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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

Commission File Number: 000-18908

INFOCUS CORPORATION
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: 503-685-8888

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

        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 ý    No o

        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. o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the last sales price ($11.78) as reported by the Nasdaq National Market System, as of the last business day of the Registrant's most recently completed second fiscal quarter (June 28, 2002), was $266,684,510.

        The number of shares outstanding of the Registrant's Common Stock as of February 28, 2003 was 39,349,299 shares.

Documents Incorporated by Reference

        The Registrant has incorporated into Part III of Form 10-K, by reference, portions of its Proxy Statement for its 2003 Annual Meeting of Shareholders.

INFOCUS CORPORATION
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

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PART I

Item 1. Business

Where You Can Find More Information

        We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 as amended (Exchange Act). You can inspect and copy our reports, proxy statements, and other information filed with the SEC at the offices of the SEC's Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms. The SEC maintains an Internet Web site at http://www.sec.gov/ where you can obtain most of our SEC filings. In addition, you can inspect our reports, proxy materials and other information at the offices of the Nasdaq Stock Market at 1735 K Street NW, Washington D.C. 20006. We also make available free of charge on our website at www.infocus.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with the SEC. You can also obtain copies of these reports by contacting Investor Relations at (503) 685-8609.

Company Profile

        InFocus Corporation is the worldwide leader in digital projection technology and services. Our products are used in business, education, government and home markets for training sessions, meetings, sales presentations, technical seminars, group collaboration, entertainment and other applications involving the sharing of computer-generated and/or video information with an audience.

        We have established four product platforms intended to meet the diverse projection requirements of our customers. These are i) mobile projectors, intended for mobile professionals who place a premium on reduced size and weight; ii) meeting room projectors, intended for conference or training room environments; iii) installation and integration projectors, intended for large venues and auditorium environments; and iv) home entertainment projectors, intended for home theater, gaming and entertainment environments in the home.

        We deliver innovative and reliable technology expertise resulting in products that are easy to use and integrate, true multimedia capabilities, quick setup and intuitive operation. Users can connect to a variety of sources including digital and analog PCs, DVD players, HDTVs, S-video, VCRs, workstations, laser disc players and gaming devices.

        We conduct and support research and development to expand the category, provide best-in-class projection technologies and communicate the value of projection to professionals, educators and consumers. We leverage multiple projection technologies, including polysilicon LCD and Digital Light Processing™ (DLP) technology from Texas Instruments and develop proprietary imaging technology that we have licensed to a number of other vendors.

        We have devoted significant resources to developing and supporting a well-trained reseller network with the ability to demonstrate and sell our products to a wide range of end-users worldwide. We sell our InFocus, ASK and Proxima brand products through wholesale distributors, which in turn sell to PC resellers, audiovisual resellers, online providers, catalogs, education resellers and government resellers. In addition, we have recently begun offering certain products through office product retailers and expect to have certain products available in consumer electronics retailers during 2003. Further, we have private label OEM arrangements with a number of companies which resell our projectors under their own brands.

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        Our customer service organization supports customers through a call center and an Internet based support program. We also provide factory repair, authorized service center repair, accessories, service parts, remanufactured projectors, service contracts, and technical publications for our customers and end-users.

        We have also recently begun an initiative to provide light engines for rear projection products such as large rear screen televisions by announcing relationships with two television manufacturers. By leveraging our investments in front projection technology and existing DLP technology, we are providing a new technology alternative for rear projection device manufacturers that reduces the size and weight of the television while improving its price performance.

Current Products

        Our products are compatible with all major personal computers and video sources used in business, education and home entertainment. Two key characteristics of our products are resolution and video performance. Resolution is defined by using standard industry terms SVGA, XGA, SXGA and UXGA, which are terms that define the number of pixels in a display. An SVGA display has 480,000 pixels (800X600), an XGA has 786,432 pixels (1,024X768), an SXGA has 1,310,720 pixels (1,280X1,024) and a UXGA has 1,920,000 pixels (1,600X1,200). We utilize the latest in video electronics to improve the video performance over normal projection devices.

        Our current product offering is as follows:

Mobile Projectors:

        InFocus LP70, ASK M2 and Proxima DP1000x are digital mobile projectors at 2.41bs (1.1kg) with 1,100 lumens, 800:1 contrast ratio, XGA resolution, a zoom lens, data/video connectivity standard and DLP technology.

        InFocus LP130 is a digital mobile projector at 31bs (1.36kg) with 1,100 lumens, XGA resolution, a zoom lens, data/video connectivity standard and DLP technology.

        ASK M3 and Proxima UltraLight 350 have 1,100 lumens, weigh 3.51bs (1.5kg) and are fully digital with XGA resolution and DLP technology. The M3 and UltraLight 350 are also very quiet, at 32 db. and have video module ports, which replicate DVI/I and USB, in addition to supporting RCA, S-video and a one-watt stereo speaker.

Meeting Room Projectors:

        InFocus LP240, ASK C10 and Proxima DP2000x have 1,000 lumens, SVGA resolution, weigh 5.781bs (2.6kg), with 0.55" polysilicon LCDs.

        InFocus LP250, ASK C50 and Proxima DP2000x have 1,100 lumens, XGA resolution, weigh 5.781bs (2.69kg), with 0.7" polysilicon LCDs.

        InFocus X1 has 1,000 lumens, SVGA resolution, weighs 6.81bs (3.1kg), and has analog connectivity, Faroudja Video and DLP technology. The X1 is the first cross over projector designed for business and home entertainment.

        InFocus LP500 has 2,000 lumens, SVGA resolution, weighs 5.71bs (2.59kg), has analog and digital connectivity, Faroudja Video and DLP technology.

        InFocus LP530 has 2,000 lumens, XGA resolution, weighs 5.71bs (2.59kg), has analog and digital connectivity, Modular Design, Faroudja Video and DLP technology.

        InFocus LP630 has 2,000 lumens, XGA resolution, weighs 8.91bs (4.0kg), has analog and digital connectivity, with 0.9" MLA polysilicon LCDs.

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        InFocus LP650 and Proxima DP6500x have 2,500 lumens, XGA resolution, weighs 9.351bs (4.24kg), and has analog and digital connectivity, Faroudja Video and DLP technology.

        ASK C85 and Proxima DP5155 have 1,700 lumens, SVGA resolution, weigh 7.51bs (3.4kg), have analog and digital connectivity, with 0.9" polysilicon LCDs.

        ASK C95 and Proxima DP6105 have 1,500 lumens, XGA resolution, weigh 7.51bs (3.4kg), have analog and digital connectivity, with 0.9" polysilicon LCDs.

        InFocus LP690, ASK C105 and Proxima DP6155 have 2,000 lumens, XGA resolution, weigh 7.51bs (3.4kg), have analog and digital connectivity, with 0.9" MLA polysilicon LCDs.

        InFocus LP800 and Proxima DP6870 have 3,500 lumens, XGA resolution, polysilicon LCDs, weigh 13.21bs (5.9kg), with full conference room connectivity including 2 computer inputs, 2 audio inputs, 1 video input and motorized zoom and focus. These projectors also offer multiple lens options.

