount, including treble damages for alleged willful and deliberate
conduct. The Company believes that the plaintiff's complaint is without merit
and the Company intends to defend the lawsuit vigorously.

                                       50


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     In connection with the Distribution, liabilities were transferred to the
Company for matters where Pitney Bowes was a plaintiff or a defendant in
lawsuits, relating to the business or products of the Company. The Company has
not recorded liabilities for loss contingencies since the ultimate resolutions
of the legal matters cannot be determined and a minimum cost or amount of loss
cannot be reasonably estimated. In the opinion of the Company's management, none
of these proceedings, individually or in the aggregate, should have a material
adverse effect on the Company's financial position, results of operations or
cash flows.

Risks and uncertainties

     The Company has a limited history operating as an independent entity and
may be unable to make the changes necessary to operate successfully as a
stand-alone entity, or may incur greater costs as a stand-alone entity that may
cause the Company's profitability to decline.

     Prior to the Distribution, the Company's business was operated by Pitney
Bowes as a division of its broader corporate organization, rather than as a
separate stand-alone entity. Pitney Bowes assisted the Company by providing
corporate functions such as legal, tax and information technology functions.
Following the Distribution, Pitney Bowes has no obligation to provide assistance
to the Company other than the interim and transitional services that will be
provided by Pitney Bowes. Because the Company has a limited history operating as
a stand-alone entity, there can be no assurance that the Company will be able to
successfully implement the changes necessary to operate independently or will
not incur additional costs as a result of operating independently. Each of these
events would cause the Company's profitability to decline.

11. LEASES

     In addition to owned distribution and office facilities, the Company leases
or subleases similar properties, as well as sales and service offices, equipment
and other properties, generally under long-term lease agreements with initial
terms extending from three to fifteen years.

     Future minimum lease payments under non-cancelable operating leases at
December 31, 2002 are as follows:

YEARS ENDING DECEMBER 31,
2003                                                         $  8,863
2004                                                            7,588
2005                                                            5,862
2006                                                            4,563
2007                                                            3,082
Thereafter                                                      1,773
                                                            ----------
Total minimum lease payments                                 $ 31,731
                                                            ==========

     Rental expense was $10.1 million, $8.9 million and $7.3 million in 2002,
2001 and 2000, respectively.

12. STOCK PLANS

2001 Stock Plan

     The Company's employees are eligible to participate in the Imagistics
International Inc. 2001 Stock Plan. Under the provisions of this plan, the Board
of Directors is authorized to grant adjustment options, stock options and
restricted stock.

     Adjustment Options. Prior to the Distribution, certain employees of the
Company were granted stock options under Pitney Bowes' stock based plans. At the
time of the Distribution, options outstanding under the Pitney Bowes stock plans
that were held by Pitney Bowes employees who were transferred to the Company
remained options to acquire Pitney Bowes common stock. Certain adjustments of
the exercise price, but not the number of options, were made to reflect the
reduced value of Pitney Bowes stock as a result of the Distribution. In
addition, such holders were granted options to acquire Imagistics stock in an
amount calculated to restore the reduction in the aggregate intrinsic value of
the options held by each such holder. The Imagistics stock options have the same
vesting provisions, option periods and other terms and conditions as the related
Pitney Bowes options. The exercise price has been calculated so that each
Imagistics option has the same ratio of exercise price per share to market value
per share as the Pitney Bowes stock options immediately prior to the
Distribution. The Company granted options to purchase 162,368

                                       51


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

shares of common stock of the Company in connection this adjustment. The per
share weighted average fair value of options granted was $10.83.

     Stock Options. Under the 2001 Stock Plan, certain officers and employees of
the Company are granted options at prices equal to the fair market value of the
Company's common stock on the date of the grant. Options generally become
exercisable over a three-year period and expire in ten years. The plan
authorizes a maximum of 3,162,368 options to purchase shares, of which 1,211,368
were outstanding at December 31, 2002. Pursuant to SFAS No. 123, companies can,
but are not required to, elect to recognize compensation expense for all
stock-based awards using a fair value methodology. The Company has adopted the
disclosure-only provisions, as permitted by SFAS No. 123. The Company applies
APB No. 25 and related interpretations in accounting for its stock-based plans.

