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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 25, 1998 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 (I.R.S. employer
incorporation or organization) identification number)
1400 NW Compton Drive
Beaverton, OR 97006
(Address of principle executive offices, including zip code)
(503) 690-1100
(Registrants telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 proceeding 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 X NO
----- -----
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 the 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 (X)
As of December 10, 1998
Aggregate market value of the voting stock held by
non-affiliates of the Registrant based upon the
closing bid price of such stock: $82,917,000
Number of shares of Common Stock outstanding 10,669,956
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the Annual Meeting
of Shareholders to be held on February 4, 1999, are incorporated by reference
into Part III of this report.
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PART I
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ITEM 1.
BUSINESS
Planar Systems, Inc. (Planar) is a leading developer, manufacturer and
marketer of high performance electronic display products. The Company's products
include its proprietary electroluminescent (EL) flat panel displays, cathode ray
tubes (CRTs), active matrix liquid crystal displays (AMLCDs), passive matrix
liquid crystal display (PMLCD) products, and backlights. These products are used
in a wide variety of medical, industrial, process control, instrumentation,
military/avionics, transportation, communications and other applications. The
Company competes on a global basis with full development, manufacturing and
marketing operations in both the United States and Europe. Major customers
include Datascope, Hewlett-Packard, Protocol Systems, Sun Micro Systems,
Gilbarco, Siemens, and Smiths Industries.
INDUSTRY BACKGROUND
The information display industry is undergoing significant changes as the
proliferation and sophistication of microprocessors is increasing the volume of
text, graphics and video information that is generated and displayed. At the
same time, electronic systems are becoming smaller and more portable. Also,
color active matrix liquid crystal displays are a rapidly growing part of the
display industry. These trends are converging to drive a growing demand for
color, high performance flat, lightweight, power-efficient displays that are
capable of delivering high volumes of information. Although commodity CRTs
dominate the overall information display market, they are large, heavy, fragile,
and require substantial amounts of power to operate.
There are several display technologies currently in development or
commercially available, including various forms of liquid crystal, gas plasma
and EL displays. The principal basis of competition among display suppliers are
commercial availability, long life, price, display performance, size, customer
service, design flexibility, power usage and ruggedness.
Passive Matrix LCD. PMLCDs modulate light (which is either reflected or
transmitted) by applying a voltage to a liquid crystal material placed between
two glass plates.
Active Matrix LCD. AMLCD screens incorporate the PMLCD technology plus add
a transistor at every pixel location. This allows each pixel to be turned on and
off independently which increases the image quality, response time and side-to-
side viewing angle of the display.
Gas Plasma. Gas plasma creates a visible image by ionizing a gas contained
between two glass plates. The ionized gas emits an ultra violet light which
excites phophors which emit visible light. Gas plasma displays generally have
higher power consumption requirements than other display technologies but may
provide the most cost effective solution for large-sized displays. These
displays are primarily used in industrial and entertainment applications.
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Electroluminescent. Planar's standard monochrome EL display technology is a
solid state device with a thin film luminescent layer sandwiched between
transparent dielectric (insulator) layers and a matrix of row and column
electrodes deposited on a single glass substrate. A circuit board, with control
and drive components mounted within the same area as the viewing area on the
glass panel, is connected to the back of the glass substrate using various
interconnect technologies. The result is a flat, compact, reliable and rugged
display device. When AC voltage is applied to a column and a row electrode, the
phosphor thin film between them emits light that passes through the transparent
electrode, through the glass face, and on to the viewer. Increasing the number
of rows and columns, and thus the number of pixels, in a given space increases
the clarity of the display to the viewer.
Other. There is a wide diversity of new technologies constantly under
development with the objective of competing in this market. Some of the more
visible efforts include field emissions displays (FED), ferroelectric LCDs,
organic light emitting diodes (OLEDs) and various forms of projection displays.
STRATEGY
The Company's goal is to enhance its position as a leading, independent
supplier of information displays. The Company has successfully developed a broad
product line of information displays which has resulted in large market
acceptance. In the last two fiscal years, the Company has shipped over a quarter
million units to customers with a particular emphasis on the medical,
industrial, instrumentation, transportation and military / avionics markets. The
Company is now seeking to broaden its technology base and market penetration.
Key elements of the Company's strategy to achieve this goal include:
Expand Market Presence. The Company continues to identify and pursue
growing markets that have a high correlation between the capabilities of the
Company's products and the specific needs of the target market. Within these
markets, the Company focuses on a broad range of customers whose applications
receive high value and benefit from Planar's products. Today, the Company's core
markets are industrial (medical, process control, and instrumentation),
transportation and military/avionics. Additionally, Planar is focusing increased
attention on emerging markets for high information content displays including
communications and business/office.
Provide Differentiated Products. To maintain its technological advantage,
the Company is continuing to expand the capabilities and applications of its
proprietary EL, PMLCD, AMLCD and CRT technologies. During fiscal year 1998,
Planar introduced new products utilizing both of its LCD and EL technologies.
The Company also continues its development of militarized AMLCDs in connection
with dpiX (a Xerox new enterprise company).
Enhance Competitive Position Through Operations. The Company seeks to
manufacture and deliver products of superior quality and reliability supported
by a high level of customer service. The Company maintains a close relationship
with its customers throughout the product life cycle, from engineering
prototypes through production and sales.
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The Company believes that it is the only flat panel display company with
full development, manufacturing and sales operations in both the United States
and Europe. The Company believes that separate regional facilities permit the
Company to provide: (i) direct access to key regional markets, allowing for a
faster and more complete response to customer needs; (ii) two internal
sources of manufactured EL products to protect the Company's customers from
disruption of supply; (iii) multiple production and processing technologies to
accelerate new product development and optimize displays for specific
applications; and (iv) reduced supplier risk as each operation tends to use
different vendors.
Pursue Strategic Relationships. The Company seeks to provide customers with
the best display solution regardless of technology. Display industry customers
are constantly asking for higher product performance at competitive prices. To
meet these customer demands, the Company intends to continue to evaluate and
actively seek to develop or acquire, promising technologies directly or through
strategic relationships.
MARKETS
The Company is currently serving the following core market segments:
Industrial-Medical. Displays are used in patient monitors and a range
of diagnostic and therapeutic equipment, including anesthesia systems,
ventilators, infusion pumps and blood analyzers. These medical applications
typically require a wide viewing angle and clear, crisp images readable
from across the room in varying light conditions by multiple users at the
same time. The Company believes that its displays provide superior display
quality and reliability for crucial medical applications.
Industrial-Process Control. Displays are used in a wide range of
manufacturing environments, including industrial computers, operator
interfaces and machine control panels. The reliability, ruggedness, wide
operating temperature range and low susceptibility to electromagnetic
interference of Planar displays permit the Company to deliver solutions to
a range of problems in these difficult environments.
Industrial-Instrumentation. The Company's displays are used in a wide
range of test and measurement products, including digital oscilloscopes,
analyzers and telecommunications test equipment. The Company believes there
is an increasing market demand for the Company's displays in smaller, more
portable test equipment.
Military/Avionics. The Company's sales in this market consist
primarily of high performance CRTs and AMLCDs sold to systems integrators
for military cockpits. Additionally, the Company sells processed EL display
glass to military systems suppliers for integration into various military
subsystems used in communications applications, tactical displays, avionics
and shipboard command and control equipment. Although military spending is
contracting in the U.S., the Company believes that this will remain an
important strategic market because military customers continue to require
increasing
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display performance, are often willing to share development costs and have
significant influence over the distribution of research and development
funding from government sources.
Transportation. The pervasive use of microprocessors has increased the
demand for higher information content displays for space constrained
transportation applications. The Company has sold displays to customers for
use in global positioning applications, long-haul trucks, off road vehicle
instruments, farm equipment, cockpit displays for trains, warehouse
inventory management displays, forklift applications and railway car
information systems.
In addition to the core markets described above, Planar is serving the following
emerging markets:
Communications. As hardware becomes increasingly portable and the
support systems allow for greater transmission of data, telecommunication
devices require displays with more information capability. The Company has
sold displays to customers for use in field communication systems and
financial trader telephone turrets.
Business/Office Equipment. The Company sells displays in the gas pump
industry and for a variety of applications in the office and retail
markets, including high speed photocopiers, office control panels, point-
of-sale devices, custom designed monitors and elevators.
PRODUCTS
The Company offers a variety of displays and display systems in a wide
range of resolutions, formats, viewing areas and technologies. These can be
classified in three primary product lines:
Flat Panel Displays. This product line includes monochrome EL and LCD,
multi-color EL and full color AMLCD displays. This is principally an OEM
(original equipment manufacturer) component market where the customers purchase
displays to incorporate directly into their products.
Cathode Ray Tubes. The Company offers high performance CRTs based on its
proprietary taut shadow mask technology. These displays are sold primarily to
military systems companies who integrate them into cockpit applications.
Value-added Display Solutions. To be able to better satisfy customers'
display needs, the Company incorporates displays into systems and sub-systems
that often include keyboards, touch input devices, local computing capability or
special packaging. The Company markets its complete display systems for bedside
computing applications where hospitals are increasingly recognizing the
productivity gained by such installations.
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RESEARCH, DEVELOPMENT AND PRODUCT ENGINEERING
The Company believes that a significant level of investment in research,
development and product engineering is required to maintain market leadership.
Total expenses were $19.9, $17.3, and $16.5 million for the fiscal years 1998,
1997, and 1996, respectively, for research, development, and product
engineering. These expenses were partially offset by contract funding from both
government agencies (in the United States and Finland) and private sector
companies of $11.2, $9.6, and $9.4 million in fiscal years 1998, 1997 and 1996,
respectively. Research and development expenses of the Company are primarily
related to advanced technology programs in active matrix electroluminescent
(AMEL) technology, AMLCD and PMCLD technologies, development of miniaturized
displays, organic light emitting diodes (OLEDs), new drive architectures and
fundamental process improvements. Product engineering expenses are directly
related to the design, prototyping and release to production of new Company
products. Research, development and product engineering expenses consist
primarily of salaries, project materials, outside services, allocation of
facility expenses and other costs associated with the Company's ongoing efforts
to develop new products, processes and enhancements.
Recent development efforts have been focused on both short-term and long-
term programs designed to enhance the Company's product offerings and
capabilities. These programs include the following:
AMEL. This program is focused on the development of high resolution image
sources for miniature display applications. During fiscal 1997, the Company
announced product capabilities for monochrome AMEL VGA displays. Current
development efforts are addressing higher resolution (up to 2,000 lines per
inch), improved performance, color, and lower manufacturing costs. Potential
markets include medical, industrial, military, computing and entertainment.
Small Graphics Displays (SGD). This product development effort led to the
SGD service that provides quick turnaround designs coupled with volume
production of small graphics custom display systems. Initial targeted markets
include industrial process control, business/office equipment and
transportation.
New Technology Development. As part of the Company's strategy,
relationships are continuing to be established to explore various display
technologies and their incorporation into the product line. Some of the projects
being pursued include AMLCDs, fast PMLCDs, backlights, field emission displays
(FED), and organic light emitting diodes (OLEDs).
