<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the Quarter Ended June 30, 2000 Commission File No. 0-23018
_________________________________________________________________________
PLANAR SYSTEMS, INC.
(exact name of registrant as specified in its charter)
Oregon 93-0835396
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1400 NW Compton Dr., Beaverton, Oregon 97006
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (503) 690-1100
_________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes ___ No
-----
Number of common stock outstanding as of August 8, 2000
10,765,630 shares, no par value per share
1
<PAGE>
PLANAR SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months Ended June 30, 2000
and June 25, 1999 3
Consolidated Statements of Operations for the Nine Months Ended June 30, 2000
and June 25, 1999 4
Consolidated Balance Sheets as of June 30, 2000 and September 24, 1999 5
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2000
and June 25, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Part II. Other Information
Item 2. Changes in securities 14
Item 5. Other information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000 June 25, 1999
----------------- ----------------
<S> <C> <C>
Sales $ 43,495 $ 30,426
Cost of sales 31,409 22,236
----------------- ----------------
Gross profit 12,086 8,190
----------------- ----------------
Operating expenses:
Research and development, net 2,194 3,747
Sales and marketing 3,465 2,846
General and administrative 3,301 2,249
----------------- ----------------
Total operating expenses 8,960 8,842
----------------- ----------------
Income (loss) from operations 3,126 (652)
Non-operating income (expense):
Interest, net (96) (56)
Foreign exchange, net 117 803
----------------- ----------------
Total non-operating income 21 747
----------------- ----------------
Income before income taxes 3,147 95
Provision for income taxes 881 27
----------------- ----------------
Net income $ 2,266 $ 68
================= ================
Basic net income per share $ 0.21 $ 0.01
Average shares outstanding - basic 10,675 10,547
Diluted net income per share $ 0.20 $ 0.01
Average shares outstanding - diluted 11,131 10,779
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 2000 June 25, 1999
----------------- -----------------
<S> <C> <C>
Sales $ 122,693 $ 90,141
Cost of sales 89,990 64,233
----------------- -----------------
Gross profit 32,703 25,908
----------------- -----------------
Operating expenses:
Research and development, net 8,025 9,731
Sales and marketing 9,393 8,536
General and administrative 8,992 6,727
Restructuring charges 200 --
----------------- -----------------
Total operating expenses 26,610 24,994
----------------- -----------------
Income from operations 6,093 914
Non-operating income (expense):
Interest, net (257) (158)
Foreign exchange, net 1,116 1,969
----------------- -----------------
Total non-operating income 859 1,811
----------------- -----------------
Income before income taxes 6,952 2,725
Provision for income taxes 1,946 762
----------------- -----------------
Net income $ 5,006 $ 1,963
================= =================
Basic net income per share $ 0.47 $ 0.18
Average shares outstanding - basic 10,606 10,678
Diluted net income per share $ 0.46 $ 0.18
Average shares outstanding - diluted 10,959 10,904
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, September 24,
2000 1999
---------------------- --------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,304 $ 17,795
Short-term investments -- 2,010
Accounts receivable, net 28,165 20,982
Inventories 30,803 25,373
Other current assets 10,785 10,623
---------------------- --------------------
Total current assets 83,057 76,783
Property, plant and equipment, net 29,482 16,245
Goodwill 3,571 4,000
Other assets 4,781 14,743
---------------------- --------------------
$120,891 $111,771
====================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,210 $ 11,513
Accrued compensation 5,338 3,975
Current portion of long-term debt 1,865 1,778
Deferred revenue 1,276 1,301
Other current liabilities 7,572 3,362
Current portion of excess fair market value of acquired net
assets over purchase price 239 476
---------------------- --------------------
Total current liabilities 28,500 22,405
Long-term debt, net of current portion 14,189 15,599
Other long-term liabilities 1,239 1,023
---------------------- --------------------
Total liabilities 43,928 39,027
Shareholders' equity:
Common stock 77,141 75,319
Retained earnings 10,712 5,709
Accumulated other comprehensive loss (10,890) (8,284)
---------------------- --------------------
Total shareholders' equity 76,963 72,744
---------------------- --------------------
$120,891 $111,771
====================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 2000 June 25, 1999
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,006 $ 1,963
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,100 3,696
Amortization of excess market value of acquired net
assets over purchase price (357) (353)
Deferred taxes (2,132) 250
Foreign exchange gain (1,115) (1,969)
(Increase) decrease in accounts receivable (9,515) 1,745
Increase in inventories (5,929) (793)
Increase in other current assets (187) (2,073)
Increase (decrease) in accounts payable 2,715 (165)
Increase (decrease) in accrued compensation 1,607 (883)