     Prior to the Distribution, the Company's employees participated in Pitney
Bowes' United States and United Kingdom stock option plans. The 2001 and 2000
stock compensation expense was an allocation from Pitney Bowes based upon the
participation of the Company's employees in relation to total participation.

     If the Company had elected to recognize compensation expense based on the
fair value method as presented by SFAS No. 123, net income would have been
reduced as follows:

                                                YEAR ENDED DECEMBER 31,
                                           2002           2001           2000
                                       ----------     ----------     ----------
Net income
     As reported                        $ 16,443       $ 12,559       $ 64,004
     Pro forma                          $ 14,654       $  9,035       $ 60,589

As reported earnings per share
     Basic                              $   0.88       $   0.65       $   3.29
     Diluted                            $   0.86       $   0.65       $   3.29

Pro forma earnings per share
     Basic                              $   0.79       $   0.46       $   3.11
     Diluted                            $   0.77       $   0.46       $   3.11


     The fair value of stock options granted in 2002 to employees of the Company
under the 2001 Stock Plan were estimated on the date of grant using the
Black-Scholes option-pricing method. The option-pricing assumptions for 2001 and
2000 are the assumptions used by Pitney Bowes in the determination of stock
compensation expense. The assumptions used are as follows:

                                                YEAR ENDED DECEMBER 31,
                                           2002          2001           2000
                                          ------        ------         ------
Expected dividend yield                    0.0%          3.0%           2.9%
Expected stock price volatility             43%           29%            27%
Risk-free interest rate                      4%            4%             6%
Expected life (years)                        5             5              5


                                       52


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     The following table summarizes information about stock option transactions:



                                                                         YEAR ENDED DECEMBER 31,
                                                       --------------------------------------------------------------
                                                                    2002                            2001
                                                       -----------------------------  -------------------------------
                                                                          WEIGHTED                        WEIGHTED
                                                                          AVERAGE                          AVERAGE
                                                                          EXERCISE                        EXERCISE
                                                            SHARES         PRICE            SHARES          PRICE
                                                       -------------- --------------- ---------------- --------------
                                                                                             
Options outstanding at the beginning of the year             161,166   $       10.83                -    $       -
Granted                                                    1,086,400   $       14.03          162,368    $     10.84
Exercised                                                      3,510   $        8.60                -    $       -
Forfeited                                                     30,230   $       13.99            1,202    $     12.07
Expired                                                        2,458   $       13.94                -    $       -
                                                       --------------                 ----------------
Options outstanding at the end of the year                 1,211,368   $       13.63          161,166    $     10.83
                                                       ==============                 ================
Exercisable at the end of the year                            99,505   $       11.87           83,465    $     11.36
                                                       ==============                 ================
Weighted average fair value of options granted                         $        6.03                     $      5.19


     The following table summarizes information regarding the Company's stock
options outstanding and exercisable as of December 31, 2002:




                                           OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                        ----------------------------------------------------------  ---------------------------------
                                                 WEIGHTED            WEIGHTED                           WEIGHTED
                                                 AVERAGE              AVERAGE                            AVERAGE
                                                REMAINING            EXERCISE                           EXERCISE
EXERCISE PRICE               SHARES          CONTRACTUAL LIFE          PRICE             SHARES           PRICE
----------------------  ----------------- --------------------- ------------------  ---------------- ----------------
                                                                                    
 $4.02 - $6.04                    11,075        1.7 years         $          4.98            11,075   $         4.99
 $6.05 - $8.05                    54,131        7.3 years         $          7.74            16,864   $         7.53
 $8.06 - $10.06                   17,775        5.5 years         $          8.85            13,073   $         8.48
$10.07 - $12.07                    1,959        7.8 years         $         11.15             1,209   $        11.14
$12.08 - $14.08                1,059,075        8.9 years         $         13.82            33,581   $        13.12
$14.09 - $16.10                    7,289        8.3 years         $         15.18             1,689   $        15.05
$16.11 - $18.11                   22,272        9.2 years         $         17.94               472   $        17.58
$18.12 - $20.12                   37,792        7.6 years         $         18.75            21,542   $        18.58


