WILSONVILLE, Ore., October 26, 2005 - InFocus® Corporation (Nasdaq: INFS) today announced its third quarter 2005 financial results. On a proforma basis, excluding the impact of restructuring, long-lived asset impairment, regulatory assessments, and inventory charges as detailed below, the company posted a net loss of $6.2 million, or $0.16 per share, compared to a net loss of $11.8 million, or $0.30 per share, for the second quarter, and net income of $2.0 million, or $0.05 per share, in the third quarter of 2004. Proforma gross margins were 12.1 percent on revenues of $130.3 million for the quarter.
Included in the third quarter results were several charges primarily related to the restructuring announced by the company in mid-September. These charges include:
1. Inventory and equipment write-downs associated with the exit of the thin display business of $9.2 million included in cost of goods sold; 2. Excess component inventory costs of $0.5 million related to the company's contract manufacturing transition from Flextronics included in cost of goods sold; 3. Other write-downs of inventory to net realizable value of $6.7 million primarily related to remanufactured projectors, service parts, and certain slow moving finished goods also included in cost of goods sold; 4. Restructuring costs of $6.0 million primarily related to severance for reductions in worldwide headcount; and an 5. Impairment of long-lived asset charge of $9.8 million, associated with the company's fixed assets and capitalized intangible assets.
On a reported basis under generally accepted accounting principles, gross margins were negative 0.4 percent, the net loss was $38.3 million and the net loss per share was $0.97 for the third quarter of 2005. The company also reported total cash and marketable securities at the end of September of $77.5 million, with no debt outstanding.
Quarterly Revenue, Unit, ASP and Gross Margin Comparisons Third quarter revenues of $130.3 million were down 4 percent compared with second quarter revenues and down 20 percent from revenues in the third quarter of 2004. Gross margins of negative 0.4 percent in the third quarter decreased from 5.8 percent in the second quarter. Gross margins in both quarters were negatively impacted by inventory and equipment write-downs of $16.4 million and $4.9 million, respectively. Excluding the impact of these inventory charges, proforma gross margins were 12.1 percent and 9.4 percent for the third and second quarter, respectively. Overall, average selling prices were flat quarter to quarter as the company focused on improving gross margin levels. Projector unit shipments were approximately 99,000 units, down about 5% from the prior quarter.
Operating Expenses Comparison Excluding Charges Operating expenses, exclusive of charges, were $27.2 million for the third quarter of 2005, a decrease of $0.6 million from the second quarter and $4.6 million from the third quarter of 2004. The reduction is a result of ongoing cost reduction actions being implemented by the company.
Other income for the third quarter was $5.5 million compared to $3.4 million in the second quarter and $5.7 million in the third quarter of 2004. The realized gain on the sale of marketable securities for the third quarter was $4.3 million compared to $4.2 million in the second quarter. The company's share of losses related to SMT was $1.6 million in the third quarter compared to $1.3 million in the second quarter of 2005.
Balance Sheet
Total cash and marketable securities at the end of September were $77.5 million, a decrease of $0.5 million from the end of the second quarter. Days sales outstanding for the quarter were 49 days. Inventory levels declined $22.7 million during the quarter to $86.1 million, resulting in improved inventory turns. As planned during the quarter, the company made an additional $3.5 million investment in SMT, bringing its capital contribution to date to $10.0 million.
Restructuring Update
In mid-September, the company announced a comprehensive restructuring plan as part of an overall initiative to simplify the business with the goal of returning the company to profitability in the first half of 2006. At that time, the company indicated its goals were to reduce its cost to serve, increase its supply chain efficiency to reduce product costs, and reduce other operating costs with a goal of returning gross margins to between 16 and 18 percent and reduce operating expenses by 20 to 25 percent from reported second quarter 2005 levels. Since the announcement, the management team has initiated a number of actions to simplify the business and reduce costs that are intended to result in a return to profitability in the first half of 2006.
Specifically, the following actions are being taken:
1. Concentration of sales and marketing resources on the largest and most profitable geographies worldwide; 2. Focus in the Americas on the most profitable and highest growth channels including retail, PC distribution, and direct fulfilled customers; 3. Consolidation of worldwide marketing efforts resulting in synergies among previously dispersed activities; 4. Completing our contract manufacturing transition from Flextronics to South Mountain Technologies and Foxconn in the fourth quarter. They both join our existing contract manufacturing partner, Funai Electric, allowing for low cost, high quality contract manufacturing as we bring new products to market in 2006; 5. Improving velocity in the supply chain; 6. Back office function and facilities consolidations; and 7. Reducing total employee costs through 15% worldwide headcount reductions.
