- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
--------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] 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 000-18908
------------------
IN FOCUS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0932102
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: 503-685-8888
-------------------
The index to exhibits appears on page 9 of this document.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock without par value 10,645,493
(Class) (Outstanding at July 24, 1996)
- --------------------------------------------------------------------------------
IN FOCUS SYSTEMS, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -June 30, 1996 and
December 31, 1995 2
Consolidated Statements of Operations - Three Months
Ended June 30, 1996 and 1995 and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
1996 1995
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 19,418 $ 30,165
Marketable securities - held to maturity 20,326 16,563
Accounts receivable, net of allowances of
$3,301 and $2,089 58,460 50,041
Inventories, net 26,785 10,767
Income taxes receivable 5,320 -
Deferred income taxes 2,003 1,624
Other current assets 1,580 1,489
--------- ---------
Total Current Assets 133,892 110,649
Restricted cash - 1,000
Marketable securities - held to maturity - 2,056
Property and equipment, net of accumulated
depreciation of $10,685 and $8,412 15,413 12,201
Other assets, net 1,725 1,397
--------- ---------
Total Assets $ 151,030 $ 127,303
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Income taxes payable $ - $ 2,128
Accounts payable 35,098 21,476
Payroll and related benefits payable 2,595 2,076
Marketing cooperative payable 1,511 1,596
Other current liabilities 2,467 1,959
--------- ---------
Total Current Liabilities 41,671 29,235
Deferred income taxes 607 541
Shareholders' Equity:
Common stock, 30,000,000 shares authorized;
shares issued and outstanding: 11,136,543
and 10,925,474 49,535 46,405
Additional paid-in capital 9,979 7,727
Retained earnings 49,238 43,395
--------- ---------
Total Shareholders' Equity 108,752 97,527
--------- ---------
Total Liabilities and Shareholders' Equity $ 151,030 $ 127,303
--------- ---------
--------- ---------
The accompanying notes are an integral part of these balance sheets.
2
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenue $ 58,569 $ 48,140 $ 126,267 $ 87,343
Cost of sales 45,249 30,429 89,531 53,363
------------ ------------ ------------ ------------
Gross profit 13,320 17,711 36,736 33,980
Operating expenses:
Marketing and sales 7,957 6,146 14,977 11,751
Engineering 5,445 2,556 10,090 4,736
General and administrative 2,245 1,441 4,215 2,976
------------ ------------ ------------ ------------
15,647 10,143 29,282 19,463
------------ ------------ ------------ ------------
Income (loss) from operations (2,327) 7,568 7,454 14,517
Other income (expense):
Interest expense (3) - (3) -
Interest income 429 406 943 972
Other, net (12) 80 113 246
------------ ------------ ------------ ------------
414 486 1,053 1,218
------------ ------------ ------------ ------------
Income (loss) before equity in income
(loss) of joint venture and
provision for income taxes (1,913) 8,054 8,507 15,735
Provision for (benefit from)
income taxes (679) 2,720 3,020 5,366
------------ ------------ ------------ ------------
Income (loss) before equity in income
(loss) of joint venture (1,234) 5,334 5,487 10,369
Equity in income (loss) of joint
venture 86 (149) 356 (431)
------------ ------------ ------------ ------------
Net income (loss) $ (1,148) $ 5,185 $ 5,843 $ 9,938
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share $ (0.10) $ 0.47 $ 0.50 $ 0.86
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in per share
calculations 11,088,698 11,136,680 11,639,503 11,570,592
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these statements.
