- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 March 31, 1997 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 (I.R.S. Employer or organization) Identification No.) 27700B SW Parkway Avenue, Wilsonville, Oregon 97070 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 503-685-8888 ---------------------- 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 10,779,811 (Class) (Outstanding at April 29, 1997) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IN FOCUS SYSTEMS, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 2 Consolidated Statements of Operations - Three Months Ended March 31, 1997 and 1996 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1997 and 1996 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 4. Submission of Matters to a Vote of Security Holders 9 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) March 31, December 31, 1997 1996 --------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 39,679 $ 33,935 Marketable securities - held to maturity 4,500 4,263 Accounts receivable, net of allowances of $3,591 and $3,942 55,862 55,289 Inventories, net 28,724 22,715 Income taxes receivable - 1,305 Deferred income taxes 3,135 3,135 Other current assets 2,825 1,546 --------- ---------- Total Current Assets 134,725 122,188 Property and equipment, net of accumulated depreciation of $15,769 and $13,692 14,553 14,553 Other assets, net 1,195 1,509 ---------- ---------- Total Assets $ 150,473 $ 138,250 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Income taxes payable $ 656 $ - Accounts payable 29,560 22,210 Payroll and related benefits payable 1,979 2,282 Marketing cooperative payable 794 1,604 Other current liabilities 2,564 2,983 ---------- ---------- Total Current Liabilities 35,553 29,079 Note payable 792 738 Deferred income taxes 473 473 Shareholders' Equity: Common stock, 30,000,000 shares authorized; shares issued and outstanding: 10,775,686 and 10,693,486 48,854 47,912 Additional paid-in capital 10,433 10,080 Retained earnings 54,368 49,968 ---------- ---------- Total Shareholders' Equity 113,655 107,960 ---------- ---------- Total Liabilities and Shareholders' Equity $ 150,473 $ 138,250 ---------- ---------- ---------- ---------- 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 March 31, 1997 1996 ---------- --------- Revenue $ 64,764 $ 67,698 Cost of sales 45,997 44,282 ---------- ------------- Gross profit 18,767 23,416 Operating expenses: Marketing and sales 6,964 7,020 Engineering 3,998 4,645 General and administrative 1,766 1,970 ---------- ------------- 12,728 13,635 ---------- ------------- Income from operations 6,039 9,781 Other income (expense): Interest expense (17) - Interest income 515 514 Other, net 36 125 ---------- ------------- 534 639 ---------- ------------- Income before equity in income (loss) of joint venture and provision for income taxes 6,573 10,420 Provision for income taxes 2,169 3,699 ---------- ------------- Income before equity in income (loss) of joint venture 4,404 6,721 Equity in income (loss) of joint venture (4) 270 ---------- ------------- Net income $ 4,400 6,991 ---------- ------------- ---------- ------------- Net income per share $ 0.40 $ 0.61 ---------- ------------- ---------- ------------- Shares used in per share calculations 11,056,691 $ 11,510,614 ---------- ------------- ---------- ------------- The accompanying notes are an integral part of these statements. 3 IN FOCUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) Three months ended March 31, 1997 1996 ---------- --------- Cash flows from operating activities: Net income $ 4,400 $ 6,991 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 2,108 1,147 Equity in (income) loss of joint venture 4 (270) (Increase) decrease in: Accounts receivable, net (573) (7,972) Inventories, net (6,009) (9,063) Income taxes receivable 1,305 - Other current assets (1,279) (160) Increase (decrease) in: Income taxes payable 656 2,142 Accounts payable 7,350 9,590 Payroll and related benefits payable (303) (343) Marketing cooperative payable (810) 105 Other current liabilities (419) (284) ---------- ------------- Net cash provided by (used in) operating activities 6,430 1,883 Cash flows from investing activities: Purchase of marketable securities-held to maturity (2,498) (1,500) Maturity of marketable securities-held to maturity 2,261 3,684 Payments for purchase of property and equipment (2,023) (3,230) Investment in joint venture (4) 270 Other assets, net 283 (281) ---------- ------------- Net cash provided by (used in) investing activities (1,981) (1,057) Cash flows from financing activities: Proceeds from sale of common stock 942 660 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions 353 441 Stock repurchase - - ---------- ------------- Net cash provided by (used in) financing activities 1,295 1,101 Increase (decrease) in cash and cash equivalents 5,744 1,927 Cash and cash equivalents: Beginning of period 33,935 30,165 ---------- ------------- End of period $ 39,679 $ 32,092 ---------- ------------- ---------- ------------- The accompanying notes are an integral part of these statements. 