Increase in deferred revenue 92 1,321
Increase in other current liabilities 5,262 185
---------------------- ----------------------
Net cash provided by (used in) operating activities (453) 2,924
---------------------- ----------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,452) (2,487)
Equipment and rent deposits (4,798) (576)
Increase (decrease) in other long-term liabilities 283 (252)
Net sales (purchases) of short-term investments 2,010 (791)
Net purchases of long-term investments (596) (100)
---------------------- ----------------------
Net cash used in investing activities (5,553) (4,206)
----------------------- ----------------------
Cash flows from financing activities:
Net proceeds (payments) of long-term debt (1,323) 13,782
Net payments of short-term debt -- (10,000)
Net proceeds under long-term accounts receivable 216 91
Stock repurchase -- (3,088)
Net proceeds from issuance of capital stock 1,823 695
---------------------- ----------------------
Net cash provided by financing activities 716 1,480
----------------------- ----------------------
Effect of exchange rate changes 799 1,134
----------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (4,491) 1,332
Cash and cash equivalents at beginning of period 17,795 23,426
----------------------- ----------------------
Cash and cash equivalents at end of period $13,304 $ 24,758
======================= ======================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in connection with the Company's audited financial statements for
the year ended September 24, 1999.
Note 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
June 30, 2000 September 24, 1999
-------------------- ------------------------
(Unaudited)
<S> <C> <C>
Raw materials $18,875 $16,632
Work in process 7,573 4,058
Finished goods 4,355 4,683
-------------------- ------------------------
$30,803 $25,373
===================== ========================
</TABLE>
Inventory reserves for estimated inventory obsolescence were $3,243 and $4,283
as of June 30, 2000 and September 24, 1999, respectively. Included in cost of
sales are $517 and $588 of charges related to inventory obsolescence reserves
for the three month periods ended June 30, 2000, and June 25, 1999, respectively
and $2,250 and $2,088 for the nine month periods ended June 30, 2000 and June
25, 1999, respectively.
Note 3 - OTHER ASSETS
Included in other assets of $4,781 and $14,743 as of June 30, 2000 and September
24, 1999, respectively, are assets associated with the implementation of a new
production facility and equipment, and a new information system which have not
been placed in service as of June 30, 2000 and September 24, 1999 in the amounts
of $3,774 and $13,982, respectively.
7
<PAGE>
Note 4 - 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. The majority of the Company's current
research and development contracts are government-sponsored programs for which
the Company would not be required to refund reimbursements received, and would
not have an obligation or financial risk with regards to the ultimate future
economic benefit derived from the development efforts. Funding from research and
development contracts is recognized as a reduction in operating expenses during
the period in which the services are performed and related direct expenses are
incurred, as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 2000 June 25, 1999 June 30, 2000 June 25, 1999
------------------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C>
Research and development $1,454 $ 3,530 $ 6,128 $ 9,811
Product engineering 1,701 2,825 4,827 7,471
------------------- ------------------ -------------------- ---------------
Total expense 3,155 6,355 10,955 17,282
Contract funding (961) (2,608) (2,930) (7,551)
------------------- ------------------ -------------------- ---------------
Research and development, net $2,194 $ 3,747 $ 8,025 $ 9,731
=================== ================== ==================== ===============
</TABLE>
Note 5 - RESTRUCTURING CHARGES
In the fourth quarter of fiscal year 1999, the Company began to implement a
series of actions intended to align operations with current market conditions
and to improve the profitability of its operations. As a result of these
actions, the Company incurred a restructuring charge of $1,488. These actions
included a workforce reduction of 18 people and the write-off of prepaid
royalties. In addition, the Company intended to sell Planar Flat Candle, Inc.,
a wholly owned subsidiary that manufactures and sells backlights for liquid
crystal displays. Management expects the actions to be completed by the end of
fiscal year 2000.
The exit of the Flat Candle business resulted in a charge of $1,137 which
included inventory charges of $237 related to the exit of certain products, $651
related to goodwill, $183 related to severance and $66 related to other assets
and liabilities. The inventory charge of $237 was recorded as cost of sales and
the remaining amount of $900 was recorded as restructuring charges in the
Consolidated Statement of Operations. During the second quarter of fiscal year
2000, the Company determined that a buyer could not be found. As a result, the
remaining value of the assets was reduced to fair value and charges of $200 were
recorded as restructuring charges in the Consolidated Statement of Operations.
