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 July 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 7,935,524.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial statements
CONSOLIDATED BALANCE SHEETS
July 31, 1996 and October 31, 1995
ASSETS
July 31 1996 October 31, 1995
------------- ----------------
(Unaudited)
Current assets:
Cash $ 815,411 $ 777,844
Trade accounts receivable, less
allowance for doubtful accounts
of $157,000 in 1996 and $133,000
in 1995 21,828,525 16,963,322
Inventories 23,785,373 18,008,496
Prepaid expenses and other 535,549 418,447
Deferred income taxes 761,841 764,253
------------- --------------
Total current assets 47,726,699 36,932,362
Property, plant and equipment,
at cost, net of accumulated
depreciation and amortization
of $14,487,000 in 1996 and
$13,275,000 in 1995 9,021,601 8,716,192
Note receivable 1,087,500 --
Investment in common stock -- 1,629,640
Other assets 572,783 641,932
------------- --------------
$ 58,408,583 $ 47,920,126
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable $ 211,196 $ 8,583,680
Accounts payable 9,624,676 6,799,365
Income taxes payable 2,415,541 1,335,080
Accrued wages and commissions 3,749,863 2,919,042
Other current liabilities 807,369 662,107
Long-term debt, current portion 979,678 1,342,464
------------- -------------
Total current liabilities 17,788,323 21,641,738
Long-term debt 13,145,795 3,551,357
Accrued retirement benefits 562,017 572,260
Deferred income taxes 806,370 804,232
Commitments
Stockholders' equity:
Preferred stock, 500,000 shares
authorized, none issued -- --
Common stock, 20,000,000 shares
authorized, 7,935,524 shares
issued and outstanding, (7,655,508
in 1995) 853,154 shares reserved 5,167,279 4,707,331
Retained earnings 20,545,280 16,212,902
Cumulative translation adjustments 393,519 430,306
------------- --------------
Total stockholders' equity 26,106,078 21,350,539
------------- --------------
$ 58,408,583 $ 47,920,126
============= ==============
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Three months and nine months ended July 31, 1996 and 1995
(Unaudited)
Three months ended Nine months ended
July 31, July 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales $29,213,706 $18,889,634 $74,290,313 $48,472,739
Cost of sales 20,422,616 12,869,726 53,234,555 33,136,411
----------- ----------- ----------- -----------
Gross profit 8,791,090 6,019,908 21,055,758 15,336,328
Selling and administrative 4,352,311 3,780,121 12,160,501 10,782,410
Research and development 678,355 560,168 1,743,869 1,420,660
----------- ----------- ----------- -----------
Operating profit 3,760,424 1,679,619 7,151,388 3,133,258
Other expenses (net) (210,503) (228,685) (785,205) (691,148)
Equity in net income of an
affiliate -- 101,569 155,789 141,434
Income from other equity
transactions -- -- 270,647 --
----------- ----------- ----------- -----------
Income before provision
for income taxes 3,549,921 1,552,503 6,792,619 2,583,544
Provision for income taxes 1,213,794 458,815 2,460,241 762,972
----------- ----------- ----------- -----------
Net income $ 2,336,127 $ 1,093,688 $ 4,332,378 $ 1,820,572
=========== =========== =========== ===========
Average number of common
and common equivalent
shares outstanding 8,410,166 8,027,732 8,152,637 7,977,134
=========== =========== =========== ===========
Net income per share $ .28 $ .14 $ .53 $ .23
=========== =========== =========== ===========
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 31, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Operating activities:
Net income $ 4,332,378 $ 1,820,572
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,615,677 1,498,382
Equity in net income of an affiliate (155,789) (141,434)
Income from other equity transactions (270,647) --
Net book value of assets retired 55,236 3,627
Change in assets and liabilities:
Receivables (4,865,108) (2,197,316)
Inventories (5,804,965) (2,155,830)
Prepaid expenses and other (120,884) (46,576)
Other assets (125,078) (71,521)
Accounts payable 2,837,878 5,871
