NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations

Planar Systems, Inc. was initially incorporated as a Delaware corporation in 1983 and became an Oregon corporation in 1988. Planar Systems, Inc., and its wholly-owned subsidiaries are engaged in developing, manufacturing and marketing electronic display products and systems. These display products and systems are primarily tiled LCD systems, signage monitors, touch monitors, desktop monitors, rear-projection cubes, custom commercial and industrial displays, and home theater projection systems.

Principles of consolidation

The consolidated financial statements include the financial statements of Planar Systems, Inc. together with its wholly-owned subsidiaries, Planar Systems Oy, Clarity, a Division of Planar Systems, Inc., and the subsidiaries of such subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal year

The Company’s fiscal year ends on the last Friday in September. The last days of fiscal 2014, 2013, and 2012, were September 26, September 27, and September 28, respectively. Due to statutory requirements, Planar Systems Oy’s fiscal year-end is September 30. All references to a year in these notes are to the Company’s fiscal year ended in the period stated which includes the fiscal year results of Planar Systems Oy.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Actual results may differ from those estimates.

Foreign currency translation

The Euro is the primary functional currency of the Company’s foreign subsidiaries. Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. Dollars at current exchange rates, and sales and expenses are translated using average rates. Gains and losses from translation of net assets are included in accumulated other comprehensive loss. Gains and losses from foreign currency transactions are included as a component of non-operating income (expense).

Cash

Cash of $13,068 represents cash deposits in banks.

Trade accounts receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has established an allowance for doubtful accounts which represents the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance by performing ongoing evaluations of its customers and their ability to make payments. The Company determines the adequacy of the allowance based on length of time past due, historical experience and judgment of economic conditions. Additionally, the Company has a credit policy that is applied to its potential customers. Account balances are charged off against the allowance after all options have been exhausted and recovery is considered unlikely.

Changes in the allowance for doubtful accounts were as follows:


Description	Balance at beginning of period		Charged to cost and expense		Deductions⁽¹⁾			Balance at end of period
Year Ended September 28, 2012
Allowance for doubtful accounts	$	1,622	$	379	$	(1,466	)	$	535

Year Ended September 27, 2013
Allowance for doubtful accounts	$	535	$	211	$	(248	)	$	498

Year Ended September 26, 2014
Allowance for doubtful accounts	$	498	$	311	$	(340	)	$	469

(1)	Deductions represent write-offs and recoveries of previously reserved balances.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market, net of adjustments for estimated excess inventory and obsolescence based upon the Company’s best estimate of future product demand. Inventories consist of:


	2014		2013
Raw materials	$	16,398	$	15,911
Work in progress		52		59
Finished goods		10,355		14,033

	$	26,805	$	30,003

Property, plant and equipment

Depreciation of equipment is computed on a straight-line basis over the estimated useful lives of the assets, generally two to seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of the life of the leases or the estimated useful lives of the assets. Depreciation of the building owned by the Company is computed on a straight-line basis over its estimated useful life, estimated to be 39 years.

Operating leases

The Company records the minimum base rents for its operating leases on a straight-line basis over the life of the lease term. The difference between rent expense calculated on a straight-line basis and rent paid is recorded as a deferred rent liability. As discussed in Note 10—Restructuring Charges, during 2013 the Company recorded restructuring charges related to the consolidation of the Company’s two assembly and integration facilities in the United States into a single facility. The Company recorded a liability related to the estimated present value of the remaining lease payments on the vacated facility less an assumption for sublease income as a result of this action. During the fourth quarter of 2014, the Company recorded an additional restructuring charge associated with this action as the Company evaluated the liability that was recorded in the third quarter of 2013 related to the vacated facility and revised the assumption for sublease income as the Company has been unable to sublease the facility. As a result, the present value of the future minimum annual operating lease payments related to the vacated space has been included in restructuring charges for the years ended September 26, 2014 and September 27, 2013 and other current liabilities and other long-term liabilities as of September 26, 2014 and September 27, 2013.