3
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended June 30,
1996 1995
----------- ------------
Cash flows from operating activities:
Net income $ 5,843 $ 9,938
Adjustments to reconcile net income to net
cash flows provided by (used in) operating
activities:
Depreciation and amortization 2,367 1,656
Equity in (income) loss of joint venture (356) 431
(Increase) decrease in:
Accounts receivable, net (8,419) (8,447)
Inventories, net (16,018) (2,735)
Income taxes receivable (5,320) -
Deferred income taxes (313) 55
Other current assets (91) (318)
Increase (decrease) in:
Income taxes payable (2,128) (320)
Accounts payable 13,622 8,173
Payroll and related benefits payable 519 (261)
Marketing cooperative payable (85)
Other current liabilities 508 306
----------- ------------
Net cash provided by (used in)
operating activities (9,871) 8,478
Cash flows from investing activities:
Restricted cash 1,000 -
Purchase of marketable securities-held to maturity (9,542) (15,689)
Sale of marketable securities-held to maturity 7,835 29,289
Payments for purchase of property and equipment (5,535) (3,636)
Investment in joint venture 356 (431)
Other assets, net (372) (193)
----------- ------------
Net cash provided by (used in)
investing activities (6,258) 9,340
Cash flows from financing activities:
Proceeds from sale of common stock 3,130 1,277
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 2,252 819
Stock repurchase - (18,000)
----------- ------------
Net cash provided by (used in)
financing activities 5,382 (15,904)
Increase (decrease) in cash and cash equivalents (10,747) 1,914
Cash and cash equivalents:
Beginning of period 30,165 15,176
----------- ------------
End of period $ 19,418 $ 17,090
----------- ------------
----------- ------------
The accompanying notes are an integral part of these statements.
4
IN FOCUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three-month and six month
periods ended June 30, 1996 and 1995 is unaudited; however, such information
reflects all adjustments consisting only of normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The financial information as of December 31, 1995 is derived from In
Focus Systems, Inc.'s (the Company's) Annual Report to Shareholders which is
incorporated by reference into the Company's 1995 Form 10-K. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's 1995 Annual Report to Shareholders.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: INVENTORIES
Inventories are valued at the lower of cost (using average costs, which
approximates the first in, first-out (FIFO) method), or market, and include
materials, labor and manufacturing overhead.
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials and components $11,627 $ 4,786
Work-in-process 2,450 1,166
Finished goods 12,708 4,815
------- -------
$26,785 $10,767
------- -------
------- -------
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Six months ended
June 30,
1996 1995
---- ----
Cash paid during the period for income taxes $ 7,407 $ 4,811
Reclass of joint venture reserve to note
payable (a non-cash financing activity) -- 3,232
NOTE 4: RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements which are denoted with an
"*". Investors are cautioned that all forward-looking statements involve risks
and uncertainties and several factors could cause actual results to differ
materially from those in the forward-looking statements. This Form 10-Q
includes forward-looking statements relating to anticipated gross margins,
availability of products manufactured on behalf of the Company, backlog and new
product introductions, and the following factors, among others, could cause
actual results to differ from those indicated in the forward-looking statements:
1) in regards to gross margins, uncertainties associated with market acceptance
of and demand for the Company's products, impact of competitive products and
pricing and dependence on third party suppliers; 2) in regards to product
availability and backlog, uncertainties associated with manufacturing
capabilities and dependence on third party suppliers; and 3) in regards to new
product introductions, uncertainties associated with the development of
technology and the establishment of full manufacturing capabilities, dependence
on third party suppliers and intellectual property rights. Investors are
directed to the Company's filings with the Securities and Exchange Commission,
including the Company's 1995 Form 10-K, which are available from the Company
without charge, for a more complete description of the risks and uncertainties
relating to the material in this Form 10-Q as well as to other aspects of the
Company's business.
RESULTS OF OPERATIONS
Revenue increased to $58.6 million in the second quarter of 1996 from $48.1
million in the second quarter of 1995, and to $126.3 million for the six months
ended June 30, 1996 from $87.3 million for the comparable period of 1995. The
increase in revenue is mainly a result of growth in unit sales of the Company's
complete line of LitePro projection products, offset by a decrease in projector
average selling prices. International sales represented 39 percent of total
revenues in the first six months of 1996 compared to 41 percent in the first six
months of 1995.
Revenue growth over the next several quarters is expected to moderate from
recent historical trends as increased unit volumes are partially offset by
average sales prices on projection systems coming down due to increased
competition coming mainly from Japan*. Sales of the LitePro 580 are expected to
come down significantly from levels achieved in prior quarters as demand shifts
to newer LitePro projector products*.