     Restricted Stock. During 2002, certain officers of the Company were granted
a total of 323,000 shares of restricted stock at no cost to the employees. The
per share weighted average fair value of shares granted was $13.85. The
restricted stock awards vest three years after grant. Under this plan, stock
will vest only if the executive is still employed by the Company at the end of
the restricted period and, if applicable, the executive has attained or
partially attained the performance objectives as determined by the Executive
Compensation and Development Committee of the Board of Directors. None of the
restricted stock grants have performance criteria. The compensation expense for
these awards is recognized over the vesting period. In 2002, compensation
expense relating to restricted stock awards totaled $1.5 million. The shares
carry full voting and dividend rights but may not be assigned or transferred.
The Company has authorized a maximum of 750,000 shares of common stock for
issuance to employees as restricted stock.

Non Employee Director Stock Plan

     Under this plan, on the date of initial election to the Company's Board of
Directors, and on the date of each Annual Meeting of Stockholders thereafter,
each director who is not an employee of the Company is granted 2,000 shares of
restricted stock at no cost to the directors. The restricted shares vest in
equal installments over a three-year period beginning on the first anniversary
of the grant date, subject to the director's continued service. The compensation
expense for these awards is recognized over the vesting period. The shares carry
full voting and dividend rights but may not be assigned or transferred until
vested. The Company

                                       53


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

has authorized a maximum of 100,000 shares of common stock for issuance under
this plan. The Company recorded minimal compensation expense in 2002 and 2001
related to these shares.

     The following table summarizes information about the non-employee director
stock plan:



                                                                        YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------------------------
                                                                  2002                          2001
                                                       ----------------------------  ----------------------------
                                                                         WEIGHTED                     WEIGHTED
                                                                        AVERAGE                       AVERAGE
                                                          SHARES       FAIR VALUE        SHARES      FAIR VALUE
                                                       ------------- --------------  -------------- -------------
                                                                                          
Shares outstanding at the beginning of the year              10,000    $     11.75               -    $      -
Granted                                                      14,000    $     16.73          10,000    $    11.75
                                                       -------------                 --------------
Shares outstanding at end of the year                        24,000                         10,000
                                                       =============                 ==============
Vested at the end of the year                                 3,335                              -
                                                       =============                 ==============


Employee Stock Purchase Plans

     In May 2002, the Company's Board of Directors adopted the Employee Stock
Purchase Plan. Under this plan, a total of 1,000,000 shares of the Company's
common stock have been reserved for issuance. The plan, which is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code, provides for consecutive six-month offering periods
and enables substantially all eligible United States employees to purchase
shares of Imagistics common stock at a discounted offering price. The price
would be equal to 85% of the lesser of the average high and low price of
Imagistics common stock on the New York Stock Exchange on the first or last
business day of the offering period. Offering periods began on July 1, 2002 and
January 1, 2003. Participation in the plan is voluntary. Employees are eligible
to participate in the plan if they are employed by the Company, or a United
States subsidiary of the Company, for at least 20 hours per week. The plan
permits eligible employees to purchase common stock through payroll deductions,
which may not exceed 10% of an employee's compensation, subject to certain
limitations. Employees may modify or end their participation at any time during
the offering period, subject to certain limitations. Participation ends
automatically on termination of employment with the Company.

     Prior to the Distribution, the Company's employees participated in the
Pitney Bowes' United States and United Kingdom Employee Stock Purchase Plan
("ESPP"). The Pitney Bowes' United States ESPP enabled substantially all
employees to purchase shares of Pitney Bowes common stock at a discounted
offering price. In 2000, the offering price was 90% of the average closing price
of Pitney Bowes common stock on the New York Stock Exchange for the 30-day
period preceding the offering date. At no time was the exercise price less than
the lowest permitted under section 423 of the Internal Revenue Code. The Pitney
Bowes' United Kingdom ESPP enabled eligible employees of participating U.K.
subsidiaries to purchase shares of Pitney Bowes stock at a discounted offering
price.

Stockholder Rights Plan

     Prior to the Distribution, the Board of Directors adopted a stockholder
rights plan (the "Rights Plan") under which one right (the "Right") was issued
for each share of common stock. The description and terms of the Rights Plan and
Rights are set forth in a Rights Agreement between the Company and EquiServe, as
Rights Agent.