The assets have been disposed of during fiscal year 2000.
During 1999, the Company also recorded additional severance charges of $188
related to headcount reductions. In addition, a charge of $163 was recorded
related to prepaid royalties, which were impaired due to lower than expected
future sales. The fair value of the asset was determined through the
calculation of the net present value of discounted cash flows expected to be
provided by the asset. These amounts were recorded as restructuring charges in
the Consolidated Statement of Operations.
8
<PAGE>
The restructuring charges incurred affected the Company's financial position as
follows:
<TABLE>
<CAPTION>
Accrued
Inventories Other Assets Goodwill Compensation
------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Original charge $ 237 $ 229 $ 651 $ 371
Cash paid out -- -- -- (128)
Non-cash write-offs (237) (229) (651) --
---------- ------------ ---------- ------------
Balance as of
September 24, 1999 -- -- -- 243
2000 Activity:
Additional charge -- 200 -- --
Cash paid out -- -- -- (56)
Non-cash write-offs -- (200) -- --
---------- ------------ ---------- ------------
Balance as of
June 30, 2000 $ -- $ -- $ -- $ 187
========== ============ ========== ============
</TABLE>
During fiscal year 2000, the Company has paid cash of $56 related to employee
severance. The remaining amount of $187 is expected to be paid by the end of
fiscal year 2000.
Note 6 - INCOME TAXES
The provision for income taxes has been recorded based upon the current estimate
of the Company's annual effective tax rate. This rate differs from the federal
statutory rate primarily because of the provision for state income taxes,
permanent differences resulting from purchase accounting adjustments and the
effects of the Company's foreign tax rates. Additional differences arise from
the limitation on the utilization of net operating loss carryforwards. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of income taxes.
Note 7 - NET INCOME PER COMMON SHARE
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 456,000 and 232,000 for the three month periods ended June
30, 2000 and June 25, 1999, respectively, were used in the calculations of
diluted earnings per share. Incremental shares of 353,000 and 226,000 for the
nine month periods ended June 30, 2000 and June 25, 1999, respectively, were
used in the calculations of diluted earnings per share.
Note 8 - COMPREHENSIVE INCOME
The comprehensive income was $1,878 for the three month period ended June 30,
2000 and the comprehensive loss was $949 for the same three month period last
fiscal year. The comprehensive income for the nine month period ended June 30,
2000 was $2,400, compared to the comprehensive loss for the nine month period
ended June 25, 1999 of $1,503.
Note 9 - BUSINESS SEGMENTS
The Company is organized based upon the products and services that it offers.
Under this organizational structure, the Company operates in three main
segments: Industrial, Medical, and Transportation. Industrial and Medical derive
revenue primarily through the development and marketing of electroluminescent
displays, liquid crystal displays and color active matrix liquid crystal
displays. Transportation derives revenue from the development and marketing of
electroluminescent displays, high performance taut shadow mask cathode ray
tubes, liquid crystal displays and color active matrix liquid crystal displays.
9
<PAGE>
The information provided below is obtained from internal information that is
provided to the Company's chief operating decision-maker for the purpose of
corporate management. Research and development expenses for future products are
allocated to the segments based upon a percentage of sales. Depreciation
expense, interest expense, interest income, other non-operating items and income
taxes by segment are not included in the internal information provided to the
chief operating decision-maker and are therefore not presented below. Inter-
segment sales are not material and are included in net sales to external
customers below. Prior year amounts have been reclassified to conform to the
fiscal year 2000 presentation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 2000 June 25, 1999 June 30, 2000 June 25, 1999
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Net sales to external customers (by segment):
Medical $16,178 $10,925 $ 45,282 $30,433
Industrial 13,462 11,637 39,334 37,603
Transportation 13,855 7,864 38,077 22,105
------- ------- -------- -------
Total sales $43,495 $30,426 $122,693 $90,141
======= ======= ======== =======
Operating income (loss):
Medical $ 1,364 $ 230 $ 2,091 $ 197
Industrial 1,106 118 2,491 1,168
Transportation 656 (1,000) 1,711 (451)
Restructuring charges -- -- (200) --
------- ------- -------- -------
Total income (loss) from operations $ 3,126 ($652) $ 6,093 $ 914
======= ======== ======= =======
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report, the audited Consolidated Financial Statements for the year
ended September 24, 1999, and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the year ended September 24, 1999.
