<PAGE>
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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 September 30, 1998
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 (I.R.S. Employer Identification
incorporation or organization) 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 22,199,158
(Class) (Outstanding at October 19, 1998)
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<PAGE>
IN FOCUS SYSTEMS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -September 30, 1998 and December
31, 1997 2
Consolidated Statements of Operations - Three Month and Nine
Month Periods Ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,054 $ 37,950
Marketable securities - held to maturity 9,103 7,220
Accounts receivable, net of allowances of
$6,142 and $4,835 72,706 87,845
Inventories, net 33,448 32,120
Income taxes receivable 3,804 310
Deferred income taxes 1,156 1,247
Other current assets 3,603 2,589
------------- ------------
Total Current Assets 149,874 169,281
Marketable securities - held to maturity - 3,500
Property and equipment, net of accumulated
depreciation of $28,194 and $21,769 12,930 15,507
Deferred income taxes 1,105 516
Other assets, net 2,013 1,104
------------- ------------
Total Assets $ 165,922 $ 189,908
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,100 $ 47,818
Payroll and related benefits payable 1,966 3,493
Other current liabilities 5,636 5,568
------------- ------------
Total Current Liabilities 32,702 56,879
Shareholders' Equity:
Common stock, 50,000,000 shares authorized;
shares issued and outstanding: 22,199,158
and 21,931,728 53,747 51,733
Additional paid-in capital 12,347 11,278
Retained earnings 67,126 70,018
------------- ------------
Total Shareholders' Equity 133,220 133,029
------------- ------------
Total Liabilities and Shareholders' Equity $ 165,922 $ 189,908
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an intergral part of these balance sheets.
2
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 75,308 $ 79,559 $ 218,128 $ 218,917
Cost of sales 59,646 59,356 173,411 160,344
----------- ----------- ----------- -----------
Gross profit 15,662 20,203 44,717 58,573
Operating expenses:
Marketing and sales 9,057 7,934 30,477 22,110
Engineering 4,500 4,734 15,172 13,187
General and administrative 1,686 1,980 5,490 5,629
----------- ----------- ----------- -----------
15,243 14,648 51,139 40,926
----------- ----------- ----------- -----------
Income (loss) from operations 419 5,555 (6,422) 17,647
Other income (expense):
Interest expense (1) (39) (80) (70)
Interest income 245 520 827 1,504
Other, net 168 (45) (72) (43)
----------- ----------- ----------- -----------
412 436 675 1,391
----------- ----------- ----------- -----------
Income (loss) before income taxes 831 5,991 (5,747) 19,038
(Provision for) benefit from income taxes 877 (1,805) 2,855 (5,603)
----------- ----------- ----------- -----------
Net income (loss) $ 1,708 $ 4,186 $ (2,892) $ 13,435
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic net income (loss) per share $ 0.08 $ 0.19 $ (0.13) $ 0.63
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted net income (loss) per share $ 0.08 $ 0.19 $ (0.13) $ 0.61
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,892) $ 13,435
Adjustments to reconcile net income (loss) to net
cash flows provided by (used in) operating
activities:
Loss on sale of Genigraphics 51 -
Depreciation and amortization 7,356 5,658
Deferred income taxes (498) (636)
Other non-cash expenses (16) 258
(Increase) decrease in:
Accounts receivable, net 14,862 (11,065)
Inventories, net (1,342) 910
Income taxes receivable (3,494) 1,305
Other current assets (387) (1,009)
Increase (decrease) in:
Income taxes payable - 1,100
Accounts payable (22,718) 10,543
Payroll and related benefits payable (1,527) (186)
Other current liabilities 68 (63)
---------- ----------
Net cash provided by (used in)
operating activities (10,537) 20,250
Cash flows from investing activities:
Purchase of marketable securities-held to maturity (8,105) (5,268)
Maturity of marketable securities-held to maturity 9,722 4,261
Payments for purchase of property and equipment (5,242) (5,795)
Investment in joint venture 16 (45)
Cash received from sale of Genigraphics 230 -
Other assets, net (1,047) 289
---------- ----------
Net cash used in investing activities (4,426) (6,558)
Cash flows from financing activities:
Principal payments on long-term debt - (951)
Proceeds from sale of common stock 2,014 1,856
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 1,053 476
---------- ----------
Net cash provided by financing activities 3,067 1,381
Increase (decrease) in cash and cash equivalents (11,896) 15,073
Cash and cash equivalents:
Beginning of period 37,950 33,935
---------- ----------
End of period $ 26,054 $ 49,008
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
IN FOCUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three-month and nine-month
periods ended September 30, 1998 and 1997 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, 1997 is
derived from In Focus Systems, Inc.'s (the Company's) 1997 Annual Report 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 1997 Annual Report on Form 10-K.