Installation and Integration Projectors:

        InFocus LP790, Proxima DP8000 and ASK C300 are the first network-ready projection platforms available from InFocus. Recent performance upgrades enable these products to reach 3,300 lumens in XGA resolution, with a 950:1 contrast ratio and extensive connectivity. The products are based on 1.3" LCD panel technology.

        InFocus LP810 and Proxima DP9295 are 1.3" LCD-based projectors designed for larger venues. These products have 4,100 lumens and significant flexibility for a sub-20 pound projector. With interchangeable, user-replaceable lenses, motorized lens shift and full connectivity (analog RGB, DVI, BNC, component, S-Video and RCA audio jacks), they can be adapted to almost any application.

        Proxima PRO AV 9500/9550 are the most powerful models in our product lineup. Based on 1.8" LCD technology, these models weigh slightly less than 45 lbs. The two products share interchangeable, user-replaceable lenses, come equipped with motorized lens shift and feature modular connectivity that can be customized for any installation. The 9500 delivers 5,200 lumens at XGA resolution, while the 9550 performs at 5,800 lumens in SXGA resolution.

        ProjectorNet is a client/server based software application designed to allow IT and facilities personnel to manage multiple projectors from a single PC. Utilizing a standard Microsoft® MMC snap-in, ProjectorNet gives organizations the power to manage projectors over the network, just as they would other shared computing and communication assets such as PCs and printers.

Home Entertainment Projectors:

        InFocus ScreenPlay 110 has 1,000 lumens, DVD 480p resolution (848x480), weighs 5.71bs (2.59kg), has analog and digital (DVI) connectivity including High Bandwidth Digital Content Protection decoding, Faroudja Video processing and DLP technology.

        InFocus ScreenPlay 7200 has 1,000 lumens, true High Definition resolution (1280x720), comes calibrated to D65 color mastering standards, weighs 9.5 lbs (4.3 kg), has analog and digital (DVI) connectivity including High Bandwidth Digital Content Protection decoding, Faroudja video processing and DLP technology.

Light Engines for Rear Projection Products:

        Carrera has XGA resolution and a 4:3 aspect ratio. It is designed for use in a 50"+ diagonal rear projection television.

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Product and Technology Development

        We have maintained our investment level in research and development in 2002 primarily for development of new products, as well as our home entertainment, networking, and wireless initiatives. Our research and development spending also reflects our initiative to design and produce rear-projection engines for large screen digital televisions. We plan to continue to invest in research and development to enable continued innovation in our product offerings.

        We expended $37.8 million, $36.2 million and $34.8 million on research and development activities for the years ended December 31, 2002, 2001 and 2000, respectively.

Marketing, Distribution and Geographic Sales

        We have devoted significant resources to develop and support a well-trained reseller network with the ability to demonstrate and sell our products to a wide range of end-users worldwide. In the U.S., we offer our products through approximately 75 authorized professional audiovisual dealers and direct resellers. We also sell our InFocus and Proxima brand products through wholesale distributors, which in turn sell to approximately 3,000 PC resellers, online providers, catalogs and government resellers. In addition, we are beginning to sell our InFocus consumer and business products directly to retailers and expect this category to grow in the future.

        We have private label OEM arrangements with companies which resell our projectors under their own labels.

        Additionally, we sell our products and services directly to large multinational organizations via our WorldView Global Accounts Program. WorldView customers work with our teams to identify their presentation technology needs company-wide, then consolidate their purchase and support requirements across geographic boundaries. Sales of projectors and services are fulfilled either directly by us or through one of our local authorized business partners.

        Outside the U.S., we sell our products to approximately 130 international business partners in more than 100 countries. These distributors sell our products to audiovisual dealers, PC resellers and, in some cases, directly to end-users. Sales subsidiaries, located in Singapore, China, Norway, Germany, Sweden, Switzerland, France and The Netherlands work with international distributors and local direct dealers to sell and support our products.

        During 2002, revenues generated geographically were 54.1 percent in the U.S., 29.6 percent in Europe, 11.1 percent in Asia and 5.2 percent in the rest of the world. During 2001, revenues generated geographically were 55.9 percent in the U.S., 27.0 percent in Europe, 11.5 percent in Asia and 5.6 percent in the rest of the world. During 2000, revenues generated geographically were 61.4 percent in the U.S., 21.4 percent in Europe, 10.6 percent in Asia, and 6.6 percent in the rest of the world.

Seasonality

        Given the buying patterns of various geographies and market segments, our revenues are subject to certain elements of seasonality during various portions of the year. Historically, 25-30 percent of our revenue has come from Europe and, as such, we typically experience a seasonal downturn due to the vacation season in mid-summer, which results in our revenues from that region, and overall, to be down in the third quarter compared to the second quarter. Conversely, we typically experience a strong resurgence of revenue from Europe in the fourth quarter. This, coupled with a strong buying season in the fourth quarter by larger wholesale distribution partners, typically leads to our strongest revenues being in the fourth quarter of each year. In addition, we sell our products into the education and government markets which typically see seasonal peaks in the third quarter of each year.

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Sales Returns and Incentives

        Some distributor and dealer agreements allow for limited partial return of products and/or price protection. Such return rights are generally limited to a contractually defined short-term stock rotation and defective or damaged product. We also have incentive programs for dealers and distributors whereby rebates are offered based upon exceeding a percentage of quarterly and annual volume goals.

Service

        Our global service and solutions include: call center and Internet customer support, factory repair, authorized service center repair, accessories, service parts, remanufactured projectors, warranty extension contracts, service contracts, service-related training, service engineering and technical publications (including Service Guides, Technical Bulletins & User Guides). Design and consulting support is available for our authorized product integration resellers.

        Our service organization has facilities in Wilsonville, Oregon, Amsterdam and Singapore. Factory repair is performed at our Wilsonville, Oregon facility and in partnership with DHL (Belgium), DAX (Ireland) and PCS (Asia Pacific).

        In addition, personnel in approximately 150 Authorized Service Centers worldwide are trained by us to provide warranty, product repair, technical support, and training to their resellers and end-user customers.

        Customers have access via telephone and email in the United States, Europe and Asia or the worldwide web to technical specialists who answer application and hardware questions. All current products are covered by a warranty for parts and labor. Extended service agreements are available for purchase. Examples of enhanced service programs offered for purchase include product loaner programs to support end users while products are being repaired.

Manufacturing and Supply

        The principal components of our products are display devices, including various types of LCDs and DMDs, integrated circuits, light sources, optics, lenses, plastic housing parts and electronic sub-assemblies. We source and qualify parts manufactured to our specifications and also design and deliver certain electronic components to sub-contractors for sub-assembly. The DMD imaging engines are produced in class 10,000 clean room environments, requiring the design, specification and handling of precision optics. The manufacture of finished products includes precise alignment of optical elements and 100 percent image quality testing.

Customers

        We sell our products to a large number of customers worldwide. Ingram Micro accounted for 14.5 percent, 17.6 percent, and 21.9 percent of revenue in the years ended December 31, 2002, 2001 and 2000, respectively. Ingram Micro also accounted for 13.4 percent, 13.0 percent and 18.5 percent of the accounts receivable balance at December 31, 2002, 2001 and 2000, respectively.

