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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
--------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
27700B S.W. PARKWAY AVENUE
WILSONVILLE, OREGON 97070
--------------------------
(Address of principal executive offices and zip code)
503-685-8888
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
--------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $224,970,354 as of February 24, 1997 based upon the last sales
price as reported by the Nasdaq National Market System.
The number of shares outstanding of the Registrant's Common Stock as of February
24, 1997 was 10,765,980 shares.
The Index to Exhibits appears on page 16 of this document.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, dated March 13, 1997.
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IN FOCUS SYSTEMS, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
Signatures 20
2
PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Statements in this Form 10-K 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-K 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.
INTRODUCTION
In Focus Systems, Inc. ( an Oregon corporation) was founded in October 1986 to
develop, manufacture and market innovative projection products using flat panel
LCD technology to present output from personal computers and other electronic
devices. References within this document to the "Company" or to "In Focus" are
to In Focus Systems, Inc. and its consolidated subsidiaries, In Focus Systems
FSC, Inc. and In Focus Services, Inc.
PRODUCTS
The Company develops, manufactures and markets multimedia projection products
and services to present video, audio, graphics and data from personal computers,
workstations, VCRs and laser disc players. The Company's products are used in
businesses, schools and government agencies for training sessions, meetings,
sales presentations, technical seminars and other applications involving the
sharing of computer-generated and/or video information with an audience. The
Company's products are compatible with all major personal computers and most
video sources used in business and education. The Company, through its wholly
owned subsidiary, In Focus Services, Inc., also provides creative presentation
services to Fortune 500 and other companies.
PROJECTION SYSTEMS
LITEPRO 570 LS The LitePro 570 LS is a portable multimedia projection
system which combines an amorphous, active matrix LCD, full motion video and
stereo sound. The 570 LS provides 640 x 480 resolution, 300 ANSI lumens, weighs
19.7 pounds and comes with built-in LiteShow II presentation management hardware
and software.
3
LITEPRO 580 The LitePro 580 is a multimedia projection system which
combines advanced ploysilicon active matrix LCDs, dichroic optics and full
motion video with stereo sound. The 580 provides 640 x 480 resolution, 350 ANSI
lumens and weighs 16.8 pounds.
LITEPRO 760 The LitePro 760 is a portable ultra-high resolution LCD
projector that is plug-and-play compatible with over 60 advanced computing
platforms. The 760 provides 1024 x 768 resolution, 150 ANSI lumens and weighs
19.5 pounds.
LITEPRO 210 The LitePro 210 is a portable multimedia projection system
which combines an amorphous, active matrix LCD, full motion video, built in JBL
Sound System-Registered Trademark-, Smart Remote, auto sensing and Cable Wizard
connectivity. The 210 provides 640 x 480 resolution, 300 ANSI lumens and weighs
16 pounds.
LITEPRO 220 The LitePro 220 is a portable multimedia projection system
which combines an amorphous, active matrix LCD with 800 x 600 resolution, full
motion video, built in JBL Sound System-Registered Trademark-, Smart Remote,
auto sensing and Cable Wizard connectivity. The 220 provides 800 x 600
resolution, 250 ANSI lumens and weighs 16 pounds.
LITEPRO 620 The LitePro 620 is a portable multimedia projection system
which combines Texas Instruments DMD-TM- (Digital Micro Mirror Device), full
motion video, built in JBL Sound System-Registered Trademark-, Smart Remote,
auto sensing and Cable Wizard connectivity. The 620 provides 800 x 600
resolution, 400 ANSI lumens, 1200 ANSI lumens in grayscale mode and weighs 24
pounds.
LITEPRO 720 The LitePro 720 is an ultra portable multimedia projection
system which combines advanced polysilicon active matrix LCDs, dichroic optics,
full motion video, sound, Smart Remote, auto sensing and Cable Wizard
connectivity. The 720 provides 800 x 600 resolution, 450 ANSI lumens and weighs
12 pounds.
COLOR LCD PROJECTION PANELS
SMARTVIEW 2600 The Smartview 2600 is a data only 1.4 million color panel
using a 9.4" enhanced TSTN(2) LCD. The 2600 provides 640 x 480 resolution and
weighs 6.5 pounds.
SMARTVIEW 3600 The Smartview 3600 is an active matrix 8.4" color LCD that
projects data, video and audio. The 3600 provides 640 x 480 resolution and
weighs 6 pounds.
POWERVIEW 820 The PowerView 820 is an active matrix 10.4" color LCD that
projects data, video and audio. The 820 provides 800 x 600 resolution and
weighs 4.2 pounds.
POWERVIEW 950 The PowerView 950 is the industry's first active matrix
1,024 x 768 high resolution color LCD projection panel featuring a full-sized
10.4" LCD for use with high resolution PC and workstation applications. The 950
weighs 6 pounds.
4
PRODUCT AND TECHNOLOGY DEVELOPMENT
The Company increased its investment level in research and development in 1996
in order to enhance existing products as well as create new, differentiated
products in the market place. The Company expects this focus to continue into
1997.
The Company expended approximately $3,856,000, $7,613,000 and $11,693,000 on
research and development activities for the years ended December 31, 1994, 1995
and 1996, respectively. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN ITEM 14.
MARKETING AND DISTRIBUTION
In Focus sells its brand name products through distributors, dealers, catalogs
and governmental sales agencies. More than 165 audio visual dealers, computer
dealers and presentation specialists sell the Company's name brand products. In
Focus also sells through two-tier distributors such as Ingram-Micro, Tech Data,
Merisel, Microage and Access Graphics, who in turn resell In Focus products to
value added resellers throughout North America. In Focus has devoted
significant resources to develop and support a well-trained dealer network with
the ability to demonstrate and sell the Company's products to a wide range of
end-users.
Internationally, In Focus sells its products to 70 international distributors in
more than 60 countries. These distributors sell the Company's products to audio
visual dealers, computer dealers and to end-users. For the year ended December
31, 1996, international sales represented approximately 41 percent of the
Company's revenue. International sales managers, located in Miami, Florida,
Singapore and Amsterdam work with the international distributors to sell and
support the Company's products. SEE NOTE 12 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN ITEM 14. The Company has a private label arrangement
with Boxlight Corporation, which resells the Company's color LCD projection
panels and projectors under its own label.
During 1996, the Company continued to develop and refine several sales and
marketing programs including telesales and telemarketing, a national accounts
program, a cooperative marketing program, a target attainment program, a
demonstration program and a leasing program.
CUSTOMER SERVICE
In Focus has established customer service and support organizations at the
Company's headquarters in Wilsonville, Oregon and at the Company's facility in
the Netherlands which provide telephone support and technical training.
Hardware repair is conducted at the Company's headquarters in Wilsonville, by
authorized agents for the Company in Belgium and Singapore and through a network
of Authorized Service Providers worldwide. Customers have toll-free telephone
access to technical specialists who respond to applications and hardware
questions. All of the Company's products are covered by a one-year warranty for
parts and labor from the date of sale, with extended service agreements
available for purchase. A number of authorized dealers and distributors in
North America and internationally have been trained by the Company to provide
customer service repair, technical support and training to their resellers and
end-users.