RESULTS OF OPERATIONS
Sales
The Company's sales of $43.5 million in the third quarter of 2000 increased
$13.1 million or 43.0% as compared to $30.4 million in the third quarter of
1999. The increase in sales was principally due to higher sales of $5.3
million, $6.0 million and $1.8 million within the Medical, Transportation and
Industrial market segments, which increased 48.1%, 76.2% and 15.7%,
respectively. Medical sales have increased primarily due to higher volume
sales into the medical instrument and medical monitor markets. Sales volumes
in the Transportation market have increased due primarily to higher AMLCD
sales within the vehicles and avionic producer markets. Industrial market
sales have increased due to higher sales volumes to the wireless test, gas
pump and industrial controls industries.
The Company's sales of $122.7 million for the first nine months of 2000
increased $32.6 million or 36.1% from $90.1 million in 1999. Medical sales in
fiscal year 2000 have increased 48.8% as compared to the prior year due to
higher sales volumes in the medical instrument and medical monitor markets.
Transportation sales have increased 72.3% in fiscal year 2000 as compared to
the prior year due to higher sales volumes within the vehicle and avionic
producer markets. Industrial sales were relatively flat as compared to the
comparable period of the prior year.
International sales increased by 42.4% to $9.0 million in the third quarter of
2000 as compared to $6.3 million recorded in the same quarter of the prior
year. International sales for the first nine months of 2000, increased to
$24.0 million or 21.0% as compared to $19.9 million in fiscal year 1999. The
increase in international sales was due primarily to increased sales in
existing product lines in the Company's foreign markets. As a percentage of
total sales, international sales decreased to 20.7% in the third quarter of
2000 as compared to 20.8% in same quarter for the prior year and 19.6% for the
first nine months of 2000 as compared to 22.0% for 1999. The decline in
international sales as a percentage of total sales was mainly attributable to
the overall increase in sales.
Gross Profit
The Company's gross margin as a percentage of sales increased to 27.8% in the
third quarter of 2000 from 26.9% in the third quarter of 1999. This increase
was due to better yields on the military avionics AMLCD products, higher
yields associated with the LCD products and higher margins on CRT and
commercial AMLCD products. These increases were partially offset by a decline
in the EL gross margins which were due to higher costs associated with our new
production facility.
For the first nine months of fiscal year 2000, the gross margin was 26.7% as
compared to 28.7% in the comparable period of the prior year. The decrease in
gross margins was primarily due to continuing manufacturing problems
associated with the military avionics AMLCD products, lower EL gross margins
related to our new production facility, increased inventory reserves for end-
user products and warranty issues associated with the AMLCD products.
Research and Development
Research and development expenses decreased $1.6 million or 41.4% to $2.2
million in the third quarter of 2000 from $3.7 million in the same quarter in
the prior year. Research and development expenses decreased $1.7 million or
17.5% to $8.0 million in the first nine months of fiscal year 2000 as compared
to $9.7 million for the first nine months of 1999. The decrease was due
primarily to cost reductions in 2000 and the completion of significant
development efforts related to color products and AMLCD products partially
offset by decreased contract funding.
11
<PAGE>
Sales and Marketing
Sales and marketing expenses increased $619,000 or 21.7% to $3.5 million in the
third quarter of 2000 as compared to $2.8 million in the same quarter of the
prior year. Sales and marketing expenses for the first nine months of fiscal
year 2000 increased $857,000 or 10.0% to $9.4 million from $8.5 million in the
comparable period of the prior year. These increases were due primarily to
higher commissions being paid on the increased sales. As a percentage of sales,
sales and marketing expenses decreased to 8.0% in the third quarter of 2000 from
9.4% in the same quarter of the prior year due to lower sales levels in the
third quarter of 1999. For the first nine months of 2000, sales and marketing
expenses as a percentage of sales decreased to 7.7% as compared to 9.5% in the
prior year.
General and Administrative
General and administrative expenses increased $1.1 million or 46.8% to $3.3
million in the third quarter of 2000 from $2.2 million in the same period from
the prior year. For the first nine months of fiscal year 2000, general and
administration expense has increased $2.3 million or 33.7% to $9.0 million as
compared to $6.7 million in 1999. The increase in general and administrative
expenses was primarily due to increased personnel costs and increased bad debt
expenses. As a percentage of sales, general and administrative expenses
increased to 7.6% in the third quarter of 2000 from 7.4% in the same period from
the prior year. As a percentage of sales, general and administrative expenses
decreased to 7.3% for the first nine months of 2000 from 7.5% in the same period
of 1999.