Backlog

        We had backlog of approximately $27.0 million at December 31, 2002, compared to approximately $24.1 million at December 31, 2001. 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 2003. The stated backlog is not necessarily indicative of sales for any future period nor is a backlog any assurance that we will realize a profit from filling the orders.

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Competition

        Our ability to compete depends on factors within and outside our control, including the success and timing of product introductions, product performance and price, product distribution, and customer support. We believe that our leadership in developing technologies and our focused effort on development activities give us a competitive advantage.

        We face competition primarily from 30 to 40 manufacturers, 6 of which, including us, make up approximately 60 percent of the products sold in the industry. We expect continued competition as new technologies, applications and products are introduced. Our principal current competitors include Epson, Sony, NEC, Sanyo and Toshiba.

Patents, Trademarks and Licenses

        We have been issued more than 130 United States patents and numerous corresponding foreign patents covering various aspects of our display systems. In addition, numerous applications for United States patents are pending on inventions that enable our display systems to be lighter, easier to use, and produce brighter optimized images. Corresponding applications for selected inventions are pending internationally through the Patent Cooperation Treaty and at foreign Patent Offices.

        We attempt to protect our proprietary information through agreements with customers and suppliers. We require our employees, consultants and advisors to execute confidentiality agreements on the commencement of employment with or service to us. While we have enhanced our ability to compete by aggressively protecting our intellectual property, we believe the rapid pace of technological change in the industry will mean that our ability to develop new technologies and distribute new products on a timely basis will be of greater importance in maintaining our competitive position.

        We license certain of our patents through Motif, Inc., our ⁵⁰/50 joint venture with Motorola, Inc. Motif has executed numerous licenses for its technology, with additional licenses under negotiation. Motif results are not consolidated with InFocus, but we report our share of the net income of Motorola as a component of other income. In addition, we license other patents directly to third party licensees. License fees received directly from third parties are reported as revenues.

        We hold United States registered trademarks including registrations for "InFocus," "Proxima," "LP,""LitePro," "Cyclops," "LightPort," "Epresenter," and "Presentation Plus." In addition, we have additional trademark registrations registered or pending in the United States and either hold or have registrations pending for our most important trademarks in over 40 foreign countries.

Employees

        As of December 31, 2002, we had 1,020 employees, including 139 temporary personnel engaged through the services of an employment agency. We believe relations with our employees are good.

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Item 2. Properties

        In November 2001, we began leasing a 140,000 square feet facility in Wilsonville, Oregon, which is the corporate headquarters. This lease is non-cancelable and expires in October 2011. We also lease a 150,000 square foot facility adjacent to our headquarters under a non-cancelable operating lease, which expires in December 2003. We also lease space in Fredrikstad, Norway, San Diego, California, Amsterdam, The Netherlands and Hilversum, The Netherlands, under leases expiring on February 1, 2011, March 31, 2004, September 30, 2007 and September 30, 2008, respectively.

        We closed our San Diego, California facility in July 2001 and our Hilversum, The Netherlands facility in October 2002. Due to the recent economic downturn, we have not been successful in finding a sub lessee for either of these properties. Although we are continuing to search for sub lessees and may, in future periods, have a reduction in the anticipated losses on these leases, we recorded a loss for all contractual lease payments through March 2004 for the San Diego property and through September 2005 for the Hilversum property.

        We also hold approximately 20 acres of property adjacent to our Wilsonville, Oregon facilities, which are being held for possible future development.

Item 3. Legal Proceedings

        As of February 28, 2003, there were no material, pending legal proceedings to which we or our subsidiaries are a party. From time to time, we become involved in ordinary, routine or regulatory legal proceedings incidental to our business.

Item 4. Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of our shareholders during the quarter ended December 31, 2002.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        Our Common Stock trades on The Nasdaq National Market System under the symbol INFS. In addition, we have a secondary listing on the Oslo, Norway exchange under the symbol IFC. The high and low sales prices on the Nasdaq National Market System for the two years in the period ended December 31, 2002 were as follows:

        At our annual meeting to be held April 30, 2003, we are asking our shareholders to authorize us to seek delisting from the Oslo Stock Exchange.

        The approximate number of beneficial shareholders and shareholders of record at February 28, 2003 was 7,800 and 198, respectively.

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        There were no cash dividends declared or paid in 2002 or 2001 and we do not anticipate declaring cash dividends in the foreseeable future.

        The following table summarizes equity securities authorized for issuance as of December 31, 2002.

Item 6. Selected Financial Data

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements and Factors Affecting Our Business and Prospects

        This Form 10-K contains forward-looking statements regarding our business and future prospects. These statements contain language such as believe, expect, anticipate, and other such language regarding various aspects of our business. 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 any forward-looking statements. The following is a description of some of the factors that may cause the actual results of operations in future periods to differ materially from those currently expected or desired.

New products and technological change

        The technology industry is characterized by continuing improvements in technology and rapidly evolving industry standards. Consequently, short product life cycles and significant price fluctuations are common. Product transitions present challenges and risks for all companies involved in the data/video projector market. Demand for our products and the profitability of our operations may be adversely affected if we fail to effectively manage a product transition. Advances in product technology require continued investment in research and development and product engineering to maintain our market position. There are no guarantees that such investment will result in the right products being introduced to the market at the right time.

Reliance on suppliers and contract manufacturers

        We rely on third party manufacturers for a significant portion of our product components. Reliance on suppliers raises several risks, including the possibility of defective parts, reduced control over the availability and delivery schedule for parts, and the possibility of increases in component costs. Our manufacturing efficiencies and profitability can be adversely affected by each of these risks.

        Certain components used in our products are now available only from single sources. The most important of these components are the digital microdevices (DMD's) manufactured by Texas Instruments. An extended interruption in the supply of DMD's would adversely affect our results of operations.

        We also purchase other single-source components for which we have no guaranteed alternative source of supply, and an extended interruption in the supply of any of these components could adversely affect our results of operations. Furthermore, many of the components used in our products are purchased from suppliers located outside the United States. Trading policies adopted in the future by the United States or foreign governments could restrict the availability of components or increase the cost of obtaining components. Any significant increase in component prices or decrease in component availability could have an adverse effect on our results of operations.

        In addition, over the course of 2002 we have outsourced a significant portion of the manufacturing of our projectors to Flextronics in Malaysia and to Funai Electric Company in China. During the fourth quarter of 2002, on a combined basis, Flextronics and Funai manufactured approximately 85% of our projectors. During the first half of 2003, we are transitioning all remaining manufacturing offshore. The risks mentioned above related to reliance on suppliers will also impact our contract manufacturers. In addition, we are reliant on our contract manufacturers' ability to maintain suitable manufacturing facilities, train manufacturing employees, manage the supply chain effectively, manufacture a quality product, and provide spare parts in support of our warranty and customer service obligations. Failure of our contract manufacturers to deliver in any one of these areas could have an adverse effect on our results of operations.

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General economic and industry conditions

        Our revenues have been adversely impacted by the current economic slowdown, and a continued decline in economic conditions could further depress corporate capital spending for products like ours. These poor economic conditions could in turn lead to substantial decreases in our sales and revenues. In addition, the financial condition of certain of our customers has weakened in the current economic environment resulting in an increase in the amount of bad debt expense recorded during 2002. We continue to monitor the financial health of our customer base in an effort to reduce our risk regarding collection of accounts receivable balances, but there is no guarantee we will not be negatively impacted by further bad debts in the future.