The Company achieved gross margins of 29 percent in the first six months of
1996, with 23 percent achieved in the second quarter of 1996, compared to 39
percent in the first six months of 1995 and 37 percent in the second quarter of
1995. The decline in gross margins in 1996 resulted primarily from a) reserves
established for price protection allowed to customers on sales of LitePro 580s
during the second quarter of 1996; this price protection was allowed following
a significant decrease in the selling price of the version of the LitePro 580
sold by Epson, the manufacturer of the LitePro 580, b) new competition entered
the market, resulting in additional pricing pressures market wide, c) the
Company incurred higher than anticipated costs as a result of expediting parts
to support a steeper ramp in production for the LitePro 210 and 620 and d) in
conjunction with new product launches in the second quarter, the Company began
repositioning mature products in the market. This process included providing
additional discounts for volume purchases, price protection and stock rotation
coverage in certain situations, along with writing down slower moving inventory
to the lower of cost or market.
The Company expects the cost of projection technologies to continue to decrease
market wide, resulting in pricing pressures which are leading to decreased
average selling prices for the Company's products*. In an effort to protect its
gross margins, the Company has introduced new,
6
internally developed and manufactured products. In addition, the Company is
seeking to improve procurement practices and create more cost-effective designs
in order to reduce product costs*.
The Company's customers generally order products for immediate delivery with
product shipment within 30 days after receipt of an order. As a result of
component design and supply issues that were resolved at the end of the second
quarter, the Company was unable to fill all of its orders for its LitePro 210
and 620 products, resulting in backlog at June 30, 1996 of approximately $19.8
million. Backlog at December 31, 1995 was approximately $33.1 million. Backlog
at June 30, 1995 was approximately $14.8 million. Given current supply and
demand estimates, it is anticipated that most of the current backlog will turn
over by the end of the third quarter of 1996*. There is minimal seasonal
influence relating to the Company's order backlog. The stated backlog is not
necessarily indicative of Company sales for any future period nor is a backlog
any assurance that the Company will realize a profit from filling the orders.
Marketing and sales expense increased to $8.0 million and $15.0 million,
respectively (14 percent and 12 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996 compared to $6.1 million and
$11.8 million, respectively (13 percent and 13 percent of revenue, respectively)
for the comparable periods of 1995. The increase is primarily a result of
growth in revenues, demand creation programs and brand recognition efforts.
Engineering expense increased to $5.4 million and $10.1 million, respectively (9
percent and 8 percent of revenue, respectively) for the three month and six
month periods ended June 30, 1996 compared to $2.6 million and $4.7 million,
respectively (5 percent and 5 percent of revenue, respectively) for the
comparable periods of 1995. The increase is primarily a result of increased
research and development efforts to support the Company's product introduction
plans as well as investments in engineering and mechanical computer aided design
systems. In addition, the Company incurred additional costs associated with the
introduction of new products during the second quarter.
General and administrative expense increased to $2.2 million and $4.2 million,
respectively (4 percent and 3 percent of revenue, respectively) for the three
month and six month periods ended June 30, 1996 from $1.4 million and $3.0
million (3 percent and 3 percent of revenue, respectively) for the comparable
periods of 1995. The increase is primarily attributable to increased investment
in training and information systems and severance reserves recorded as part of
the reduction in force at the end of the quarter. At the end of the second
quarter, the Company reevaluated workload requirements and reduced the workforce
by 8 percent, implementing a flatter, more nimble organization structure, which
is intended to significantly reduce operating expense for the second half of
1996*.
Income (loss) from operations was $(2.3) million and $7.5 million (6 percent of
revenue), respectively for the three month and six month periods ended June 30,
1996 compared to $7.6 million and $14.5 million (16 percent and 17 percent of
revenue, respectively) for the comparable periods of 1995, primarily as a result
of the revenue and expense variations discussed above.