5
MANUFACTURING AND SUPPLY
The principal components of the Company's products are display devices,
including various types of LCDs and DMDs, integrated circuits, light sources,
optics, plastic housing parts and electronic sub-assemblies. The Company
procures and tests parts manufactured to the Company's specifications and also
designs and delivers certain electronic components to local sub-contractors for
sub-assembly. The Company then manufactures the final product, which includes
precise alignment of the LCDs and 100 percent testing.
The Company offers products utilizing several types of display devices and
generally attempts to procure components from multiple sources. Certain
components, however, including certain LCDs, DMDs and plastic housing parts for
the projection panels, are purchased from single or limited sources. The
plastic housing parts for the projection panels are molded using Company-owned
tooling. The key components in projection panels and projection systems are the
display devices and imaging engines manufactured to the Company's specifications
by both major Japanese and American manufacturers of products for the
electronics industry. The Company believes that it could obtain most LCDs and
imaging engines manufactured to its specifications from other foreign sources
within three-to-six months at a price that would not be materially higher than
the price paid to existing suppliers.
CUSTOMERS
The Company sells its products to a large number of customers worldwide. No
customer accounted for 10 percent or more of revenue in the year ended December
31, 1996.
BACKLOG
The Company's customers generally order products for immediate delivery, and the
Company generally ships products within one week after receipt of an order.
However, due to the unavailability of adequate supplies of SVGA glass for the
LitePro 220 and 620 and orders on credit hold at the end of the year, backlog at
December 31, 1996 was approximately $9.2 million. Backlog at December 31, 1994
and 1995 was approximately $7.7 million and $33.1 million, respectively. Given
current supply and demand estimates, it is anticipated that a majority of the
current backlog will turn over by the end of the first 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.
COMPETITION
The Company believes its ability to compete in the projection display market
depends on certain key product characteristics, including resolution,
brightness, range and quality of colors, portability, display speed, power
requirements and price.
The Company faces competition from over 35 to 40 established manufacturers and
distributors and expects additional competition as new technologies,
applications and products are introduced. Principal current competitors include
Sharp Corporation, Hitachi, NEC, Epson, Sanyo, Sony, Panasonic, IBM, JVC, 3M,
Polaroid, Proxima Corporation, nView Corporation, ASK, Davis and Liesengang.
6
PATENTS, TRADEMARKS AND LICENSES
The Company has been issued United States Patents covering various novel aspects
of its display systems. In addition, applications for United States Patents are
pending on inventions which enable In Focus' display systems to operate at
higher speeds with higher resolution, better contrast, more efficient light and
optical paths, greater numbers of colors or shades and increased ease of use
features. Corresponding applications for many of these inventions are pending
in Australia, Canada, Japan, Taiwan and the European Patent Office.
The Company attempts to protect its proprietary information through agreements
with customers and suppliers. The Company requires its employees, consultants
and advisors to execute confidentiality agreements on the commencement of
employment with or service to In Focus. While the Company's ability to compete
may be affected by its ability to protect its intellectual property, In Focus
believes the rapid pace of technological change in the industry will mean that
the Company's ability to develop new technologies and distribute new products on
a timely basis will be of equal importance to maintaining its competitive
position in addition to protecting its existing intellectual property.
The Company licenses certain of its patents to Motif, Inc., the Company's 50/50
joint venture with Motorola, Inc.
In Focus holds United States registered trademarks for "In Focus," "PC Viewer,"
"In Focus Systems," "Genigraphics," "TSTN," "Overview," "PanelBook,"
"Presentation Plus" and "LitePro." The Company is in the process of
registration of the trademarks "PowerView," "Powerpro," "Presentation Solution,"
"Smartview," "Cable Wizard," "LiteGo," "GraphicsLink," "Instant Status,"
"Instant Quote," "Instant Order," "Instant Answers," "Web Projector," and
"Smart Projector."
EMPLOYEES
As of December 31, 1996, In Focus had 504 employees, including 89, temporary
personnel engaged through the services of an employment agency. In Focus
believes its relations with its employees are good.
ITEM 2. PROPERTIES
The Company currently leases facilities in Wilsonville, Oregon consisting of a
total of 203,000 square feet of office and manufacturing space leased pursuant
to a noncancelable operating lease which expires in December 1998 and has a five
year renewal option. The Company also leases space in Atlanta, Georgia and
Memphis, Tennessee in relation to Genigraphics. The Memphis lease expires in
February 1997 and is being replaced with another leased space in the Memphis
area for which the lease expires in 2002. The Atlanta lease expires in 1997.
7
ITEM 3. LEGAL PROCEEDINGS
As of February 27, 1997, there were no material pending legal proceedings to
which the Company or its subsidiaries are a party. From time to time, the
Company becomes involved in ordinary, routine or regulatory legal proceedings
incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq National Market System under the
symbol INFS. The high and low sales prices for the two years in the period
ended December 31, 1996 were as follows:
1996 High Low
-------------------------- ------ ------
Quarter 4 $ 22.25 $ 13.37
Quarter 3 25.25 13.13
Quarter 2 57.50 24.25
Quarter 1 38.50 29.50
1995 High Low
-------------------------- ------ ------
Quarter 4 $ 37.63 $ 21.75
Quarter 3 32.75 22.75
Quarter 2 28.50 24.12
Quarter 1 29.75 18.13
The number of shareholders of record at December 31, 1996 was 230.
There were no cash dividends declared or paid in 1996 or 1995. The Company does
not anticipate declaring cash dividends in the foreseeable future.
There were no sales of unregistered securities by the Company during the year
ended December 31, 1996.
8
ITEM 6. SELECTED FINANCIAL DATA
IN THOUSANDS:
EXCEPT PER SHARE AND
SHARE AMOUNTS 1996 1995 1994 1993 1992
- ---------------------------------------------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA
Revenue $ 258,475 $ 202,821 $ 123,068 $ 73,542 $ 59,833
Cost of product sales 185,313 126,148 70,035 46,838 39,112
Gross profit 73,162 76,673 53,033 26,704 20,721
Operating expenses:
Marketing and sales 30,152 25,265 17,468 11,133 9,958
Engineering 18,545 11,882 5,572 4,435 3,966
General and administrative 7,535 6,585 6,189 4,083 2,512
Income from operations 16,930 32,941 23,804 7,053 4,285
Other income 1,492 2,024 1,737 1,515 1,367
Income before equity in income (loss) of joint
venture and provision for income taxes 18,422 34,965 25,541 8,568 5,652
Provision for income taxes 5,622 11,842 8,627 2,556 1,732
Income before equity in income
(loss) of joint venture 12,800 23,123 16,914 6,012 3,920
Equity in income (loss) of joint venture 332 (431) (6,506) - -
Net income $ 13,132 $ 22,692 $ 10,408 $ 6,012 $ 3,920
Net income per share $ 1.16 $ 1.98 $ 0.89 $ 0.53 $ 0.42
Shares used in per share calculations 11,279,821 11,443,612 11,700,871 11,360,274 9,363,533
BALANCE SHEET DATA
Working capital $ 93,109 $ 81,414 $ 63,343 $ 63,866 $ 58,721
Total assets 138,250 127,303 102,210 79,171 67,621
Long-term debt, less current portion 738 - - - 210
Shareholders' equity 107,960 97,527 86,168 70,240 61,427
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Revenue increased to $258.5 million in 1996 from $202.8 million in 1995. The 27
percent growth in revenue resulted primarily from growth in unit sales of the
Company's complete line of LitePro projection products, offset by a decrease in
projector average selling prices. Self contained projection systems accounted
for approximately 87 percent of revenue in 1996. International revenue
increased to $106.2 million in 1996 (41 percent of total revenue) from $78.9
million in 1995 (39 percent of total revenue).