Competition

        The markets for our products are highly competitive, and we expect aggressive price competition to continue into the foreseeable future. Some of our current and prospective competitors have or may have significantly greater financial, technical, manufacturing, and marketing resources than us. Our ability to compete depends on factors within and outside our control, including the success and timing of product introductions, product performance and price, product distribution, and customer support. In order to compete effectively and return to profitability, we must continue to reduce the cost of our products, our manufacturing overhead, and our operating expenses in order to offset recent declines in gross margins, while at the same time drive our products into new markets to expand our revenue base. In addition, we are focusing more effort on turnkey solutions through the use of software, service and support to differentiate the Company. There is no assurance we will be able to compete successfully with respect to these factors.

Potential fluctuations in quarterly results

        Our customers generally order products for immediate delivery and, therefore, manufacturing activities are scheduled according to a monthly sales and production forecast rather than on the receipt of product orders. From time to time in the past, we have experienced significant variations between actual orders and our forecasts. If anticipated sales and shipments in any quarter do not occur when expected, expenditures and inventory levels could be disproportionately high and our operating results for that quarter, and potentially for future quarters, would be adversely affected. In addition, certain of our products have lower gross margins, and a shift of product mix toward lower margin products could adversely affect profitability.

International activities

        Sales outside the United States accounted for approximately 46% of our revenues in 2002. The success and profitability of our international operations are subject to numerous risks and uncertainties, including local economic and labor conditions, political instability, unexpected changes in the regulatory environment, trade protection measures, tax laws, and foreign currency exchange rates.

Results of Operations

2002 Compared to 2001

Revenues

        Total revenue decreased to $653.1 million in 2002 from $760.6 million in 2001. The decrease in revenue is attributable to:

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continued softness in business technology spending and a weaker economy;

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significant competitive pricing pressure due to an industry oversupply situation; and

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the addition of competition from Taiwanese manufacturers.

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        Revenues in the Americas declined 17.2 percent in 2002 compared to 2001, and decreased 5.9 percent in Europe and 17.1 percent in Asia for the same period.

        Units increased approximately 6.7 percent in 2002 compared to 2001, while average selling prices decreased 20.4 percent for the same period. Increases in units sold were primarily in the education and government markets and were offset by decreases in units sold to businesses. The significant decrease in average selling prices resulted from aggressive pricing behavior due to the competitive nature of our industry fueled by a general industry oversupply situation.

        During 2002, revenues generated geographically were 54.1 percent in the U.S., 29.6 percent in Europe, 11.1 percent in Asia and 5.2 percent in the rest of the world. During 2001, revenues generated geographically were 55.9 percent in the U.S., 27.0 percent in Europe, 11.5 percent in Asia and 5.6 percent in the rest of the world.

        At December 31, 2002, we had backlog of approximately $27.0 million, compared to approximately $24.1 million at December 31, 2001. 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 2003. The stated backlog is not necessarily indicative of sales for any future period nor is a backlog any assurance that we will realize a profit from filling the orders.

        The uncertainties of the current economic environment, both in the U.S. and abroad, make it difficult to estimate revenues in the near term. Forecasts for corporate technology spending around the world are not optimistic in the near term. Assuming no significant changes in the economy, geopolitical environment, supply line flows or exchange rates, we anticipate the historical seasonal trend patterns to continue into the first quarter of 2003, where revenues typically come down moderately from fourth quarter levels. Over the last couple of years, competitive pricing in the market has been particularly aggressive in the first quarter due to the year-end push of many of our export-dependent Asian competitors.

        Despite the difficult economic environment, we are focused on growing our share of the market both domestically and internationally. As a result, we are expanding our product offerings for both business and home entertainment markets and are beginning to offer these products through retail partners directly to consumers. We believe both the professional and home markets offer good long-term growth prospects and that they will be key in establishing a solid presence in retail in addition to our traditional distribution channels. In addition, in 2002 and early 2003, we announced two partners who agreed to purchase our newly available engines for rear projection televisions. This development validates our technology leadership in DLP based projection and offers us the potential to grow revenues in new markets in the future and further reduce the cost of key components used in both front and rear projection applications through increased economies of scale. Lastly, during this downturn in corporate spending, we are focusing our efforts on growing our educational revenues as there is a growing demand domestically and abroad as government funds flow towards technology upgrades in schools. While we are focusing on continued growth of our revenues on multiple fronts, no assurances can be given that we will ultimately be successful.

Gross Profit

        Gross profit, as a percentage of revenue, decreased to 20.7 percent in 2002 compared to 26.1 percent in 2001. We achieved gross margins of 20.2 percent in the fourth quarter of 2002. The decrease in 2002 is due to average selling prices declining faster than we could reduce our material costs, higher air-freight costs as more of our products were shipped from our Asian contract manufacturers, and higher warranty costs due primarily to higher warranty activity experienced on certain products for specifically identified design or manufacturing issues. In addition, during 2002, we recorded $14.1 million in inventory reserves for raw materials due to product transitions, engineering

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change orders, excess customer service parts, and inventory write-downs on remanufactured products, consistent with our lower of cost or market methodology, compared to a charge of $1.3 million in 2001.

        In 2002, we continued the process of shifting more production off shore to Flextronics. In addition, in October 2002, we announced a co-development and manufacturing agreement with Funai Electric Company, at their China manufacturing facility. Funai is a leading consumer electronics company that specializes in the manufacturing and distribution of high-quality, high-volume, low-cost electronics products, such as VCRs, DVD players and printers.

        Outsourced production increased to 85 percent of total units manufactured in the fourth quarter of 2002 compared to 50 percent in the fourth quarter of 2001. We anticipate that 100 percent of our manufacturing will be outsourced to our contract manufacturers by the second quarter of 2003. Accordingly, Flextronics and Funai will be directly sourcing a majority of the components with their Asian suppliers. In an effort to reduce our freight costs, we intend to begin shipping a portion of the finished goods from Flextronics and Funai via ocean carriers rather than by air in 2003.

        We expect the competitive pricing environment to continue to put pressure on gross margins during 2003. We believe fully leveraging the purchasing power of our contract manufacturers, reducing our remaining internal overhead costs, improving the quality of our products, and moving towards ocean freight will allow us to reduce costs of goods sold in 2003. In addition, as we ramp the production of our rear screen engine business in the second half of 2003, we expect to further reduce the cost of key components used in both front and rear projection applications through increased economies of scale. We also anticipate a reduction in our 2003 warranty costs as a result of improvements in our design, manufacturing, and reverse logistics processes. The timing of the cost and price reductions may not coincide during the year, causing variations in our quarterly gross margin results.

Operating Expenses

        Marketing and sales expense decreased to $80.0 million (12.3 percent of revenue) in 2002 compared to $87.1 million (11.5 percent of revenue) in 2001. The decrease in dollars spent is primarily a result of lower marketing incentives paid to customers as a result of the lower revenues, lower employee related costs due to our restructuring actions in 2001 and 2002 and savings realized from the streamlining of our channel structure. The increase as a percent of revenue is primarily a result of lower revenues in 2002 compared to 2001. We expect sales and marketing expense to remain at approximately the same level in terms of absolute spending during 2003.