Income taxes are based on an estimated rate of 35.5 percent which increased from
34.0 percent in the first six months of 1995 and 34.0 percent for the year ended
December 31, 1995. The increase over 1995 is primarily a result of the lapsing
of the research and development tax credit as of June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 working capital was $92.2 million, including $19.4 million of
cash and cash equivalents and $20.3 million of marketable securities. In the
first six months of 1996, working capital increased by $10.8 million and the
current ratio decreased to 3.2:1 from 3.8:1.
7
Cash and cash equivalents decreased $10.7 million primarily due to $9.9 million
used in operations, the net purchase of $1.7 million of marketable securities
and $5.5 million used for purchases of property and equipment, offset by $1.0
million release of restricted cash, $3.1 million provided by the sale of common
stock through the exercise of employee stock options and $2.3 million provided
by the income tax benefit of nonqualified stock option exercises and
disqualifying dispositions.
Accounts receivable increased $8.4 million to $58.5 million at June 30, 1996
from $50.0 million at the end of 1995. The growth in receivables is primarily
attributable to increased aging of receivables on sales of the LitePro 580.
Because of price competition during the quarter by the Company's supplier, the
sell through of the LitePro 580 slowed at the Company's dealers and their
resellers. Accordingly, days sales outstanding grew to 90 days at June 30, 1996
from 74 days at December 31, 1995. During the second quarter, there was an
increase in the number of competitors entering the market. Because most of them
are attempting to sell through the same dealer network, there has been an over
supply of product in the channel. Until the inventory gets sold through, the
Company has limited the amount of credit available for additional growth to its
dealers and taken a tighter stance on shipping product to dealers who are in a
past-due situation. In order to provide additional support, the Company has
helped to provide its dealers and customers with alternative forms of third-
party financing including the use of the Company's Instant Access rental program
through Genigraphics.
The Company expects to see working capital constrained in the channels for the
duration of 1996 as new competitors and products enter the market*. In addition
to providing alternative forms of financing, the Company is looking for ways to
create additional channels of distribution for its products. Accordingly, the
Company expects days sales outstanding to come down slightly during the second
half of 1996*.
Accounts receivable that are beyond 60 days past due represented approximately 3
percent of the total accounts receivable balance at June 30, 1996, compared to
approximately 4 percent at December 31, 1995.
Inventories increased $16.0 million to $26.8 million at June 30, 1996 from $10.8
million at December 31, 1995 due primarily to growth in parts stock and finished
goods to support the ramp up in the third quarter for the LitePro 620 and the
PowerView 820 as well as growth in demand for the LitePro 210. Inventory turns
were approximately 7 times on an annualized basis for the six months ended June
30, 1996, compared to approximately 11 times in 1995 and approximately 9 times
on an annualized basis for the first quarter of 1996.
Income taxes receivable increased to $5.3 million at June 30, 1996 from a
payable of $2.1 million at December 31, 1995 due to the prescribed calculation
methods and the timing of estimated federal and state tax payments.
The $3.2 million increase in property and equipment is a result of $5.5 million
of expenditures primarily for new product tooling, information systems and plant
floor layout redesign to accommodate available to promise and assemble to order
production lines, offset by $2.3 million of depreciation. Total expenditures
for property and equipment in 1996 are expected to be approximately $11.5
million, primarily for the projects mentioned above.
In January 1996, the Board of Directors of the Company authorized a stock buy
back program which allowed management to repurchase, from time to time, subject
to certain conditions and limitations, up to 500,000 shares of the Common Stock
of the Company. As of July 24, 1996, the Company had repurchased 500,000 shares
of its Common Stock at an average price of $17.60, for a total of $8,785,000,
which was paid out of existing cash balances.
8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed as part of this report are listed below:
EXHIBIT NUMBER AND DESCRIPTION
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 1996.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 31, 1996 IN FOCUS SYSTEMS, INC.
By:/s/ JOHN V. HARKER
------------------------------------
John V. Harker
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ MICHAEL D. YONKER
------------------------------------
Michael D. Yonker
Vice President, Information Services and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
10