GOVERNMENT AND INDUSTRY PARTNERSHIPS
The Company believes that it is necessary for the United States and Europe
to further develop sources of supply, equipment and a base of trained personnel
to support the display industry. Additionally, as part of the Company's
technology strategy, the Company believes that it is important to be involved
with a broad range of display technologies and industry groups. As a result of
its participation, the Company benefits from work being done which complements
(and in some cases, funds) the Company's internal development objectives. To
that end, the
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Company has employees who actively participate in several government/industry
partnerships, including:
Phosphor Technology Center of Excellence (PTCOE). The Advance Research
Projects Agency (ARPA) has funded the creation of the PTCOE to promote the
development of appropriate materials and processes for the fabrication of
phosphors for light emissive displays.
United States Display Consortium (USDC). The USDC was created to develop an
infrastructure to support a U.S.-based display industry by funding equipment and
materials suppliers in this industry, establishing and maintaining appropriate
benchmarks and disseminating information to industry participants. The USDC is
funded by contracts from ARPA and member contributions.
Next Generation EL Manufacturers Consortium. This Consortium was created
in connection with an agreement with ARPA under a focused Technology
Reinvestment Project. This two-year cost share program will provide the Planar-
led consortium with approximately $30 million, which the consortium is required
to match on a one-to-one basis, to further develop technologies necessary to
manufacturing AMEL miniature displays.
EUREKA. EUREKA is a European Union program targeted at supporting the
development of critical technology capacity within Europe. Planar's facility in
Finland qualified for participation in the EUREKA program for its project to
develop multi-color and full color EL display products and received funding
under this program in 1997 and 1998.
MANUFACTURING
The Company operates EL manufacturing facilities in both the United States
and Finland. These facilities are designed to produce a wide range of display
sizes and types from 1 "x 4" to 12 "x 14" that can be manufactured with
relatively minor changes to the basic equipment set-up. The Company's LCD
facility is also designed to produce a wide range of display sizes and types.
The CRT facility is designed to produce 5" x 5" and 6" x 6" militarized CRTs.
The Company's manufacturing operations consist of the procurement and
inspection of components, manufacture of the display component, final assembly
of all components and extensive testing of finished products. The Company
currently procures all of its raw materials from outside suppliers. This
includes glass substrates, driver integrated circuits, electronic circuit
assemblies, power supplies and high density interconnects.
Quality and reliability are emphasized in the design and manufacture of the
Company's products. All of the Company's manufacturing facilities have active
operator training/certification programs and regularly use advanced statistical
process control techniques. The Company's products undergo thorough quality
inspection and testing throughout the manufacturing process.
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The Company believes that worldwide quality standards are increasing and
that many customers now want manufacturers to have ISO9001 certification. This
certification requires that a company meet a set of criteria, established by an
independent, international quality organization that measures the quality of
systems, procedures and implementation in manufacturing, marketing and
development of products and services. As of September 25, 1998, three of the
operating divisions have received and maintain their ISO9001 certification. It
is anticipated that the newest division, in Lake Mills, WI, will obtain ISO9001
certification in the near future.
SALES AND MARKETING
The Company's products are distributed worldwide through a combination of
independent sales representatives, distributors and Company-employed sales
personnel. In the United States, Planar has regional sales personnel in the
Boston, Chicago, Dallas, San Diego, Minneapolis, St. Paul, Portland, and Tampa
metropolitan areas. Each of these locations is staffed by a regional sales
manager who has responsibility for OEM sales in a specific region. Each region
also has a number of independent sales representatives who generally have
exclusive marketing and sales rights in their area and are managed by the
regional sales manager. International sales are conducted through a combination
of direct sales offices (Finland, Germany and the United Kingdom), independent
sales representatives and distributors.
As of September 25, 1998, the Company's backlog of domestic and
international orders aggregated approximately $38.1 million. The Company
includes in its backlog all accepted contracts or purchase orders that are
scheduled for delivery in the next six months. The Company believes that its
backlog may be of limited utility in predicting future sales, particularly since
its international sales are primarily conducted through distributors, which
typically do not place purchase orders substantially in advance of delivery
dates. Variations in the magnitude and duration of contracts received by the
Company and customer delivery requirements may result in substantial
fluctuations in backlog from period to period.
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.
If the Company is unable to increase unit volumes or increase the performance of
its products in order to offset or reduce any decreases in selling prices, the
Company's results of operations would be adversely impacted. In addition, the
Company's ability to maintain gross margins will depend in part on its ability
to reduce cost of sales in an amount sufficient to compensate for any decreases
in selling prices.
The Company competes with other display manufacturers based upon commercial
availability, long life, price, display performance (e.g., brightness, color
capabilities, contrast and viewing angle), size, customer service, design
flexibility, power usage, durability and ruggedness. The Company believes its
total quality program, wide range of product offerings,
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flexibility, responsiveness, regional production sites, technical support and
customer satisfaction programs are important to the competitive position of the
Company.
The principal display competitors against which the Company competes
include Sharp, Toshiba, Optrex, Seiko-Epson and Hitachi for LCDs; Sharp for EL;
Sharp, DTI, Hitachi and NEC for AMLCDs. In addition, a significant number of
Korean companies including Samsung, Hyundai and Goldstar have also made large
investments in AMLCD technology.
The Company's CRT products dominate the United States' market for high
performance full color avionic CRTs and have a significant share of the market
worldwide. Increasingly, the Company is seeing commercial display ruggedizers
attempting to move into the military avionics markets with commercial AMLCD
products for avionics applications. The primary competitors producing
militarized commercial AMLCDs are EDI and ADC.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, trade secrets, trademarks,
copyrights and other intellectual property law, nondisclosure agreements and
other measures to protect its proprietary rights. The Company currently owns or
has license rights to over 50 patents and several more pending patent
applications for its technologies. The expiration dates of the Company's
existing patents range from 1999 to 2012. Features for which the Company has and
is seeking patent protection include display glass design, materials,
electronics addressing and control functions and process manufacturing.
Pursuant to the agreements under which the Company receives research and
development funding from government agencies, the funding entities retain
certain rights with respect to technical data developed by the Company pursuant
to funded research. Generally, these rights restrict the government's use of the
specific data to governmental purposes, performed either directly or by third
parties sub-licensed by the government. Rights under the Company's funding
agreements with private sector companies vary significantly, with the Company
and the third party each retaining certain intellectual property rights.
EMPLOYEES
As of September 25, 1998, the Company had 900 employees worldwide, 647 in
the United States and 253 in Europe. Of these employees, 61 were engaged in
marketing and sales, 104 in research, development and product engineering, 74 in
finance and administration, and 661 in manufacturing and manufacturing support.
The Company's future success will depend in a large part upon its ability
to continue to attract, retain and motivate highly skilled and qualified
manufacturing, technical, marketing, engineering and management personnel. The
Company's U.S. employees are not represented by any collective bargaining units
and the Company has never experienced a work stoppage in the U.S. The Company's
Finnish employees are, for the most part, covered by national union contracts.
These contracts are negotiated annually between the various unions and the
Employer's
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Union and stipulate benefits, wage rates, wage increases, grievance and
termination procedures and work conditions.
ITEM 2. PROPERTIES
The Company leases three of its primary manufacturing facilities and
various sales offices in the United States and Europe. The EL manufacturing
operation, located in Beaverton, Oregon, leases 45,000 square feet of custom
designed space, including 5,000 square feet of cleanroom. In addition, during
fiscal 1997, an additional facility was leased which, when completed, will
provide an additional 34,000 square feet of manufacturing space, including
10,000 square feet of cleanroom. The CRT operation is located in a large
facility in which it leases 29,000 square feet, including approximately 7,000
square feet of cleanroom. The European facility, located in Espoo, Finland, is a
custom designed facility in which Planar leases 85,000 square feet, including
approximately 15,000 square feet of cleanroom.
During 1994, the Company acquired a 21,000 square foot facility with
approximately 6,000 square feet of cleanroom also located in Beaverton, Oregon.
This facility is being used for research and development activities and
production of miniature displays. Additionally, the Company has leased 17,000
square feet of an adjacent building.
As of September 26, 1997, the Company acquired Standish Industries, Inc and
its Lake Mills, Wisconsin LCD manufacturing operation, which includes a 70,000
square foot facility with approximately 7,500 square feet of cleanroom.
The Company has eight field sales offices in key U.S. metropolitan areas
and two sales offices in Europe. The offices are located in the Boston, Chicago,
Dallas, San Diego, Portland Minneapolis, St. Paul, Tampa, London and Munich
metropolitan areas. Lease commitments for these facilities are short term,
typically six to twelve months. None of these sales offices has any significant
leasehold improvements nor are any planned.
The Company believes that its facilities are adequate for its immediate and
near term requirements and does not anticipate the need for any significant
additional expansion in the near future.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Shares of the Company's Common Stock commenced trading in the over-the-
counter market on the Nasdaq National Market System on December 16, 1993, under
the symbol PLNR.
The Company has never declared nor paid any cash dividend on its capital
stock. The Company currently intends to retain its earnings to support
operations and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The following table sets forth for the fiscal periods
indicated, the range of the high and low closing prices for the Company's Common
Stock on the Nasdaq National Market System.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
FISCAL 1997
First Quarter $12.13 $ 9.38
Second Quarter 14.00 11.50
Third Quarter 12.81 9.75
Fourth Quarter 14.81 10.25
FISCAL 1998
First Quarter $13.00 $10.13
Second Quarter 13.00 10.13
Third Quarter 13.13 10.88
Fourth Quarter 13.31 9.88
</TABLE>
During the quarter ended September 25, 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 44,139 shares of Common Stock were
issued at exercise prices ranging from $2.00 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 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal year
(in thousands, except per share amounts)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATIONS
Sales $129,015 $ 88,850 $80,371 $78,523 $60,359
Gross profit 40,252 28,488 27,988 28,388 20,740
Income (loss) from operations 11,827 (1,395) 9,104 12,102 8,582
Net income 8,951 274 $ 8,672 $10,537 $ 7,462
Net income per share (diluted) $ 0.81 $ .02 $ 0.77 $ 0.98 $ 0.77
BALANCE SHEET
Working capital 51,520 $ 52,871 $56,924 $59,078 $40,067
Assets 118,629 114,196 97,295 88,674 64,015
Long-term liabilities 3,015 7,516 4,176 2,477 450
Shareholders' equity 83,378 77,280 79,969 72,356 49,402
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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General
The Company is a worldwide leader in the development, manufacture and
marketing of high performance electronic display products. Planar began
shipping products in 1983 and has experienced revenue growth based upon the
expansion of its product line and market acceptance of its products for a
variety of applications.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales of certain items in the Consolidated Financial Statements of the
Company. The table and the discussion below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Fiscal year ended
Sept. 25, 1998 Sept 26, 1997 Sept 27, 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 68.8 67.9 65.2
--------- -------- --------
Gross profit 31.2 32.1 34.8
Operating expenses:
Research and development, net 6.7 8.6 8.8
Purchased research & development -- 9.3 --
Sales and marketing 8.5 9.1 8.8
General and administrative 6.7 7.1 6.5
Amortization of goodwill and excess fair
market value of acquired
net assets over purchase price 0.1 (0.5) (0.6)
--------- -------- --------
Total operating expenses 22.0 33.6 23.5
--------- -------- --------
Income (loss) from operations 9.2 (1.5) 11.3
Non-operating income (expense):
Interest, net 0.5 1.5 1.9
Foreign exchange, net (0.5) 1.7 0.3
Other, net -- (2.3) --
--------- -------- --------
Net non-operating income -- 0.9 2.2
--------- -------- --------
Income (loss) before income taxes 9.2 (0.6) 13.5
Provision (benefit) for income taxes 2.3 (0.9) 2.7
--------- -------- --------
Net income 6.9% 0.3% 10.8%
========= ======== ========
</TABLE>
Sales. The Company's sales increased by 45.2% to $129.0 million in fiscal
1998 from $88.9 million in fiscal 1997. The increase in fiscal 1998 was
primarily due to the additional sales attributable to the Company's LCD
operation, which was acquired in September 1997. Also, in fiscal 1998, sales
increases were realized in the medical, transportation, business/office, and
defense markets. Fiscal 1997 sales increased by 10.5% from $80.4 million in
fiscal 1996. The increase in fiscal 1997 was attributable primarily to increases
in sales to manufacturers of medical and transportation products which offset a
decline in the industrial and instrumentation
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markets. The Company presently expect sales for fiscal year 1999 to be
approximately 5% greater than the sales in fiscal year 1998. See "Outlook:
Issues and Uncertainties".