        Research and development expense increased to $37.8 million (5.8 percent of revenue) in 2002 from $36.2 million (4.8 percent of revenue) in 2001. Research and development expenditures in 2002 primarily related to the development of new products, including several platforms launched at Flextronics during the year, as well as our home entertainment, networking, and wireless initiatives. Our research and development spending also reflects our initiative to design and produce rear-projection engines for large screen digital televisions. The increase in research and development expenditures as a percent of revenue is primarily a result of lower revenues in 2002 compared to 2001. We are committed to continuing to invest in research and development to solidify our position as the innovative market leader, specifically in home entertainment, wireless, networking and easiest to use products. We expect that the amount spent on research and development expense will decrease in 2003 compared to 2002 as we leverage more capabilities of our contract manufacturers.

        General and administrative expense increased to $45.0 million (6.9 percent of revenue) in 2002 from $31.1 million (4.1 percent of revenue) in 2001. General and administrative expense in 2002 includes charges for bad debts of $14.8 million caused by deterioration of certain customers' financial condition compared to $4.8 million in 2001. The majority of the bad debt charges for 2002 were limited to a few specific customers. We continue to closely monitor our customers' credit worthiness. Despite

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economic conditions, we have improved days sales outstanding from 75 days at December 31, 2001 to 60 days at December 31, 2002 and our aging of customer accounts has also improved in the same period. General and administrative expense in 2002 also increased due to charges related to the implementation of our Oracle 11i accounting system in the U.S. and Europe. The increase as a percent of revenue is a result of the increased expense in conjunction with lower revenues in 2002 compared to 2001. Excluding the impact of bad debts, if any, we expect that general and administrative expenses will decline in 2003 as we gain operational efficiencies due to the new worldwide Oracle 11i accounting system.

        During the second quarter of 2002, we announced a restructuring plan related to the migration of additional production offshore and the streamlining of our sales and marketing activities. In the fourth quarter of 2002, we announced additional plans related to completing our transition to 100 percent outsourced manufacturing and to streamline our European operations by centralizing our financial operations and our service and support functions. Accordingly, we recorded restructuring charges of $5.8 million in 2002, primarily for employee severance costs and costs related to the abandonment of leased space. Accruals relating to this restructuring charge totaled $4.4 million at December 31, 2002 and consisted primarily of severance accruals and future payments due under office space leases no longer being utilized.

        Merger and restructuring related costs were $17.4 million in 2001, and represent costs incurred with the consolidation of our global supply chain, including distribution, logistics and service operations, which are directly related to our business combination with Proxima ASA in June 2000. The 2001 charges also represent costs for streamlining our U.S. sales and marketing organization and increasing our manufacturing outsourcing initiative with Flextronics. Accruals relating to this restructuring charge totaled $1.8 million at December 31, 2002 and consisted of future payments under an office space lease no longer being utilized.

        Goodwill amortization was $1.5 million in 2001. Goodwill amortization ceased in the first quarter of 2002 upon adoption of SFAS No. 142 on January 1, 2002, resulting in the elimination of goodwill amortization of approximately $1.5 million in 2002. However, in accordance with SFAS No. 142, we tested our goodwill for impairment during the fourth quarter of 2002. The market value of our common stock declined below its book value during 2002, and remained below book value as of December 31, 2002. Under SFAS No. 142, these facts indicated the goodwill recorded on our balance sheet was impaired. Accordingly, we recorded a goodwill charge of $19.2 million in the fourth quarter of 2002 and as of December 31, 2002, we did not have any goodwill remaining on our balance sheet.

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Other Income (Expense)

        Interest income decreased to $2.1 million in 2002 compared to $3.1 million in 2001 due to lower interest rates during 2002 compared to 2001. In addition, the average maturity of our investment portfolio decreased in 2002 compared to 2001, resulting in lower yields.

        Other expense of $1.7 million in 2002 includes a $1.3 million loss on foreign currency transactions and a write-down of $0.8 million related to certain cost based investments in technology companies. Other income of $219,000 in 2001 includes a gain on sale of marketable equity securities of $1.7 million and foreign currency transaction gains of $1.4 million, offset by a charge of $2.6 million for the write-down of certain investments in technology companies in the fourth quarter of 2001.

Income Taxes

        The net income tax provision of $11.1 million in 2002 includes a carryback benefit for our operating loss, offset by a $29.6 million charge to record a valuation allowance against our deferred tax assets in the U.S. at December 31, 2002 in accordance with SFAS No. 109. After the valuation allowance, our net deferred tax asset balance, both short term and long term, was $5.4 million at December 31, 2002 and relates to foreign jurisdictions. See Note 6 to our Consolidated Financial Statements for more details concerning our income tax provision for 2002. We anticipate our tax rate to be approximately 30 percent in 2003 before consideration of any effects that may result from a change in our valuation allowance.

        We believe that the impact of inflation was minimal in 2002 and 2001.

2001 Compared to 2000

Revenues

        Total revenue decreased to $760.6 million in 2001 from $886.7 million in 2000. The decrease in revenue was primarily attributable to slowing demand due to weakening economic conditions, which impacted corporate capital spending. U.S. generated revenues declined 21.9 percent in 2001 compared to 2000, while revenues increased 8.4 percent in Europe for the same period. Unit sales increased 0.7 percent, while average selling prices decreased 14.3 percent in 2001 compared to 2000. The decrease in the average selling prices was mainly due to competitive pricing pressures resulting from the economic downturn.

        Included in revenue in 2000 is $4.4 million related to a license agreement with Pixelworks, Inc. ("Pixelworks").

        During 2001, sales outside of the United States represented 44 percent of total revenue, compared to 39 percent in 2000.

Gross Profit

        Gross profit, as a percentage of revenue, decreased to 26.1 percent in 2001 compared to 27.6 percent in 2000. We achieved gross margins of 25.0 percent in the fourth quarter of 2001. The gross profit percentage for 2000, excluding the Pixelworks license fee revenue, was 27.2 percent. The decrease in the gross profit percentage in 2001 compared to 2000 is primarily due to reductions in average selling prices, which were partially offset by shifts in product mix to higher margin new products, continued component cost reductions and savings realized by consolidation of our distribution and logistics facilities around the world. In addition, in order to take advantage of additional material cost reductions from our Japanese based suppliers due to the weakening of the Yen, during 2001 we increased our mix of polysilicon-based products compared to DLP-based products, which are sourced from a supplier in the U.S.

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        During the second quarter of 2001, we began a contract manufacturing arrangement with Flextronics, a Singapore based corporation. We had approximately 50 percent of our total fourth quarter 2001 units manufactured by Flextronics.

Operating Expenses

        Marketing and sales expense was relatively flat at $87.1 million (11.5 percent of revenue) in 2001 compared to $87.4 million (9.9 percent of revenue) in 2000. Decreases in co-op advertising expenses were offset by increases in direct advertising and the home entertainment initiative. The increase as a percentage of revenue is primarily a result of lower revenues in 2001 compared to 2000.