The Company's customers generally order products for immediate delivery, and the
Company generally ships products within one week after receipt of an order.
However, due to the unavailability of adequate supplies of SVGA glass for the
LitePro 220 and 620 and orders on credit hold at the end of the year, backlog at
December 31, 1996 was approximately $9.2 million. Backlog at December 31, 1994
and 1995 was approximately $7.7 million and $33.1 million, respectively. Given
current supply and demand estimates, it is anticipated that a majority of the
current backlog will turn over by the end of the first 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.
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.
Gross profit, as a percentage of revenue, decreased to 28.3 percent in 1996 from
37.8 percent in 1995. The decline in gross margins in 1996 resulted primarily
from a) the expected arrival of new competition in the market, which resulted in
additional pricing pressures market wide, b) reserves established for price
protection provided to customers on sales of LitePro 580s during the second
quarter of 1996, c) higher than anticipated costs as a result of expediting
parts to support a steeper than expected ramp up in production for the LitePro
210 and 620 and d) in conjunction with new product launches in the second
quarter, the repositioning of mature products in the market. Repositioning of
mature products 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.
Marketing and sales expense increased, while decreasing as a percentage of
revenue, to $30.2 million (11.7 percent of revenue) in 1996 from $25.3 million
(12.5 percent of revenue) in 1995. The increase in expenditures is primarily a
result of growth in revenues, demand creation programs and brand recognition
efforts, offset by a reduction in the workforce at the beginning of the third
quarter of 1996 and cost containment efforts during
10
the third quarter that focused resources on those areas that most directly
contributed to revenue growth, quality and customer satisfaction.
Engineering expenses increased to $18.5 million (7.2 percent of revenue) in 1996
from $11.9 million (5.9 percent of revenue) in 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 several new products during the second
and third quarters of 1996. The increases in engineering expense were partially
offset by a reduction in the workforce at the beginning of the third quarter of
1996 and cost containment efforts.
General and administrative expenses increased, while decreasing as a percentage
of revenue, to $7.5 million (2.9 percent of revenue) in 1996 from $6.6 million
(3.3 percent of revenue) in 1995. The increase in expenditures 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
second quarter of 1996. At the end of the second quarter, the Company
reevaluated workload requirements and reduced the workforce by 8 percent,
implementing a flatter organization structure, which significantly reduced
operating expenses for the second half of 1996.
Income from operations decreased to $16.9 million (6.6 percent of revenue) in
1996 from $32.9 million (16.2 percent of revenue) in 1995. This decrease is
mainly attributable to the lower gross margins achieved in 1996, as discussed
above.
The Company's effective tax rate was approximately 30.5 percent in 1996,
compared to approximately 34 percent in 1995. The decrease in the effective
rate is primarily a result of the reinstatement of the research and development
tax credit effective July 1, 1996 and an increased benefit realized under the
Company's Foreign Sales Corporation, offset by increased state taxes as a
percentage of income.
The Company believes that the impact of inflation on net income was minimal in
1996 and 1995.
1995 COMPARED TO 1994
Revenue increased to $202.8 million in 1995 from $123.1 million in 1994. The 65
percent growth in revenue resulted primarily from continued strong demand for
our LitePro series of products, including the LitePro 560, 570 and 580 and other
new products introduced in 1995. Self contained projection systems accounted for
over 70 percent of revenue in 1995. International revenue increased to $78.9
million in 1995 (39 percent of total revenue) from $49.6 million in 1994 (40
percent of total revenue).
Gross profit, as a percentage of revenue, decreased to 38 percent in 1995 from
43 percent in 1994. The decreased gross margin percentage in 1995 is primarily
attributable to increased sales of the LitePro 580 series products, which are
manufactured for the Company by an outside source and therefore carry lower
margins than other products, as well as increasing price competition on all
products due to unconstrained LCD supplies and new market entrants.
11
Marketing and sales expense increased, while decreasing as a percentage of
revenue, to $25.3 million (12.5 percent of revenue) in 1995 from $17.5 million
(14.2 percent of revenue) in 1994. The increase in expenditures is mainly
attributable to an emphasis on growing market share, brand recognition, demand
creation and cooperative advertising programs and general growth of the Company.
Engineering expenses increased to $11.9 million (5.9 percent of revenue) in 1995
from $5.6 million (4.5 percent of revenue) in 1994. This 113 percent increase
in spending over 1994 is a result of increased research and development efforts
and prototype and material costs related to next generation products as well as
investments in engineering and mechanical computer aided design systems.
General and administrative expenses increased, while decreasing as a percentage
of revenue, to $6.6 million (3.3 percent of revenue) in 1995 from $6.2 million
(5.0 percent of revenue) in 1994. The slight increase over 1994 is mainly
attributable to growth of the Company and investments in training and
information systems for the entire Company, offset by continued cost containment
efforts and one-time costs incurred in the third quarter of 1994 related to the
acquisition of certain assets and liabilities of Genigraphics Corporation.
Income from operations increased to $32.9 million (16.2 percent of revenue) in
1995 from $23.8 million (19.3 percent of revenue) in 1994. This increase is
mainly attributable to the individual line item changes discussed above.
The Company's effective tax rate was approximately 34 percent in 1995, compared
to approximately 34 percent in 1994. The effective rate remained constant as a
result of a reduced impact of the research and development credit as a
percentage of income and a lower Foreign Sales Corporation benefit, offset by
decreased state taxes as a percentage of income.
The Company believes that the impact of inflation on net income was minimal in
1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company had working capital of $93.1 million, which
included $33.9 million of cash and $4.3 million of marketable
securities-current. The $10.6 million decrease in the combined cash and
marketable securities balance is mainly as a result of $0.9 million used in
operations, $8.8 million for the repurchase of 500,000 shares of the Company's
Common Stock and $8.0 million for the purchase of property and equipment, offset
by $3.7 million provided by the sale of Common Stock through the exercise of
employee stock options and $2.4 million provided by the income tax benefit of
disqualifying dispositions, the release of restriction on $1.0 million in cash.
The current ratio at December 31, 1996 and 1995 was 4.2:1 and 3.8:1,
respectively.
Accounts receivable increased $5.9 million to $55.3 million at December 31, 1996
from $49.4 million at December 31, 1995, primarily as a result of increased
revenue, offset by increased collections due to stepped up efforts in this area.
Days sales outstanding decreased to approximately 68 days at December 31, 1996
from approximately 74 at
12
December 31, 1995. Aging beyond 60 days past due was approximately 6 percent of
accounts receivable at December 31, 1996.