International sales, net of inter-company eliminations, increased by 12.3% to
$26.5 million in fiscal 1998 as compared to the $23.6 million recorded in fiscal
1997, and decreased 20.8% in fiscal 1997 from fiscal 1996 sales of $29.8
million. The increase in international sales in fiscal 1998 was primarily
attributable to the Company's LCD operation. As a percentage of total sales,
international sales decreased to 20.5% in fiscal 1998 from 26.6% in fiscal 1997
and 37.1% in fiscal 1996. The decline in international sales as a percentage of
total sales in fiscal 1998 was mainly attributable to the addition of sales from
the LCD operation, which were primarily domestic sales. The decline in fiscal
1997, both in dollars and as a percentage of total sales, was attributable to a
decline in military sales to European customers and weakness in the Finnish
Markka which resulted in lower sales when translated from the Finnish Markka to
the US Dollar.
Gross Profit. The Company's gross profit as a percentage of sales decreased
to 31.2% in fiscal 1998 from 32.1% in fiscal 1997 and 34.8% in fiscal 1996. The
decline in gross margin in fiscal 1998 was related mainly to the increase in
sales of LCD products, which historically are at a lower margin. The decline in
gross margin in fiscal 1997 was related primarily to changes in the product mix
from higher margin CRT products to flat panel displays and several one-time
adjustments related to the product transitions of the systems products as well
as contract adjustments on CRT products.
Research and Development. Total expenses related to research and
development increased 15.4% in fiscal 1998 from fiscal 1997, and 4.7% in fiscal
1997 from fiscal 1996. Net expenses (after the deduction of related contract
funding) increased 13.7% in fiscal 1998 from fiscal 1997, and increased by 8.4%
in fiscal 1997 from fiscal 1996. Increases in net expenses in fiscal 1998
related primarily to LCD development at the Company's LCD facility. Also,
increases in net expenses in both years related to continued work on the next
generation color products, and technology development on AMLCDs, FEDs, AMEL
miniature displays, and organic light emitting diodes (OLEDs).
Purchased Research and Development Costs. Purchased research and
development costs were $8.3 million for fiscal 1997. These one-time, non-
recurring costs represent in-process research and development costs expensed by
the Company in connection with its acquisition of Standish Industries, Inc.
Sales and Marketing. Sales and marketing expenses increased by 34.7% to
$10.9 million in fiscal 1998 from $8.1 million in fiscal 1997 and increased
14.1% in fiscal 1997 from $7.1 million in fiscal 1996. The increase in marketing
and sales costs in fiscal 1998 was primarily attributable to costs incurred in
connection with the LCD operation. The increases in fiscal 1998 and 1997 were
also attributable to sales commissions paid on a higher level of sales and an
increased focus on marketing. As a percentage of sales, sales and marketing
expenses decreased to 8.5% in 1998 from 9.1% in fiscal 1997. Sales and
marketing expenses were 8.8% of sales in fiscal 1996. The decrease in fiscal
1998 costs as a percentage of sales was attributable to the addition of the LCD
operation which had lower sales and marketing expenses as a percentage of
13
<PAGE>
sales. The increase in fiscal 1997 as a percentage of sales was attributable to
development of sales and marketing infrastructures to support expansion of the
federal product line and the end user systems business.
General and Administrative. General and administrative costs increased by
37.5% to $8.7 million in fiscal 1998 from $6.3 million in fiscal 1997, and
increased by 20.6% in fiscal 1997 from the $5.2 million spent in fiscal 1996.
The increase in general and administrative costs in fiscal 1998 was primarily
attributable to costs incurred in connection with the LCD operation. Also, the
increases in both fiscal 1998 and 1997 were related to the additional
administrative costs required to build the infrastructure to support the growth
of the Company, specifically in areas of management systems and overall
management development. As a percentage of sales, general and administrative
costs decreased to 6.7% in fiscal 1998 from 7.1% in fiscal 1997. General and
administrative costs were 6.5% of sales in fiscal 1996. The decrease in fiscal
1998 costs as a percentage of sales was attributable primarily to the addition
of the LCD operation, which had lower general and administrative costs as a
percentage of sales. The increase in fiscal 1997 costs as a percentage of sales
was attributable to the development of the infrastructive to support the growth
of the Company.
Amortization of Goodwill and Excess of Fair Market Value of Acquired Net
Assets Over Purchase Price. In connection with the Company's acquisition of
Standish Industries, Inc. in September 1997, the Company recorded goodwill on
its balance sheet for the excess of the purchase price over the fair value of
the net assets acquired. The goodwill is being amortized over a ten-year
period, creating an increase in operating expenses of $571,000 per year.
In connection with the Company's acquisition of its Finland operation in
January 1991, the Company exchanged Common Stock with a fair market value (based
upon an independent valuation) equivalent to the value of the business acquired.
Due to historical losses of this business and the expectation of future losses,
the value of the Common Stock paid was less than the fair market value of the
net assets acquired. This required the Company to write fixed assets down to
zero and to record negative goodwill on its balance sheet for the remaining
amount of the excess fair market value of the net assets acquired over the
purchase price. Amortization of this negative goodwill has created a positive
offset to operating expenses in the amount of $476,000 per year. Negative
goodwill is being amortized over a ten-year period.
Non-operating Income and Expense. Non-operating income and expense includes
interest income on investments, interest expense and net foreign currency
exchange gain or loss. Net interest income decreased in fiscal 1998 from fiscal
1997 as a result of lower cash balances in 1998, due to the cash paid for the
acquisition of Standish Industries, Inc. in September, 1997 and the retirement
of its debt in fiscal 1998, and cash used for stock repurchases. Net interest
income decreased in fiscal 1997 from fiscal 1996 due to the increased debt used
to finance production expansion.
Foreign currency exchange gains and losses are related to timing
differences in the receipt and payment of funds in various currencies and the
conversion of cash accounts denominated in foreign currencies to the applicable
functional currency. Foreign currency exchange gains and
14
<PAGE>
losses amounted to a loss of $659,000 in fiscal 1998, a gain of $1.5 million in
fiscal 1997 and a gain of $242,000 in 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 conducts business.
From fiscal 1997 to fiscal 1998, on average the U.S. Dollar strengthened by
almost 8% 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 currently realizes about one-fifth of its revenue outside the
United States and expects this to continue in the future. Additionally, the
functional currency of the Company's foreign subsidiary is the Finnish Markka
which must be translated to U.S. Dollars for consolidation. As such, the effects
of future foreign currency fluctuations will impact the Company's business and
operating results.
The other expense recognized for the fiscal year ended September 26, 1997
reflects the write off of an equity investment in Virtual i-O, a privately held
virtual reality headset manufacturing company. The investment was accounted for
under the cost method. In December 1996, as a result of delays in product
developments and supplier issues, Virtual i-O needed additional funding which it
received at a price per share lower than that paid by the Company. Based upon
the lower of cost or market method, the Company's investment was written down
based on the price paid in the last round of independent financing. This
resulted in a $250,000 write-down in the quarter ended December 27, 1996. During
the quarter ended March 28, 1997, Virtual i-O declared bankruptcy and the
remainder of the Company's investment was written off.
Provision for Income Taxes. The Company recorded an effective tax rate of
24.8% for fiscal 1998, a tax benefit of $784,000 for fiscal 1997, and an
effective tax rate of 20.0% in fiscal 1996. The change in the effective tax
rates was due to the relative profitability of the Company's Finland subsidary
compared to the United States entities. Also, for fiscal 1997, the change in the
effective tax rates was due to recognition of a book loss in the United States
compared to book income for the Company's Finland subsidiary. The book loss in
the United States was largely due to the write off of the purchased research and
development associated with the acquisition of Standish Industries, Inc. As a
result of the acquisition of the Company's Finland subsidiary in January 1991,
the Company recognized a change in ownership for tax purposes that resulted in a
limitation on the annual utilization of net operating loss carryforwards for
United States tax purposes. In fiscal 1996, 1997 and 1998, the Company was
subject to the $2.1 million annual limitation.
QUARTERLY RESULTS OF OPERATIONS
The table below presents unaudited consolidated financial results for each
quarter in the two-year period ended September 25, 1998. The Company believes
that all necessary adjustments have been included to present fairly the
quarterly information when read in
15
<PAGE>
conjunction with the Consolidated Financial Statements. The operating results
for any quarter are not necessarily indicative of the results that may be
expected for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
(in thousands, except per share data)
---------------------------------------------------------
Sept. 25, June 26, March 27, Dec. 26, Sept. 26, June 27, March 28, Dec. 27,
1998 1998 1998 1997 1997 1997 1997 1996
--------- -------- ---------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $33,028 $32,411 $32,102 $31,474 $21,785 $21,723 $23,190 $22,152
Gross profit 10,327 10,367 10,437 9,121 5,495 7,303 8,417 7,273
Income (loss) from operations 2,949 3,424 2,997 2,457 (8,466) 2,140 2,841 2,090
Net income (loss) 1,633 2,636 2,551 2,131 (5,396) 2,307 1,687 1,676
Net income (loss) per share
(diluted) $ 0.15 $ 0.24 $ 0.23 $ 0.19 ($0.48) $ 0.21 $ 0.15 $ 0.15
Weighted average number of
common shares outstanding
(diluted) 11,109 11,130 11,098 11,141 11,260 11,227 11,288 11,190
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.1 million, $12.7 million
and $1.5 million in fiscal years 1998, 1997 and 1996, respectively. The decrease
in 1998 and the increase in 1997 were primarily related to changes in the
balance sheet accounts including inventory, accounts receivable, other
current assets, and accounts payable.
Additions to plant and equipment were $4.0 million, $2.5 million and $3.4
million in fiscal years 1998, 1997 and 1996, respectively. The significant
acquisitions during fiscal 1998 were purchases of equipment for the LCD and
Finland manufacturing operations. The principal acquisitions during fiscal 1997
were related to the acquisition of equipment to be used in connection with the
development of the military flat panel displays and the continued development of
AMEL miniature displays. The principal acquisitions during fiscal 1996 were
related to additional capacity improvements at both the United States and
Finland facilities.