Other current assets

Included in other current assets of $3,909 and $2,426 as of September 26, 2014 and September 27, 2013, respectively, are the Beneq purchase price note receivable, the Beneq component device receivable (both discussed in Note 12-Loss on Sale of Assets), as well as various prepaid assets, non-trade receivables, and deferred tax assets. Other current assets consist of:


	2014		2013
Purchase price note receivable from Beneq, current portion (Note 12)	$	650	$	—
Component device receivable from Beneq, current portion (Note 12)		382		—
Other		2,877		2,426

Total	$	3,909	$	2,426

Other assets

Included in other assets of $7,250 and $6,230 as of September 26, 2014 and September 27, 2013, respectively, are the long-term portion of the Beneq purchase price note receivable, long-term portion of the Beneq component device receivable, deferred compensation plan assets, and long-term deferred tax assets. Other assets consist of:


	2014		2013
Purchase price note receivable from Beneq, non-current portion (Note 12)	$	1,950	$	2,600
Component device receivable from Beneq, non-current portion (Note 12)		2,741		—
Other		2,559		3,630

Total	$	7,250	$	6,230

Included in the other long-term assets balance of $2,559 and $3,630 as of September 26, 2014 and September 27, 2013, respectively, are assets related to the Company’s deferred compensation plan in the amounts of $589 and $826, respectively. Assets of the deferred compensation plan are accounted for as trading securities. Any increases in assets cause corresponding increases in liabilities, thereby negating any income or loss effect in the Consolidated Statement of Operations as a result of changes in value of the deferred compensation plan. The deferred compensation plan allowed eligible executives to elect to defer up to 100% of their regular compensation and incentive awards, and non-employee Board members could elect to defer up to 100% of their directors’ compensation. The compensation deferred under this plan is credited with earnings and losses as determined by the rate of return on investments selected by the plan participants. Each participant is fully vested in all deferred compensation and those earnings that have been credited to their individual accounts. This plan was frozen effective December 24, 2004 and no deferrals have been made under the plan since that date.

Other long-term liabilities

Included in other long-term liabilities of $5,189 and $5,390 as of September 26, 2014 and September 27, 2013, respectively, are liabilities related to the Company’s deferred compensation plan described above in the amounts of $589 and $826, respectively.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Revenue recognition

The Company’s policy is to recognize revenue for product sales when evidence of an arrangement exists, sales price is determinable or fixed, title transfers, and risk of loss has passed to the customer, which is generally upon shipment of the Company’s products to its customers. The Company defers and recognizes service revenue over the contractual period or as services are rendered. Some distributor agreements allow for potential return of products and provide price protection under certain conditions within limited time periods. Price protection is offered to select distributors for circumstances when there is a decrease in the list price of a product subsequent to the purchase by the distributor. The distributor is entitled to receive a credit equal to the price decrease for all new and unused products held in the distributor’s inventory as of the date of the claim, up to a maximum of 45 days from the date of purchase. Such return rights are generally limited to short-term stock rotation. The Company estimates expected sales returns and price protection adjustments based on historical experience and other qualitative factors and records the amounts as a reduction of revenue at the later of the time of shipment or when the pricing decision is made. Each period, price protection is estimated based upon pricing decisions made and information received from distributors as to the amount of inventory they are holding.

For transactions with multiple-deliverable arrangements, as defined by Accounting Standards Update No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a Consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), the Company allocates revenue using the relative selling price method. In general, where revenue arrangements involve acceptance provisions, the acceptance criteria are usually limited to the published specifications of the Company’s products. In those circumstances when customer specified acceptance criteria exist and where the Company cannot demonstrate that products meet those specifications prior to shipment, revenue is deferred until customer acceptance occurs. For orders with multiple elements (i.e., installation, training, additional parts, etc.) and where one or more elements are undelivered at the end of a reporting period, the Company recognizes revenue on the delivered elements only after the determination has been made that the delivered elements have stand-alone value and any undelivered elements have objective and reliable evidence of selling price. The Company’s policies comply with the guidance provided by ASC Topic 605. Judgments are required in evaluating the credit worthiness of the Company’s customers. Credit is not extended to customers and revenue is not recognized until the Company has determined that the collection risk is minimal. For transactions with software elements, the Company accounts for transactions in accordance with Accounting Standards Update No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements—a Consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”).