        Research and development expense increased to $36.2 million (4.8 percent of revenue) in 2001 from $34.8 million (3.9 percent of revenue) in 2000. During 2001, we continued to invest in research and development, including the ramping of new product introductions and our wireless, networking and Home Entertainment initiatives. The increase as a percentage of revenue is primarily a result of lower revenues in 2001 compared to 2000.

        General and administrative expense decreased to $31.1 million (4.1 percent of revenue) in 2001 from $34.8 million (3.9 percent of revenue) in 2000. The decrease was primarily due to an approximately $2.4 million decrease in bad debt expense, primarily due to a significant customer bankruptcy that occurred in 2000, and approximately $1.2 million in savings due to reductions in staffing and related expenses. The increase as a percentage of revenue is a result of lower revenues in 2001 compared to 2000.

        Merger and restructuring related costs were $17.4 million in 2001, and represented costs incurred with the consolidation of our global supply chain, including distribution, logistics and service operations, which are directly related to our business combination with Proxima ASA in June 2000. In addition, we streamlined our U.S. sales and marketing organization and increased our manufacturing outsourcing initiative with Flextronics.

        Merger related costs of $15.0 million in 2000 include primarily investment banking fees, merger advisory fees and integration costs directly related to our business combination with Proxima ASA, which was completed in June 2000.

        Goodwill amortization was $1.5 million in both 2001 and 2000.

        Income from operations decreased to $25.1 million (3.3 percent of revenue) in 2001 compared to $71.0 million (8.0 percent of revenue) in 2000. The decrease in 2001 is primarily the result of lower revenues and gross margin percentages.

Other Income (Expense)

        Interest income decreased to $3.1 million in 2001 compared to $4.8 million in 2000 due to lower investment yields during 2001 consistent with the overall decline in U.S. interest rates during 2001.

        Other income of $219,000 in 2001 included a gain on sale of marketable equity securities of $1.7 million and foreign currency transaction gains of $1.4 million, offset by a charge of $2.6 million for the write-down of certain investments in technology companies in the fourth quarter of 2001. Due to the economic downturn and other investment specific events, the decline in value of certain investments in emerging technology companies was determined to be permanent. Accordingly, we recorded impairment losses of $2.6 million on our investments in private emerging technology companies in the fourth quarter of 2001. Other income of $4.1 million in 2000 included a $1.6 million gain on the sale of marketable equity securities.

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Income Taxes

        Income taxes for the year ended December 31, 2001 were recorded at an effective rate of 27.0 percent, which decreased from 34.9 percent in 2000. The decrease was primarily due to a higher mix of earnings attributable to foreign operations, particularly Norway, where our tax rate was lower than in the U.S. In addition, certain one-time merger costs in 2000 were not deductible for tax purposes. Overall, we have been able to reduce our effective tax rate as a result of sustainable tax consolidation benefits derived from our merger with Proxima.

        We believe that the impact of inflation was minimal in 2001 and 2000.

Liquidity and Capital Resources

        Total cash and marketable securities, including long-term marketable securities, were $120.7 million at December 31, 2002. At December 31, 2002, we had working capital of $266.0 million, which included $104.2 million of cash and cash equivalents and $10.6 million of short-term marketable securities. The current ratio at December 31, 2002 and 2001 was 2.8 to 1 and 3.0 to 1, respectively.

        Cash and cash equivalents increased $18.2 million in 2002 to $104.2 million at December 31, 2002 as a result of $38.2 million provided by operations, net maturities of $7.5 million of marketable securities and $1.9 million provided by the exercise of common stock options, offset by $27.9 million used for the purchase of property and equipment, $1.4 million used for acquisitions and $3.2 million used primarily for patents and other long-term technology investments in third parties.

        Accounts receivable decreased $38.8 million to $120.7 million at December 31, 2002 compared to $159.4 million at December 31, 2001. The decrease in accounts receivable is primarily due to decreased revenues in 2002 compared to 2001 and improved collections in 2002. Days sales outstanding were 60 days at December 31, 2002 compared to 75 days at December 31, 2001.

        Inventories increased $11.0 million to $114.8 million at December 31, 2002 compared to $103.8 million at December 31, 2001. Note 7 to the Consolidated Financial Statements summarizes the components of inventory as of these dates. The increase in inventory was primarily due to increased finished goods associated with the ramp up of new products, and the build up of safety stock to cover the transition period to Flextronics for our remaining products during the first quarter of 2003. We expect to see a decrease in raw materials and WIP inventory as we complete our transition to 100% contract manufacturing. This decline may be offset by an increase in finished goods inventory as we begin shipping our products using ocean freight. Annualized inventory turns were approximately 5 times for the quarters ended December 31, 2002 and 2001.

        Income taxes receivable of $24.0 million at December 31, 2002 relates to the carry back of our 2002 taxable losses in order to get a refund of taxes paid in prior years. We anticipate receiving a tax refund within the next 12 months.

        Outsourced manufacturer receivables decreased $23.0 million to $17.9 million at December 31, 2002 compared to $40.9 million at December 31, 2001 due primarily to Flextronics directly procuring a greater percentage of the raw materials for production of our products. We expect this balance to further decline as we complete our transition to 100% outsourced manufacturing.

        Accounts payable increased $5.7 million to $107.4 million at December 31, 2002 compared to $101.7 million at December 31, 2001 primarily due to increased inventory purchases late in the fourth quarter of 2002.

        Marketing incentives payable decreased $4.0 million to $11.2 million at December 31, 2002 compared to $15.2 million at December 31, 2001 primarily due to lower revenues in 2002 compared to 2001.

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        We had no goodwill as of December 31, 2002 compared to $18.5 million at December 31, 2001 due to the goodwill impairment charge recorded in the fourth quarter of 2002 as further explained above and in Note 1 to the Consolidated Financial Statements.

        Expenditures for property and equipment totaled $27.9 million in 2002 and primarily included purchases of new product tooling, engineering design and test equipment and information systems infrastructure software, specifically our Oracle 11i implementation. Offsetting these purchases was the retirement of $18.2 million in fully depreciated assets, primarily tooling, leasehold improvements, computer equipment and software and furniture and fixtures. Total expenditures for property and equipment are expected to be between $16 and $18 million in 2003, primarily for product tooling, continued information systems development, and network and equipment upgrades.

        We anticipate that our current cash and marketable securities, along with cash anticipated to be generated from operations, will be sufficient to fund our operating and capital requirements for at least the next twelve months.

Seasonality

        Given the buying patterns of various geographies and market segments, our revenues are subject to certain elements of seasonality during various portions of the year. Historically, 25-30 percent of our revenue has come from Europe and, as such, we typically experience a seasonal downturn due to the vacation season in mid-summer, which results in our revenues from that region, and overall, to be down in the third quarter compared to the second quarter. Conversely, we typically experience a strong resurgence of revenue from Europe in the fourth quarter. This, coupled with a strong buying season in the fourth quarter by larger wholesale distribution partners, typically leads to our strongest revenues being in the fourth quarter of each year. In addition, we sell our products into the education and government markets which typically see seasonal peaks in the third quarter of each year.