     The Rights will become exercisable on the Rights Distribution Date, which
is the earlier of ten business days after a person has acquired 15% or more of
the outstanding shares of the Company's common stock (an "Acquiring Person") or
ten business days (or such later date as the Company's Board of Directors may
designate before any person has become an Acquiring Person) after the
commencement by a person of a tender or exchange offer that would result in such
person becoming an Acquiring Person. Rights owned by an Acquiring Person will be
void after the Rights Distribution Date.

     The Rights are not exercisable prior to the Rights Distribution Date. Prior
to the Rights Distribution Date, the Rights will be evidenced by and transferred
with the Company's common stock. After the Rights Distribution Date, the Rights
Agent will mail separate certificates evidencing the Rights to each registered
holder of the Company's common stock, and thereafter the Rights will be
transferable separately from the Company's common stock.

                                       54


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     After the Rights Distribution Date, but before any person has become an
Acquiring Person, each Right will entitle the registered holder to purchase from
the Company one one-hundredth of a share of Series A junior participating
preferred stock at a price of $100.00 (the "Purchase Price"). If any person has
become an Acquiring Person and the Company is not involved in a merger or other
business combination or sale of 50% or more of the assets or earnings power of
the Company, each Right will entitle the registered holder to purchase for the
Purchase Price a number of shares of the Company's common stock having a market
value of twice the Purchase Price. If the Company is involved in a merger or
other business combination or sale of 50% or more of the assets or earnings
power of the Company, each Right will entitle the registered holder to purchase
for the Purchase Price a number of shares of the common stock of the other party
to the business combination or sale having a market value of twice the Purchase
Price.

     At any time after any person has become an Acquiring Person, but before any
person becomes the beneficial owner of 50% or more of the outstanding shares of
the Company's common stock or the Company is involved in a merger or other
business combination or sale of 50% or more of the assets or earnings power of
the Company, the Board of Directors may exchange all or part of the Rights for
shares of the Company's common stock at an exchange ratio of one share of the
Company's common stock per Right. Before any person becomes an Acquiring Person,
the Board of Directors may redeem all or part of the Rights at a price of $0.01
per Right. The Rights will expire ten years from the Distribution and the Board
of Directors may amend the Rights Agreement and Rights as long as the Rights are
redeemable. The Rights Agreement contains antidilution provisions designed to
prevent efforts to diminish the effectiveness of the Rights.

13. EMPLOYEE BENEFIT PLANS

Imagistics 401(k) Plan

     Substantially all of the Company's employees are eligible to participate in
the Imagistics 401(k) plan that was established in 2001. Under the plan, the
Company matches 100% of contributions to the plan of between 1% and 4% of a
participant's compensation, and 50% of contributions to the plan from 5% to 6%
of a participant's compensation, up to certain limitations required by
government laws or regulations. Contributions to the plan on behalf of employees
of the Company were $4.3 million for the year ended December 31, 2002.

     Prior to the Distribution, the Company's employees participated in Pitney
Bowes' profit sharing and savings plan. Substantially all of Pitney Bowes'
domestic employees were eligible to participate in the plan under which Pitney
Bowes made matching contributions of 100% of a participant's contributions of at
least 1% of a participant's eligible compensation up to 4% of the participant's
eligible compensation, subject to limitations required by government laws or
regulations. In addition, Pitney Bowes made an employer contribution to all
participants based upon the increase in the stock price of Pitney Bowes shares
from year to year. Contributions to the plan on behalf of employees of the
Company were $3.1 million for the period January 1, 2001 through the
Distribution and $2.3 million for the year ended December 31, 2000.

Pitney Bowes' Plans

     The Company does not offer a defined benefit pension plan. Prior to the
Distribution, the Company's employees participated in Pitney Bowes' defined
benefit pension plan, which covers substantially all Pitney Bowes employees. In
general, those Pitney Bowes employees who became employees of the Company
following the Distribution will cease accruing benefits under the Pitney Bowes
pension plan but will maintain their vested rights in the Pitney Bowes pension
plan. Certain of our employees whose combined age and years of service with
Pitney Bowes totaled more than 50 as of the Distribution, will continue to
participate in the Pitney Bowes pension plan for up to three years following the
Distribution. Pitney Bowes' funding policy is to contribute annual amounts as
needed based on actuarial and economic assumptions designed to achieve adequate
funding of projected benefit obligations. The net periodic pension benefit
allocated to the Company associated with the Pitney Bowes defined benefit
pension plan was $1.7 million for the period January 1, 2001 through the
Distribution and $1.9 million for the year ended December 31, 2000. Benefits
provided under Pitney Bowes' defined benefit pension plan were primarily based
on the employee's age, years of service and compensation.

