<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the Quarter Ended June 28, 1996 Commission File No. 0-23018
- --------------------------------------------------------------------------------
PLANAR SYSTEMS, INC.
(exact name of registrant as specified in its charter)
Oregon 93-0835396
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1400 NW Compton Dr., Beaverton, Oregon 97006
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (503)690-1100
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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.
x Yes No
--- ---
Number of common stock outstanding as of July 31, 1996
10,923,737 shares, no par value per share
<PAGE> 2
PLANAR SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months Ended June 28, 1996 3
and June 30, 1995
Consolidated Statements of Operations for the Nine months Ended June 28, 1996
and June 30, 1995 4
Consolidated Balance Sheets at June 28, 1996 and September 29, 1995 5
Consolidated Statements of Cash Flows for the Nine months Ended June 28, 1996
and June 30, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Part II. Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 28, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Sales $ 19,519 $ 19,529
Cost of sales 12,383 12,218
-------- --------
Gross profit 7,136 7,311
Operating expenses:
Research and development, net (note 3) 1,839 1,412
Sales and marketing 1,850 1,740
General and administrative 1,297 1,315
Amortization of excess fair market value of acquired
net assets over purchase price (119) (119)
-------- --------
Total operating expenses 4,867 4,348
-------- --------
Income from operations 2,269 2,963
Non-operating income (expense):
Interest, net 360 369
Foreign exchange, net (110) (5)
-------- --------
Net non-operating income 250 364
-------- --------
Income before income taxes 2,519 3,327
Provision for income taxes (note 4) 408 568
-------- --------
Net income $ 2,111 $ 2,759
======== ========
Net income per share (note 5): $ 0.19 $ 0.26
Weighted average number of common and common
equivalent shares outstanding 11,233 10,763
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 28, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Sales $ 59,950 $ 59,142
Cost of sales 38,142 37,745
-------- --------
Gross profit 21,808 21,397
Operating expenses:
Research and development, net (note 3) 5,264 3,704
Sales and marketing 5,350 5,045
General and administrative 3,971 3,812
Amortization of excess fair market value of acquired
net assets over purchase price (357) (357)
-------- --------
Total operating expenses 14,228 12,204
-------- --------
Income from operations 7,580 9,193
Non-operating income (expense):
Interest, net 1,225 1,009
Foreign exchange, net 449 (528)
-------- --------
Net non-operating income 1,674 481
-------- --------
Income before income taxes 9,254 9,674
Provision for income taxes (note 4) 1,792 1,939
-------- --------
Net income $ 7,462 $ 7,735
======== ========
Net income per share (note 5): $ 0.67 $ 0.72
Weighted average number of common and common
equivalent shares outstanding 11,200 10,742
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
Planar Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 28, 1996 September 29, 1995
(Unaudited)
------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,617 $ 26,689
Short-term investments 7,047 12,792
Accounts receivable 14,376 13,836
Inventories (note 2) 15,641 11,818
Other current assets 5,355 5,576
-------- --------
Total current assets 74,036 70,711
Property, plant and equipment, net 13,168 11,760
Long-term investments 7,299 5,602
Other 4,456 601
-------- --------
$ 98,959 $ 88,674
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,623 $ 5,001
Accrued compensation 3,111 3,092
Deferred revenue 28 183
Other current liabilities 3,005 2,454
Current portion of long term debt 968 427
Current portion of excess fair market value of acquired net
assets over purchase price 476 476
-------- --------
Total current liabilities 14,211 11,633
Deferred taxes 189 184
Other long term liabilities 85 105
Long term debt, net of current portion 4,680 2,372
Long-term portion of excess fair market value of acquired net
assets over purchase price 1,667 2,024
-------- --------
Total liabilities 20,832 16,318
Shareholder's equity:
Common stock 71,739 71,204
Unrealized loss on marketable securities (36) (1)
Retained earnings 9,369 1,907
Foreign currency translation adjustment (2,945) (754)
-------- --------
Total shareholders' equity 78,127 72,356
-------- --------
$ 98,959 $ 88,674
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 28, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,462 $ 7,735
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 1,756 1,217
Amortization of excess market value of acquired net
assets over purchase price (357) (357)
Increase in deferred taxes 17 202
Foreign exchange (gain) loss (458) 264
Tax benefit of stock options exercised -- 189
Increase in accounts receivable (876) (1,368)
(Increase) decrease in inventory (4,382) 138
Increase in other current assets (956) (2,358)
Increase in accounts payable 1,760 2,485
Increase in accrued compensation 166 305
Decrease in deferred revenue (155) (251)
Increase in other current liabilities 1,308 65
-------- --------
Net cash provided by operating activities 5,285 8,266
Cash flows from investing activities
Purchase of property, plant and equipment (3,554) (4,346)
Increase in other long term assets (1,791) (351)
Purchase of equity investment (2,011) --
Payment of other long term liabilities (177) (129)
Net purchase of long-term investments (1,732) (7,182)
Net sale of short-term investments 5,745 --
-------- --------
Net cash used by investing activities: (3,520) (12,008)
Cash flows from financing activities
Net proceeds under long term debt 2,849 829
Net proceeds from issuance of capital stock 506 8,530
-------- --------
Net cash provided by financing activities: 3,355 9,359
Effect of change of exchange rate changes on cash and cash equivalents (192) 839
Net increase in cash and cash equivalents 4,928 6,456
Cash and cash equivalents at beginning of period 26,689 21,155
-------- --------
Cash and cash equivalents at end of period $ 31,617 $ 27,611
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
Planar Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in connection with the Company's audited financial statements for
the year ended September 29, 1995.
