<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 26, 1997 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 6, 1998
10,820,453 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 3
26, 1997 and December 27, 1996
Consolidated Balance Sheets at December 26, 1997 and September 26, 1997 4
Consolidated Statements of Cash Flows for the Three Months Ended December 5
26, 1997 and December 27, 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Part II. Other Information
Item 2. Changes in securities 10
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 26, December 27,
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 31,474 $ 22,152
Cost of Sales 22,353 14,879
------------ ------------
Gross Profit 9,121 7,273
Operating Expenses:
Research and development, net 1,758 1,952
Sales and marketing 2,638 1,879
General and administrative 2,222 1,471
Goodwill, net 46 (119)
------------ ------------
Total operating expenses 6,664 5,183
------------ ------------
Income from operations 2,457 2,090
Non-operating income
(expense):
Interest, net 181 299
Foreign exchange, net 219 102
Other, net --- (250)
------------ ------------
Net non-operating income 400 151
Income before income taxes
and extraordinary item 2,857 2,241
Provision for income taxes 726 565
------------ ------------
Net Income $ 2,131 $ 1,676
============ ============
Net income per share (basic): $ 0.20 $ 0.15
Weighted average number of
common shares outstanding 10,891 10,929
Net income per share (diluted): $ 0.19 $ 0.15
Weighted average number of
common and common equivalent
shares outstanding 11,141 11,190
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
December 26, September 26,
1997 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,425 $ 21,777
Short-term investments 4,044 8,170
Accounts receivable 22,452 21,001
Inventories 21,297 21,517
Other current assets 7,507 8,471
----------- -------------
Total current assets 82,725 80,936
Property, plant and equipment, net 16,087 16,584
Long-term investments 2,445
Goodwill 5,715 5,878
Other 11,532 8,353
----------- -------------
$116,059 $114,196
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 8,000 $ 1,130
Accounts payable 13,806 13,011
Accrued compensation 3,562 5,261
Other current liabilities 6,861 5,083
Current portion of long term debt 1,423 1,698
Deferred revenue 1,320 1,406
Current portion of excess fair market
value of acquired net
assets over purchase price 476 476
----------- -------------
Total current liabilities 35,448 28,065
Deferred taxes 259 263
Other long term liabilities 380 638
Long term debt, net of current portion 3,656 6,878
Long-term portion of excess fair market
value of acquired net assets over purchase
price 953 1,072
----------- -------------
Total liabilities 40,696 36,916
Shareholder's equity:
Common stock 73,376 73,190
Unrealized loss on marketable securities 37 7
Retained earnings 9,019 10,486
Foreign currency translation adjustment (7,069) (6,403)
----------- -------------
Total shareholders' equity 75,363 77,280
----------- -------------
$116,059 $114,196
=========== =============
</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>
Three Months Ended
December 26, December 27,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,131 $ 1,676
Adjustments to reconcile net income to
net cash provided <used> by operating
activites
Depreciation and amortization 998 751
Amortization of excess market value
of acquired net assets over purchase price (119) (119)
Goodwill 165
Loss on investment 250
Loss on sale of equipment 27
Increase <decrease> in deferred taxes (3)
Foreign exchange gain (220) (93)
Increase in accounts receivable (1,311) (1,962)
Decrease in inventory 116 244
<Increase> decrease in other current assets 711 (69)
Increase in accounts payable 983 1,516
Increase <decrease> in accrued compensation (1,316) 423
Increase <decrease> in deferred revenue (65) 689
Increase in other current liabilities 1,209 270
------------- ------------
Net cash provided by operating activities 3,309 3,573
Cash flows from investing activities
Purchase on property, plant and equipment (598) (827)
Payment of equipment and rent deposits (3,545) (301)
Payment <refund> of other long term liabilities 18 (45)
Net sales of short term investments 4,126 2,060
Net sales <purchases> of long term investments 2,394 (3,123)
------------ ------------
Net cash provided <used> by investing activities: 2,395 (2,236)
Cash flows from financing activities
Net <repayment> proceeds under long term debt (3,754) 1,238
Net proceeds under short term debt 6,870 ---
Net proceeds under long term accounts receivable 456 20
Net cash use for stock repurchase (3,598) ---
Net proceeds from issuance of capital stock 3 153
------------ ------------
Net cash provided <used> by financing activities: (23) 1,411
Effect of change of exchange rate changes on cash and cash
equivalents (33) (46)
Net increase in cash and cash equivalents 5,648 2,702
Cash and cash equivalents at beginning of period 21,777 23,089
------------ ------------
Cash and cash equivalents at end of period $27,425 $25,791
============ ============
</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 26, 1997.
Note 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
December 26, 1997 September 26, 1997
----------------- ------------------
<S> <C> <C>
(Unaudited)
Raw materials $ 12,470 $ 12,118
Work in process 4,412 4,165
Finished goods 4,415 5,234
-------- --------
$ 21,297 $ 21,517
======== ========
</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 26, December 27,
1997 1996
------------ ------------
<S> <C> <C>
Research and development $ 3,191 $ 2,787
Product engineering 1,464 1,440
------------ -----------
Total expense 4,655 4,227
Contract funding (2,897) (2,275)
------------ -----------
Research and development, net $ 1,758 $ 1,952
============ ===========
</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
Basic net income per common share is computed using the weighted average number
of common shares outstanding during the period and diluted income per common
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 for the year ended September 26, 1997.