The Company incurred expenses of $9.6 million, $6.3 million, and $429,000
in fiscal years 1998, 1997, and 1996, respectively, associated with the
implementation of a new production facility and equipment which had not been
placed in service at the end of each fiscal year.
At September 25, 1998, the Company had a bank line of credit agreement with
a borrowing capacity of $10 million and credit facilities for financing
equipment of $13.0 million. At September 26, 1997, a similar bank line of credit
and credit facilities were in place with borrowing capacities of $8 million and
$19.5 million respectively. As of September 25, 1998 and September 26, 1997,
borrowings outstanding under the credit line were $10 million and $0,
respectively. Borrowings outstanding under the equipment financing lines were
$4.0 million and $5.4 million as of September 25, 1998 and September 26, 1997,
respectively. In addition, associated with the acquisition of Standish
Industries, Inc. on September 26, 1997, the Company assumed long-term debt of
$3.2 million and a bank line of credit of $1.1 million, which were retired
during fiscal year 1998.
16
<PAGE>
The Company believes its existing cash and investments together with cash
generated from operations and existing borrowing capabilities will be sufficient
to meet the Company's working capital requirements for the foreseeable future.
On April 23, 1997, the Company announced its intention to repurchase up to
400,000 shares of the Company's outstanding common stock from time to time over
the following twelve months in open market and negotiated transactions. On May
13, 1998, the Company announced its intention to repurchase up to an additional
$5 million of the Company's outstanding common stock from time to time over the
following twelve months in open market and negotiated transactions. During the
twelve months ended September 25, 1998, the Company repurchased approximately
443,000 shares of its outstanding common stock for $5.2 million. At September
25, 1998, there was approximately $3.4 million of common stock that had not yet
been repurchased.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio, and short-term and long-term debt
obligations. The Company mitigates its risk by diversifying its investments
among high credit quality securities in accordance with the Company's investment
policy.
The Company believes that its net income or cash flow exposure relating to
rate changes for short-term and long-term debt obligations is immaterial. The
Company primarily enters into debt obligations to support capital expenditures
and working capital needs. The Company does not hedge any interest rate
exposures.
Interest expense is affected by the general level of U.S. interest rates
and/or LIBOR. Increases in interest expense resulting from an increase in
interest rates would be offset by a corresponding increase in interest earned on
the Company's investments.
The Finnish Markka is the functional currency of the Company's subsidiary
in Finland. The Company does not currently enter into foreign exchange forward
contracts to hedge certain balance sheet exposures and intercompany balances
against future movements in foreign exchange rates. The Company does maintain
cash balances denominated in currencies other than the U.S. Dollar. If foreign
exchange rates were to weaken against the U.S. Dollar, the Company believes that
the fair value of these foreign currency amounts would decline by an immaterial
amount.
YEAR 2000 ISSUE
Like most other companies, the Year 2000 computer issue creates risks for
the Company. The Year 2000 issue exists because many computer programs use two
digit rather than four digit date fields to define the applicable year. As a
result, computer equipment and software and devices with imbedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
17
<PAGE>
causing disruptions of operations, including, among other things, production
delays, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Incomplete or untimely resolution of the
Year 2000 issue by the Company or critically important suppliers or customers of
the Company could have a materially adverse effect on the Company's business,
financial condition, or results of operations.
The Company has undertaken various initiatives intended to ensure that its
computer systems, software and other operational equipment will function
properly with respect to dates in the Year 2000 and thereafter. For this
purpose, the term "computer systems and software" includes systems that are
commonly thought of as information technology ("IT") systems, including
enterprise software, operating systems, networking components, application and
data servers, PC hardware, accounting, data processing and other information
systems, as well as systems that are not commonly thought of as IT systems, such
as telephone systems, fax machines, manufacturing equipment and other
miscellaneous systems and equipment. Both IT and non-IT systems may contain
imbedded technology, which complicates the Company's Year 2000 assessment,
remediation and testing efforts.
Based upon its assessment efforts to date, the Company believes that
certain of the computer systems and software it currently uses will require
replacement or modification. Specifically, the Company has determined that
certain of its personal computer software will require replacement and that
software upgrades will be required with respect to certain of its financial
management information systems. Excluding the Company's Finland facility, all
of the Company's financial and information systems are expected to be Year 2000
compliant by June 1, 1999. The Finland location is implementing a new Year 2000
compliant Enterprise Resource Planning (ERP) system, which is expected to be
fully operational by October 1999. The Company expects to complete the process
of inventorying and assessing its primary manufacturing and other non-IT systems
by June 1999. To date, no significant issues have been identified with the
Company's manufacturing and other non-IT systems, and the Company expects to
resolve any compliance issues with these systems by September 1999.
The Company has been surveying its major vendors, suppliers, and customers
to assess the potential impact on its operations of these key third parties.
The process includes obtaining information as to their efforts associated with
Year 2000 compliance. To date, no significant compliance issues have been
identified with these third parties. The Company plans to continue to update
and evaluate compliance issues with these key third parties through 1999.
The Company currently estimates that the cost of its Year 2000 assessment,
remediation and testing efforts, as well as current anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, will
not exceed $500,000. The expenditures will be funded from operating cash flows.
This estimate is subject to change as additional information is obtained in
connection with the Company's assessment of the Year 2000 issue. As of
September 25, 1998, the Company had incurred costs of approximately $200,000
related to its Year 2000
18
<PAGE>
assessment, remediation, and testing efforts. In addition, the Company expects
to incur approximately $1 million (which will be capitalized and amortized over
the expected useful life) associated with the implementation of the new ERP
system in its Finland facility, which will also be funded from operating cash
flows and existing cash balances.
The Company presently believes that Year 2000 issues will not pose
significant problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that the Year 2000 issue will not have a material adverse impact on
the Company's business, financial condition or results of operations, or
adversely affect the Company's relationships with customers, venders and others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities, such as one or more of the Company's critical customers or suppliers,
will not have a material adverse impact on the Company's systems or its
business, financial condition or results of operations. Finally, if there are
infrastructure failures, such as disruptions in the supply of power, water,
transportation, communications services, or if major institutions, such as the
government, foreign or domestic banking systems, are unable to continue to
provide their services or support resulting in a disruption in services or
support to the Company, the Company may be unable to operate for the duration of
the disruption.
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst cast scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
The costs of the Company's Year 2000 assessment, remediation and testing
efforts and the dates on which the Company believes it will complete such
efforts are forward-looking statements that are based upon management's best
estimates, which are derived using numerous assumptions regarding future events,
including the continued availability of certain resources, third party
remediation plans and certifications, and other factors. There can be no
assurance that these estimates will prove to be accurate and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer codes and embedded
technology, the reliability of third party assessments and certifications, and
similar uncertainties.
INTRODUCTION OF THE EURO
The Company has established a team to address the issues raised by the
introduction of the Single European Currency (Euro) for initial implementation
as of October 1, 1999 and during the transition period through to January 1,
2002. The Company expects that its internal systems that will be affected by
the initial introduction of the Euro will be Euro capable by January 1,
19
<PAGE>
2000, and does not expect the costs of system modifications to be material. The
Company does not presently expect that introduction and use of the Euro will
result in any material increase in costs to the Company. While the Company will
continue to evaluate the impact of the Euro introduction over time, based on
currently available information, management does not believe that the
introduction of the Euro currency will have a material adverse impact on the
Company's financial condition or overall trends in results of operation.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Report contain forward-looking
statements within the meaning of the Securities Litigation Reform Act of 1995
that are based on current expectations, estimates and projections about the
Company's business, management's beliefs and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties, and assumptions
that are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements due to numerous factors, including, but not limited to those
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations, as well as those discussed below and elsewhere in this
Report and from time to time in the Company's other Securities and Exchange
Commission filings and reports. In addition, such statements could be affected
by general industry and market conditions and growth rates, and general domestic
and international economic conditions. The forward-looking statements contained
in this Report speak only as of the date on which they are made, and the Company
does not undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this Report. If the Company
does update one or more forward-looking statements, investors and others should
not conclude that the Company will make additional updates with respect thereto
or with respect to other forward-looking statements.
OUTLOOK: ISSUES AND UNCERTAINTIES
Planar does not generally provide forecasts of future financial
performance. On November 23, 1998 Planar announced that it expects revenues for
fiscal year ending September 24, 1999 to be approximately 5% over the revenues
for fiscal year 1998, and that the anticipated effects on net earnings will be
felt most strongly in the early part of fiscal year 1999, particularly in the
first quarter. The following issues and uncertainties, among others, should be
considered in evaluating the Company's future financial performance and
prospects for growth.
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
20
<PAGE>
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.
Through the acquisition of Standish Industries, Inc., the Company has
diversified its display products and expanded its addressable market
significantly to include flat panel passive liquid crystal display applications.
The Company's future success will depend in part upon increased market
acceptance of existing EL and passive LCD technologies, and other future
technological developments. 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 an 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 significantly 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 has 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
21
<PAGE>
private sector companies. The Company's recently funded research and development
activities have principally focused on multi-color and full color displays,
miniature displays, low power 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.
Within Congress, there has been significant debate on the level of the
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 AND GAS PUMP MARKETS
Approximately thirty percent of the Company's sales in fiscal 1998 were
made to customers that manufacture and sell medical equipment to health care
providers worldwide. Also, over ten percent of the Company's sales in fiscal
1998 were made to customers in the gas pump industry. The Company believes that
sales in these markets will continue to be important to the Company. As a
result, developments that adversely impact the market for medical and gas pump
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
20.5%, 26.6%, and 37.1% of the Company's sales in fiscal 1998, fiscal 1997 and
fiscal 1996, 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
The Company's sales associated with military applications have been
increasing. However, 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
22
<PAGE>
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.