Inventories increased $11.9 million to $22.7 million at December 31, 1996 from
$10.8 million at December 31, 1995 due primarily to growth in parts stock and
finished goods to support the shift in production to products that the Company
manufactures and unfilled orders for certain customers on credit hold at the end
of the year. Inventory turned approximately 11 times during 1996 and 1995.
Income taxes receivable, net of income taxes payable, increased $3.4 million to
a net receivable of $1.3 million at December 31, 1996 from a net payable of $2.1
million at December 31, 1995 due primarily to the amount of payments that were
required based on calculations prescribed by the Internal Revenue Code.
Shareholders equity increased $10.4 million as a result of net income of $13.1
million, tax benefit of disqualifying dispositions and non-qualified stock
option exercises of $2.4 million and employee stock option exercises of $3.7
million, offset by the purchase of 500,000 shares of the Company's Common Stock
for $8.8 million.
Expenditures for property and equipment in 1997 are expected to be approximately
$12.9 million, primarily for new product tooling, the expansion of manufacturing
capacity in Wilsonville and information systems infrastructure*.
The Company's working capital requirements over the next year are expected to be
met from existing cash and marketable securities balances, cash flow from
operations and amounts available under its line of credit facility*.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The financial statements and notes thereto required by this item are included on
pages F-1 through F-15 as listed in Item 14 of Part IV of this document.
Quarterly financial data for each of the eight quarters in the two year period
ended December 31, 1996 is as follows:
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------------------------- ----------- ----------- ----------- -----------
1996
- ----
Revenue $ 67,698 $ 58,569 $ 59,080 $ 73,128
Gross profit 23,416 13,320 15,962 20,464
Net income (loss) 6,991 (1,148) 2,378 4,911
Net income (loss) per share 0.61 (0.10) 0.22 0.45
1995
- ----
Revenue $ 39,203 $ 48,140 $ 54,448 $ 61,030
Gross profit 16,269 17,711 19,738 22,955
Net income 4,753 5,185 5,982 6,772
Net income per share 0.40 0.47 0.53 0.60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE, respectively in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders and is incorporated herein by reference.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The Consolidated Financial Statements, together with the report thereon of
Arthur Andersen LLP, are included on the pages indicated below :
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the years ended
December 31, 1996,1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity - December 31,
1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULES
The following schedule and report thereon is filed herewith:
Page
----
Report of Independent Public Accountants on Financial
Statement Schedule F-16
Schedule II Valuation and Qualifying Accounts F-17
15
EXHIBITS
The following exhibits are filed herewith:
Sequential
Exhibit No. Page No.
- ----------- --------
3.1 1990 Restated Articles of Incorporation - Incorporated
by reference to Exhibit 3.1 to the Company's Form S-1
Registration Statement (Commission File No. 33-36460)
as filed with the Securities and Exchange Commission
on November 13, 1990. ----
3.2 1997 Restated Bylaws
4.1 See Article VII of Exhibit 3.1 and Section II of
Exhibit 3.2. ----
10.1 1988 Combination Stock Option Plan, as amended -
Incorporated by reference to Exhibit 10.1 to the
Company's annual report on Form 10-K for the year
ended December 31, 1991. ----
10.2 Amendment No. 5 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 4.2 of the
Company's Form S-8 Registration Statement (Commission
File No. 33-47449) as filed with the Securities and
Exchange Commission on April 24, 1992. ----
10.3 Amendment No. 6 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 10.3 of the
Company's annual report on Form 10-K for the year
ended December 31, 1992, as filed with the Securities
and Exchange Commission on March 31, 1993. ----
10.4 Amendment No. 7 to 1988 Combination Stock Option Plan -
Incorporated by reference to the Company's annual
report on Form 10-K for the year ended December 31,
1994, as filed with the Securities and Exchange
Commission on March 16, 1995. ----
16
Sequential
Exhibit No. Page No.
- ----------- --------
10.5 Amendment No. 8 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 4.1.1 of the
Company's Form S-8 Registration Statement (Commission
File No. 333-15235) as filed with the Securities and
Exchange Commission on October 31, 1996. ----
10.6 Amendment No. 9 to 1988 Combination Stock Option Plan.
10.7 Form of Incentive Stock Option Agreement - Incorporated
by reference to Exhibit 10.2 to the Company's annual
report on Form 10-K for the year ended December 31,
1991. ----
10.8 Form of Non-Qualified Stock Option Agreement -
Incorporated by reference to Exhibit 10.3 of the
Company's Form S-1 Registration Statement (Commission
File No. 33-36460) as filed with the Securities and
Exchange Commission on November 13, 1990. ----
10.9 In Focus Systems, Inc. Directors' Stock Option Plan -
Incorporated by reference to Exhibit 4.3 to the
Company's Form S-8 Registration Statement (Commission
File No. 33-57488) as filed with the Securities and
Exchange Commission on January 26, 1993. ----
10.10 Amendment No. 1 to the In Focus Systems, Inc. Directors'
Stock Option Plan - Incorporated by reference to the
Company's annual report on Form 10-K for the year ended
December 31, 1995, as filed with the Securities and
Exchange Commission on March 14, 1996. ----
10.11 Amendment No. 2 to the In Focus Systems, Inc. Directors'
Stock Option Plan - Incorporated by reference to Exhibit
4.2.2 of the Company's Form S-8 Registration Statement
(Commission File No. 333-15235) as filed with the
Securities and Exchange Commission on October 31, 1996.. ----
17
Sequential
Exhibit No. Page No.
- ----------- --------
10.12 Form of Directors' Stock Option Agreement -
Incorporated by reference to Exhibit 4.3.1 to the
Company's Form S-8 Registration Statement (Commission
File No. 33-57488) as filed with the Securities and
Exchange Commission on January 26, 1993. ----
10.13 Letter of employment for John V. Harker - Incorporated
by reference to the Company's annual report on Form
10-K, as filed with the Securities and Exchange
Commission of March 31, 1993. ----
10.14 1997 Executive Bonus Plan - Chief Executive Officer
and Chairman of the Board.
10.15 1997 Executive Bonus Plan - Sr. Vice President
10.16 1997 Executive Bonus Plan - Vice President.
10.17 Lease Agreement for Registrant's facilities in
Wilsonville, Oregon, dated January 20, 1993 -
Incorporated by reference to the Company's annual
report on Form 10-K for the year ended December 31,
1992, as filed with the Securities and Exchange
Commission on March 31, 1993. ----
10.18 Amendment No. 1, dated March 1, 1995, to facilities
Lease Agreement dated January 20, 1993 - Incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, as filed
with the Securities and Exchange Commission of March
14, 1996. ----
10.19 Amendment No. 2, dated May 15, 1995, to facilities
Lease Agreement dated January 20, 1993 - Incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, as filed
with the Securities and Exchange Commission of March
14, 1996. ----
18
Sequential
Exhibit No. Page No.