Income taxes payable 1,079,858 513,219
Accrued liabilities 993,642 333,973
Accrued retirement benefits -- 56,622
------------ ------------
Net cash used in operating activities (427,802) (380,411)
------------ ------------
Investing activities:
Purchases of property, plant and equipment (1,927,214) (1,080,004)
Proceeds from sale of investment in common
stock 1,087,500 --
------------ ------------
Net cash used in investing activities (839,714) (1,080,004)
------------ ------------
Financing activities:
Net proceeds from (repayments of) short-term
loans payable (8,372,484) 1,761,271
Net proceeds from long-term revolving loan
payable 10,150,000 --
Proceeds from long-term borrowings 233,803 312,045
Repayment of long-term debt (1,152,151) (1,096,378)
Proceeds from issuance of common stock for
stock options 459,948 94,501
------------ ------------
Net cash provided by financing
activities 1,319,116 1,071,439
------------ ------------
Effect of exchange rate changes on cash (14,033) 13,789
------------ ------------
Net increase (decrease) in cash 37,567 (375,187)
Cash at beginning of period 777,844 541,805
------------ ------------
Cash at end of period $ 815,411 $ 166,618
============ ============
See accompanying notes.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 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 nine-month period ended July 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. On May 30,
1996, the Company announced a two-for-one stock split that became
effective June 27, 1996. Retroactive effect was given to the
distribution.
Note 3. Inventories - Inventory is comprised as follows:
July 31, 1996 October 31, 1995
------------- ----------------
Finished goods $ 6,274,018 $ 4,736,490
Work-in-process 7,727,515 6,483,072
Raw materials 11,102,487 7,693,764
------------- ----------------
25,104,020 18,913,326
Allowance for inventory obsolescence 1,318,647 904,830
------------- ----------------
$ 23,785,373 $ 18,008,496
============= ================
Note 4. Merger Agreement - On July 1, 1996, Interpoint entered
into an Agreement and Plan of Merger by and among Crane Co.,
Interpoint and Crane Acquisition Corp. Pursuant to the Merger
Agreement, which is subject to shareholder approval, the Company
intends to spin off its Advanced Digital Information Corporation
subsidiary and merge the remaining microelectronics business into
Crane Acquisition Corp., a wholly owned subsidiary of Crane Co.
Assuming completion of the transactions, for each share of
Interpoint stock held, shareholders will receive one share of
ADIC stock and, upon surrender of their Interpoint share,
approximately $4.00 of Crane Co. stock.
Note 5. Income from other equity transactions - In March 1996,
the Company sold its minority interest in Apex Microtechnology
Corporation (Apex) of Tucson, Arizona for $2,175,000. Sale terms
include a cash payment and note receivable each equaling
$1,087,500. The sale resulted in a pre-tax gain of approximately
$390,000 reflecting the sales price less the balance sheet
valuation of approximately $1,785,000. The valuation is the sum
of the purchase price of $904,200 and earnings of approximately
$881,000 accumulated under the equity method of accounting,
including approximately $103,000 earned prior to the sale.
Income taxes payable of approximately $353,000 associated with
the sale of Apex have been recorded resulting in an after-tax
gain of approximately $37,000. The $353,000 tax due, which will
be paid on an installment basis, is computed as the difference of
the sales value and original purchase price. The note receivable
bears interest at prime plus one percent, payable interest only
through 1998 then payable $30,208 per month plus interest through
2001. Other sale terms include a potential additional payment in
the event of a sale or public offering of Apex shares over the
next five years.
Offsetting the gain from the sale of the Company's interest in
Apex is a pre-tax loss of approximately $119,000 associated with
the write down of an unrelated investment.