Critical Accounting Estimates

        The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Following is a discussion of our critical accounting estimates. See Note 1 to our Consolidated Financial Statements, Summary of Significant Accounting Policies, for additional information.

Allowance for Uncollectible Trade Accounts Receivables

        Credit limits are established through a process of reviewing the financial history and stability of each customer. Where appropriate, we obtain credit rating reports and financial statements of the customer to initiate and modify their credit limits. We obtain credit insurance for certain accounts that qualify for coverage in order to minimize credit risk exposure. We regularly evaluate the collectibility of our trade receivable balances based on a combination of factors. When a customer's account becomes past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, such as in the case of a bankruptcy filing, deterioration in the customer's operating results or financial position or other material events impacting their business, we record a specific reserve for bad debt to reduce the related receivable to the amount we expect to recover given all information presently available. We also record reserves for bad debt for all other customers based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers. In certain situations, if an account is determined to be a bad debt we may also use collection agencies to work with the customer for

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payment for a fee. If circumstances related to specific customers change, our estimates of the recoverability of receivables could materially change. Our allowance for uncollectible accounts totaled $9.0 million at December 31, 2002.

Inventory Reserves

        We regularly evaluate the realizability of our inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated service period, product end of life dates, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure. Raw materials and work in progress with quantities in excess of forecasted usage are reviewed at least quarterly by our engineering and operating personnel for obsolescence. Such raw material and work in progress write-downs are typically caused by engineering change orders or product end of life adjustments in the market. Finished goods are reviewed at least quarterly by product marketing and operating personnel to determine if inventory carrying costs exceed market selling prices. Service inventory is systematically reserved for based on the estimated remaining service life of the inventory. We record reserves for inventory based on the above factors and take into account worldwide quantities and demand in our analysis. If circumstances related to our inventories change, our estimates of the realizability of inventory could materially change. At December 31, 2002, our inventory reserves totaled $17.7 million.

Allowance for Sales Returns and Other Deductions from Revenue

        Some distributor and dealer agreements allow for partial return of products and/or price protection under certain conditions within limited time periods. Such return rights are generally limited to a contractually defined short-term stock rotation and defective or damaged product. We maintain a reserve for sales returns and price adjustments based on historical experience and other qualitative factors. We also have incentive programs for dealers and distributors whereby rebates are offered based upon exceeding a percentage of quarterly and annual volume goals. Estimated sales returns, price protection and rebates are netted against revenue.

        Historical return rates are monitored monthly on a product-by-product basis. As new products are introduced, these historical rates are used to establish initial sales returns reserves and are adjusted as better information becomes available. We also regularly monitor and track channel inventory with our significant customers. Variability in channel inventory levels from quarter to quarter are further used to qualitatively adjust our returns reserves. Typically, most returns occur within 60 days of shipment and return rates have averaged in a relatively tight range of 3 percent to 4 percent of sales to customers who are granted such rights. If a dramatic change in the rate of returns were to occur, our estimate of the sales return accrual could change significantly.

        One of the factors we consider in estimating future returns is the sell through of products by our distributors and dealers, particularly those whom we offer limited return rights. We have controls in place to monitor channel inventory levels with these customers. We believe the risk of return increases when inventory held by any customer exceeds their near term needs. Accordingly, we defer recognition of revenue on certain channel inventory estimated to be in excess of 60 days.

        Our reserve for sales returns and price protection totaled $7.5 million at December 31, 2002. Historically, our actual experience for sales returns, price protection and rebates has not differed materially from our estimates.

Product Warranties

        We evaluate our obligations related to product warranties on a quarterly basis. We offer a standard two-year warranty and, for certain customers, a three-year warranty. We monitor failure rates on a

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product category basis through data collected by our manufacturing sites, factory repair centers and authorized service providers. The service organizations also track costs to repair each unit. Costs include labor to repair the projector, replacement parts for defective items and freight costs, as well as other costs incidental to warranty repairs. Any cost recoveries from warranties offered to us by our suppliers covering defective components are also considered. This data is then used to calculate the accrual based on actual sales for each projector category and remaining warranty periods. For new product introductions, our quality control department estimates the initial failure rates based on test and manufacturing data and historical experience for similar platform projectors. If circumstances change, or a dramatic change in the failure rates were to occur, our estimate of the warranty accrual could change significantly. Revenue generated from sales of extended warranty contracts is deferred and amortized to revenue over the term of the extended warranty coverage. Deferred warranty revenue at December 31, 2002 totaled $1.5 million and is included in other current liabilities and other long-term liabilities on our consolidated balance sheet. Our warranty accrual at December 31, 2002 totaled $7.9 million and is included as accrued warranty and other long-term liabilities on our consolidated balance sheet.

Income Taxes

        We account for income taxes in accordance with SFAS No. 109. In accordance with SFAS No. 109, deferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes but not yet deducted for tax purposes and from unutilized tax credits and NOL carry forwards. We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance is required. To the extent it is determined the recoverability of the deferred tax assets is unlikely, we record a valuation allowance against deferred tax assets. We recorded a valuation allowance of $29.6 million against deferred tax assets as of December 31, 2002.

Long-Lived Asset Impairment

        Long-lived assets and intangible assets with determinable lives are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets." We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Such reviews assess the fair value of the assets based upon our estimates of the future cash flows we expected the assets to generate. Our current review indicates that no adjustments are necessary for our long-lived assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources in the future, which could result in an impairment of long lived assets.

New Accounting Pronouncements

        See Note 2 to the Consolidated Financial Statements- "New Accounting Pronouncements" for a discussion of the impact of new accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        Our financial market risk arises from fluctuations in foreign currencies and interest rates.

        Our net investment exposure in foreign subsidiaries translated into U.S. Dollars using the period-end exchange rates at December 31, 2002, was approximately $105.3 million. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in foreign exchange rates would be approximately $10.5 million at December 31, 2002. The Company has no plans of liquidating any of

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its foreign subsidiaries, and therefore, foreign exchange rate gains or losses on our foreign investments are reflected as a cumulative translation adjustment and do not reduce our reported net income.

        We are exposed to changes in exchange rates through the purchase of production materials and the sale of products denominated in non-functional foreign currencies. We have established a foreign currency derivative program, utilizing foreign currency forward contracts ("forward contracts") to mitigate certain foreign currency transaction exposures. Under this program, increases or decreases in our foreign currency transactions are substantially offset by gains and losses on the forward contracts, so as to mitigate foreign currency transaction gains and losses. We do not use forward contracts as speculative instruments for trading purposes. The effect of an immediate 10 percent change in our foreign currency forward contracts would not have a material effect on our operating financial results.

        The table below summarizes, by major currency, the contractual amounts of our forward exchange contracts in U.S. dollars as of December 31, 2002. The "bought" amounts represent the net U.S. dollar equivalents of commitments to purchase foreign currencies, and the "sold" amounts represent the net U.S. dollar equivalent of commitments to sell foreign currencies. The foreign currency amounts have been translated into a U.S. dollar equivalent value using the exchange rate at the reporting date. Forward contracts outstanding at December 31, 2002 mature in 31 days or less as of December 31, 2002.

        Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We mitigate this risk by diversifying investments among high credit quality securities in accordance with our investment policy. As of December 31, 2002, our investment portfolio included marketable debt securities of $10.7 million and marketable equity securities of $5.8 million. The debt securities are subject to interest rate risk, and will decline in value if interest rates increase. Due to the short duration of our investment portfolio, an immediate 10 percent increase in interest rates would not have a material effect on our financial condition or results of operations.

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Item 8. Financial Statements and Supplementary Data

        The financial statements and notes thereto required by this item begin on page F-1 of this document, as listed in Item 15 of Part IV. Unaudited quarterly financial data for each of the eight quarters in the two-year period ended December 31, 2002 is as follows:

(1)

Includes merger and restructuring related expenses, net of tax, of $3.7 million, $1.6 million, $4.3 million, $3.0 million, $0, $1.3, $0 and $4.5, respectively, for each of the quarters, beginning with the first quarter of 2001.

(2)

Fourth quarter of 2002 includes a $19.2 million write-down of goodwill and a $29.6 million valuation allowance against deferred tax assets recorded on the balance sheet.

Risk Relating To Arthur Andersen LLP'S Lack Of Consent

        Arthur Andersen LLP were the independent accountants for InFocus Corporation until May 17, 2002. Representatives of Arthur Andersen LLP are not available to provide the consent required for the incorporation by reference of their report on the financial statements of InFocus Corporation appearing in this Annual Report on Form 10-K into registration statements filed by InFocus Corporation with the Securities and Exchange Commission and currently effective under the Securities Act of 1933, and we have dispensed with the requirement to file their consent in reliance upon rule 437a under the Securities Act of 1933. Because Arthur Andersen LLP have not consented to the incorporation by reference of their report, investors will not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for any potential untrue statement of a material fact contained in the financial statements audited by Arthur Andersen LLP that are included in this report or any omissions to state a material fact required to be stated therein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        On May 17, 2002, the Audit Committee of the Board of Directors approved the dismissal of our independent public accountants, Arthur Andersen LLP. Arthur Andersen LLP's reports on our financial statements for each of the last two fiscal years did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During our two most recent fiscal years and during the subsequent interim period through the date of dismissal, May 17, 2002, there were no disagreements between us and Arthur Andersen LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, nor any reportable events as defined under Item 304(a)(1)(v) of Regulation S-K promulgated by the Securities and Exchange Commission.

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        A copy of a letter addressed to the Securities and Exchange Commission from Arthur Andersen LLP stating that it agrees with the above statements is incorporated by reference herein as exhibit 16.

        Also on May 17, 2002, based upon approval of the Audit Committee, we engaged the firm of KPMG LLP to be our independent public accountants. We did not consult with KPMG LLP at any time from December 31, 1999 to May 17, 2002 with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or concerning any disagreement or reportable event with Arthur Andersen LLP.

PART III

Item 10. Directors and Executive Officers of the Registrant

        Information required by this item is included under the captions Executive Officers and Section 16(a) Beneficial Ownership Reporting Compliance, and the sub caption Nominees for Director in our Proxy Statement for our 2003 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 our Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information required by this item is included under the caption Security Ownership of Certain Beneficial Owners and Management in our Proxy Statement for our 2003 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 our Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference.

PART IV

Item 14. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of a date within ninety days before the filing date of this annual report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures are adequate and effective for the purposes set forth in the definition of "disclosure controls and procedures" in Exchange Act Rule 15d-14(c).

Changes in Internal Controls

        Subsequent to the date of our most recent evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect internal controls and procedures including any corrective actions with regard to significant deficiencies and material weaknesses.

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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements and Schedules

        The Consolidated Financial Statements, together with the reports thereon of our independent accountants, are included on the pages indicated below:

        The following schedule and report thereon is filed herewith:

Reports on Form 8-K

        No reports on Form 8-K were filed during the quarter ended December 31, 2002.

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Exhibits

        The following exhibits are filed herewith and this list is intended to constitute the exhibit index. An asterisk (*) beside the exhibit number indicates the exhibits containing a management contract, compensatory plan or arrangement, which are required to be identified in this report.

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27

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.

        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 indicated on March 11, 2003:

28

CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

        I, John V. Harker, certify that:

1.

I have reviewed this annual report on Form 10-K of InFocus Corporation;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 11, 2003

29

CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

        I, Michael D. Yonker, certify that:

1.

I have reviewed this annual report on Form 10-K of InFocus Corporation;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 11, 2003

30

Report of Independent Auditors

The Board of Directors and Shareholders of
InFocus Corporation:

        We have audited the accompanying consolidated balance sheet of InFocus Corporation (an Oregon corporation) and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 2001 and 2000 financial statements were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements before the revision described in Note 1 to the consolidated financial statements in their report dated January 25, 2002.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

        In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of InFocus Corporation and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

        As discussed above, the 2001 and 2000 consolidated financial statements of InFocus Corporation and subsidiaries were audited by other auditors who have ceased operations. As described in Note 1, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. In our opinion, the SFAS No. 142 transitional disclosures for 2001 and 2000 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of InFocus Corporation other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.

/s/ KPMG LLP
Portland, Oregon,
January 28, 2003

F-1

THIS REPORT IS A CONFORMED COPY
OF THE REPORT PREVIOUSLY ISSUED BY
ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY THAT FIRM.

Report of Independent Public Accountants

        We have audited the accompanying consolidated balance sheets of InFocus Corporation (an Oregon corporation) and subsidiaries as of December 31, 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit 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, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InFocus Corporation and subsidiaries as of December 31, 2001 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Portland, Oregon,
January 25, 2002

        ARTHUR ANDERSEN LLP WERE THE INDEPENDENT ACCOUNTANTS FOR INFOCUS CORPORATION UNTIL MAY 17, 2002. REPRESENTATIVES OF ARTHUR ANDERSEN LLP ARE NOT AVAILABLE TO PROVIDE THE CONSENT REQUIRED FOR THE INCORPORATION BY REFERENCE OF THEIR REPORT ON THE FINANCIAL STATEMENTS OF INFOCUS CORPORATION APPEARING IN THIS ANNUAL REPORT INTO REGISTRATION STATEMENTS FILED BY INFOCUS CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CURRENTLY EFFECTIVE UNDER THE SECURITIES ACT OF 1933. BECAUSE ARTHUR ANDERSEN LLP HAVE NOT CONSENTED TO THE INCORPORATION BY REFERENCE OF THEIR REPORT, INVESTORS WILL NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933 FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP THAT ARE CONTAINED IN THIS REPORT OR ANY OMISSIONS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN.

        The prior period financial statements for 2001 and 2000 have been revised to include the transitional disclosures required by statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which was adopted by the Company on January 1, 2002.

F-2

InFocus Corporation

Consolidated Balance Sheets

(In thousands, except share amounts)

See accompanying notes to the Financial Statements.

F-3

InFocus Corporation

Consolidated Statements of Operations

(In thousands, except per share amounts)

See accompanying notes to the Financial Statements.

F-4

InFocus Corporation

Consolidated Statements of Shareholders' Equity

(In thousands, except share amounts)

See accompanying notes to the Financial Statements.

F-5

InFocus Corporation

Consolidated Statements of Cash Flows

(In thousands)