- ----------- --------
10.20 Amendment No. 3, dated September 1, 1995, to facilities
Lease Agreement dated January 20, 1993 - Incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, as filed with
the Securities and Exchange Commission of March 14,
1996. ----
10.21 Amendment No. 4, dated December 1, 1995, to facilities
Lease Agreement dated January 20, 1993 - Incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, as filed
with the Securities and Exchange Commission on March
14, 1996. ----
10.22 Lease Agreement for Registrant's additional facilities
in Wilsonville, Oregon dated November 7, 1995 -
Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, as filed with the Securities and Exchange
Commission on March 14, 1996. ----
11 Statement regarding computation of per share earnings.
21 List of Subsidiaries - Incorporated by reference to the
Company's fiscal year end December 31, 1994 Form 10-K
Statement as filed with the Securities and Exchange
Commission on March 16, 1995. ----
23 Consent of Arthur Andersen LLP
24.1 Power of attorney of Peter D. Behrendt
24.2 Power of attorney of Michael R. Hallman
24.3 Power of attorney of Jack D. Kuehler
24.4 Power of attorney of John R. Dougery
27 Financial data schedule
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by the Registrant during the quarter
ended December 31, 1996.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: February 25, 1997 IN FOCUS SYSTEMS, INC.
By /s/ JOHN V. HARKER
---------------------------------
John V. Harker
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title
- --------- -----
/s/ JOHN V. HARKER Chairman of the Board, President
- ---------------------- and Chief Executive Officer
John V. Harker (Principal Executive Officer)
Date: February 25, 1997
/s/ MICHAEL D. YONKER Vice President, Information Services,
- ---------------------- Chief Financial Officer, Secretary and
Michael D. Yonker Treasurer
(Principal Financial and Accounting Officer)
Date: February 25, 1997
* PETER D. BEHRENDT Director
- ---------------------- Date: February 25, 1997
Peter D. Behrendt
* JOHN R. DOUGERY Director
- ---------------------- Date: February 25, 1997
John R. Dougery
* MICHAEL R. HALLMAN Director
- ---------------------- Date: February 25, 1997
Michael R. Hallman
* JACK D. KUEHLER Director
- ---------------------- Date: February 25, 1997
Jack D. Kuehler
* BY /s/ JOHN V. HARKER
-------------------
John V. Harker
Attorney-in-fact
20
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
In Focus Systems, Inc.:
We have audited the accompanying consolidated balance sheets of In Focus
Systems, Inc. (an Oregon corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of In Focus Systems,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Portland, Oregon,
January 23, 1997
F-1
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, December 31,
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 33,935 $ 30,165
Marketable securities - held to maturity 4,263 16,563
Accounts receivable, net of allowances of
$3,942 and $2,089 55,289 49,363
Inventories, net 22,715 10,767
Income taxes receivable 1,305 -
Deferred income taxes 3,135 1,624
Other current assets 1,546 2,167
--------- ---------
Total Current Assets 122,188 110,649
Restricted cash - 1,000
Marketable securities - held to maturity - 2,056
Property and equipment, net of accumulated
depreciation of $13,692 and $8,412 14,553 12,201
Other assets, net 1,509 1,397
--------- ---------
Total Assets $ 138,250 $ 127,303
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Income taxes payable $ - $ 2,128
Accounts payable 22,210 21,476
Payroll and related benefits payable 2,282 2,076
Marketing cooperative payable 1,604 1,596
Other current liabilities 2,983 1,959
--------- ---------
Total Current Liabilities 29,079 29,235
Note payable 738 -
Deferred income taxes 473 541
Shareholders' Equity:
Common stock, 30,000,000 shares authorized;
shares issued and outstanding: 10,693,486
and 10,925,474 47,912 46,405
Additional paid-in capital 10,080 7,727
Retained earnings 49,968 43,395
--------- ---------
Total Shareholders' Equity 107,960 97,527
--------- ---------
Total Liabilities and Shareholders' Equity $ 138,250 $ 127,303
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated
balance sheets.
F-2
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands, except share and per share amounts)
1996 1995 1994
---------- ---------- ----------
Revenue $ 258,475 $ 202,821 $ 123,068
Cost of sales 185,313 126,148 70,035
---------- ---------- ----------
Gross profit 73,162 76,673 53,033
Operating expenses:
Marketing and sales 30,152 25,265 17,468
Engineering 18,545 11,882 5,572
General and administrative 7,535 6,585 6,189
---------- ---------- ----------
56,232 43,732 29,229
---------- ---------- ----------
Income from operations 16,930 32,941 23,804
Other income (expense):
Interest expense (45) - (17)
Interest income 1,597 2,010 1,861
Other, net (60) 14 (107)
---------- ---------- ----------
1,492 2,024 1,737
---------- ---------- ----------
Income before equity in income (loss) of
joint venture and provision for income
taxes 18,422 34,965 25,541
Provision for income taxes 5,622 11,842 8,627
---------- ---------- ----------
Income before equity in income (loss) of
joint venture 12,800 23,123 16,914
Equity in income (loss) of joint venture 332 (431) (6,506)
---------- ---------- ----------
Net income $ 13,132 $ 22,692 $ 10,408
---------- ---------- ----------
---------- ---------- ----------
Net income per share $ 1.16 $ 1.98 $ 0.89
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculations 11,279,821 11,443,612 11,700,871
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated statements.
F-3
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands, except share amounts)
Common Stock Additional Total
------------------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- --------- ---------- ---------- -------------
Balance at December 31, 1993 11,077,627 $ 48,602 $ 3,343 $ 18,295 $ 70,240
-
Exercise of Common Stock Options 458,142 3,648 - - 3,648
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,872 - 1,872
Net income - - - 10,408 10,408
----------- ----------- ----------- ----------- ----------
Balance at December 31, 1994 11,535,769 52,250 5,215 28,703 86,168
-
Exercise of Common Stock Options 389,705 4,155 - - 4,155
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 2,512 - 2,512
Stock repurchase (1,000,000) (10,000) - (8,000) (18,000)
Net income - - 22,692 22,692
----------- ----------- ----------- ----------- ----------
Balance at December 31, 1995 10,925,474 46,405 7,727 43,395 97,527
Exercise of Common Stock Options 268,012 3,731 - - 3,731
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 2,353 - 2,353
Stock repurchase (500,000) (2,224) (6,559) (8,783)
Net income - - - 13,132 13,132
----------- ----------- ----------- ----------- ----------
Balance at December 31, 1996 10,693,486 $ 47,912 $ 10,080 $ 49,968 $ 107,960
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
The accompanying notes are an integral part of these consolidated statements.