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.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials and components $ 9,916 $ 11,774
Work-in-process 1,817 2,240
Finished goods 21,715 18,106
--------- ---------
$ 33,448 $ 32,120
--------- ---------
</TABLE>
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash paid during the period for income
taxes $ 337 $ 3,584
Cash paid during the period for interest 80 70
Note received related to sale of
Genigraphics 630 -
</TABLE>
5
<PAGE>
NOTE 4: EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128.
Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
------------------------------------------ --------------------------------------
Per Share Per Share
Loss Shares Amount Income Shares Amount
------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to Common Shareholders $1,708 22,197 $ 0.08 $4,186 21,654 $0.19
------- --------
DILUTED EPS
Effect of dilutive stock options - 23 - 580
-------------------------- ---------------------
Income available to Common Shareholders $1,708 22,220 $ 0.08 $4,186 22,234 $0.19
------- --------
<CAPTION>
Nine Months Ended September 30, 1998 1997
------------------------------------------ --------------------------------------
Per Share Per Share
Loss Shares Amount Income Shares Amount
------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available to Common
Shareholders $(2,892) 22,116 $(0.13) $13,435 21,578 $0.63
-------- ---------
DILUTED EPS
Effect of dilutive stock options - - - 574
-------------------------- ---------------------
Income (loss) available to Common
Shareholders $(2,892) 22,116 $(0.13) $13,435 22,152 $0.61
-------- ---------
</TABLE>
Potentially dilutive securities that are not included in the diluted EPS
calculations because they would be antidilutive include 3,456 and 3,531 shares,
respectively, issuable pursuant to stock options, for the three and nine month
periods ended September 30, 1998 and 37 shares of contingently issuable
restricted stock. Potentially dilutive securities that are not included in the
diluted EPS calculations because they would be antidilutive include 411 and 402
shares, respectively, issuable pursuant to stock options, for the three and nine
month periods ended September 30, 1997.
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
6
<PAGE>
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. The
following factors, among others, could cause actual results to differ from those
indicated in the forward-looking statements: 1) in regard 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 regard to product availability and backlog,
uncertainties associated with manufacturing capabilities and dependence on third
party suppliers; 3) in regard 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 regard to future capital expenditures, uncertainties
associated with new product introductions.
RESULTS OF OPERATIONS
Revenue decreased to $75.3 million in the third quarter of 1998 from $79.6
million in the third quarter of 1997, and to $218.1 million for the nine months
ended September 30, 1998 from $218.9 million for the comparable period of 1997.
The Company's revenue in the first three quarters of 1998 was derived almost
entirely from products manufactured in-house and 86 percent of revenue in the
third quarter was derived from products that were introduced within the last six
months. The Company's revenues, and financial performance, were adversely
affected in the first three quarters of 1998 by strong price competition that
has been fueled by a weakened yen to the dollar. Price decreases in the third
quarter of 1998 returned to more historical levels of 5 to 6 percent rather than
the accelerated rates experienced in the first and second quarters of 1998.
SVGA products experienced greater pricing pressure than XGA products due to a
slight shift in demand from SVGA to XGA and; a constrained supply of XGA
products. The Company's primary competitors are Asian companies. The decrease
in average selling prices was partially offset by increases in units sold, with
the number of units sold during the third quarter of 1998 increasing 10 percent
over the second quarter of 1998 and 24 percent over the third quarter of 1997.
During the first three quarters of 1998, International sales represented 42
percent of total revenue, including 9 percent from Asia Pacific countries,
compared to 40 percent international revenue in the first three quarters of
1997.