Outlook for Q4 2005
The fourth quarter is a transitional quarter as the company executes aggressively on its restructuring plans implementing the required changes to put the company in a position to achieve its goal of returning to profitability in the first half of 2006. The following factors are expected to influence fourth quarter revenues and gross margins:
1. Continued aggressive price competition across the industry; 2. Managing product transitions to make way for new product introductions in the first half of 2006; 3. Competition in retail for consumer spending during the holiday buying season; 4. End of year buying from businesses across the globe providing an opportunity for seasonal growth; 5. Good availability of high volume products; and 6. Entering the quarter with appropriate levels of channel inventory across major channel partners.
The company expects a reduction in reported operating expenses in the fourth quarter as it implements restructuring initiatives, offset somewhat by certain incremental costs associated with these actions. The majority of the cost reduction benefits related to the actions being taken are expected to begin showing up in operating expense run rates in early 2006.
Given the difficulty of predicting financial results due to major shifts in the company's business model and markets due to its restructuring activities, the company is not giving specific financial guidance for future periods at this time.
"Our mission is clear. We must restructure the business to achieve profitability as quickly as possible and we have taken the immediate steps needed to accomplish this goal," stated Kyle Ranson, President and CEO. "We are implementing actions that will make us a simpler, focused, cost effective, and ultimately a profitable company. While some of these decisions and actions may limit short term revenue growth opportunities, they are required to deliver a healthy core business," concluded Ranson.
Reconciliation of GAAP and Pro Forma Information The company has recorded non-recurring charges that are excluded from operating expenses and earnings for comparative purposes. In accordance with SEC FR-59, we have attached a Statement of Reconciliation of GAAP Earnings.
Forward-Looking Statements
This press release includes forward-looking statements, including statements related to anticipated revenues, gross margins, expenses, earnings, availability of components and subassemblies manufactured for the company, inventory, backlog, and new product introductions. Also included are forward-looking statements regarding the results and charges associated with restructuring of the company's business to reduce its overall cost structure and other changes to the business resulting in a more focused, cost effective company. 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 following factors, among others, could cause actual results to differ from those indicated in the forward-looking statements:
1) in regard to revenues, gross margins, inventory and earnings, uncertainties associated with market acceptance of and demand for the company's products, the impact competitive and economic factors have on business buying decisions, dependence on third party suppliers, the impact of regulatory actions by authorities in the markets we serve, the impact of potential fines and/or sanctions imposed as a result of our recent self disclosure regarding infractions of U.S export law, and commencement of operations and initial product shipments by our newly formed joint venture with TCL Corporation; 2) in regard to product availability and backlog, uncertainties associated with manufacturing capabilities, uncertainties associated with our transition from Flextronics to new contract manufacturing partners, availability of critical components, and dependence on third party suppliers;
3) in regard to new product introductions, ability of the company to make timely delivery of new platforms, uncertainties associated with the development of technology, uncertainties with product quality and availability with the transition to offshore contract manufacturing and the establishment of full manufacturing capabilities, dependence on third party suppliers and intellectual property rights; and
4) in regard to the company's restructuring plan, uncertainties associated with the impact on revenues and gross margins of plans to focus efforts on certain geographies and sales channels and the ability to execute the transitions planned in the desired time frames based on the scale of actions planned. Investors are directed to the company's filings with the Securities and Exchange Commission, including the company's 2004 Form 10-K, which are available from the company without charge, for a more complete description of the risks and uncertainties relating to forward-looking statements made by the company as well as to other aspects of the company's business. The forward-looking statements contained in this press release speak only as of the date on which they are made and the company does not undertake any obligation to update any forward looking statements to reflect events or circumstances after the date of this press release.
About InFocus Corporation
InFocus® Corporation (Nasdaq: INFS) is the industry pioneer and worldwide leader in the projection market today. Nearly twenty years of experience and engineering breakthroughs are at work here, constantly improving what you see in the marketplace, and delivering immersive audio visual impact in home entertainment, business and education environments. Being the inventor and leader is simply a great bonus of making the presentation of ideas, information, and entertainment a vivid, unforgettable experience.
InFocus Corporation's global headquarters are located in Wilsonville, Oregon, USA, with regional offices in Europe and Asia. For more information, visit the InFocus Corporation web site at www.infocus.com or contact the company toll-free at 800.294.6400 (U.S. and Canada) or 503.685.8888 worldwide.
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Voor meer informatie kunt u contact opnemen met:
Jolanda Medendorp
InFocus Corporation
Sr. MarCom Manager EMEA
Telefoon: 020- 579 2165
mailto:Jolanda.Medendorp@InFocus.com
www.InFocus.com / www.askprojectors.com / www.InFocushome.com
Rianne van der Sar
Edelman
Telefoon: 023 - 554 2030
mailto:rianne.vandersar@edelman.com
www.edelman.com/nl/pressroom
InFocus, Proxima, LiteShow and LP are registered trademarks and ASK, ScreenPlay, and The Big Picture are trademarks of InFocus Corporation. "Digital Light Processing" and "DLP" are trademarks of Texas Instruments.