<PAGE>
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 December 27, 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
_______________________________________________________________________________
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 February 5, 1997
10,947,565 shares, no par value per share
<PAGE>
PLANAR SYSTEMS, INC.
INDEX
Page
Part I. Financial Information
- -----------------------------
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months Ended
December 27, 1996 and December 29, 1995 3
Consolidated Balance Sheets at December 27, 1996 and
September 27, 1996 4
Consolidated Statements of Cash Flows for the Three months Ended
December 27, 1996 and December 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
- --------------------------
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
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
December 27, 1996 December 29, 1995
------------------- ------------------
<S> <C> <C>
Sales $22,152 $20,317
Cost of sales 14,879 13,181
------------------- ------------------
Gross profit 7,273 7,136
Operating expenses:
Research and development, net (note 3) 1,952 1,533
Sales and marketing 1,879 1,687
General and administrative 1,471 1,272
Amortization of excess fair market
value of acquired net assets over
purchase price (119) (119)
------------------- ------------------
Total operating expenses 5,183 4,373
------------------- ------------------
Income from operations 2,090 2,763
Non-operating income (expense):
Interest, net 299 413
Foreign exchange, net 102 228
Other, net (250) -----
------------------- ------------------
Net non-operating income 151 641
------------------- ------------------
Income before income taxes 2,241 3,404
Provision for income taxes (note 4) 565 699
Net income $ 1,676 $ 2,705
=================== ==================
Net income per share (note 5): $0.15 $0.24
Weighted average number of common and common
equivalent shares outstanding 11,181 11,246
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 27, 1996 September 27, 1996
(Unaudited)
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,791 $23,089
Short-term investments 5,051 7,111
Accounts receivable 17,220 15,267
Inventories (note 2) 16,745 17,134
Other current assets 5,534 5,634
------------------- ------------------
Total current assets 70,341 68,235
Property, plant and equipment, net 13,729 13,752
Long-term investments 15,781 12,838
Other 2,760 2,470
------------------- ------------------
$102,611 $97,295
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,394 $ 3,900
Accrued compensation 3,365 2,979
Deferred revenue 746 ----
Other current liabilities 3,150 2,917
Current portion of long term debt 1,321 1,039
Current portion of excess fair market
value of acquired net assets over
purchase price 476 476
------------------- ------------------
Total current liabilities 14,452 11,311
Deferred taxes 286 291
Other long term liabilities 8 53
Long term debt, net of current portion 5,079 4,123
Long-term portion of excess fair market
value of acquired net assets over
purchase price 1,429 1,548
------------------- ------------------
Total liabilities 21,254 17,326
Shareholder's equity:
Common stock 72,020 71,867
Unrealized gain (loss) on marketable securities 60 (10)
Retained earnings 12,255 10,579
Foreign currency translation adjustment (2,978) (2,467)
------------------- ------------------
Total shareholders' equity 81,357 79,969
------------------- ------------------
$102,611 $97,295
=================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 27, 1996 December 29, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,676 $ 2,705
Adjustments to reconcile net income to net cash
provided <used> by operating activities
Depreciation and amortization 751 580
Amortization of excess market value of acquired net
assets over purchase price (119) (119)
Loss on investment 250 ------
Increase <decrease> in deferred taxes (3) 1
Foreign exchange gain (93) (216)
Increase in accounts receivable (1,962) (1,391)
<Increase> decrease in inventory 244 (614)
<Increase> decrease in other current assets (69) 800
Increase in accounts payable 1,516 402
Increase in accrued compensation 423 82
Increase in deferred revenue 689 34
Increase in other current liabilities 270 777
----------------- -----------------
Net cash provided by operating activities 3,573 3,041
Cash flows from investing activities
Purchase of property, plant and equipment (827) (1,609)
Increase in other long term assets (301) (512)
Purchase of equity investment ----- (2,011)
Payment of other long term liabilities (45) (87)
Net (purchase) sales of investments (1,063) 680
----------------- -----------------
Net cash used by investing activities: (2,236) (3,539)
Cash flows from financing activities
Net proceeds under long term debt 1,238 2,994
Net proceeds of long term receivable 20 ------
Net proceeds from issuance of capital stock 153 206
----------------- -----------------
Net cash provided by financing activities: 1,411 3,200
Effect of change of exchange rate
changes on cash and cash equivalents (46) 11
Net increase in cash and cash equivalents 2,702 2,713
Cash and cash equivalents at beginning of period 23,089 26,689
----------------- -----------------
Cash and cash equivalents at end of period $25,791 $29,402
================= =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
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 27, 1996.
Note 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
December 27, 1996 September 27, 1996
----------------- ------------------
<S> <C> <C>
(Unaudited)
Raw materials $10,224 $10,616
Work in process 3,840 3,323
Finished goods 2,681 3,195
$16,745 $17,134
================= ==================
</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
December 27, 1996 December 29, 1995
----------------- ------------------
<S> <C> <C>
Research and development $ 2,787 $ 2,569
Product engineering 1,440 1,148
----------------- ------------------
Total expense 4,227 3,717
Contract funding (2,275) (2,184)
Research and development, net $ 1,952 $ 1,533
================= ==================
</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.
6
<PAGE>
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.
7
<PAGE>
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 26, 1996.