Note 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
June 28, 1996 September 29, 1995
------------- ------------------
(Unaudited)
<S> <C> <C>
Raw materials $ 9,044 $ 6,240
Work in process 3,070 2,949
Finished goods 3,527 2,629
------- -------
$15,641 $11,818
======= =======
</TABLE>
Note 3 - RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company
periodically enters into research and development contracts with certain
governmental agencies and private sector companies. These contracts generally
provide for reimbursement of costs. Funding from research and development
contracts is recognized as a reduction in operating expenses during the period
in which the services are performed and related direct expenses are incurred, as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
June 28, 1996 June 30, 1995 June 28, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Research and development $ 2,835 $ 3,237 $ 7,826 $ 6,881
Product engineering 1,371 1,152 4,276 3,137
-------- -------- -------- --------
Total expense 4,206 4,389 12,102 10,018
Contract funding (2,367) (2,977) (6,838) (6,314)
-------- -------- -------- --------
Research and development, net $ 1,839 $ 1,412 $ 5,264 $ 3,704
======== ======== ======== ========
</TABLE>
Note 4 - INCOME TAXES
The provision for income taxes has been recorded based upon the current estimate
of the Company's annual effective tax rate. This rate differs from the federal
statutory rate primarily because of the provision for state income taxes,
permanent differences resulting from purchase accounting adjustments and the
effects of the Company's foreign tax rates. Additional differences arise from
the limitation on the utilization of net operating loss carryforwards. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of income taxes.
7
<PAGE> 8
Planar Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
(Unaudited)
Note 5 - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the weighted
average number of common and dilutive common equivalent shares assumed to be
outstanding during the period. Common equivalent shares consist of options to
purchase common stock.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual report on
Form 10-K dated December 18, 1995.
RESULTS OF OPERATIONS
Sales
The Company's sales were $19,519,000 in the fiscal quarter ended June 28, 1996
compared to $19,529,000 in the same quarter last fiscal year. The Company's flat
sales between quarters was primarily caused by a decline in the level of
military business, which was offset by an increase in sales to the medical
segment and by an increase in end user terminals and monitor sales.
International sales, principally sales to Europe, declined by 11.5%. For this
fiscal quarter, international sales were 35.0% of total sales compared to 39.6%
in the same period last fiscal year.
For the first nine months of 1996, the Company's sales increased by 1.4% to
$59,950,000 from $59,142,000 in the same period last fiscal year. For this
period, component and end user sales more than offset a reduction of more than
30% in military sales. For this period, international sales were 37.0% of total
sales as compared to 33.9% in the same period last fiscal year.
Gross Profit
The Company's gross profit as a percentage of sales decreased to 36.6% in this
fiscal quarter ended June 28, 1996 from 37.4% in the same quarter last fiscal
year and for the nine month period increased to 36.4% from 36.2% in the same
period last fiscal year. The decline in the quarter is related to changes in
product mix reflecting reduced sales of higher margin CRT products. For the nine
month period, the increase was due to changes in product mix and reduction in
some raw material costs which offset the reduction due to the reduced sales of
higher margin CRT products.
Operating Expenses
The Company's operating expenses increased by 11.9% this fiscal quarter compared
to the same quarter last fiscal year and increased 16.6% for the nine months
ended June 28, 1996 over the same period last fiscal year. The increase was
primarily in two areas: (i) research and development, reflecting additional
expenses related to the development of new technologies and the increased cost
sharing requirements of the current contracts and (ii) product engineering,
where the company incurred expenses on several products in advance of revenues.