4 IN FOCUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The financial information included herein for the three-month periods ended March 31, 1997 and 1996 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, 1996 is derived from In Focus Systems, Inc.'s (the Company's) 1996 Annual Report to Shareholders on 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 1996 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. March 31, 1997 December 31, 1996 -------------- ----------------- Raw materials and components $ 8,188 $ 6,259 Work-in-process 898 1,148 Finished goods 19,638 15,308 ------- ------- $28,724 $22,715 ------- ------- ------- ------- NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information is as follows: Three Months Ended March 31, ---------------------------- 1997 1996 ------- ------- Cash paid during the period for income taxes $ 86 $ 1,125 Cash paid during the period for interest 16 -- Property acquired through debt 55 -- NOTE 4. EARNINGS PER SHARE In March 1997, the Financial Accounting Standards Board issued Statement 128, EARNINGS PER SHARE ("SFAS 128"), superseding Opinion 15. SFAS is required to be adopted for periods ending after December 15, 1997. Pro forma effects of applying SFAS 128 are as follows: Three Months Ended: March 31, 1997 March 31, 1996 - ------------------------------------- ---------------- ---------------- Primary EPS as reported $ 0.40 $ 0.61 Effect of SFAS 128 0.01 0.03 ---------------- ---------------- Basic EPS as restated $ 0.41 $ 0.64 ---------------- ---------------- ---------------- ---------------- Fully diluted EPS as reported $ 0.40 $ 0.61 Effect of SFAS 128 0.00 0.00 ---------------- ---------------- Diluted EPS as restated $ 0.40 $ 0.61 ---------------- ---------------- ---------------- ---------------- 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Statements in this Form 10-Q which the Company considers to be forward-looking are denoted with an *, and the following cautionary language applies to all such statements, as well as any other statements in this Form 10-Q which the reader may consider to be forward-looking in nature. 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. The Company from time to time may make forward-looking statements relating to anticipated gross margins, availability of products manufactured on behalf of the Company, backlog, new product introductions and future capital expenditures, 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 their 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; 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; and 4) in regards to future capital expenditures, uncertainties associated with new product introductions. RESULTS OF OPERATIONS Revenue was $64.8 million in the first quarter of 1997 compared to $67.7 million in the first quarter of 1996. The Company entered the first quarter of 1997 with minimal backlog and some inventory in the channels as a result of strong year-end demand and fulfilling a record backlog position in the fourth quarter of 1996. In addition, the LitePro 720, an ultraportable SVGA polysilicon projector weighing less than 12 pounds, began shipping in March 1997. International sales represented 46 percent of total revenue in both the first quarter of 1997 and 1996. Due to the increase in competition within the Company's value added dealer channel, the Company has limited the amount of credit available for additional growth and has taken a tighter stance on shipping product to dealers who are in past due situations. Therefore, growth within this channel is somewhat dependent upon the ability of the dealers to find alternative sources of capital. The Company's customers generally order products for immediate delivery with product shipment within 30 days after receipt of an order. However, primarily due to the ramp-up late in the quarter of the newly introduced LitePro 720 and long lead times on certain of its components, the Company was unable to fill all of its orders for its products, resulting in backlog at March 31, 1997 of approximately $8.6 million compared to $9.2 million at December 31, 1996 and $15.6 million at March 31, 1996. Given current supply and demand estimates, it is anticipated that most of the current backlog will turn over by the end of the second quarter of 1997*. 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. 6 The Company achieved gross margins of 29.0 percent in the first quarter of 1997 compared to 34.6 percent in the first quarter of 1996 and 28.0 percent in the fourth quarter of 1996. The decrease from the first quarter of 1996 is due primarily to increasing price competition as a result of new technologies and new market entrants. The increase from the fourth quarter of 1996 is primarily a result of the Company transitioning its product mix to a broader line up of new higher margin SVGA projectors manufactured by the Company and on-going component cost reduction efforts. Marketing and sales expense remained constant at $7.0 million (10.8 percent of revenue) in the first quarter of 1997 compared to $7.0 million (10.4 percent of revenue) in the first quarter of 1996. The Company continues to focus its marketing efforts on areas that most directly contribute to revenue growth, quality and customer satisfaction. Engineering expense decreased to $4.0 million (6.2 percent of revenue) in the first quarter of 1997 from $4.6 million (6.9 percent