F-4
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income $ 13,132 $ 22,692 $ 10,408
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 6,235 3,740 2,101
Other non-cash expenses 340 - -
Equity in (income) loss of joint venture (332) 431 6,506
Loss on sale of equipment 41 - 94
(Increase) decrease in:
Accounts receivable, net (5,926) (18,804) (10,139)
Inventories, net (11,948) 665 (4,607)
Income taxes receivable, net (3,433) - -
Deferred income taxes (1,579) (280) (178)
Other current assets 621 (752) (446)
Increase (decrease) in:
Income taxes payable, net - 1,532 (353)
Accounts payable 734 13,835 1,995
Payroll and related benefits payable 206 279 606
Marketing cooperative payable 8 1,012 421
Other current liabilities 1,024 283 151
--------- --------- ---------
Net cash provided by (used in) operating activities (877) 24,633 6,559
Cash flows from investing activities:
Restricted cash 1,000 - -
Purchase of marketable securities-held to maturity (10,742) (22,910) (39,501)
Maturities of marketable securities-held to maturity 25,098 35,672 12,570
Payments for purchase of property and equipment (7,990) (7,265) (6,839)
Proceeds from sale of property and equipment 2 - 2
Investment in joint venture 332 (431) (2,625)
Other assets, net (186) (145) (575)
Purchase of Genigraphics Corporation - - (1,330)
--------- --------- ---------
Net cash provided by (used in) investing activities 7,514 4,921 (38,298)
Cash flows from financing activities:
Payment under note payable guarantee - (3,232) -
Payments under note payable (168) - -
Proceeds from sale of common stock 3,731 4,155 3,648
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 2,353 2,512 1,872
Stock repurchase (8,783) (18,000) -
--------- --------- ---------
Net cash provided by (used in) financing activities (2,867) (14,565) 5,520
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 3,770 14,989 (26,219)
Cash and cash equivalents:
Beginning of period 30,165 15,176 41,395
--------- --------- ---------
End of period $ 33,935 $ 30,165 $ 15,176
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated statements.
F-5
IN FOCUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of In Focus Systems,
Inc. (the "Company") and its wholly-owned subsidiaries, In Focus Systems FSC,
Inc., formed February 1, 1990 and In Focus Services, Inc. formed August 4, 1994.
All significant intercompany accounts and transactions have been eliminated.
NATURE OF OPERATIONS
The Company develops, manufactures and markets multimedia projection products
and services to present video, audio, graphics and data from personal computers,
workstations, VCRs and laser disc players. The Company's products are used in
businesses, schools and government agencies for training sessions, meetings,
sales presentations, technical seminars and other applications involving the
sharing of computer-generated and/or video information with an audience. The
Company's products are compatible with all major personal computers and most
video sources used in business and education. The Company, through its wholly
owned subsidiary, In Focus Services, Inc., also provides creative presentation
services to Fortune 500 and other companies.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Management believes that the estimates used are reasonable.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents consist of highly liquid investments with maturities at the
date of purchase of 90 days or less; marketable securities consist primarily of
government and corporate securities. The Company's marketable securities are
all classified as "held to maturity" as the Company has the intent and ability
to hold the securities until maturity. Accordingly, these securities are
carried at amortized cost. See Note 2 below.
REVENUE RECOGNITION
Revenue from the sale of products is recognized at time of shipment to the
customer. The Company maintains a reserve for sales returns and allowances.
Reserves are also established when the Company establishes a price protection or
a dealer stock rotation program for a particular product or products. The
Company has incentive programs for dealers and distributors whereby rebates are
offered based upon exceeding a percentage of quarterly and annual volume goals.
Estimated rebates are netted against revenue in the month in which revenue is
recognized.
F-6
PRODUCT WARRANTY
Estimated warranty costs are provided at the time of sale of the warranted
products.
CONCENTRATIONS OF RISK
The Company generally attempts to procure components from multiple sources.
Certain components, however, including LCDs and plastic housing parts, are
purchased from single or limited sources.
The Company sells its products to a large number of customers worldwide. At
December 31, 1996, four customers each represented between 5 percent and 6.5
percent of total accounts receivable and at December 31, 1995, four customers
each represented approximately 5 percent of total accounts receivable. The
Company performs ongoing credit evaluations of its customers and maintains a
reserve for potential credit losses. Historically, the Company has not incurred
significant losses related to its accounts receivable.
The Company invests its excess cash with high credit quality financial
institutions which bear minimal risk and, by policy, limits the amount of credit
exposure to any one financial institution. The Company has not experienced any
losses on its investments.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets (approximately two to five years). Leasehold improvements are amortized
over the lease term or the estimated useful life of the asset, whichever is
shorter.
RESEARCH AND DEVELOPMENT
Included in engineering expenses are expenditures for research and development
of products, which are expensed as incurred, of approximately $11,693, $7,613
and $3,856 for the years ended December 31, 1996, 1995 and 1994, respectively.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Effective January 1, 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 requires that companies which do not choose
to account for stock-based compensation as prescribed by this statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS 123
had been adopted. Additionally, certain other disclosures are required with
respect to stock compensation and the assumptions used to determine the pro
forma effects of SFAS 123.
F-7
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding. Fully diluted earnings per share
is not significantly different from primary earnings per share for the periods
presented.
PATENTS AND TRADEMARKS
Costs associated with obtaining patents and trademarks are capitalized and
amortized over the estimated life of the associated patent or trademark.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current presentation.
2. MARKETABLE SECURITIES:
The Company accounts for its Marketable Securities in accordance with Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115).
December 31, December 31,
1996 1995
---------------- ----------------
Held to Maturity Held to Maturity
Fair Market Value $ 4,354 $ 18,810
---------------- ----------------
---------------- ----------------
Amortized Cost:
U.S. Government -- --
State and Local Government 4,263 16,824
Corporate Debt -- 1,795
---------------- ----------------
Total $ 4,263 $ 18,619
---------------- ----------------
---------------- ----------------
Maturity Information:
Less than one year 4,263 16,563
One to five years -- 2,056
---------------- ----------------
Total $ 4,263 $ 18,619
---------------- ----------------
---------------- ----------------
3. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS 109, "ACCOUNTING
FOR INCOME TAXES." The Company realizes tax benefits as a result of the
exercise of nonqualified stock options and the exercise and subsequent sale of
certain incentive stock options (disqualifying dispositions). For financial
reporting purposes, any reduction in income tax obligations as a result of these
tax benefits is credited to paid-in capital. Tax benefits of $2,353, $2,512 and
$1,872 were credited to paid-in capital in 1996, 1995 and 1994, respectively.
F-8
3. INCOME TAXES (CONTINUED):
The provision for income taxes is as follows:
December 31, 1996 1995 1994
------- ------- -------
FEDERAL:
Current $ 6,462 $ 10,898 $ 7,528
Deferred (1,306) (280) (178)
------- ------- -------
5,156 10,618 7,350
STATE:
Current 739 1,224 1,277
Deferred (273) -- --
------- ------- -------
466 1,224 1,277
------- ------- -------
Total $ 5,622 $ 11,842 $ 8,627
------- ------- -------
------- ------- -------
Total deferred income tax assets at December 31, 1996 and 1995 were $3,413 and
$2,195, respectively. Total deferred income tax liabilities at December 31,
1996 and 1995 were $751 and $1,112, respectively. Individually significant
temporary differences at December 31, 1996 include accounts receivable reserves
which were recorded as deferred assets of $1,497. Individually significant
temporary differences at December 31, 1995 include accounts receivable reserves
and cooperative advertising reserves which were recorded as deferred assets of
$786 and $559, respectively, and book/tax depreciation differences which were
recorded as deferred liabilities of $514. The Company has not recorded a
valuation allowance against the deferred tax assets as they are realizable as a
result of past income and available income tax carrybacks.