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.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PLANAR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Independent Auditors' Report...................... 25
Consolidated Balance Sheets....................... 26
Consolidated Statements of Operations............. 27
Consolidated Statements of Shareholders' Equity... 28
Consolidated Statements of Cash Flows............. 29
Notes to Consolidated Financial Statements........ 30
</TABLE>
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Planar Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Planar
Systems, Inc. and subsidiaries as of September 25, 1998 and September 26, 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three year period ended September 25,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Planar
Systems, Inc. and subsidiaries as of September 25, 1998 and September 26, 1997,
and the results of their operations, and their cash flows for each of the years
in the three-year period ended September 25, 1998 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
November 2, 1998
25
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 25, September 26,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)........................... $ 23,426 $ 21,777
Short-term investments (Notes 1 and 2)........................ -- 8,170
Accounts receivable, net of allowance for doubtful
accounts of $310 at 1998 and $478 at 1997 (Notes 2 and 6).. 22,762 21,001
Inventories (Notes 1 and 6).................................. 25,744 21,517
Other current assets (Notes 1, 3, and 8)..................... 10,313 8,471
-------- --------
Total current assets...................................... 82,245 80,936
Plant and equipment, net (Notes 1 and 5)..................... 16,689 16,584
Long-term investments (Notes 1 and 2)........................ 200 2,445
Goodwill (Notes 1 and 3)..................................... 5,222 5,878
Other (Note 1)............................................... 14,273 8,353
-------- --------
$118,629 $114,196
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Line of credit (Note 6)....................................... $ 10,000 $ 1,130
Accounts payable.............................................. 9,288 13,011
Accrued compensation.......................................... 4,039 5,261
Current portion of long-term debt (Note 6).................... 1,505 1,698
Deferred revenue.............................................. 1,180 1,406
Other current liabilities (Note 7)............................ 4,237 5,083
Current portion of excess fair market value of acquired
net assets over purchase price (Note 1)..................... 476 476
-------- --------
Total current liabilities................................. 30,725 28,065
Deferred taxes (Note 8)....................................... 915 263
Long-term debt, less current portion (Note 6)................. 2,516 6,878
Other long-term liabilities................................... 499 638
Long-term portion of excess fair market value of
acquired net assets over purchase price (Note 1).......... 596 1,072
-------- --------
Total liabilities......................................... 35,251 36,916
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 10,000,000
shares, no shares issued at 1998 or 1997
Common stock, no par value. Authorized 30,000,000
shares; issued 10,787,526 and 11,075,730 shares at
1998 and 1997, respectively................................. 74,385 73,190
Unrealized gain on marketable securities (Note 1)............ -- 7
Retained earnings............................................ 14,216 10,486
Foreign currency translation adjustment...................... (5,223) (6,403)
-------- --------
Total shareholders' equity................................ 83,378 77,280
-------- --------
$118,629 $114,196
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
September 25, September 26, September 27,
1998 1997 1996
<S> <C> <C> <C>
Sales....................................................... $129,015 $88,850 $80,371
Cost of sales............................................... 88,763 60,362 52,383
-------- ------- -------
Gross profit................................................ 40,252 28,488 27,988
-------- ------- -------
Operating expenses:
Research and development, net (Note 1)..................... 8,685 7,638 7,044
Purchased research and development (Note 4)................ -- 8,305 --
Sales and marketing........................................ 10,904 8,095 7,097
General and administrative................................. 8,652 6,293 5,219
Amortization of goodwill and excess fair market value of
acquired net assets over purchase price (Note 1).......... 184 (448) (476)
-------- ------- -------
Total operating expenses................................ 28,425 29,883 18,884
-------- ------- -------
Income (loss) from operations............................... 11,827 (1,395) 9,104
Non-operating income (expense):
Interest income............................................ 1,029 1,734 1,880
Interest expense........................................... (293) (381) (383)
Foreign exchange, net...................................... (659) 1,543 242
Other, net................................................. -- (2,011) --
-------- ------- -------
Net non-operating income................................ 77 885 1,739
-------- ------- -------
Income (loss) before income taxes (Note 8).................. 11,904 (510) 10,843
Provision (benefit) for income taxes (Note 1 and 8)......... 2,953 (784) 2,171
-------- ------- -------
Net income.............................................. $ 8,951 $ 274 $ 8,672
======== ======= =======
Net income per share (Note 1):
Net income (basic).......................................... $ 0.83 $ 0.03 $ 0.80
Weighted average number of common shares outstanding........ 10,837 10,944 10,884
Net income (diluted)........................................ $ 0.81 $ 0.02 $ 0.77
Weighted average number of common shares
outstanding (diluted)...................................... 11,098 11,247 11,216
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock
--------------------------
Unrealized Foreign
Gain (Loss) on Currency Total
Marketable Earnings Retained Translation Shareholders'
Shares Amount Securities Adjustment Shareholders' Equity
----------- -------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 29, 1995................... 10,838,906 $71,204 $ (1) $ 1,907 $ (754) $72,356
Unrealized loss on long-term
investments................................. -- -- (9) -- -- (9)
Proceeds from issuance of
common stock................................ 86,312 520 -- -- -- 520
Tax benefit from stock option
exercises (Note 8).......................... -- 143 -- -- -- 143
Foreign currency translation
adjustment.................................. -- -- -- -- (1,713) (1,713)
Net income................................... -- -- -- 8,672 -- 8,672
---------- ------- ---- ------- ------- -------
Balance, September 27, 1996................... 10,925,218 $71,867 $(10) $10,579 $(2,467) $79,969
Unrealized gain on long-term
investments................................. -- -- 17 -- -- 17
Proceeds from issuance of
common stock................................ 97,195 395 -- -- -- 395
Issuance of common stock
in connection with acquisition (Note 3)... 89,126 891 -- -- -- 891
Tax benefit from stock option
exercises (Note 8).......................... -- 37 -- -- -- 37
Stock repurchase.............................. (35,809) -- -- (367) -- (367)
Foreign currency translation
adjustment.................................. -- -- -- -- (3,936) (3,936)
Net income................................... -- -- -- 274 -- 274
---------- ------- ---- ------- ------- -------
Balance, September 26, 1997................... 11,075,730 $73,190 $ 7 $10,486 $(6,403) $77,280
Unrealized loss on long-term
investments................................. -- -- (7) -- -- (7)
Proceeds from issuance of
common stock................................ 154,946 1,102 -- -- -- 1,102
Tax benefit from stock option
exercises (Note 8).......................... -- 93 -- -- -- 93
Stock repurchase.............................. (443,150) -- -- (5,221) -- (5,221)
Foreign currency translation
adjustment.................................. -- -- -- -- 1,180 1,180
Net income................................... -- -- -- 8,951 -- 8,951
---------- ------- ---- ------- ------- -------
Balance, September 25, 1998................... 10,787,526 $74,385 $ -- $14,216 $(5,223) $83,378
---------- ======= ---- ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
September 25, September 26, September 27,
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.......................................... $ 8,951 $ 274 $ 8,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 4,052 3,232 2,003
Amortization of excess market value of acquired
net assets over purchase price.................... (476) (476) (476)
Goodwill amortization.............................. 660 28 --
Loss (gain) on sale of equipment................... 35 (3) (20)
Loss on investment................................. -- 2,011 --
Decrease in deferred taxes......................... 1614 4 119
Foreign exchange (gain) loss....................... 659 (1,100) (263)
Purchased research and development................. -- 8,305 --
Tax benefit of stock options exercised............. 93 37 143
Increase in accounts receivable.................... (1,451) (2,879) (1,777)
Increase in inventories............................ (4,456) (1,444) (5,870)
Increase in other current assets................... (3,416) (3,225) (1,187)
Increase (decrease) in accounts payable............ 932 4,227 (983)
Increase (decrease) in accrued compensation........ (918) 1,069 (6)
Increase (decrease) in deferred revenue............ (252) 1,389 --
Increase (decrease) in other current liabilities... (1,920) 1,207 1,095
------- -------- -------
Net cash provided by operating activities........... 4,107 12,656 1,450
Cash flows from investing activities:
Purchase of plant and equipment..................... (3,996) (2,511) (3,416)
Purchase of a business.............................. -- (13,897) --
Equipment and rent deposits......................... (9,601) (6,286) (429)
Payment of long-term liability...................... (183) (35) (209)
Purchase of equity security......................... -- -- (2,011)
Net sales (purchase) of short-term investments...... 8,170 (1,059) 5,681
Net sales (purchase) of long-term investments....... 2,245 8,399 (5,234)
------- -------- -------
Net cash used by investing activities............... (3,365) (15,389) (5,618)
Cash flows from financing activities:
Net proceeds (payments) of long-term debt........... (4,555) 895 2,363
Net proceeds (repayments) of long-term receivable... 1,221 574 (2,131)
Net proceeds from issuance of capital stock......... 1,102 395 520
Net proceeds under short term debts................. 8,870 -- --
Stock repurchase.................................... (5,221) (367) --
------- -------- -------
Net cash provided by financing activities........... 1,417 1,497 752
Effect of exchange rate changes on cash and cash
equivalents........................................ (510) (76) (184)
------- -------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,649 (1,312) (3,600)
Cash and cash equivalents at beginning of period.... 21,777 23,089 26,689
------- -------- -------
Cash and cash equivalents at end of period.......... $23,426 $ 21,777 $23,089
======= ======== =======
Supplemental cash flow disclosure:
Cash paid for interest............................. $ 914 $ 381 $ 383
Cash paid for income taxes......................... $ 3,419 $ 2,999 $ 2,171
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 25, 1998 AND SEPTEMBER 26, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Note 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Planar Systems, Inc. was incorporated on April 27, 1983 and commenced
operations in June 1983. Planar Systems, Inc., and its wholly-owned subsidiaries
(collectively, the "Company") are engaged in the developing, manufacturing and
marketing of electronic display products. These display products primarily
include Electroluminescent (EL), liquid crystal displays (LCDs) and high
performance taut shadow mask cathode ray tubes (CRT) technologies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Planar Systems, Inc. and its wholly-owned subsidiaries, Planar International
Ltd., Planar America, Inc., Planar Standish, Inc., Planar Flat Candle, Inc. and
Planar Advance, Inc. All significant inter-company accounts and transactions are
eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the last Friday in September. The last
day of fiscal 1998, 1997 and 1996 was September 25, September 26 and September
27, respectively. Due to statutory requirements, Planar International's fiscal
year-end is September 30. All references to a year in these notes are to the
Company's fiscal year ended in the period stated which includes the fiscal year
results of Planar International.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
30
<PAGE>
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency of the Company's foreign
subsidiary. Assets and liabilities of the foreign subsidiary are translated into
U.S. Dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation".
Adjustments from foreign currency translation are included as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are included as a component of non-operating income.
STATEMENT OF CASH FLOWS
Cash and cash equivalents consist of highly liquid instruments with
original maturities of three months or less in accordance with SFAS No. 95,
"Statement of Cash Flows".
In accordance with SFAS No. 95, cash flows from the Company's operations in
Finland are calculated based upon its functional currency. As a result, amounts
related to assets and liabilities reported on the Statement of Consolidated Cash
Flows will not necessarily agree with changes in the corresponding balances on
the Consolidated Balance Sheets. The effect of exchange rate changes on cash
balances held in foreign currencies is reported as a separate line item in the
Consolidated Statements of Cash Flows.
INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with the Company's investment in equity securities.
Securities available for sale are carried at fair value, with unrealized gains
and losses, net of tax, reported in a separate component of shareholders'
equity. At September 25, 1998, the Company had no investments that qualified as
trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. The cost of
securities sold is based upon specific identification.
At September 25, 1998, the Company's investments in debt and equity
securities were classified as cash and cash equivalents. These investments are
diversified among high credit quality securities in accordance with the
Company's investment policy. As of September 25, 1998, all debt securities were
invested in either government securities or commercial paper. These securities
have been reported at their fair market value of $13,200 which equaled
historical cost. There are no unrealized gains to be reported as a separate
component of shareholders' equity, net of deferred taxes.
31
<PAGE>
The estimated fair value of debt securities available for sale by
contractual maturities at September 25, 1998 is as follows:
<TABLE>
<S> <C>
Due in three months or less $13,200
Due after three months through one year --
Due after one year through three years --
-------
$13,200
=======
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, net of reserves for estimated inventory obsolescence based upon the
Company's best estimate of future product demand. Inventories consist of:
<TABLE>
<CAPTION>
September 25, September 26,
1998 1997
------------- -------------
<S> <C> <C>
Raw materials......................... $15,892 $12,118
Work in process....................... 3,798 4,165
Finished goods........................ 6,054 5,234
------- -------
$25,744 $21,517
======= =======
</TABLE>
PLANT AND EQUIPMENT
Depreciation of equipment is computed on a straight-line basis over the
estimated useful lives of the assets, generally five years. Leasehold
improvements are amortized on a straight-line basis over the lesser of the life
of the leases or the estimated useful lives of the assets. Depreciation of the
building is computed on a straight-line basis over the estimated useful life of
the building, estimated to be 39 years.