     The Company does not offer post retirement plans. Prior to the
Distribution, the Company's employees participated in Pitney Bowes' post
retirement plans that provide certain healthcare and life insurance benefits to
eligible retirees and their dependents. Substantially all of Pitney Bowes' U.S.
employees become eligible for these benefits if they have met certain age and
service requirements at retirement. The costs of these benefits were recognized
over the period the employee provided credited service to the Company.
Postretirement benefit costs incurred on behalf of employees of the Company were
$1.6 million for the period January 1, 2001 through the Distribution and $1.8
million for the year ended December 31, 2000. The liability and related future

                                       55


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

payments associated with Pitney Bowes' post retirement plans are Pitney Bowes'
responsibility. Company employees who attained age 55 and completed at least 10
years of combined service with Pitney Bowes and the Company as of or within
three years following the Distribution will be eligible for retiree medical
benefits under the Pitney Bowes Retiree Medical Plan when they retire from the
Company.

     The costs associated with these plans will be borne by Pitney Bowes.

14. RELATED PARTY TRANSACTIONS

     The Company and Pitney Bowes entered into a transition services agreement
that provides for Pitney Bowes to provide certain services to the Company at
cost for a limited time following the Distribution. These services include
information technology, computing, telecommunications, accounting, field service
of equipment and dispatch call center services. The Company and Pitney Bowes
have agreed to an extension until June 30, 2003 or, upon the Company's request,
December 31, 2003, of the transition services agreement as it relates to
information technology and related services. Services provided under this
extension are at negotiated market rates. For the year ended December 31, 2002
and for the period from December 3, 2001 through December 31, 2001, the Company
paid Pitney Bowes $20.4 million and $3.5 million, respectively, in connection
with the transition services agreement.

     The Company also entered into certain other agreements covering
intellectual property, commercial relationships and leases and licensing
arrangements. The pricing terms of the products and services covered by the
other commercial agreements reflect negotiated prices.

     The Company and Pitney Bowes entered into a tax separation agreement, which
governs the Company's and Pitney Bowes' respective rights, responsibilities and
obligations after the Distribution with respect to taxes for the periods ending
on or before the Distribution. In addition, the tax separation agreement
generally obligates the Company not to enter into any transaction that would
adversely affect the tax-free nature of the Distribution for the two-year period
following the Distribution, and obligates the Company to indemnify Pitney Bowes
and affiliates to the extent that any action the Company takes or fails to take
gives rise to a tax liability with respect to the Distribution.

15. ACQUISITIONS

     During the year ended December 31, 2001, the Company acquired one
independent dealer in a remote geographic area for the expansion of sales and
service capabilities. The aggregate purchase price was $1.0 million, of which a
net $0.4 million was allocated to the assets acquired and the liabilities
assumed based on their fair values at the date of acquisition and $0.6 million
to goodwill.

     During the year ended December 31, 2000, the Company acquired nine
independent dealers in remote geographic areas, for the expansion of sales and
service capabilities. The aggregate purchase price was $8.7 million, of which a
net $0.5 million was allocated to the assets acquired and the liabilities
assumed based on their fair values at the date of acquisition and $8.2 million
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
date of acquisition.

     The following table presents the unaudited pro forma consolidated results
of operations for the years ended December 31, 2001 and 2000 as if the
acquisitions completed in 2001 and 2000 had been completed on January 1, 2000:

                                                YEAR ENDED DECEMBER 31,
                                                   2001           2000
                                              -------------  -------------
Revenues                                       $   626,076    $   646,438
Net income                                     $    12,559    $    64,205

                                       56


                          IMAGISTICS INTERNATIONAL INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

16. SUBSEQUENT EVENT

Long-term debt

      On March 5, 2003, the Credit Agreement was amended to increase the total
amount of stock permitted to be repurchased from $58 million to $78 million, to
reduce the minimum EBITDA covenant to $100 million for the remainder of the term
of the Credit Agreement and to revise the limitation on capital expenditures.

