<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
[ ] 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 0-11069
INTERPOINT CORPORATION
Incorporated under the laws I.R.S. Identification
of the State of Washington No. 91-0850556
10301 Willows Road
P.O. Box 97005
Redmond, Washington 98073-9705
(206) 882-3100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
The total shares of common stock without par value outstanding at
the end of the quarter reported is 3,894,438.
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PART I - FINANCIAL INFORMATION
Item 1. Financial statements
CONSOLIDATED BALANCE SHEETS
January 31, 1996 and October 31, 1995
ASSETS
January 31, 1996 October 31, 1995
---------------- ----------------
(Unaudited)
Current assets:
Cash $ 525,016 $ 777,844
Trade accounts receivable, less
allowance for doubtful accounts
of $147,000 in 1996 and $133,000
in 1995 14,468,442 16,963,322
Inventories 21,015,556 18,008,496
Prepaid expenses and other 440,011 418,447
Deferred income taxes 759,466 764,253
--------------- ----------------
Total current assets 37,208,491 36,932,362
Property, plant and equipment, at cost:
Land 1,334,988 1,334,988
Buildings and improvements 4,526,355 4,538,204
Machinery and equipment 13,169,681 12,961,154
Office equipment 2,717,110 2,630,205
Leasehold improvements 622,077 526,940
--------------- ----------------
22,370,211 21,991,491
Less accumulated depreciation and
amortization 13,741,428 13,275,299
--------------- ----------------
Net property, plant and equipment 8,628,783 8,716,192
Investment in common stock 1,682,453 1,629,640
Other assets 676,976 641,932
--------------- ----------------
$ 48,196,703 $ 47,920,126
=============== ================
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable $ 10,723,517 $ 8,583,680
Accounts payable 6,279,574 6,799,365
Income taxes payable 459,286 1,335,080
Accrued wages and commissions 2,362,475 2,919,042
Other current liabilities 549,579 576,604
Long-term debt, current portion 1,250,039 1,342,464
--------------- ---------------
Total current liabilities 21,624,470 21,556,235
Long-term debt 3,333,368 3,551,357
Accrued retirement benefits 562,835 572,260
Other liabilities 77,488 85,503
Deferred income taxes 807,554 804,232
Commitments
Stockholders' equity:
Preferred stock, 500,000 shares
authorized, none issued -- --
Common stock, 10,000,000 shares
authorized, 3,894,438 shares
issued and outstanding, (3,827,754
in 1995) 501,300 shares reserved 4,799,210 4,707,331
Retained earnings 16,694,692 16,212,902
Cumulative translation adjustments 297,086 430,306
--------------- ----------------
Total stockholders' equity 21,790,988 21,350,539
--------------- ----------------
$ 48,196,703 $ 47,920,126
=============== ================
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31, 1996 and 1995
(Unaudited)
1996 1995
--------------- ----------------
Net sales $ 19,130,132 $ 13,541,999
Cost of sales 13,939,739 9,319,791
--------------- ----------------
Gross profit 5,190,393 4,222,208
Selling and administrative 3,733,572 3,386,832
Research and development 501,565 468,174
--------------- ----------------
Operating profit 955,256 367,202
Other expenses 291,232 246,362
Equity in net income of an affiliate 52,813 40,933
--------------- ----------------
Income before provision for income taxes 716,837 161,773
Provision for income taxes 235,047 52,629
--------------- ----------------
Net income $ 481,790 $ 109,144
=============== ================
Average number of common and common
equivalent shares outstanding 4,040,425 3,988,737
=============== ================
Net income per share $ .12 $ .03
=============== ================
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 31, 1996 and 1995
(Unaudited)
1996 1995
---------------- ----------------
Operating activities:
Net income $ 481,790 $ 109,144
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 524,599 477,776
Deferred income tax -- (7,717)
Equity in net income of an affiliate (52,813) (40,933)
Change in assets and liabilities:
Receivables 2,443,115 1,818,877
Inventories (3,070,706) (1,474,938)
Prepaid expenses and other (28,447) 21,626
Other assets (75,517) (40,474)
Accounts payable (500,749) (832,558)
Income taxes payable (874,306) (77,467)
Accrued liabilities (554,683) (350,173)
Accrued retirement benefits -- 18,688
Other liabilities (8,016) (4,072)
----------------- ---------------
Net cash used in operating
activities (1,715,733) (382,221)
Investing activities:
Purchases of property, plant and
equipment (441,253) (318,275)
Financing activities:
Net proceeds from loans payable 2,139,837 871,065
Repayment of long-term debt (310,414) (294,787)
Proceeds from issuance of common stock
for stock options 91,879 11,878
Net cash provided by financing
activities 1,921,302 588,156
Effect of exchange rate changes on cash (17,144) 1,670
----------------- ---------------
Net decrease in cash (252,828) (110,670)
Cash at beginning of period 777,844 541,805
----------------- ---------------
Cash at end of period $ 525,016 $ 431,135
================= ===============
See accompanying notes.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996
(Unaudited)
Note 1. Basis of presentation - The accompanying condensed financial
statements are unaudited and should be read in conjunction with the
Interpoint financial statements included in the Company's fiscal 1995
Annual Report on Form 10-K. Operating results for the three-month
period ended January 31, 1996, are not necessarily indicative of the
results that may be expected for the full year. In the opinion of
management, all adjustments necessary for a fair presentation of
interim operating results are reflected herein.