RESULTS OF OPERATIONS
Sales
- -----
The Company's sales were $22,152,000 in the fiscal quarter ended December 27,
1996 compared to $20,317,000 in the same quarter last fiscal year. The increase
in sales is due to increases in sales to the medical segment of the business and
increases in sales of military CRT products which offset a decline in the end
user product sales and international sales. For this fiscal quarter,
international sales were 26.4% of total sales compared to 35.5% in the same
period last fiscal year.
Gross Profit
- ------------
The Company's gross profit as a percentage of sales decreased to 32.8% in this
fiscal quarter ended December 27, 1996 from 35.1% in the same quarter last
fiscal year. The decline in the quarter is related to changes in product mix.
Operating Expenses
- ------------------
The Company's operating expenses increased by 18.5% this fiscal quarter compared
to the same quarter last fiscal year. The increase was primarily due to
increases in research and development, reflecting additional expenses related to
the development of new technologies, marketing and sales, due to additional
sales resources added and general and administrative, due to increases in
general corporate overhead. Overall, operating expenses as a percentage of
sales increased to 23.4% in this fiscal quarter compared to 21.5% in the same
quarter last fiscal year.
Non-Operating Income and Expense
- --------------------------------
Net interest for this quarter declined as compared to the same period last
fiscal year due to increased interest expense related to the increase in
equipment financing.
The other expense shown in the first quarter of 1997 comprises a write down of
an equity investment in a virtual reality headset manufacturing company.
The Company experienced a net gain from foreign currency transactions of
$102,000 during the first quarter of fiscal 1997 compared to a net gain of
$228,000 during the first quarter of fiscal 1996. 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 which the Company operates. Foreign currency gains and losses are
included as a component of other income.
From September 27, 1996 to December 27, 1996, the U.S. dollar strengthened
almost 2% 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.
8
<PAGE>
Provision for Income Taxes
- --------------------------
The effective income tax rate for the quarter ended December 27, 1996 was 25.2%
versus 20.5% in the same quarter in the prior 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 three months ended December 27, 1996, the Company generated $3.6 million
in cash from operating activities compared to $3.0 million in the same period
last fiscal year.
At December 27, 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 $5 million. A similar bank line of credit was in place as of
September 27, 1996. As of December 27, 1996 and September 27, 1996, no
borrowings were outstanding under the credit line and $6.4 million was
outstanding under the equipment financing lines at December 27, 1996 and $5.1
million at September 27, 1996.
For the three month period ended December 27, 1996, additions to property and
equipment were $827,000 and $1.6 million for the same period last fiscal year.
The principal acquisitions during this period were related to the addition of
new production equipment at Planar International and in the prior year, the
principal acquisitions were upgrading the production facility at Planar America.
9
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Planar does not provide forecasts of future financial performance. While
Planar's management is optimistic about the Company's long-term prospects, the
following issues and uncertainties, among others, should be considered in
evaluating its growth outlook.
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.
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 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.
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 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.
The Company's military product sales are principally based on CRT
technology. Military avionics contractors are increasingly focused on
incorporating displays, 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 dpiX (a Xerox company) to jointly develop,
manufacture and market AMLCDs into military applications. However, there can be
no assurance that this business arrangement will be successful.
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
multi-color and 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.
10
<PAGE>
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 1 in the "Notes
to Consolidated Financial Statements".
RELIANCE ON MEDICAL EQUIPMENT MARKET
Over one third of the Company's sales in fiscal 1996 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
37.1%, 34.5% and 26.4% of the Company's sales in fiscal 1996, fiscal 1995 and
fiscal 1994, 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, 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."
DECLINING MILITARY EXPENDITURES
As a result of the Company's acquisition of Planar Advance, the Company's
sales for military applications have increased. 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 continue
at current levels.
EFFECTS OF QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Results of operations have fluctuated significantly from quarter to quarter
in the past, and may continue to fluctuate in the future. Various factors,
including timing of new product introductions by the Company or its competitors,
foreign currency exchange rate fluctuations, disruption in the supply of
components for the Company's products, changes in product mix, capacity
utilization, the timing of orders from major customers, production delays or
inefficiencies, seasonality, the timing of expenses and other factors affect
results of operations. Quarterly fluctuations may adversely affect the market
price of the Common Stock.
The Company's backlog at the beginning of each quarter does not normally
include all orders needed to achieve expected sales for the quarter.
Consequently, the Company is dependent upon obtaining orders for shipment in a
particular quarter to achieve its sales objectives for that quarter. The
Company's expense levels are based, in part, on expected future sales. If sales
levels in a particular quarter do not meet expectations, operating results may
be adversely affected.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANAR SYSTEMS, INC.
(Registrant)
DATE: February 6, 1997 /s/ Jack Raiton
---------------
Jack Raiton
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> DEC-27-1996
<CASH> 25,791
<SECURITIES> 5,051
<RECEIVABLES> 17,200
<ALLOWANCES> 0
<INVENTORY> 16,745
<CURRENT-ASSETS> 70,341
<PP&E> 26,949
<DEPRECIATION> 13,220
<TOTAL-ASSETS> 102,611
<CURRENT-LIABILITIES> 14,452
<BONDS> 0
0
0
<COMMON> 72,020
<OTHER-SE> 9,337
<TOTAL-LIABILITY-AND-EQUITY> 102,611
<SALES> 22,152
<TOTAL-REVENUES> 22,152
<CGS> 14,879
<TOTAL-COSTS> 20,062
<OTHER-EXPENSES> 250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,241
<INCOME-TAX> 565
<INCOME-CONTINUING> 1,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,676
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