OTHER ASSETS
Included in other assets of $14,273 and $8,353 as of September 25, 1998 and
September 26, 1997, respectively, are assets associated with the implementation
of a new production facility and equipment which had not been placed in service
as of September 25, 1998 and September 26, 1997 in the amounts of $13,271 and
$3,848, respectively. In fiscal years 1998 and 1997 interest was capitalized in
the amounts of $621 and $61, respectively.
INCOME TAXES
Under SFAS No. 109 "Accounting for Income Taxes", deferred tax assets and
liabilities are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at the
enacted tax rates expected to be in effect when such amounts are realized or
settled. Under SFAS No. 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
32
<PAGE>
Income tax credits will be recognized as reductions of the provision for income
taxes in the year the credits are realized (the "flow-through method").
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment.
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>
Fiscal Year Ended
------------------------------------------
Sept. 25, Sept. 26, Sept. 27,
1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C>
Research and development expense... $19,927 $17,274 $16,493
Contract funding................... 11,242 9,636 9,449
------- ------- -------
Research and development, net...... $ 8,685 $ 7,638 $ 7,044
======= ======= =======
</TABLE>
As of September 25, 1998 and September 26, 1997, included in other current
assets is $3,489 and $2,656, respectively, related to these research and
development contracts.
PRODUCT WARRANTY
The Company provides a warranty for its products and establishes an
allowance at the time of sale adequate to cover warranty costs during the
warranty period. The warranty period is generally between twelve and fifteen
months. This reserve is included in other current liabilities (Note 7).
GOODWILL AND EXCESS FAIR MARKET VALUE OF ACQUIRED NET ASSETS OVER PURCHASE PRICE
Goodwill and the excess of fair market value of acquired net assets over
purchase price are being amortized over a ten-year period using the straight-
line method.
NET INCOME PER COMMON SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
statement specifies the standard for computing and presenting earnings per
share. In the first quarter of the fiscal year beginning September 27, 1997,
the Company adopted SFAS No. 128, which supersedes APB opinion No. 15 and
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock or potential common
stock.
33
<PAGE>
Under SFAS 128, basic earnings per common share is computed using the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share is computed using the weighted average number
of shares of common stock and dilutive common equivalent shares outstanding
during the period. Incremental shares of 261,000, 303,000, and 332,000 for the
fiscal years ended September 25, 1998, September 26, 1997, and September 27,
1996, respectively, were used in the calculations of diluted earnings per share.
FINANCIAL INSTRUMENTS
The recorded amount of financial instruments approximates the fair market
value.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". In fiscal
1997, the Company adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation".
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Earnings" and and No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 established standards for reporting
comprehensive income and its components. SFAS No. 131 establishes the standards
for reporting information about operating segments. Adoption of both standards
is required for fiscal years beginning after December 15, 1997. The Company
believes that implementation of these standards will not have a material effect
on the financial position or results of operations of the Company.
NOTE 2 -- CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of trade receivables and investments. The
risk in trade accounts receivable is limited due to the credit worthiness of the
companies comprising the Company's customer base and their dispersion across
many different sectors of the electronics industry and geographies. The risk in
investments is limited due to the credit worthiness of investees comprising the
portfolio, the diversity of the portfolio and relative low risk of municipal
securities. At September 25, 1998, the Company does not believe it had any
significant credit risks.
34
<PAGE>
NOTE 3 -- BUSINESS ACQUISITIONS
On June 4, 1997, the Company acquired Flat Candle Corporation for $1,128
cash. Flat Candle Corporation's primary business is that of developing,
manufacturing and marketing of back lights. The transaction was accounted for as
a purchase. Intangibles of $803 were recorded, which are being amortized over
ten years. The financial statements include the operating results of Flat Candle
Corporation from the date of acquisition. Pro forma results of operations have
not been presented because the effect of this acquisition is not significant.
On September 26, 1997, the Company acquired all of the outstanding capital
stock of Standish Industries, Inc. for approximately $15 million in cash and
stock. Standish Industries, Inc.'s primary business is that of developing,
manufacturing, and marketing LCD electronic displays. The transaction was
accounted for as a purchase. Intangibles of $5,714 were recorded, after
adjusting for purchased research and development costs (Note 4), which are being
amortized over ten years. The financial statements include the operating results
of Standish Industries, Inc. from the date of acquisition.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Standish Industries, Inc. had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as amortization of intangibles and the
related income tax effects.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Sales.......................................... $119,939 $105,216
Net income (loss).............................. $ (307) $ 7,079
Net income (loss) per share.................... $ (0.03) $ 0.63
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred had the acquisition been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect synergies that might be achieved from combined
operations.
NOTE 4 - PURCHASED RESEARCH AND DEVELOPMENT EXPENSE
In connection with the acquisition of Standish Industries, Inc. at
September 26, 1997 (Note 3), the Company allocated $8,305 of the purchase price
to in-process research and development projects as determined by independent
appraisal. Accordingly, these costs were expensed as of the acquisition date.
These allocations represent the estimated fair value based on risk adjusted cash
flows (assuming a 23% discount rate) related to incomplete projects. The
development of these projects had not yet reached technological feasibility, and
the technology has no alternative future use. The technology acquired in these
acquisitions required substantial additional development by the Company.
35
<PAGE>
NOTE 5 -- PLANT AND EQUIPMENT
Plant and equipment, at cost, consists of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land....................................... $ 115 $ 115
Building and improvements.................. 3,731 3,731
Machinery and equipment.................... 31,164 28,048
-------- --------
Total plant and equipment................. 35,010 31,894
Less accumulated depreciation............. (18,321) (15,310)
-------- --------
Net plant and equipment................ $ 16,689 $ 16,584
======== ========
</TABLE>
NOTE 6 -- BORROWINGS
Line of credit
The Company has a bank line of credit which allows for borrowings up to $10
million. The line bears interest at the Libor rate plus 125 basis points (6.7%
at September 25, 1998) and is unsecured with a negative pledge on accounts
receivable and inventories. The agreement is subject to review in December 1998.
There were $10 million and $0 borrowings outstanding on this line at September
25, 1998 and September 26, 1997, respectively. At September 26, 1997 there were
borrowings outstanding of $1.1 million associated with a separate line of credit
which was retired and not renewed in fiscal 1998.
LONG TERM DEBT
The Company has entered into credit facilities with financial institutions to
borrow up to $13.0 million to finance equipment purchases, subject to renewal in
fiscal 1999. These loans are secured by the financed equipment and bear
interest at an average rate of 7.5%. As of September 25, 1998 and September 26,
1997, the company had $4.0 million and $5.4 million outstanding under these
loans. Aggregate maturities over the next four years are $1,505 in 1999, $1,685
in 2000, $772 in 2001, and $59 in 2002. Covenants under these agreements are not
considered restrictive to normal operations. At September 26, 1997 there was an
additional $3.2 million of debt assumed associated with Standish Industries,
Inc., which was retired and not renewed in fiscal 1998.
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Warranty reserve.................................. $1,153 $ 930
Income taxes payable.............................. 1,344 2,415
Deferred income taxes............................. 433 262
Royalty payable................................... -- 297
Duty payable...................................... -- 308
Current portion of long-term contingent payable... -- 32
Other............................................. 1,307 839
------ ------
Total............................................. $4,237 $5,083
====== ======
</TABLE>
36
<PAGE>
NOTE 8 -- INCOME TAXES
The components of income(loss) before income taxes consist of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Domestic............................ $10,235 $(8,803) $ 5,484
Foreign............................. 1,669 8,293 5,359
------- ------- -------
Total........................... $11,904 $ (510) $10,843
======= ======= =======
</TABLE>
The following table summarizes the provision for US federal, state and
foreign taxes on income.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Current:
Federal............................ $ 550 $ 266 $ 660
State.............................. 248 242 170
Foreign............................ 541 2,425 1,137
------ ------- ------
1,339 2,933 1,967
Deferred:
Federal........................... 1,324 (3,638) (195)
State............................. 150 -- --
Foreign........................... 140 (79) 399
------ ------- ------
$2,953 $ (784) $2,171
====== ======= ======
</TABLE>
The differences between the U.S. federal statutory tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- -------- -----
<S> <C> <C> <C>
Computed statutory rate................. 34.0% (34.0)% 34.0%
State income taxes, net of federal tax
benefits............................... 1.4 (23.7) 0.6
Effect of foreign tax rates............. 1.7 (97.6) (2.7)
Permanent differences resulting from
purchase accounting.................... (1.0) 24.0 (0.8)
Change in valuation reserve............. (9.2) 37.6 (8.5)
State tax impact for reversal of
intangible basis differences........... (2.2) -- --
Benefit of tax exempt interest earned... (0.1) (59.6) (3.0)
Other, net.............................. 0.2 (0.4) 0.4
---- ------- ----
Effective tax rate...................... 24.8% (153.7)% 20.0%
==== ======= ====
</TABLE>
The tax effects of temporary differences and carryforwards which gave rise
to significant portions of the deferred tax assets and liabilities as of
September 25, 1998 and September 26, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory valuation reserve............... $ 1,705 $ 1,413
Allowance for doubtful accounts........... 119 162
Valuation of intangibles.................. 75 29
NDQC liability............................ 104 --
Accrued duties............................ 119 --
Health insurance.......................... 56 --
Accrued vacation and other compensation... 394 315
Basis difference in intangibles........... -- 2,824
Accrued warranty reserve.................. 437 219
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
Capital loss carryforwards................ 578 600
General business credits.................. 480 553
Net operating loss carryforwards.......... 1,734 2,580
Foreign tax credits....................... 287 --
------- -------
Gross deferred tax assets................. 6,088 8,695
Valuation allowance...................... (2,563) (3,660)
------- -------
Deferred tax assets..................... 3,525 5,035
Deferred tax liabilities:
Inventory valuation reserve............... (433) (305)
Accumulated depreciation.................. (682) (753)
Operating reserves........................ (233) (185)
------- -------
Deferred tax liabilities................ (1,348) (1,243)
------- -------
Net deferred tax asset.................... $ 2,177 $ 3,792
======= =======
</TABLE>
During fiscal years 1998, 1997,and 1996 the Company recognized tax benefits
of $93, $37 and $143, respectively, related to differences between financial and
tax reporting of stock option transactions. This difference was credited to
common stock.
The Company has established a valuation allowance for certain deferred tax
assets, including net operating loss and tax credit carryforwards. SFAS No. 109
requires that such a valuation allowance be recorded when it is more likely than
not that some portion of the deferred tax assets will not be realized. For
fiscal years 1998 and 1997, the valuation reserve decreased by $1,097 and
increased by $192, respectively.
At September 25, 1998, the Company had net operating loss carryforwards of
approximately $5,099 available to reduce future federal taxable income. The
carryforwards expire at various dates through 2004. Utilization of the
carryforwards is subject to certain limitations due to the change in ownership
of the Company which occurred in conjunction with the acquisition of it's
Finland operation.. As a result of the acquisition, utilization of available net
operating loss carryforwards is limited to approximately $2,100 per year.