of revenue) in the first quarter of 1996. This decrease is primarily a result of timing for new product releases under development. The Company expects to invest at similar levels in research and development to support its product introduction plans. General and administrative expense decreased to $1.8 million (2.7 percent of revenue) in the first quarter of 1997 from $2.0 million (2.9 percent of revenue) in the first quarter of 1996. The decrease is primarily attributed to a decrease in the workforce that occurred at the beginning of the third quarter of 1996 along with continued cost containment efforts. Income from operations decreased to $6.0 million (9.3 percent of revenue) in the first quarter of 1997 from $9.8 million (14.4 percent of revenue) in the first quarter of 1996, primarily as a result of decreased sales and gross margins as indicated above. Income taxes are based on an estimated rate of 33.0 percent compared to 35.5 percent in the first quarter of 1996 and 30.5 percent for the year ended December 31, 1996. The decrease from the first quarter of 1996 is primarily a result of the reinstatement of the research and development tax credit effective July 1, 1996. The increase from the year ended December 31, 1996 is primarily a result of a benefit related to 1995 taxes that was recorded in 1996. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997 working capital was $99.2 million, including $39.7 million of cash and cash equivalents and $4.5 million of marketable securities. In the first quarter of 1997, working capital increased by $6.1 million and the current ratio decreased to 3.8:1 at March 31, 1997 from 4.2:1 at December 31, 1996. Cash and cash equivalents increased $5.7 million primarily due to cash provided from operations of $6.4 million, $0.9 million provided by the sale of common stock through the exercise of employee stock options and $0.4 million provided by the income tax benefit of non-qualified stock option exercises and disqualifying dispositions, offset by $2.0 million in purchases of property, plant and equipment. 7 Accounts receivable remained relatively stable at $55.9 million at March 31, 1997 compared to $55.3 million at December 31, 1996. The Company was able to keep accounts receivable relatively flat, despite a high percentage of revenues in the month of March, as a result of its ongoing cash collection efforts with its channel partners. As a result of the record revenues in March, the Company's day's sales outstanding increased to 78 days compared to 68 at December 31, 1996. Accounts receivable that are beyond 60 days past due represented approximately 3 percent of the total accounts receivable balance at March 31, 1997 compared to approximately 6 percent at December 31, 1996. Inventories increased $6.0 million to $28.7 million at March 31, 1997 from $22.7 million at December 31, 1996 primarily due to the volume production ramp on long lead-time components for the LitePro 720. Annualized inventory turns were approximately 7.2 times for the quarter ended March 31, 1997 compared to approximately 8.4 times for the fourth quarter of 1996 on an annualized basis. The increase in income taxes payable is primarily due to the timing of tax payments. The increase in accounts payable is primarily related to increased purchases to support the growth in inventory mentioned above. The $2.0 million of purchases of property, plant and equipment were primarily for new product tooling and information systems. Total expenditures for property and equipment in 1997 are expected to total approximately $12.5 million, primarily for new product tooling, manufacturing plant floor layout redesign and information systems infrastructure.* 8 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the shareholders of the Company was held on April 17, 1997, at which the following actions were taken: 1. The shareholders elected the four nominees for director to the Board of Directors of the Company. The four directors elected, along with the voting results are as follows: NAME NO. OF SHARES VOTING FOR NO. OF SHARES WITHHELD VOTING - ---- ------------------------ ----------------------------- Peter D. Behrendt 9,176,111 18,380 Michael R. Hallman 9,175,425 19,066 John V. Harker 9,178,961 15,530 Jack D. Kuehler 9,176,661 17,830 2. The shareholders approved the appointment of Arthur Andersen LLP as the independent accountants of the Company for the year ending December 31, 1997 (9,184,807 shares were voted affirmatively, 5,637 shares were voted negatively and 4,047 shares abstained from voting). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits filed as a part of this report are listed below. EXHIBIT NO. ----------- 10 1997 Executive Bonus Plan, Sr. Vice President In Focus Systems, Inc., President and Chief Executive Officer, Genigraphics, Inc. 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 March 31, 1997. 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: April 30, 1997 IN FOCUS SYSTEMS, INC. By:/s/ JOHN V. HARKER ----------------------------- John V. Harker Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By:/s/ MICHAEL D. YONKER ----------------------------- Michael D. Yonker Vice President, Information Services, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 10