-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXM4MNVech8VewcUZF4aiGy0kXXxQW5rcn8tgZ3jIk+8rFjHe7OqtdZDe4oRnXUF tm26Ed7msW8PudIDR1Xr6Q== /in/edgar/work/20000814/0001032210-00-001683/0001032210-00-001683.txt : 20000921 0001032210-00-001683.hdr.sgml : 20000921 ACCESSION NUMBER: 0001032210-00-001683 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANAR SYSTEMS INC CENTRAL INDEX KEY: 0000722392 STANDARD INDUSTRIAL CLASSIFICATION: [3679 ] IRS NUMBER: 930835396 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-45191 FILM NUMBER: 699949 BUSINESS ADDRESS: STREET 1: 1400 NORTHWEST COMPTON DR CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 5036901100 MAIL ADDRESS: STREET 1: 1400 N W COMPTON DR CITY: BEAVERTON STATE: OR ZIP: 97008 10-Q 1 0001.txt FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 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 PLANAR SYSTEMS, INC. INDEX
Page 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
2 Part 1. FINANCIAL INFORMATION Item 1. Financial Statements Planar Systems, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)
Three Months Ended June 30, 2000 June 25, 1999 ----------------- ---------------- 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
See accompanying notes to unaudited consolidated financial statements. 3 Planar Systems, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)
Nine Months Ended June 30, 2000 June 25, 1999 ----------------- ----------------- 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
See accompanying notes to unaudited consolidated financial statements. 4 Planar Systems, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands)
ASSETS June 30, September 24, 2000 1999 ---------------------- -------------------- (Unaudited) 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 ====================== ====================
See accompanying notes to unaudited consolidated financial statements. 5 Planar Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended June 30, 2000 June 25, 1999 ---------------------- ---------------------- 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 ======================= ======================
See accompanying notes to unaudited consolidated financial statements. 6 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:
June 30, 2000 September 24, 1999 -------------------- ------------------------ (Unaudited) Raw materials $18,875 $16,632 Work in process 7,573 4,058 Finished goods 4,355 4,683 -------------------- ------------------------ $30,803 $25,373 ===================== ========================
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 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:
Three Months Ended Nine Months Ended June 30, 2000 June 25, 1999 June 30, 2000 June 25, 1999 ------------------- ------------------ -------------------- ---------------- 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 =================== ================== ==================== ===============
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 The restructuring charges incurred affected the Company's financial position as follows:
Accrued Inventories Other Assets Goodwill Compensation ------------ ------------- --------- ------------- 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 ========== ============ ========== ============
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 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.
Three Months Ended Nine Months Ended June 30, 2000 June 25, 1999 June 30, 2000 June 25, 1999 ------------------ ------------------ -------------- -------------- 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 ======= ======== ======= =======
10 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 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 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 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. 14 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. 15 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 16 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 17 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-29-2000 SEP-25-1999 JUN-30-2000 13,304 0 28,165 0 30,803 83,057 54,752 (25,270) 120,891 28,500 14,189 0 0 77,141 (178) 120,891 122,693 122,693 89,990 89,990 26,610 0 257 6,952 1,946 5,006 0 0 0 5,006 .47 .46
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