The Asian market grew at the same rate as the industry as a whole during 1997
and it is now the third largest market in the Company's industry. The Company
has historically had very little market share in the Asian market. Sales to
most Asian companies have been, and continue to be, prepaid or guaranteed by
letters of credit, thereby reducing receivables risk. The Company has a sales,
service and support subsidiary in Singapore.
The Company's parts contracts with Asian companies are denoted in U.S. dollars
and contain clauses for price adjustments when there are significant
fluctuations in currency rates. Accordingly, for purchases beginning the first
day of the next quarter, parts costs are adjusted based upon changes in local
currencies relative to the U.S. dollar.
7
<PAGE>
Because there are multiple competitive products for the Company's resellers to
choose from, the Company does not operate with a large backlog. Instead, the
Company's customers generally order products for immediate delivery and the
Company must respond to competitive prices and ship the product quickly or risk
losing the order. However, as a result of orders from customers on credit hold
and orders for newly introduced XGA products, at September 30, 1998, the Company
had backlog of approximately $15.4 million, compared to approximately $11.8
million at September 30, 1997 and $14.9 million at December 31, 1997. Given
current supply and demand estimates, it is anticipated that a majority of the
current backlog will turn over by the end of 1998.* 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.
The Company achieved gross margins of 20.5 percent in the first nine months of
1998, with 20.8 percent achieved in the third quarter of 1998, compared to 26.8
percent in the first nine months of 1997 and 25.4 percent in the third quarter
of 1997. The decreases are primarily attributable to an aggressive competitive
pricing environment and accelerated price reductions to end of life the LP420,
LP720 and LP730, offset in part by a shift in mix in the second and third
quarters of 1998 to higher margin products that incorporate engines designed and
manufactured by the Company. The Company expects the competitive pricing
environment will continue for the foreseeable future.* Accordingly, the Company
is continuing its ongoing efforts to reduce manufacturing costs by working
closely with its suppliers to reduce direct material costs and designing
products with extensible platforms that use new and lower cost technologies. In
addition, the Company continues to focus on adding value to projectors that use
its own engine designs in order to become less reliant on more expensive
out-sourced engines.
Marketing and sales expense was $9.1 million and $30.5 million, respectively
(12.0 percent and 14.0 percent of revenue, respectively) for the three month and
nine month periods ended September 30, 1998 compared to $7.9 million and $22.1
million, respectively (10.0 percent and 10.1 percent of revenue, respectively)
for the comparable periods of 1997. The increase is primarily a result of
expenditures in the first quarter of 1998 to build demand for the LP420 in
two-tier wholesale distribution, restructuring charges in the first and second
quarters of 1998 and the addition of sales and service infrastructure around the
world, particularly in Europe and Japan, partially offset by lower head count in
the third quarter of 1998 as a result of the restructuring and other efforts to
bring spending in line with current revenue and margin levels.
Engineering expense was $4.5 million and $15.2 million, respectively (6.0
percent and 7.0 percent of revenue, respectively) for the three month and nine
month periods ended September 30, 1998 compared to $4.7 million and $13.2
million, respectively (6.0 percent and 6.0 percent of revenue, respectively) for
the comparable periods of 1997. This increase is primarily a result of timing
for new product releases under development as well as restructuring charges in
the first and second quarters of 1998 in order to create a more efficient
organization, partially offset by lower head count in the third quarter of 1998
as a result of the restructuring.
8
<PAGE>
General and administrative expense was $1.7 million and $5.5 million,
respectively (2.2 percent and 2.5 percent of revenue, respectively) for the
three month and nine month periods ended September 30, 1998 compared to $2.0
million and $5.6 million, respectively (2.5 percent and 2.6 percent of revenue,
respectively) for the comparable periods of 1997. The nine months ended
September 30, 1998 amount includes restructuring charges taken during the first
and second quarters of 1998. The third quarter of 1998 realized efficiencies
with lower head count as a result of the restructuring and other efforts to
bring spending in line with current revenue and margin levels.
The total restructuring charge in the first and second quarters of 1998 was
approximately $1.9 million.