<PAGE>
Note 6. Loan payable - In March 1996, Interpoint signed a five
year secured revolving credit agreement with its principal bank
to refinance its domestic borrowings and provide a source of
available cash. The new financing arrangement provides a $20
million reducing line of credit. Borrowings against the line of
credit bear interest at the bank's prime rate or adjusted LIBOR
rate. The revolving credit agreement requires the Company to
comply with certain financial covenants; as of July 31, 1996, the
Company was in compliance with all such covenants.
Note 7. Industry segment information - Net sales by industry
segment are presented in the table below.
Three months ended Nine months ended
July 31, July 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Microelectronics $ 14,027,945 $ 10,419,700 $ 34,718,972 $ 27,503,787
Data Storage 15,185,761 8,469,934 39,571,341 20,968,952
------------ ------------ ------------ ------------
$ 29,213,706 $ 18,889,634 $ 74,290,313 $ 48,472,739
============ ============ ============ ============
Note 8. Reclassification - Certain items in the previous year
financial statements have been reclassified to conform with the
current year presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net sales increased 55 percent from the third quarter of fiscal
1995 to the comparable quarter of 1996, primarily on the strength
of ADIC sales which increased 79 percent over the 1995 quarter.
ADIC sales of Digital Linear Tape (DLT) products continue to be
very strong and account for much of the growth. Sales of the
Microelectronics Group also increased for the period with growth
both in proprietary DC-to-DC power converters and medical
products.
Gross margin for the quarter is 30 percent, down from 32 percent
in the comparable 1995 quarter but up from 27 percent in the
second quarter of 1996. The comparative decline is primarily due
to reduced margins in the Microelectronics Group as a result of
somewhat lower margins for power products and an increased
percentage of custom medical sales, which typically earn lower
margins. ADIC margins were down slightly due to variation in
product mix. The sequential increase compared to second quarter
is due to improved margins in the Microelectronics Group and, to
a lesser extent, at ADIC.
Selling and administrative costs, while increasing in absolute
dollars, have decreased significantly as a percentage of sales
from 20 percent in 1995 to 15 percent in 1996. High sales growth
has provided operating leverage as costs have grown at a lower
rate.
Other expenses consists primarily of net interest costs.
Interest expense has increased slightly over 1995 due to higher
balances on the revolving loans. Interest expense associated
with other long-term debt has decreased as these amounts are paid
off. Additionally, 1996 interest expense is offset by interest
income associated with the sale of APEX.
<PAGE>
The provision for income taxes is consistent with the statutory
rate. The reduced rate in 1995 was due to the combination of
research and development credits available for federal tax
purposes and the recognition of certain operating loss
carryforwards at ADIC Europe.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $428,000 which is the
net of cash generated by microelectronics and cash used by ADIC.
ADIC has utilized cash primarily due to increases in inventory
and accounts receivable, which have grown in connection with the
growth in sales and the elimination of certain prepayment
discounts.
The Company's available sources of credit at July 31, 1996
included a $20 million reducing line of credit which bears
interest at the bank's prime rate or adjusted LIBOR rate. At
July 31, 1996, this rate was 7.42%. This line requires the
Company to comply with certain restrictive covenants on working
capital, etc. The Company is well within acceptable limits
regarding these covenants.
FORWARD LOOKING INFORMATION
The information set forth above includes "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 the Quarterly
Report on Form 10-Q for the period ended January 31, 1996, 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.
None.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
A report on Form 8-K dated July 1, 1996,
relating to the Agreement and Plan of Merger
by and among Crane Co., Interpoint and Crane
Acquisition Corp. was filed on July 3, 1996.
<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: August 28, 1996 /s/Peter H. van Oppen
--------------- -------------------------
Peter H. van Oppen
Chairman
Chief Executive Officer
Dated: August 28, 1996 /s/Leslie S. Rock
--------------- -------------------------
Leslie S. Rock
Vice President, Treasurer
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the third
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> JUL-31-1996
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<ALLOWANCES> 157
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<TOTAL-ASSETS> 58,409
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0
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<COMMON> 5,167
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<TOTAL-LIABILITY-AND-EQUITY> 58,409
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</TABLE>