The reconciliation between the effective tax rate and the statutory federal
income tax rate is as follows:
For the Year Ended December 31, 1996 1995 1994
- ---------------------------------------------- ------ ------ ------
Statutory federal income tax rate 35.0 % 35.0 % 35.0 %
State taxes, net of federal income tax benefit 3.5 2.1 3.6
Research and development tax credit (1.6) (0.7) (1.0)
Foreign sales corporation tax benefit (3.1) (0.9) (2.8)
Tax exempt interest (2.4) (1.6) (1.7)
Other (0.9) -- 0.7
------ ------ ------
Effective tax rate 30.5 % 33.9 % 33.8 %
------ ------ ------
------ ------ ------
4. INVENTORIES:
December 31, 1996 1995
- ------------------------------ ---------- ----------
Raw materials and components $ 6,259 $ 4,786
Work-in-process 1,148 1,166
Finished goods 15,308 4,815
---------- ----------
$ 22,715 $ 10,767
---------- ----------
---------- ----------
F-9
5. PROPERTY AND EQUIPMENT:
December 31, 1996 1995
- ------------------------- ---------- ----------
Furniture and fixtures $ 3,020 $ 2,879
Manufacturing equipment 7,496 4,406
Engineering equipment 1,344 760
Computer equipment 14,889 11,388
Leasehold improvements 1,486 1,170
Vehicles 10 10
---------- ----------
28,245 20,613
Less accumulated depreciation (13,692) (8,412)
---------- ----------
$ 14,553 $ 12,201
---------- ----------
---------- ----------
6. LINE OF CREDIT AND NOTE PAYABLE
In September 1996, the Company entered into an unsecured $10.0 million line of
credit with a commercial bank. The line of credit bears interest, at the
Company's election, at one of the following: 1) the bank's prime rate, 2) LIBOR
plus .65 percent, or 3) at a fixed rate as quoted to the borrower by the bank on
the date of borrowing. The bank's prime rate on December 31, 1996 was 8.25
percent. The line of credit expires on April 30, 1997. The line of credit
agreement contains certain liquidity, tangible net worth and pre-tax profit
covenants. At December 31, 1996 the Company was in compliance with all of the
covenants and had no outstanding balance under the line of credit.
Note payable at December 31, 1996 consists of amounts due related to the
acquisition of certain property and equipment and related service fees.
Maturities under this note payable for years subsequent to December 31, 1996 are
as follows:
Year Ending
December 31,
- -------------------
1997 $ --
1998 171
1999 202
2000 216
2001 149
--------
$ 738
--------
--------
7. LEASE OBLIGATIONS:
The Company leases its facilities and certain improvements under a noncancelable
operating lease which expires in December 1998 and has a five year renewal
option. In connection with the facilities lease, the Company had placed in
trust $1,000 which was held for the benefit of the lessor in the event
remediation of environmental contamination is required for the property occupied
by the Company. The $1,000 was released during 1996 after the Company satisfied
all of the lease obligations in this regard for a nominal cost.
F-10
7. LEASE OBLIGATIONS (CONTINUED):
The Company also leases space in Atlanta, Georgia and Memphis, Tennessee for its
Genigraphics operations. The Memphis lease expires in February 1997 and is
being replaced with another leased facility in the Memphis area for which the
lease expires in 2002. The Atlanta lease expires in 1997.
Future minimum lease payments under the noncancelable operating leases as of
December 31, 1996 are as follows (there were no capital leases at December 31,
1996):
1997 $ 1,961
1998 1,963
1999 217
2000 217
2001 217
Thereafter 72
--------
Total minimum lease payments $ 4,647
--------
--------
Rental expense for the years ended December 31, 1996, 1995 and 1994 was $2,268
$1,305 and $1,257, respectively.
8. MOTIF:
In October 1992, the Company and Motorola, Inc. (Motorola) formed a joint
venture called Motif Inc. (Motif). The joint venture was formed to manufacture
and sell liquid crystal displays (LCDs) and to market and distribute application
specific integrated circuits (ASICs) embodying the Company's Active Addressing
technology. The Company and Motorola each acquired a 50 percent interest in
Motif. The Company's interest, accounted for under the equity method, was
acquired in exchange for the licensing of certain of its technology and the
contribution of equipment, at net book value of $170. Motorola's interest in
the joint venture was acquired in exchange for cash required to complete the
development of Active Addressing ASIC and fund the working capital needs of the
joint venture.
In October, 1994, the Company announced plans to restructure the Motif LCD
operations in order to provide greater focus on the development of its core
Active Addressing technology. As a result, Motif shut down its LCD
manufacturing operation in Wilsonville, Oregon, resulting in a one time
restructuring charge. The Company's share of this restructuring charge and 1994
operating losses was $6.5 million. The Company's investment in the underlying
net assets of Motif at December 31, 1996 was $101.
At December 31, 1996 Motif had signed two license agreements with unrelated
parties for the use of its Active Addressing technology. Royalties generated by
license agreements will be divided between the Company and Motorola on an equal
basis.
F-11
9. GENIGRAPHICS CORPORATION:
On August 4, 1994, In Focus Services, Inc., a newly formed, wholly owned
subsidiary of the Company, acquired certain assets and liabilities of
Genigraphics Corporation and Genigraphics Service Corporation (Genigraphics) for
$1.5 million. The acquisition was consummated pursuant to an Agreement for Sale
and Purchase of Business Assets, dated June 28, 1994, between the Company and
Genigraphics, as amended on August 4, 1994. Consolidated proforma financial
information is as follows:
For the Year Ended
December 31, 1994
- ----------------------- --------------------
Revenue $ 128,000
Net income $ 10,000
Net income per share $ 0.87
10. SHAREHOLDERS' EQUITY:
In connection with the formation of Motif, the Company sold 2,212 shares of
Common Stock to Motorola at $10 per share under a Stock Purchase Agreement.
Under the terms of the agreement, Motorola was granted limited preemptive rights
to future issuances of the Company's Common Stock and the Company was granted
the right of first refusal in the event shares owned by Motorola are sold. In
March 1995, the Company bought 1,000 shares of its Common Stock from Motorola
for $18 per share. Motorola sold additional shares of the Company's Common
Stock from time to time throughout 1995 and at December 31, 1995, Motorola held
no shares of the Company's Common Stock.
In July 1996, the Company completed the repurchase of a total of 500 shares of
its Common Stock at an average price of $17.60 per share, for a total of $8,785,
which was paid out of existing cash balances.
STOCK OPTION PLANS
The Company's 1988 Combination Stock Option Plan, as amended (the "Option Plan")
provides for the issuance of incentive stock options to employees of the Company
and nonstatutory stock options to employees, officers, directors and consultants
of the Company. At December 31, 1996, the Company had 2,067 shares of Common
Stock reserved for issuance under the Option Plan. Under the Option Plan, the
exercise price of incentive stock options cannot be less than fair market value
at date of grant and the exercise price of a nonstatutory stock options cannot
be less than 50 percent of fair market value at the date of grant or book value
per share at the end of the preceding fiscal year. Options granted generally
vest over a four year period and expire ten years from the date of grant.