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data for 2002 and 2001 follows:



                                                                   THREE MONTHS ENDED
                                            MARCH 31            JUNE 30             SEPT. 30            DEC. 31
                                        -----------------  -----------------  -----------------  -----------------
2002
----
                                                                                      
Total revenue                            $       155,161    $       158,291    $       156,069    $       160,409
Income before income taxes               $         6,394    $         7,271    $         6,895    $         6,789
Net income                               $         3,856    $         4,381    $         4,155    $         4,051
Basic earnings per share                 $          0.20    $          0.23    $          0.23    $          0.23
Diluted earnings per share               $          0.19    $          0.22    $          0.22    $          0.22
Common stock price-high/low              $17.80 - $12.25    $21.73 - $15.70    $21.85 - $16.30    $21.64 - $14.10

2001
----
Total revenue                            $       151,166    $       157,853    $       158,322    $       158,735
Income before income taxes               $        14,989    $         5,892    $           388    $          (308)
Net income                               $         9,099    $         3,495    $           282    $          (317)
Basic earnings per share                 $          0.47    $          0.18    $          0.01    $         (0.01)
Diluted earnings per share               $          0.47    $          0.18    $          0.01    $         (0.01)
Common stock price-high/low                     N/A                N/A                N/A         $12.70 -  $8.50


     The Company's stock began trading on December 3, 2001.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                       57


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   (a)   Information concerning the directors of Imagistics is set forth
         under the headings "Election of Directors", "Nominees for Election
         to Terms Expiring at the 2006 Annual Meeting", "Incumbent
         Directors Whose Terms Expire at the 2005 Annual Meeting",
         "Incumbent Directors Whose Terms Expire at the 2004 Annual
         Meeting", "Committees of the Board of Directors" and "Directors
         Compensation" in the Imagistics Proxy Statement for the 2003
         Annual Meeting of Stockholders and is incorporated herein by
         reference.

   (b)   Information concerning executive officers of Imagistics is set
         forth under the caption "EXECUTIVE OFFICERS OF THE REGISTRANT" in
         Part I, Item 4 of this report.

   (c)   Information concerning compliance with beneficial ownership
         reporting requirements is set forth under the caption "Section
         16(a) Beneficial Ownership Reporting Compliance" in the Imagistics
         Proxy Statement for the 2003 Annual Meeting of Stockholders and is
         incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information concerning executive compensation is set forth under the
headings "Executive Officer Compensation", "Executive Contracts and Severance
and Change of Control Arrangements" and "Report on Executive Compensation" in
the Imagistics Proxy Statement for the 2003 Annual Meeting of Stockholders and
is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     Information concerning shares of Imagistics equity securities beneficially
owned by certain beneficial owners and by management is set forth under the
heading "Security Ownership" in the Imagistics Proxy Statement for the 2003
Annual Meeting of Stockholders and is incorporated herein by reference.
Information regarding securities authorized for issuance under our equity
compensation plans is set forth in Part II, Item 5 of this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

ITEM 14. CONTROLS AND PROCEDURES

     Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as described in Exchange Act Rule 13a-14. In conducting the
evaluation, such officers noted that we continued to be reliant on certain
Pitney Bowes information systems for the generation of financial information.
Based upon our existing internal controls, such officers' knowledge of Pitney
Bowes' systems and internal controls and a review of Pitney Bowes' Exchange Act
filings and related certifications, the Chief Executive Officer and the Chief
Financial Officer have concluded that the information generated by the Pitney
Bowes information systems is subject to adequate controls. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic SEC filings
relating to the Company (including its consolidated subsidiary).

     There were no significant changes in our internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of our most recent evaluation.