Income (loss) from operations was $0.4 million (0.5 percent of revenue) and
$(6.4) million, respectively, for the three month and nine month periods ended
September 30, 1998 compared to income from operations of $5.6 million and $17.6
million, respectively (7.0 percent and 8.1 percent of revenue, respectively) for
the comparable periods of 1997, primarily as a result of relatively flat
revenue, decreased gross margins and increased operating expenses as indicated
above.
Income taxes through September 30, 1998 are based on an estimated rate of 49.7
percent, which increased from 29.4 percent in the first nine months of 1997 and
29.1 percent for the year ended December 31, 1997. The increase in the rate is
due to the Company's loss position and magnitude of certain permanent tax
benefits related to the amount of the loss. The research and development tax
credit expired June 30, 1998. However, it has subsequently been reinstated
retroactive to June 30, 1998 through June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 working capital was $117.2 million, including $26.1
million of cash and cash equivalents and $9.1 million of marketable securities.
In the first nine months of 1998, working capital increased by $4.8 million and
the current ratio increased to 4.6:1 at September 30, 1998 from 3.0:1 at
December 31, 1997. Cash and cash equivalents decreased $11.9 million primarily
due to cash used in operations of $10.5 million and $5.2 million for purchases
of property and equipment, offset by the net sale of $1.6 million of marketable
securities, $2.0 million provided by the sale of common stock through the
exercise of employee stock options and $1.1 million provided by the income tax
benefit of non-qualified stock option exercises and disqualifying dispositions.
Accounts receivable decreased $15.1 million to $72.7 million at September 30,
1998 compared to $87.8 million at December 31, 1997 primarily as a result of
greater sales at the end of 1997 that have subsequently been collected and
improved collection rates on recent sales. The Company's day's sales outstanding
("DSO") increased to 87 days at September 30, 1998 compared to 81 days at
December 31, 1997. DSO decreased, however, from 92 days at the end of the
second quarter and 97 days at the end of the first quarter of 1998. At
September 30, 1998, 73 percent of the Company's accounts receivable were
current, 13 percent were 30 days or less past due and 14 percent were beyond 30
days past due.
9
<PAGE>
Inventories increased $1.3 million to $33.4 million at September 30, 1998 from
$32.1 million at December 31, 1997. Inventory decreased, however, from $41.2
million at the end of the second quarter and $50.5 million at the end of the
first quarter of 1998. All inventory components decreased during the third
quarter, with most of the decrease attributable to reduced inventory positions
related to products at or near end of life. Annualized inventory turns were
approximately 6.4 times for the quarter ended September 30, 1998 compared to
approximately 10.4 times for the fourth quarter of 1997 on an annualized basis
and 5.0 times for the second quarter of 1998 on an annualized basis.
The $5.2 million of purchases of property, plant and equipment during the first
nine months of 1998 were primarily for new product tooling, engineering design
and test equipment and information systems infrastructure. Total expenditures
for property and equipment in 1998 are expected to total approximately $7.0
million, primarily for new product tooling, operations and quality test
equipment and information systems infrastructure.*
YEAR 2000
PRODUCTS
The Company hereby represents and warrants that all past and current products
("Products"), including LitePro and LP projectors, PanelBook, PowerView,
SmartView and PC Viewer projection panels, and LiteShow II and LiteShow Pro
presentation players are Year 2000-compliant.
Accordingly, the Company represents and warrants that all Products are designed
to be used prior to, during, and after the calendar year 2000 AD, and that the
Products will operate during each such time period without error relating to
date data, specifically including any error relating to, or the product of, date
data which represents or references different centuries or more than one
century.
However, with respect to the LiteShow Pro presentation player, notwithstanding
the above, the Company does not make any representation or warranty as to
Microsoft Windows software installed thereon.
INFORMATION SYSTEMS
The Company utilizes a packaged application strategy for all critical
information systems functions. In the third quarter of 1998 all enterprise
information system components were current with all Year 2000 updates and
changes required by the manufacturers. This includes enterprise software,
operating systems, networking components, application and data servers, PC
hardware, and core office automation software.
Various component tests have been conducted to verify full Year 2000 operational
compliance. This process has uncovered additional year 2000 issues that are
being worked jointly with the Company's technology vendors. Additionally, the
Company's vendors are revising their updates and recommendations as other
companies report issues to them. We expect this process to be ongoing as more
companies conduct their testing and provide feedback to the technology vendors.