F-12
10. SHAREHOLDERS' EQUITY (CONTINUED):
Activity under the Option Plan is summarized as follows:
Shares Shares Exercise Total
Available Subject to Price Per Exercise
for Grant Options Share Price
---------- ----------- ------------- --------
Balances, December 31,
1993 352 1,330 $ 1.15-18.50 $ 12,711
Additional shares reserved 1,000 - - -
Options granted (512) 512 11.00-30.75 9,108
Options canceled 132 (132) 1.15-18.50 (1,593)
Options exercised - (458) 1.15-16.50 (3,656)
-------- ------ ------------ ---------
Balances, December 31,
1994 972 1,252 1.15-30.75 16,570
Options granted (651) 651 18.13-36.12 16,792
Options canceled 118 (118) 6.50-29.87 (1,975)
Options exercised - (389) 1.15-28.25 (4,148)
-------- ------ ------------ ---------
Balances, December 31,
1995 439 1,396 6.50-36.12 27,239
Additional shares reserved 500 - - -
Options granted (1,052) 1,052 13.37-55.50 25,516
Options canceled 689 (689) 7.75-55.50 (21,812)
Options exercised - (268) 6.50-36.75 (3,731)
-------- ------ ------------ ---------
Balances, December 31,
1996 576 1,491 $7.50-47.50 $ 27,212
-------- ------ ------------ ---------
-------- ------ ------------ ---------
At December 31, 1996, options to purchase 436 shares of Common Stock were
exercisable.
The Company's Directors' Stock Option Plan, as amended (the "Directors' Plan")
provides for the grant of stock options covering a total of 200 shares of the
Company's Common Stock to directors of the Company who have not, at any time
during the year preceding the grant of a stock option under the Directors' Plan,
been an employee of the Company or its subsidiaries ("Eligible Directors"). The
Directors' Plan provides for the automatic grant of options to purchase 10
shares of the Company's Common Stock on the date the director becomes an
eligible director and options to purchase 5 shares of the Company's Common Stock
on each anniversary of that date through August 21, 2002. The Directors' Plan
also provides for the automatic grant of options to each Eligible Director on a
quarterly basis in lieu of the payment of a retainer and attendance fees. All
Director options vest six months after the date of grant.
At December 31, 1996 the Company has reserved 200 shares of Common Stock for
issuance under the Directors' Plan. Options to purchase 89 shares of the
Company's Common Stock have been granted at prices ranging from $9.25 to $35.75
and are outstanding at December 31, 1996. At December 31, 1996, options to
purchase 52 shares of Common Stock were exercisable.
F-13
10. SHAREHOLDERS' EQUITY (CONTINUED):
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option and
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1996 and 1995 using the Black-Scholes
option pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants:
For the Year Ended
December 31, 1996 1995
-------- --------
Risk-free interest rate 6% 6%
Expected dividend yield 0% 0%
Expected lives 5.10 5.10
Expected volatility 74.7% 72.0%
Using the Black-Scholes methodology, the total value of options granted during
1996 and 1995 was $19,659 and $10,997, respectively, which would be amortized on
a pro forma basis over the vesting period of the options (typically four years).
The weighted average fair value of options granted during 1996 and 1995 was
$19.47 per share and $16.40 per share, respectively. If the Company had
accounted for its stock-based compensation plans in accordance with SFAS 123,
the Company's net income and net income per share would approximate the pro
forma disclosures below:
For the Year Ended
December 31, 1996 1995
------------------- -------------------
As Pro As Pro
Reported Forma Reported Forma
-------- -------- --------- ---------
Net income $ 13,132 $ 6,493 $ 22,692 $ 21,313
Net income per share $ 1.16 $ 0.62 $ 1.98 $ 1.92
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995,
and additional awards are anticipated in future years.
F-14
10. SHAREHOLDERS' EQUITY (CONTINUED):
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
- ----------------------------------------------------- -----------------------
Average Weighted Number of Weighted
Range of Number Remaining Average Shares Average
Exercise Outstanding Contractual Exercise Exerciseable Exercise
Prices at 12/31/96 Life(years) Price at 12/31/96 Price
- ------------- ----------- ----------- --------- ------------ ---------
$ 7.50-14.75 344 6.62 $ 11.70 237 $ 11.28
15.00-16.25 34 7.62 15.87 18 15.86
16.50-16.50 599 9.26 16.50 60 16.50
17.00-22.75 317 9.00 19.61 59 20.76
23 25-47.50 286 8.62 29.41 114 29.16
- ------------- ----------- ----------- --------- ------------ ---------
$ 7.50-47.50 1,580 8.48 $ 18.40 488 $ 17.43
- ------------- ----------- ----------- --------- ------------ ---------
- ------------- ----------- ----------- --------- ------------ ---------
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information is as follows:
For the Year Ended December 31, 1996 1995 1994
- ---------------------------------------------- ------ ------ ------
Cash paid during the period for interest $ 39 $ - $ 17
Cash paid during the period for income taxes 8,861 8,078 7,263
Property acquired through note payable 566 - -
Reclass of joint venture reserve to note
payable (a non-cash financing activity) - - 3,232
12. EXPORT SALES AND MAJOR CUSTOMERS:
The Company markets its products in the United States and internationally.
Geographic revenue information is as follows:
For the Year Ended December 31, 1996 1995 1994
- -------------------------------- ---------- --------- ---------
United States $ 152,285 $ 123,933 $ 73,500
Europe 66,045 49,555 24,756
Other 40,145 29,333 24,812
---------- --------- ---------
$ 258,475 $ 202,821 $ 123,068
---------- --------- ---------
---------- --------- ---------
No customers accounted for 10 percent or more of revenue in the years
ended December 31, 1996, 1995 or 1994.
F-15
Report of Independent Public Accountants
on Financial Statement Schedule
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in In Focus Systems, Inc.'s Annual
Report on Form 10-K, and have issued our report thereon dated January 23, 1997.
Our audits were made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed on page 15 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 23, 1997
F-16
SCHEDULE II
In Focus Systems, Inc.
Valuation and Qualifying Accounts
Years Ended December 31, 1994, 1995 and 1996
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Charged Charged to Balance
at Beginning to Costs and Other Accounts - Deductions - at End
Description of Period Expenses Describe Describe (a) of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 585 $ 523 $ 186 (b) $ (77) $ 1,217
Sales allowances (c) $ 644 $ 3,586 $ - $ (3,367) $ 863
Year Ended December 31, 1995:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,217 $ 317 $ - $ (350) $ 1,184
Sales allowances (c) $ 863 $ 7,175 $ - $ (7,133) $ 905
Year Ended December 31, 1996:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,184 $ 1,040 $ - $ (392) $ 1,832
Sales allowances (c) $ 905 $ 15,234 $ - $ (14,029) $ 2,110
The accompanying notes are an integral part of these consolidated statements.
(a) Charges to the accounts included in this column are for the purposes for
which the reserves were created.
(b) Amount reflects balance in the allowance for uncollectible accounts of
Genigraphics Corporation upon acquisition.
(c) The reserve for sales allowances is used for pricing adjustments made in
accordance with the Company's pricing structure.
F-17