NOTE 9 -- SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred
stock at $.01 par value. At September 25, 1998, no shares of preferred stock
have been issued; however, 200,000 shares of Series D Junior Participating
Preferred Stock have been reserved for issuance in connection with the Company's
Shareholder Rights Plan. Additional series of preferred stock may be designated
and the related rights and preferences fixed by action of the Board of
Directors.
STOCK OPTIONS
In fiscal 1994, the Company adopted the 1993 Stock Incentive Plan which
provides for the granting of options to buy shares of Common Stock. These
options are intended to either qualify as "incentive stock options" under the
Internal Revenue Code or "non-qualified stock
38
<PAGE>
options" not intended to qualify. Under the 1993 plan, options generally become
exercisable 25% one year after grant and 6.25% per quarter thereafter, and
expire ten years after grant. During fiscal 1997, the Company adopted the 1996
Stock Incentive Plan with the same provisions and guidelines as the
aforementioned 1993 plan. The Company reserved 1,200,000 shares of common stock
for issuance under this plan. The option price under all plans is the fair
market value as of the date of the grant. Total shares reserved under these
plans are 2,758,735 shares.
The Company also adopted a 1993 stock option plan for Nonemployee Directors that
provides an automatic annual grant to each outside director of the Company.
Total annual grants under this plan cannot exceed 60,000 shares per year.
Information regarding these option plans is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Option Prices
---------- ----------------
<S> <C> <C>
Options outstanding at September 29, 1995... 765,305 9.26
Granted.................................... 822,700 13.58
Exercised.................................. (71,942) 4.97
Canceled................................... (344,199) 19.99
--------- ------
Options outstanding at September 27, 1996... 1,171,864 9.42
Granted.................................... 271,450 13.46
Exercised.................................. (71,916) 3.28
Canceled................................... (10,074) 13.44
--------- ------
Options outstanding at September 26, 1997... 1,361,324 $10.49
Granted.................................... 389,700 11.39
Exercised.................................. (114,489) 6.26
Canceled................................... (101,371) 12.11
--------- ------
Options outstanding at September 25, 1998... 1,535,164 $10.92
========= ======
Exercisable at September 25, 1998........... 794,046
=========
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
As is permitted under SFAS No. 123, the Company has elected to continue to
account for its stock-based compensation plans under APB Opinion No. 25. The
Company has computed, for pro forma disclosure purposes, the value of all
options granted during 1998 and 1997 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following weighted average
assumptions for grants:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk free interest rate 4.5% 6.0%
Expected dividend yield -- --
Expected lives (in years) 4.2 4.2
Expected volatility 54.6% 55.7%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during fiscal 1998 and 1997 was $2,579 and $1,363, respectively, which would be
amortized on a pro forma basis over the vesting period of the options. The
weighted average fair value of options granted during fiscal 1998 and 1997 was
$11.39 per share and $13.46 per share, respectively. If the Company accounted
for its stock based compensation plans in accordance with SFAS No 123,
39
<PAGE>
the Company's net income and net income per share would approximate the pro
forma disclosures below:
<TABLE>
<CAPTION>
1998 1997
---- ----
As As Pro
Reported Pro Forma Reported Forma
-------- --------- -------- -----
<S> <C> <C> <C> <C>
Net income $8,951 $7,720 $ 274 $ (581)
Net income per share (diluted) $ 0.81 $ 0.70 $0.02 $(0.05)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
January 1, 1995, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
September 25, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------- -------------------------------------
Number Weighted Average Weighted Average Number of Shares Weighted
Range of Exercise Outstanding Remaining Exercise Price Exercisable at Average Exercise
Prices at 9/25/98 Contractual Life 9/25/98 Price
<S> <C> <C> <C> <C> <C>
$2.50 - $9.88 524,081 5.84 $ 7.13 388,658 $ 6.18
$10.25 - $12.63 530,638 9.11 $11.56 117,188 $11.78
$13.00 - $23.38 480,445 7.61 $14.36 288,200 $14.52
--------------- --------- ---- ------ ------- ------
$2.25 - $23.38 1,535,164 7.52 $10.92 794,046 $10.03
=============== ========= ==== ====== ======= ======
</TABLE>
PERFORMANCE RESTRICTED STOCK
The 1996 Stock Incentive Plan provides for the issuance of restricted stock to
employees. The shares issued vest over a three to five year period, based on
the attainment of specified performance measures. In the event the performance
measures are not met, any unvested shares would vest at the end of ten years.
Data relative to shares awarded is presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Number of shares awarded 80,000 ----
Fair value of restricted stock granted
during the year $ 920 ----
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1995, the Company adopted the 1994 Employee Stock Purchase Plan
which provides that eligible employees may contribute, through payroll
deductions, up to 10% of their earnings toward the purchase of the Company's
Common Stock at 85 percent of the fair market value at specific dates. At
September 25, 1998, 184,457 shares remain available for purchase through the
plan and there were 787 employees eligible to participate in the plan, of which
166, or 21.1 percent, were participants. Employees purchased 40,457 shares, at
an average price of $9.62 per share during the year. Total receipts to the
Company were $389. Since the plan is noncompensatory, no charges to operations
have been recorded.
40
<PAGE>
SHAREHOLDERS RIGHTS PLAN
In February 1996, the Board of Directors approved a shareholder rights plan
and declared a dividend of one preferred share purchase right for each
outstanding common share. Each right represents the right to purchase one
hundredth of a share of Preferred Stock, at an exercise price of $60.00, subject
to adjustment. The rights are only exercisable ten days after a person or group
acquires, or commences a tender or exchange offer to acquire, beneficial
ownership of 15% or more of the Company's outstanding common stock. Subject to
the terms of the shareholder rights plan and the discretion of the Board of
Directors, each right would entitle the holder to purchase one share of Common
Stock of the Company for each right at one-half of the then-current price. The
rights expire in February 2006, but may be redeemed by action of the Board of
Directors prior to that time at $.01 per right.
NOTE 10 - COMMITMENTS
OPERATING LEASES
Most of the Company's office and manufacturing facilities are subject to
long-term operating leases. In addition, regional sales offices and automobiles
are subject to leases with terms ranging from one to twelve months.
At September 25, 1998, the approximate minimum annual operating lease
payments are:
Fiscal year ending in September:
- --------------------------------
<TABLE>
<S> <C>
1999......... 2,245
2000......... 1,894
2001......... 1,867
2002......... 1,819
2003......... 1,814
Thereafter... 7,716
-------
$17,355
=======
</TABLE>
Total rent expense was $2,344, $1,920 and $1,921 for the years ended
September 25, 1998, September 26, 1997 and September 27, 1996, respectively.
41
<PAGE>
NOTE 11 -- GEOGRAPHIC INFORMATION
The Company operates in one industry. Operations include developing,
manufacturing, and marketing display products, including EL displays, LCDs and
high performance CRTs.
Information concerning geographic area for fiscal year 1996, 1997, and 1998
is summarized below:
<TABLE>
<CAPTION>
North Rest of
America World Eliminations Consolidated
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1996:
Sales................. $ 60,351 $39,516 $(19,496) $ 80,371
Net income............ 4,715 3,492 465 8,672
Identifiable assets... 90,115 31,727 (24,547) 97,295
1997:
Sales................. $ 71,558 $38,280 $(20,988) $ 88,850
Net income............ (4,747) 5,947 (926) 274
Identifiable assets... 101,898 36,050 (23,752) 114,196
1998:
Sales................. $112,555 $36,598 $(20,138) $129,015
Net income............ 6,968 1,043 940 8,951
Identifiable assets... 116,524 40,517 (38,412) 118,629
</TABLE>
North American sales include all sales made in Canada, the United States
and Mexico. Rest of the World sales includes all sales made in countries outside
of North America, which in fiscal years 1998, 1997 and 1996 principally
consisted of sales made in Europe and Japan.
No customer accounted for 10 percent or more of revenue in fiscal years
1998, 1997 or 1996.
NOTE 12 -- 401(k) AND PROFIT SHARING
All employees in North America over 21 years of age who have completed at
least three months of service are eligible to participate in the 401(k) savings
and profit sharing plan. Employees can contribute between 0% and 15% of their
gross pay subject to statutory maximums. The Company matches 55% of the first
10% of each participating employee's contributions, also subject to statutory
maximums. Employer contributions vest over four years. The 401(k) plan expense
amounted to $666, $466 and $438 for the years ended September 25, 1998,
September 26, 1997 and September 27, 1996, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
42
<PAGE>
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLANAR SYSTEMS, INC.
The information set forth under the captions "Election of Directors" and
"Management" appearing on pages 2 through 5 of the Proxy Statement to be used in
connection with the Annual Meeting of Shareholders on February 4, 1999, is
incorporated by reference into this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
appearing on pages 6 through 9 of the Proxy Statement to be used in connection
with the Annual Meeting of Shareholders on February 4, 1999, is incorporated by
reference into this Report.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Stock Owned by Management and
Principal Shareholders" appearing on page 11 of the Proxy Statement to be used
in connection with the Annual Meeting of Shareholders on February 4, 1999, is
incorporated by reference into this Report.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
- -------
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON 8-K
(a) Financial Statements and Schedules
The financial statements of Planar Systems, Inc. as set forth under Item 8
are filed as part of this report.
Financial statement schedules have been omitted since the information
called for is not present in amounts sufficient to require submission of the
schedules.
The independent auditors' report with respect to the above-listed financial
statements appears on page 25 of this report.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PLANAR SYSTEMS, INC.
December 18, 1998 By: /s/ JACK RAITON
---------------
Jack Raiton
Vice President
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jack Raiton and James M. Hurd, and each of them
singly, as his true and lawful attorneys-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
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 and on the dated indicated.
<TABLE>
<S> <C> <C>
/s/ JAMES M. HURD President, Chief Executive Officer, December 18, 1998
- ------------------------------------ Director (Principle Executive Officer)
James M. Hurd
/s/ JACK RAITON Vice President, Chief Financial Officer, December 18, 1998
- ------------------------------------ (Principle Financial and Accounting Officer)
Jack Raiton
/s/ WILLIAM D. WALKER Chairman of the Board December 18, 1998
- ------------------------------------
William D. Walker
/s/ STEVEN E. WYNNE Director December 18, 1998
- ------------------------------------
Steven E. Wynne
/s/ GREGORY H. TURNBULL Director December 18, 1998
- ------------------------------------
Gregory H. Turnbull
/s/ HEINRICH STENGER Director December 18, 1998
- ------------------------------------
Heinrich Stenger
/s/ E. KAY STEPP Director December 18, 1998
- ------------------------------------
E. Kay Stepp
</TABLE>
<PAGE>
(b) Reports on 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title
- -------- -----
<S> <C>
3.1 Second Restated Articles of Incorporation of Planar Systems, Inc.(1)
3.2 First Restated Bylaws of Planar Systems, Inc.(1)
3.3 Amendment to Second Restated Articles of Incorporation of Planar
Systems, Inc.(2)
4.1 Specimen stock certificate (1)
4.4 Rights Agreement dated as of February 1, 1996 between Planar
Systems, Inc. and First Interstate Bank of Oregon, N.A.(3)
10.1 Form of Indemnity Agreement between Planar Systems, Inc. and each of
its executive officers and directors(1)
10.2 Amended and Restated 1983 Incentive Stock Option Plan(1)
10.3 1993 Stock Option Plan for Nonemployee Directors(1)
10.4 1993 Incentive Stock Option Plan(1)
10.5 1994 Employee Stock Purchase Plan(4)
10.6 Lease agreement dated as of September 30, 1993 between Science Park
Limited Partnership I and Planar Systems, Inc.(1)
10.7 Lease agreement dated as of May 20, 1998 between Metra Corporation
and Planar International, Ltd (English translation)
10.8 Lease agreement dated as of August 26, 1994 between Tektronix, Inc.
and Planar Systems, Inc.(5)
10.9 Asset Purchase Agreement dated August 26, 1994 between Tektronix,
Inc. and Tektronix Federal Systems, Inc. and Planar Systems, Inc and
Planar Advance(5)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.10 Stock Purchase Agreement dated August 25, 1997 by and among Planar
Systems, Inc., Standish Industries, Inc., Standish International,
Inc., Charles P. Hoke, Elizabeth A. Hoke and William R. Steinmetz,
Trustee of the Steven Hoke Management Trust, the Catherine Hoke
Management Trust, the Lauren Hoke Management Trust and the Charles
D. Hoke Management Trust (`the Agreement") (certain schedules to the
Agreement and its exhibits are omitted).(6)
10.11 Amendment to Stock Purchase Agreement dated August 26, 1997(6)
10.12 1996 Stock Incentive Plan(7)
10.13 Lease agreement dated May 30, 1997 between Pacific Realty
Associates, L.P. and Planar America, Inc.(7)
21 Subsidiaries of Planar Systems, Inc.
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included on Signature Page)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 33-71020), declared effective on December 15, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 27, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 21, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 30, 1994.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
as of September 12, 1994.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on October 10, 1997.