Note 2. Per share calculations - Per-share calculations are determined
on the weighted average number of common and common equivalent shares
outstanding during each period.
Note 3. Inventories - Inventory is comprised as follows:
January 31, 1996 October 31, 1995
---------------- ----------------
Finished goods $ 5,630,417 $ 4,736,490
Work-in-process 7,251,618 6,483,072
Raw materials 9,184,477 7,693,764
---------------- ----------------
22,066,512 18,913,326
Allowance for inventory
obsolescence 1,050,956 904,830
---------------- ----------------
$ 21,015,556 $ 18,008,496
================ ================
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Total revenues for the three months ended January 31, 1996, were $19.1
million, an increase of 41 percent or $5.6 million, compared to the
like period in the prior year. There was growth in both business
segments, however the increase for the quarter was attributable
primarily to revenue growth in the Company's U.S. and European data storage
businesses. Sales of Digital Linear Tape (DLT) library products comprised
the majority of the revenue increase and the Company expects to continue
to see strong acceptance of these new products. Microelectronics shipments
were lower than expected due to seasonal slowness as well as technical and
component supply problems.
Gross margin as a percentage of net sales decreased from 31 percent in
the first quarter of fiscal 1995 to 27 percent in the first quarter of
fiscal 1996. This decrease is primarily the result of newer products
offered by ADIC, including those which comprised the bulk of its
growth, which have a higher material content than the older product lines.
The Company expects to increase gross margin somewhat on these products as
production efficiencies begin to be experienced. For the microelectronics
business, margins are down slightly, related to the inefficiencies
associated with lower than expected sales volume and certain technical
problems.
Selling and administrative costs have increased over the comparable
fiscal 1995 quarter in absolute dollars but have decreased as a
percentage of sales from 25 percent in 1995 to 19 percent in 1996.
This percentage decrease reflects early spending in 1995 to promote
additional sales volume coupled with higher shipments in the 1996
period.
Other expenses are comprised primarily of interest expense which has
increased as result of increased borrowings against the available lines
of credit. Interest rates were comparable for the two periods and did
not have an effect on this expense.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.7 million for the three
months ended January 31, 1996, primarily due to an increase in
inventory and a decrease in short term payables, including income taxes
payable.
Inventories at January 31, 1996 increased $3 million from October 31,
1995, related both to the data storage and microelectronics businesses.
The data storage business has experienced significant sales growth,
much of which is from new DLT-based products and expects this trend to
continue. This anticipated growth has caused higher forecasts for the
remainder of the year, and additional inventory is necessary to support
that forecast. The microelectronics business, which experienced some
slowness in first quarter sales, had inventory growth related to
production which will ship later in fiscal 1996. The change in income
taxes payable is due to payments made related to fiscal 1995 earnings.
The Company has a bank line of credit for $12 million which bears
interest at the bank's prime rate or adjusted LIBOR rate. The line is
subject to certain restrictive covenants on working capital, etc.,
Interpoint is well within acceptable limits with regard to these
covenants. In addition, the Company has facilities in place to finance
capital equipment.
The Company anticipates that its mature microelectronics business will
generate cash throughout fiscal 1996. If, however, the growth rate of
the data storage business continues, it is expected that cash will
continue to be used in this area. The Company believes that cash on
hand, cash generated from operations and funds from credit lines which
are existing or may be obtained in the future will be sufficient to
meet its cash requirements for the upcoming year.