                                       58


                                     PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a)  The following financial statements are filed as part of this
         Annual Report on Form 10-K under "Item 8. Financial Statements and
         Supplementary Data" in Part II of this report:

          1.  Financial Statements

                 Consolidated Statement of Operations for each of the three
                 years in the period ended December 31, 2002

                 Consolidated Balance Sheets at December 31, 2002 and 2001

                 Consolidated Statements of Changes in Stockholder's
                 Equity and Comprehensive Income (Loss) for each of
                 the three years in the period ended December 31, 2002

                 Consolidated Statements of Cash Flows for each of the
                 three years in the period ended December 31, 2002

                 Notes to Consolidated Financial Statements

                 Report of Independent Accountants

          2.  Financial Statement Report and Schedule filed as part of this
              report pursuant to Item 8 of this report:

                 Report of PricewaterhouseCoopers LLP dated February 4, 2003 on
                 the company's financial statement schedule filed as part hereof
                 for the fiscal years ended December 31, 2002, 2001 and 2000.

                 Schedule No. II - Valuation and Qualifying Accounts

                 Financial statement schedules not included with this report
                 have been omitted because they are not applicable or the
                 required information is shown in the consolidated financial
                 statements or the notes thereto.

          3.  Exhibits. Those exhibits required to be filed by Item 601 of
              Regulation S-K are listed in the Exhibit Index included in this
              report below.

    (b)  Reports on Form 8-K.

          During the quarter ended December 31, 2002, no Current Reports on
          Form 8-K were filed.

    (c)  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)

                                      59


10.4     Intellectual Property Agreement between Pitney Bowes Inc. and
         Imagistics International Inc. (3)
10.5     Reseller Agreement between Pitney Bowes Management Services and
         Imagistics International Inc. (3)
10.6     Reseller Agreement between Pitney Bowes of Canada and Imagistics
         International Inc. (3)
10.7     Vendor Financing Agreement between Pitney Bowes Credit Corporation and
         Imagistics International Inc. (3)
10.8     Form of Sublease Agreement between Pitney Bowes Inc. and Imagistics
         International Inc. (2)
10.9     Form of Sublease and License Agreement between Pitney Bowes Inc. and
         Imagistics International Inc. (2)
10.10    Form of Assignment and Novation Agreement between Pitney Bowes Inc. and
         Imagistics International Inc. (2)
10.11    Imagistics International Inc. 2001 Stock Plan (1)
10.12    Imagistics International Inc. Key Employees' Incentive Plan (3)
10.13    Imagistics International Inc. Non-Employee Directors' Stock Plan (1)
10.14    Letter Agreement between Pitney Bowes Inc. and Marc C. Breslawsky (1)
10.15    Letter Agreement between Pitney Bowes Inc. and Joseph D. Skrzypczak (1)
10.16    Letter Agreement between Pitney Bowes Inc. and Mark S. Flynn (1)
10.17    Credit Agreement between Imagistics International Inc. and Merrill
         Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated, as
         Syndication Agent, Fleet Capital Corporation, as Administrative Agent
         (3)
10.18    Rights Agreement between Imagistics International Inc. and EquiServe
         Trust Company, N.A. (3)
10.19    Employment Agreement between Imagistics International Inc. and Marc C.
         Breslawsky (3)
10.20    Employment Agreement between Imagistics International Inc. and Joseph
         D. Skrzypczak (3)
10.21    Employment Agreement between Imagistics International Inc. and
         Christine B. Allen (3)
10.22    Employment Agreement between Imagistics International Inc. and John C.
         Chillock (3)
10.23    Employment Agreement between Imagistics International Inc. and Chris C.
         Dewart (3)
10.24    Employment Agreement between Imagistics International Inc. and Mark S.
         Flynn (3)
10.25    Employment Agreement between Imagistics International Inc. and
         Nathaniel M. Gifford (3)
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, 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, 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, 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.
21.1     Subsidiaries of Imagistics International Inc.
23.1     Consent of PricewaterhouseCoopers LLP

------------------------
(1)      Incorporated by reference to Amendment No. 1 to the Registrant's Form
         10 filed July 13, 2001.
(2)      Incorporated by reference to Amendment No. 2 to the Registrant's Form
         10 filed August 13, 2001.
(3)      Incorporated by reference to Registrant's Form 10-K filed March 28,
         2002.
(4)      Incorporated by reference to Registrant's Form 10-Q filed May 14, 2002.
(5)      Incorporated by reference to the Registrant's Form 8-K dated July 23,
         2002.
(6)      Incorporated by reference to the Registrant's Form 10-Q filed August
         14, 2002.
(7)      Incorporated by reference to the Registrant's Form 8-K dated March 7,
         2003.