(7) Incorporated by reference to the Company's annual report on form 10K for
the year ended September 26, 1997.
<PAGE>
EXHIBIT 10.7
LEASE AGREEMENT (Replace the agreement signed 10.11.1995)
1 TENANT Planar International Oy
P.O.Box 46
02201 Espoo
2 LANDLORD Metra Real Estate
P.O.Box 230
00101 Helsinki
or a third party selected by the Landlord
3 PREMISES Landlord does hereby lease and demise to the Tenant and Tenant does
hereby take and rent from Landlord, the following premises:
Industrial and office building situated at parcel nr 4 in quarter nr
22009 in the city of Espoo. The Tenant will continue to lease the
space in the building that the Tenant is occupying at the moment,
beginning on the 1/st/ of June 1998.
<TABLE>
<S> <C>
Clean room space 1600 m/2/
Production space 4354 m/2/
Office space 2642 m/2/
--------------------------------
Total 8596 m/2/
</TABLE>
The Tenant will also lease a 300 m/2/ space beginning of the 1/st/
of August 1998(appendix 1).
The rent will be for office space rent as agreed in this contract.
The Tenant has also right to use the east side platform passage hall
as a store so that the total maximum width for the selves are 1,2
meter and there is no handicap to use the lift. The Tenant will pay
for this right 1 000 FIM a month. The right is valid up to 1/st /of
January 2000.
There is no safety guarantees for the store from the Landlord.
4 OPTION The Tenant has an option to lease also the rest of the space in the
building (1695 m/2/ ,appendix 1). The rent will be for office space
rent as agreed in this contract. This option can be executed on the
1/st/ of August 2000 and a written notice thereof must be delivered
to the Landlord before the 1/st/ of January 2000.
5 TERM This lease agreement shall begin on the 1/st/ of June 1998 and shall
end on the 31/st/ of December 2008 without any notice.
6 CONDITION OF THE LEASED PREMISES
The premises are leased to the tenant in the condition said premises
are at the time of signing this lease agreement.
7 USE OF THE LEASED PREMISES
The Tenant shall use and occupy the leased premises for general
production and office purposes mentioned in the articles of
incorporation of the Tenant. The Tenant shall comply with all the
Rules and Regulations in building fire safety, environment
protection, waste management codes etc.
<PAGE>
8 OBLIGATIONS IN THE LEASE AGREEMENT
The Tenant shall undertake, if necessary, in case of using the option
(paragraph 4) to extend the lease period for the empty office space
about 700 m/2/ up to 1/st/ of August 2002.
If the rest of the empty space about 995 m/2/ is empty at the moment
when the notice of using the option is given to the Landlord, the
Tenant is obliged to pay the rent starting on the 1/st/ of January
2000 (appendix 1).
9 MAINTENANCE OF THE PREMISES
The Tenant is responsible for normal maintenance and annual
reparations of the premises at its cost. The Tenant at its cost takes
care of maintenance of the systems of the premises, like ventilation,
heating, water, sewage, fire alarm, alarm lighting, lifts etc. and
the yard area.
The Landlord is responsible for the renovation of the premises and
purchases of worn-out systems of the building. These systems are
considered as worn-out when the repair cost are more than 80% from
the cost of recent acquisition or if the system is too poor to
repair.
The landlord is responsible only for investment more than 50.000 FIM.
10 TAXES AND PAYMENTS
The Landlord will pay the property taxes of the premises and the
Tenant will take care of other payments of the property.
11 EXPENSES
The Tenant is responsible for payments for utilities like water,
electricity, sewage, other utilities and maintenance and operating
expenses of the premises. The Tenant will also pay the share of the
district heating cost, that is used to warm up the process water,
based on a separate measurement.
The Landlord is responsible for the district heating costs of the
premises. The parties can agree about the transferring of also this
cost to be paid by the Tenant. The Landlord will be responsible for
the repair and maintenance and electricity cost caused by the heat
recovery system, based on a separate measurement.
12 BASE RENT
For clean room areas (1600 m/2/) 72.12 FIM/m/2//month.
For office, meeting room, cafe and kitchen areas (2642 m/2/) 51.51
FIM/m/2//month.
For other production space (4354 m/2/) 41.21 FIM/m/2//month.
The total base rent in the beginning of agreement period is 431 925
FIM/month.
The rent sums above do not include value-added tax. That can be
added on the figures, if mutually agreed.
The monthly base rent shall be fully adjusted by any change in the
Finnish Consumer Price Index. The adjustments shall be based on the
indexes of May and November; the base index is the Consumer Price
Index of March 1998 (1429). The thus adjusted base rent is charged
starting from the beginning of the following January and July each
year, first time 1/st/ of July 1998.
Starting 1/st/ of June 1998 the base rent for the rest of the vacant
space will be the rent for office space as agreed in this contract
(51.51 FIM/m/2//month v-a tax 0%).
13 GUARANTEE
The Tenant will provide a guarantee for the whole lease agreement
from its Mother Company Planar Systems Inc.
<PAGE>
14 METHOD OF PAYMENT
The rent shall be paid in advance each month before the fifth day of
the month on the Landlords bank account.
The Tenant agrees to pay as supplemental base rent for the leased
premises an amount equal to the highest penal interest rate
stipulated by Finnish law, of any monthly base rent payment which is
not received by the Landlord within five days of the beginning of the
month.
15 CONDITION OF THE PREMISES
The Tenant agrees to maintain the premises in the current condition
excluding normal wearing away.
At the end of this lease agreement the Tenant will take to pieces all
the equipment owns by the Tenant and hand over the space as clean out
and patched up.
16 ENVIRONMENTAL LIABILITY
The Tenant ensures that all the activities that are pursued in the
facility owned by the Landlord are according to the Finnish
Environmental Laws and that the Tenant has all the necessary
permissions from the authorities.
The Tenant will report immediately the contingent deviations to the
Landlord. The Landlord has a right to perform environmental
inspections and to stop activities, which are against authority
regulations and Finnish Law. The Landlord is entitled for
compensation if the Tenant by violating these regulations inflicts
obligations to the Landlord.
The lease guarantee given by the Planar Systems Inc includes also the
environmental liabilities.
17 INSURANCE
The Landlord shall keep the building insured against loss by fire or
other casualty.
All property in the leased premises belonging to the Tenant shall be
at risk of the Tenant and covered by policies maintained by the
Tenant.
The Tenant shall also maintain a policy for a loss of profits
insurance etc.
18 ASSIGNMENT AND SUBLETTING
The Tenant shall not assign, mortgage or encumber this lease nor
sublet or permit the leased premises or any part thereof to be used
by others, without the prior written consent of the Landlord in each
instance. The Landlord cannot refuse the consent without weighty
reasons.
19 SELLING THE PROPERTY
If the Landlord decides to use its right of option to acquire the
property and later decides to sell the property, the Landlord grants
to the Tenant the right of first refusal to purchase the property at a
price agreed upon with a third party.
20 CLEAN ROOM STRUCTURES AND EQUIPMENT
The Landlord agrees to sell to the Tenant the removable clean room
structures and equipment for 10 000 FIM at the end of lease period.
21 APPLICATION OF THE TENTANCY ACT
This contract is to be governed by the Finnish Tenancy Act, excluding
possible exceptions that stipulated in this contract.
<PAGE>
22 DISAGREEMENTS FORUM
The parties agree to try to work out all disagreements concerning this
contract by mutual negotiations.
Disagreements that cannot be solved by mutual negotiations shall be
brought in a court of arbitration, consisting of one member, and
decided based on the laws of Finland.
23 EFFECTIVE DATE
This agreement becomes effective on the date of signature and after
the Landlord has received the lease guarantee covered the whole
contract given by Planar System Inc. And it will be implemented in
this lease relation beginning on the 1/st/ of June 1998.
24 CONTRACT COPIES
This contract is made out in duplicate, one for each party.
Espoo 20/Th/ of May 1998
Planar International Oy Metra Real Estate
Tom Bruhn Mikko Kuumola Erkki Anttila Aki Tarjasalo
<PAGE>
Exhibit 21
Subsidiaries of Planar Systems, Inc.
Planar America, Inc.
Planar International Oy
Planar Flat Candle
Planar Advance
Planar Standish Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors and Shareholders
Planar Systems, Inc. and Subsidiaries:
We consent to incorporation by reference in the Registration Statements (Nos.
33-82696, 33-82688, 33-90258 and 333-45191) on Form S-8 of Planar Systems, Inc.
and subsidiaries of our report dated November 2, 1998, relating to the
consolidated balance sheets of Planar Systems, Inc. and subsidiaries as of
September 25, 1998 and September 26, 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended September 25, 1998, which report appears in
the Annual Report on Form 10-K of Planar Systems, Inc. and subsidiaries for the
year ended September 25, 1998.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
December 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-25-1998
<PERIOD-START> SEP-27-1997
<PERIOD-END> SEP-25-1998
<CASH> 23,426
<SECURITIES> 0
<RECEIVABLES> 22,762
<ALLOWANCES> 0
<INVENTORY> 25,744
<CURRENT-ASSETS> 82,245
<PP&E> 35,010
<DEPRECIATION> 18,321
<TOTAL-ASSETS> 118,629
<CURRENT-LIABILITIES> 30,725
<BONDS> 0
0
0
<COMMON> 74,385
<OTHER-SE> 8,993
<TOTAL-LIABILITY-AND-EQUITY> 118,629
<SALES> 129,015
<TOTAL-REVENUES> 129,015
<CGS> 88,763
<TOTAL-COSTS> 88,763
<OTHER-EXPENSES> 28,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 736
<INCOME-PRETAX> 11,904
<INCOME-TAX> 2,953
<INCOME-CONTINUING> 8,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,951
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.81
</TABLE>