Restructuring Charges
In the fourth quarter of fiscal year 1999, the Company began to implement a
series of actions intended to align operations with current market conditions
and to improve the profitability of its operations. As a result of these
actions, the Company incurred a restructuring charge of $1.5 million. These
actions include a workforce reduction of 18 people and the write-off of prepaid
royalties. In addition, the Company intended to sell Planar Flat Candle, Inc., a
wholly owned subsidiary that manufactures and sells backlights for liquid
crystal displays. Management expects the actions to be completed by the end of
fiscal year 2000.
The exit of the Flat Candle business resulted in a charge of $1.1 million which
included inventory charges of $237,000 related to the exit of certain products,
$651,000 related to goodwill, $183,000 related to severance and $66,000 related
to other assets and liabilities. The inventory charge of $237,000 was recorded
as cost of sales and the remaining amount of $900,000 was recorded as
restructuring charges in the Consolidated Statement of Operations. During the
second quarter of fiscal year 2000, the Company determined that a buyer could
not be found. As a result, the remaining value of the assets was reduced to fair
value and charges of $200,000 were recorded as restructuring charges in the
Consolidated Statement of Operations. The assets have been disposed of during
fiscal year 2000.
During 1999, the Company recorded additional severance charges of $188,000
related to headcount reductions. In addition, a charge of $163,000 was recorded
related to prepaid royalties, which were impaired due to lower than expected
future sales associated with certain products covered by the royalty agreement.
The fair value of the asset was determined through the calculation of the net
present value of discounted cash flows expected to be provided by the asset.
These amounts were recorded as restructuring charges in the Consolidated
Statement of Operations.
During fiscal year 2000, the Company has paid cash of $56,000 related to
employee severance. The remaining amount of severance of $187,000 is expected to
be paid by the end of fiscal year 2000.
12
<PAGE>
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
expense increased from $56,000 in the third quarter of 1999 to $96,000 in the
third quarter of 2000. For the first nine months of fiscal year 2000, net
interest expense increased to $257,000 from $158,000 in the first nine months of
1999. These increases were due to lower cash balances earning interest income
and higher interest expense due to increased borrowings. The Company has
increased its borrowings to finance equipment purchases associated with a new
production facility.
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 losses amounted to a gain of
$117,000 in the third quarter of 2000, as compared to a gain of $803,000 in the
third quarter of 1999. For the first nine months of 2000, the gain was $1.1
million as compared to $2.0 million for the first nine months of 1999. 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.
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.
Provision for Income Taxes
The Company`s effective tax rate for the nine month periods ended June 30, 2000
and June 25, 1999 was 28%. The effective tax rate of 28% is due to the relative
profitability of the U.S. and foreign entities. In addition, this rate differs
from the federal statutory rate primarily because of the provision for state
income taxes, permanent differences resulting from purchase accounting
adjustments and the effects of the Company's foreign tax rates. Another
difference arises from the limitation on the utilization of net operating loss
carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $453,000 for the first nine months of
2000 and net cash provided by operations was $2.9 million in the first nine
months of 1999. The decrease in the cash balance for the first nine months of
2000 was primarily due to the increases in accounts receivable, inventories,
deferred taxes and the foreign exchange gain, offset by net income, depreciation
and amortization and increases in accounts payable, accrued compensation and
other current liabilities.
Additions to plant and equipment were $2.5 million in the first nine months of
2000. The significant acquisitions during the first three-quarters of 2000 were
purchases of equipment for the Finland manufacturing operations and purchases
related to a new information system.
The Company has substantially completed the implementation of a new production
facility and equipment. The Company started production in its new production
facility during the second quarter of 2000.
At June 30, 2000, the Company had two bank line of credit agreements with a
total borrowing capacity of $20.0 million and credit facilities for financing
equipment of $18.0 million. As of both June 30, 2000 and September 24, 1999,
borrowings outstanding under the credit line were $0. Borrowings outstanding
under the equipment financing lines were $16.1 million and $17.4 million as of
June 30, 2000 and September 24, 1999, respectively. 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.
13
<PAGE>
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 not material. 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 partially 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 not decline by a material
amount.