In addition to the information system component testing, the Company will
conduct a system wide test, to include all components from the desktop to the
data center, to ensure
10
<PAGE>
that all of the compliant components can function properly as a whole. This
full integration test will be conducted within the next two quarters. The focus
of these tests will be to ensure that the Company's business processes run
end-to-end with no Year 2000 errors or issues.
The Company's packaged application strategy has allowed it to keep its
technology on maintenance contracts with its suppliers. Year 2000 upgrades to
these technologies are covered under the maintenance contracts and represent no
additional spending. Application upgrade and technology retirement intervals
are not accelerated as a result of the Year 2000 issue. The packaged
application strategy, maintenance contracts, upgrade and technology retirement
intervals have been in place for the past four years. At this time the Company
foresees no incremental spending for the Year 2000 issue*.
Like all US businesses, the Company will be at risk from external infrastructure
failures that could arise from Year 2000 failures. It is not clear that
electrical power, telephone and computer networks, for example, will be fully
functional across the nation in the Year 2000. Investigation and assessment of
infrastructures, like the nations power grid, is beyond the scope and resources
of the Company. Investors should use their own awareness of the issues in the
nations' infrastructure to make ongoing infrastructure risk assessments and
their potential impact to a company's performance.
SUPPLIER BASE
The Company has begun a year 2000 supplier audit program. It has contacted all
of its critical suppliers to inform them of the Company's year 2000
expectations, and a request has been made for each vendor's compliance program.
The supplier audit program is in its early stages and does not have a return
rate useful for projecting overall Company impact from its supplier base at this
time.
It should be noted that there have been predictions of failures of key
components in the transportation infrastructure due to the year 2000 problem.
It is possible that there could be delays in rail, over-the-road and air
shipments due to failure in transportation control systems. Investigation and
validation of the world's transportation infrastructure is beyond the scope and
the resources of the Company. Investors should use their own awareness of the
issues in the transportation infrastructure to make ongoing infrastructure risk
assessments and their potential impact to a company's performance.
The Company has not yet developed any contingency plans in regard to its
internal systems, supplier issues or any of the more global infrastructure
issues.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
During the first half of 1998, the Company made organizational changes that
included the sale of Company's slides and transparency imaging and projector
rental business (formerly provided by the Genigraphics business unit) and
several other cost containment measures. These actions resulted in the Company
laying off 18 percent of its workforce, thereby reducing annual compensation by
approximately $4.8 million.
11
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for all derivative
instruments. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company does not have any derivative instruments and, accordingly,
the adoption of SFAS 133 will have no impact on the Company's financial position
or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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:
<TABLE>
<CAPTION>
Exhibit Number and Description
------------------------------
<C> <S>
3 1990 Restated Articles of Incorporation (1)
10 In Focus Systems, Inc. 1998 Stock Incentive Plan (1)
27 Financial Data Schedule
</TABLE>
(1) Previously filed as exhibit 3 and 10, respectively, to Form 10-Q for the
quarter ended March 31, 1998 and filed with the Securities and Exchange
Commission on May 12, 1998.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended September 30,
1998.
12
<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.
Date: October 28, 1998 IN FOCUS SYSTEMS, INC.
By: /s/ JOHN V. HARKER
-----------------------------------------
John V. Harker
Chairman of the Board, President,
Chief Executive Officer, Chief Financial
Officer and Secretary
(Duly authorized Principal Executive
Officer and Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 26,054
<SECURITIES> 9,103
<RECEIVABLES> 78,848
<ALLOWANCES> 6,142
<INVENTORY> 33,448
<CURRENT-ASSETS> 149,874
<PP&E> 41,124
<DEPRECIATION> 28,194
<TOTAL-ASSETS> 165,922
<CURRENT-LIABILITIES> 32,702
<BONDS> 0
0
0
<COMMON> 53,747
<OTHER-SE> 79,473
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<CGS> 173,411
<TOTAL-COSTS> 173,411
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<LOSS-PROVISION> 378
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> (5,747)
<INCOME-TAX> (2,855)
<INCOME-CONTINUING> (2,892)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,892)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