                                      60


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                     IMAGISTICS INTERNATIONAL INC.

                                     By /s/ MARC C. BRESLAWSKY
                                        ----------------------
                                            Marc C. Breslawsky
                                            Chairman and Chief Executive Officer

Dated: March 28, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.



                                                                    TITLE                              DATE

                                                                                           
           /s/ MARC C. BRESLAWSKY              Chairman, Chief Executive Officer and Director    March 28, 2003
               ------------------
           Marc C. Breslawsky


           /s/ JOSEPH D. SKRZYPCZAK            Chief Financial Officer                           March 28, 2003
               --------------------
           Joseph D. Skrzypczak


           /s/ TIMOTHY E. COYNE                Vice President, Corporate Controller              March 28, 2003
               ----------------
           Timothy E. Coyne                    Principal Accounting Officer


           /s/ THELMA R. ALBRIGHT              Director                                          March 28, 2003
               ------------------
           Thelma R. Albright


           /s/ T. KEVIN DUNNIGAN               Director                                          March 28, 2003
             -------------------
           T. Kevin Dunnigan


           /s/ IRA D. HALL                     Director                                          March 28, 2003
             -------------
           Ira D. Hall


           /s/ CRAIG R. SMITH                  Director                                          March 28, 2003
             ----------------
           Craig R. Smith


           /s/ JAMES A. THOMAS                 Director                                          March 28, 2003
             -----------------
           James A. Thomas


                                      61


                                  CERTIFICATION

I, Marc C. Breslawsky, certify that,

1.   I have reviewed this annual report on Form 10-K of Imagistics International
     Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) Designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiary, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

      c) Presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

      a) All significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

      b) Any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.




Date:  March 28, 2003                              /s/ MARC C. BRESLAWSKY
                                                       ------------------
                                                   Marc C. Breslawsky
                                                   Chief Executive Officer









                                       62


                                  CERTIFICATION


I, Joseph D. Skrzypczak, certify that,

1.   I have reviewed this annual report on Form 10-K of Imagistics International
     Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) Designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiary, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

      c) Presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

      a) All significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

      b) Any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date:  March 28, 2003                              /s/ JOSEPH D. SKRZYPCZAK
                                                       --------------------
                                                   Joseph D. Skrzypczak
                                                   Chief Financial Officer

                                       63

                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF IMAGISTICS INTERNATIONAL INC.

Our audits of the consolidated financial statements referred to in our report
dated February 4, 2003, except for Note 16, as to which the date is March 5,
2003, appearing in the 2002 Annual Report on Form 10-K of Imagistics
International Inc. also included an audit of the financial statement schedule
listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.



/s/PricewaterhouseCoopers LLP
Stamford, Connecticut
February 4, 2003, except for Note 16, as to which the date is March 5, 2003

                                       64



                          IMAGISTICS INTERNATIONAL INC.

      SCHEDULE (II) - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
                                  (THOUSANDS)



                                              BALANCE AT
                                             BEGINNING OF     CHARGES, COSTS                        BALANCE AT
                                                PERIOD         AND EXPENSES       DEDUCTIONS       END OF PERIOD
                                                ------         ------------       ----------       -------------
                                                                                   
Allowance for doubtful accounts:
      2000                                  $        2,112     $        3,801   $        (2,921)  $        2,992
      2001                                  $        2,992     $       12,089   $        (8,893)  $        6,188
      2002                                  $        6,188     $        4,886   $        (5,282)  $        5,792


                                              BALANCE AT
                                             BEGINNING OF      ADDITIONS TO        CHARGES/         BALANCE AT
                                                PERIOD           ALLOWANCE          RETURNS        END OF PERIOD
                                                ------           ---------          -------        -------------
Sales returns and allowances:
      2000                                  $            -     $        8,356   $        (8,356)  $            -
      2001                                  $            -     $        8,777   $        (8,127)  $          650
      2002                                  $          650     $        8,895   $        (8,025)  $        1,520




                                       65