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 and elsewhere in this report, as well as those discussed
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.
Part II. OTHER INFORMATION
Item 2. Changes in Securities
(c) During the third fiscal quarter of 2000, 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 15,350 shares of Common Stock was
issued at exercise prices ranging from $2.25 to $6.50. These transactions were
effected in reliance upon the exemption from registration under the Securities
Act provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3 (b) of the Securities Act.
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Item 5. Other Information
The following issues and uncertainties, among others, should be considered in
evaluating the Company's future financial performance and prospects for growth.
The following information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations (Item
7) contained in the Company's 10-K for the year ended September 24, 1999.
Outlook: Issues and Uncertainties
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 resources than the Company, and
competitors of the Company have made and continue to make significant
investments in the construction of manufacturing facilities for AMLCDs and other
advanced displays. There can be no assurance that the Company's competitors will
not succeed in developing or marketing products that would render the Company's
products obsolete or noncompetitive. To the extent the Company is unable to
compete effectively against its competitors, whether due to such practices or
otherwise, its financial condition and results of operations would be materially
adversely affected.
Development of New Products and Risks of Technological Change
The Company's future results of operations will depend upon its ability to
improve and market its existing products and to successfully develop,
manufacture and market new products. There can be no assurance that the Company
will be able to continue to improve and market its existing products or develop
and market new products, or that technological developments will not cause the
Company's products or technology to become obsolete or noncompetitive. Even
successful new product introductions typically result in pressure on gross
margins during the initial phases as costs of manufacturing start-up activities
are spread over lower initial sales volumes. The Company has experienced lower
than expected yields with respect to new products and processes in the past.
These low yields have and will continue to have a negative impact on gross
margins. In addition, customer relationships are negatively impacted due to
production problems and late delivery of shipments.
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, passive LCD and active matrix 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.
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Level of Advanced Research and Development Funding
The Company's advanced research and development activities have significantly
been funded by outside sources, including agencies of the United States and
Finnish governments and private sector companies. The Company's recently funded
research and development activities have principally focused on multi-color and
full color displays, miniature displays, 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 significant
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.
International Operations and Currency Exchange Rate Fluctuations
Shipments to customers outside of North America accounted for approximately
20.5%, 20.5% and 26.6%, of the Company's sales in fiscal 1999, fiscal 1998 and
fiscal 1997, 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).
Military Sales
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 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 sales, several key 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. The Company continues to
develop strategic relationships with suppliers. However, there can be no
assurance given that these strategic relationships will continue in the future
and the Company will receive the critical components required to meet production
and shipment schedules.
The Company's military product sales have been 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 year will be important to the
long-term success of Planar's military avionics business.
The Company has fixed price contracts for flat panel displays with a small
number of military avionics customers. As a result of the performance
requirements for these displays and difficulties in the manufacturing process,
the Company has experienced difficulties in satisfying its obligations under
these contracts and has generally not realized a profit selling these products.
Although the Company has successfully renegotiated specifications and prices
under certain of these contracts, the Company has not been able to renegotiate
the terms of all such contracts or acheive a level of profitability on these
products that would justify continuing sales. Accordingly, when the existing
contracts expire in early fiscal year 2001, the Company will only pursue new
contracts or contract extentions on terms that will permit the Company to earn a
profit on these products. The Company's inability to satisfy its obligations
under existing contracts or to obtain new contracts or contract extentions on
terms acceptable to the Company could result in contractual liabilities to the
Company, a reduction in the Company's revenues and earnings and the impairment
of the Company's ability to continue to paticipate in the military avionics
market.
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, inventory obsolescence charges, warranty return rate
fluctuations related to newer products, the timing of expenses and other factors
affect results of operations. Quarterly fluctuations may adversely affect the
market price of the Common Stock.
The Company's backlog at the beginning of each quarter does not normally include
all orders needed to achieve expected sales for the quarter. Consequently, the
Company is dependent upon obtaining orders for shipment in a particular quarter
to achieve its sales objectives for that quarter. The Company's expense levels
are based, in part, on expected future sales. If sales levels in a particular
quarter do not meet expectations, operating results may be adversely affected.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: 27.1 Financial Data Schedule
(b) Reports on 8-K: None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANAR SYSTEMS, INC.
(Registrant)
DATE: August 14, 2000 /s/ Jack Raiton
-----------------
Jack Raiton
Vice President and
Chief Financial Officer
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