Overall, operating expenses as a percentage of sales increased to 24.9% in this
fiscal quarter compared to 22.3% in the same quarter last fiscal year and 23.7%
for the nine month period as compared to 20.6% for the same period last fiscal
year.
Non-Operating Income and Expense
Net interest for this quarter is comparable to the same period last fiscal year.
Net interest for the nine month period increased due to the higher cash balances
generated by operations and the Company's stock offering in June 1995.
The Company experienced a net loss from foreign currency transactions of
$110,000 during the third quarter of fiscal 1996 compared to a net loss of
$5,000 during the third quarter of fiscal 1995. For the nine months ended June
28, 1996, there was a gain of $449,000 compared to a loss of $528,000 for the
same period last fiscal year. These amounts are comprised of realized gains and
losses on cash transactions involving various currencies and unrealized gains
and losses related to foreign currency denominated receivables and payables
resulting from exchange rate fluctuations between the various currencies in
9
<PAGE> 10
which the Company operates. Foreign currency gains and losses are included as a
component of other income.
From September 29, 1995 to June 28, 1996, the U.S. dollar strengthened almost 9%
against the Finnish markka. This strengthening of the U.S. dollar resulted in
lower reported revenues and operating expenses due to translation of the Finnish
markka to U.S. dollars for consolidated financial reporting.
The Company generally realizes about one third of its revenue outside the United
States and expects this to continue in the future. Additionally, the functional
currency of the Company's subsidiary, Planar International, is the Finnish
markka which must be translated to U.S. dollars for consolidation. As such, the
Company's business and operating results will be impacted by the effects of
future foreign currency fluctuations.
Provision for Income Taxes
The effective income tax rate for the quarter ended June 28, 1996 was 16.2%
versus 17.1% in the same quarter in the prior year. For the nine months ended
June 28, 1996, the effective income tax rate was 19.4% versus 20.0% in the same
period last fiscal year. The change in the effective rates are due to the
relative profitability of the U.S. and foreign taxable entities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 28, 1996, the Company generated $5.3 million in
cash from operating activities compared to $8.3 million in the same period last
fiscal year.
At June 28, 1996, the Company had a bank line of credit agreement with a
borrowing capacity available to $2.5 million and credit facilities for financing
equipment of $15 million. A similar bank line of credit was in place as of
September 29, 1995. As of June 28, 1996 and September 29, 1995, no borrowings
were outstanding under the credit line and $5.6 million was outstanding under
the equipment financing lines at June 28, 1996 and $2.8 million at September 29,
1995.
For the nine month period ended June 28, 1996, additions to property and
equipment were $3.6 million and $4.3 million for the same period last fiscal
year. The principal acquisitions during this period were related to upgrading
the production facility and equipment at Planar America and in the prior year,
the principal acquisitions were upgrading the production facility and equipment
at Planar International.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 5. Other Information
COMPETITION
The market for information displays is highly competitive, and the
Company expects this to continue. The Company believes that over time this
competition will have the effect of reducing average selling prices of flat
panel displays (FPD). Certain of the Company's competitors have substantially
greater name recognition and financial, technical, marketing and other resources
than the Company, and competitors of the Company have made and continue to make
significant investments in the construction of manufacturing facilities for
active matrix liquid crystal displays (AMLCDs) and other advanced displays.
There can be no assurance that the Company's competitors will not succeed in
developing or marketing products that would render the Company's products
obsolete or noncompetitive. To the extent the Company is unable to compete
effectively against its competitors, whether due to such practices or otherwise,
its financial condition and results of operations would be materially adversely
affected.
DECLINING MILITARY EXPENDITURES AND FUTURE MILITARY PRODUCTS
During the current fiscal year, the Company has experienced declines in
military sales. Military capital expenditure levels have been declining for
several years and depend largely on factors outside of the Company's control.
Although the Company believes that its dependence on military sales will
decrease as the Company continues to expand its customer base, no assurance can
be given that military sales will not further decline.
In addition, the Company's military product sales are principally based
on CRT technology. Military avionics contractors are increasingly focused on
incorporating FPDs, primarily AMLCDs, into cockpit applications that have
traditionally used CRTs. The Company's ability to transition the military
product line to flat panel displays over the next few years will be important to
the long term success of Planar's military avionics business. The Company
entered into an agreement with Xerox Corporation to jointly develop, manufacture
and market AMLCDs into military applications. However, there can be no assurance
that this business arrangement will be successful.