FORWARD LOOKING INFORMATION
The information set forth above may include "forward-looking"
information as outlined in the recently enacted Private Securities
Litigation Reform Act of 1995. The Cautionary Statements filed by the
Company as Exhibit 99 to this filing are incorporated herein by
reference and investors are specifically referred to such Cautionary
Statements for a discussion of factors which could affect the Company's
operations and forward-looking statements contained herein.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At its annual meeting on February 21, 1996, duly called and with
proxies solicited, 3,317,715 shares were represented in person
or by proxy constituting 86.42 percent of the outstanding shares.
i. The proposal to approve the adoption of the Interpoint
Corporation 1995 Stock Option and Award Plan received the
following votes:
Votes Percent
--------- -------
For 3,107,467 80.94%
Against 151,900 3.96%
Abstain 44,653 1.16%
Broker Non-Votes 4,000 .10%
The foregoing proposal was approved.
ii. Four directors were reelected to the Board, three to hold office
for a three-year term and one to hold office for a two-year
term. Each nominee received not less than 3,307,503 votes,
which represents 86.15% of the shares outstanding.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit Number 99.
Description
Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Interpoint desires to take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and
is filing this exhibit in order to do so. The following important
factors, among others, could affect Interpoint's actual results and
could cause such results to differ materially from those expressed in
Interpoint's forward-looking statements:
- -The rapidly changing environment of the data storage business which
might cause market acceptance of Interpoint's existing products to
decrease; the cancellation or rescheduling of one or several material
orders; general or specific economic conditions; the ability and
willingness of purchasers to substitute other products for Interpoint
products, the perceived absolute or relative overall value of these
products by the purchasers, including the features, quality and pricing
compared to other competitive products, the level of availability of
Interpoint products and substitutes and the ability and willingness of
purchasers to acquire newer or more advanced models; and pricing,
purchasing, financing, operational, advertising and promotional
decisions by intermediaries in the distribution channels, which could
affect their supply of, or end user demand for, Interpoint products;
- -The amount and rate of growth in Interpoint's selling, general and
administrative expenses; and the impact of unusual items resulting from
Interpoint's ongoing evaluation of its business strategies and
organizational structures;
- -Continued or increased pressure to change the selling prices for
Interpoint's data storage and microelectronics products, and the
resulting effects on margins; Interpoint's actions in connection with
continued and increasing competition in the areas of proprietary power
converters and data storage products;
- -Difficulties in obtaining raw materials, supplies and other items
needed for the production of products; and capacity constraints which
may have an effect on Interpoint's ability to ship some products;
- -Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship
new products and technologies when anticipated, including, but not
limited to Scalar and other DLT-based products in the data storage
market and higher power density and certain military qualified parts in
the power products area; the failure of customers to accept these
products or technologies when planned; difficulties or delays in the
design and production of custom microelectronics orders and changes in
the commercial viability of the end user products of which these
products are a part; any defects in products; and a failure of
manufacturing economies to develop when planned;
- -The acquisition of fixed assets and other assets, including
inventories and receivables; and the making or incurring of any
expenditure and expenses including, but not limited to, depreciation
and research and development expenses; and revaluation of assets
including, but not limited to, specialized inventories or related
expenses and the amount of, and any changes to, tax rates;
- -Occurrences affecting the decline of the life cycle pricing curve for
many products, or affecting Interpoint's ability to reduce product and
other costs, and to increase productivity; production losses and rework
costs on new or custom programs in excess of those anticipated during
the pricing process;
- -The effects of, and changes in, trade monetary and fiscal policies,
laws and regulations, other activities of governments, including the
U.S. Food and Drug Administration and other agencies and similar
organizations, and social and economic conditions, such as trade
restrictions or prohibitions, inflation and monetary fluctuations,
import and other charges or taxes; the actions, if any, of the People's
Republic of China regarding the island of Taiwan and any affect on
Interpoint's production facilities located there; the ability or
inability of Interpoint to obtain or hedge against, foreign currency,
foreign exchange rates and fluctuations in those rates; naturalizations
and unstable government and legal systems, and intergovernmental
disputes;
- -The costs and other effects of legal and administrative cases which
may be initiated and proceedings, settlements and investigations,
claims, and changes in those items, developments or assertions by or
against Interpoint relating, but not limited to intellectual property
rights, product liability, personnel related liability, adoptions of
new, or changes in, accounting policies and practices and the
application of such policies and practices; and,
- -The effects of changes within Interpoint's organization or in
compensation and benefit plans; any activities of parties with which
Interpoint has an agreement or understanding, including any issues
affecting any entity in which Interpoint has an investment; the amount,
type and cost of the financing which Interpoint has, and any changes to
that financing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERPOINT CORPORATION
Dated: March 15, 1996 /s/Peter H. van Oppen
-------------- ----------------------------
Peter H. van Oppen, Chairman
and Chief Executive Officer
Dated: March 15, 1996 /s/Leslie S. Rock
-------------- ----------------------------
Leslie S. Rock
Vice President, Treasurer
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the first
quarter 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<S> <C>
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<PERIOD-END> JAN-31-1996
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0
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