RESULTS OF OPERATIONS
Sales
The Company's sales increased by 42.1% to $31,474,000 in the fiscal quarter
ended December 26, 1997 from $22,152,000 in the same quarter last fiscal year.
The increase in sales was principally due to the additional sales attributed to
Planar Standish, which was acquired in September 1997. International sales,
principally sales to Europe, increased by 13.8% due to the increased sales in
the Company's target markets with existing product lines and the addition of the
Planar Standish sales. For this fiscal quarter, international sales were 21.2%
of total sales compared to 26.4% in the same period last fiscal year.
Gross Profit
The gross margin of 29.0% for this quarter compared to 32.8% in the same quarter
in the prior year, reflects the increase in sales of LCD products which are
historically at a lower margin than the rest of the component business.
Operating Expenses
The Company's operating expenses increased by 28.6% this fiscal quarter compared
to the same quarter last fiscal year. The increase was primarily in two areas:
1) sales and marketing, reflecting additional marketing resources and
commissions paid on the increased level of sales, and; 2) general and
administrative, where additional costs were incurred to support Planar Standish.
Overall, operating expenses as a percentage of sales decreased to 21.2% in this
fiscal quarter compared to 23.4% in the same quarter last fiscal year.
Non-Operating Income and Expense
Net interest for this quarter versus the same period last fiscal year declined
due to the increase in debt related to the Planar Standish acqusition.
The other expense recognized in the first quarter of fiscal 1997 reflects the
write off of an equity investment in a virtual reality headset manufacturing
company.
The Company experienced a net gain from foreign currency transactions of
$219,000 during the first quarter of fiscal 1998 compared to a net gain of
$102,000 during the first quarter of fiscal 1997. 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.
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
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Provision for Income Taxes
The effective income tax rate for the quarter ended December 26, 1997 was 25.4%
versus 25.2% in the same quarter in the prior year. This change in effective
rates is due to the relative profitability of the U.S. and foreign taxable
entities.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 26, 1997, the Company generated $3.3 million
in cash from operating activities compared to $3.5 million in the same period
last fiscal year.
At December 26, 1997, the Company had a bank line of credit agreement with a
borrowing capacity available to $8.0 million and a credit facility for financing
equipment of $19.5 million. A similar bank line of credit was in place as of
September 26, 1997. As of December 26, 1997, $8 million was outstanding and as
of September 26, 1997, no borrowings were outstanding under the credit line.
Under the equipment financing lines, $5.1 million was outstanding under the
equipment financing lines at December 26, 1997 and $5.4 million at September 26,
1997.
For the three month period ended December 26, 1997, additions to property and
equipment were $598,000 compared to $827,000 for the same period last fiscal
year. The principal acquisitions during both periods were related to upgrading
the production facility and equipment at Planar America. In addition, the
Company anticipates further upgrades of production facilities over the next 12
months costing $10 to $12 million, of which approximately $7 million has already
been made through equipment deposits.
On April 23, 1997, the Company announced it intention to repurchase up to
400,000 shares of the Company's currently outstanding common stock from time to
time over the next twelve months in open market and negotiated transactions.
During the three months ended December 26, 1997, the Company repurchased
$3,598,000 of it's own common stock.
9
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) During the first fiscal quarter of 1998, the Company sold securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") upon the exercise of certain stock options granted under the
Company's stock option plans. An aggregate of 4,755 shares of Common Stock were
issued at exercises prices ranging from $2.25 to $6.50. These transactions were
effected in reliance upon the exemption from registration under the Securities
Act provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3 (b) of the Securities Act.
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. The following information should be read in
conjunction with Management's Discussion and Analysis (Item 7) contained in the
Company's 10-K for the year ended September 26, 1997.
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.
A portion of the Company's flat panel products rely on EL technology,
which currently constitutes only a small portion of the information display
market. The Company's future success with EL technology will depend in part upon
increasing acceptance of EL products in the marketplace. In that regard, 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
10
<PAGE>
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, miniature 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.
RELIANCE ON MEDICAL EQUIPMENT MARKET
Over one third of the Company's sales in fiscal 1997 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 26.6%, 37.1%, and 34.5% of the Company's sales in fiscal 1997,
fiscal 1996 and fiscal 1995, 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).
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. In addition, as a result of the reduction in military CRT
sales, several key CRT suppliers have threatened to halt production of critical
components. Although the Company believes it has reached agreement with each of
its critical vendors, no assurance can be given that critical material supply
will be available when needed.
11
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: 27 - Financial Data Schedule
(b) Reports on 8-K: none
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, 1998 /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-25-1998
<PERIOD-START> SEP-27-1997
<PERIOD-END> DEC-26-1997
<CASH> 27,425
<SECURITIES> 4,044
<RECEIVABLES> 22,452
<ALLOWANCES> 0
<INVENTORY> 21,297
<CURRENT-ASSETS> 82,725
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,059
<CURRENT-LIABILITIES> 35,448
<BONDS> 0
0
0
<COMMON> 73,376
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 116,059
<SALES> 31,474
<TOTAL-REVENUES> 31,474
<CGS> 22,353
<TOTAL-COSTS> 6,664
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 2,857
<INCOME-TAX> 726
<INCOME-CONTINUING> 2,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,131
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