DEVELOPMENT OF NEW PRODUCTS AND RISKS OF TECHNOLOGICAL CHANGE
The Company's future results of operations will depend upon its ability
to improve and market its existing products and to successfully develop,
manufacture and market new products. There can be no assurance that the Company
will be able to continue to improve and market its existing products or develop
and market new products, or that technological developments will not cause the
Company's products or technology to become obsolete or noncompetitive. Even
successful new product introductions typically result in pressure on gross
margins during the initial phases as costs of manufacturing start-up activities
are spread over lower initial sales volumes.
The Company's flat panel products rely significantly on
electroluminscent (EL) technology, which currently constitutes only a small
portion of the information display market. The Company's future success will
depend in part upon increasing acceptance of EL technology in the marketplace
and development or acquisition of other display technologies by the Company. In
that respect, the Company's competitors are investing substantial resources in
the development and manufacture of displays using a number of alternative
technologies. In the event these efforts result in the development of products
that offer significant advantages over the Company's products, and the Company
is unable to improve its technology or develop or acquire alternative technology
that is more competitive, the Company's business and results of operations will
be adversely affected.
11
<PAGE> 12
LEVEL OF ADVANCED RESEARCH AND DEVELOPMENT FUNDING
The Company's advanced research and development activities have
significantly been funded by outside sources, including agencies of the United
States and Finnish governments and private sector companies. The Company's
recently funded research and development activities have principally focused on
full color displays, headmounted displays, advanced packaging and other
applications. The actual funding that will be recognized in future periods is
subject to wide fluctuation due to a variety of factors including government
appropriation of the necessary funds and the level of effort spent on contracts
by the Company.
As Congress has become more serious about balancing the federal budget,
there has been significant debate on the level of funding to be made available
to programs that have historically supported the Company's research activities.
Additionally, government research and development funding has been gradually
shifting to a more commercial approach, and contractors are increasingly
required to share in the development costs. This trend is likely to continue,
which could increase the Company's net research and development expenses. While
the Company has historically not experienced any loss or decline of external
research funding, the loss or substantial reduction of such funding could
adversely affect the Company's results of operations and its ability to continue
research and development activities at current levels. See Note 4 in the "Notes
to Consolidated Financial Statements".
RELIANCE ON MEDICAL EQUIPMENT MARKET
Over one third of the Company's sales in fiscal 1995 were made to
customers that manufacture and sell medical equipment to health care providers
worldwide, and the Company believes that sales in this market will continue to
be important to the Company. As a result, developments that adversely impact the
market for medical equipment produced by the Company's customers could, in turn,
adversely affect the Company's business and results of operations. In addition,
the Company's sales have been and may in future periods be adversely affected
due to delays in approvals by foreign or domestic government regulatory agencies
which prevent a customer of the Company from introducing, producing or marketing
products.
INTERNATIONAL OPERATIONS AND CURRENCY EXCHANGE RATE FLUCTUATIONS
Shipments to customers outside of North America accounted for
approximately 35% and 26% of the Company's sales in fiscal 1995 and fiscal 1994,
respectively, and for the nine month periods ended June 28,1996 and June 30,
1995, 37.0% and 33.9%, respectively. The Company anticipates that international
shipments will continue to account for a significant portion of its sales. As a
result, the Company is subject to risks associated with international
operations, including trade restrictions, overlapping or differing tax
structures, changes in tariffs and freight rates, export license requirements
and difficulties in staffing and managing international operations (including,
in Finland, relations with national labor unions). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANAR SYSTEMS, INC.
(Registrant)
DATE: August 7, 1996 /s/ Jack Raiton
---------------
Jack Raiton
Vice President and
Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
Exhibit # Description
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-END> JUN-28-1996
<CASH> 31617000
<SECURITIES> 7047000
<RECEIVABLES> 14549000
<ALLOWANCES> 173000
<INVENTORY> 15641000
<CURRENT-ASSETS> 5355000
<PP&E> 25396000
<DEPRECIATION> 12228000
<TOTAL-ASSETS> 98959000
<CURRENT-LIABILITIES> 14211000
<BONDS> 0
0
0
<COMMON> 71739000
<OTHER-SE> 6388000
<TOTAL-LIABILITY-AND-EQUITY> 98959000
<SALES> 59950000
<TOTAL-REVENUES> 59950000
<CGS> 38142000
<TOTAL-COSTS> 52370000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282000
<INCOME-PRETAX> 9254000
<INCOME-TAX> 1792000
<INCOME-CONTINUING> 7462000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7462000
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
</TABLE>