The Company records sales tax amounts collected from customers on a net basis.

Shipping and handling costs

The Company incurs expenses for the shipment of goods to customers. Shipping and handling costs are recognized in the period in which they are incurred and recognized as revenue if billed to the customer and as cost of sales if incurred by the Company.

Research and development costs

Research and development costs are expensed as incurred. The Company periodically enters into research and development contracts with certain private-sector companies. These contracts generally provide for reimbursement of costs. The Company also periodically receives research and development tax credits from certain governmental agencies. Funding from research and development contracts and tax credits are recognized as reductions in operating expenses during the period in which the services are performed and related direct expenses are incurred, as follows:


	2014			2013			2012
Research and development expense	$	6,463		$	7,850		$	11,361
Contract funding and refundable research and development tax credits		(580	)		(873	)		(769	)

Net research and development	$	5,883		$	6,977		$	10,592

Warranty

The Company provides a warranty for its products and establishes an allowance at the time of sale to cover estimated costs during the warranty period. The warranty period is generally between 12 and 36 months. This reserve is included in other current liabilities. See additional discussion in Note 5—Other Current Liabilities.

Intangible assets

Intangible assets consisted of acquired developed technology and customer relationships associated with the Company’s 2006 acquisition of Clarity Visual Systems, Inc., which were amortized over their estimated useful lives. When these assets were acquired, the weighted-average amortization period was between four years and seven years. Amortization expense was $0, $565, and $696 in 2014, 2013, and 2012, respectively. As of September 27, 2013, all intangible assets were fully amortized.

Impairment of long-lived assets

In accordance with ASC Topic 360, long-lived assets are reviewed for impairment when events or circumstances indicate costs may not be recoverable. Long-lived assets are grouped at the lowest level for which distinguishable cash flows are available. Impairment exists when the carrying value of the asset is greater than the undiscounted future cash flows expected to be provided by the asset. If impairment exists, the asset is written down to its fair value. Fair value is determined through quoted market values or through the calculation of the present value of future cash flows expected to be provided by the asset.

Advertising expenses

All advertising costs are expensed as incurred and totaled $3,641, $3,515, and $2,486 in fiscal 2014, 2013, and 2012, respectively.

Net income (loss) per share

Basic net income (loss) per share was computed using the weighted average number of common shares outstanding during each period. Diluted net income (loss) per share is computed using the weighted average number of common shares plus dilutive common equivalent shares outstanding during the period. No incremental shares for fiscal years ended September 27, 2013 and September 28, 2012 were used in the calculations of diluted earnings per share. In years in which a net loss is incurred, no common stock equivalents are included since they are antidilutive and as such all stock options and unvested restricted stock outstanding were excluded from the computation of diluted net loss per share for the years ended September 27, 2013 and September 28, 2012.

Financial instruments

For short-term financial instruments, including cash, accounts, notes, and non-trade receivables, short-term debt, short-term capital leases, accounts payable and accrued compensation, the carrying amount approximates the fair value because of the immediate short-term nature of those instruments. For long-term financial instruments, including the non-current portion of notes and non-trade receivables, the Company measures the fair value of these instruments using a discounted cash flow model. The differences between the fair values and carrying amounts of the Company’s financial instruments at September 26, 2014 and September 27, 2013 were not material.

Derivative instruments

The Company is exposed to certain foreign currency risks relating to its ongoing business operations, as the Euro is the functional currency of the Company’s European subsidiaries. The Company does not hedge foreign currency risk. As a result, changes in the U.S. Dollar versus the Euro exchange rate positively or negatively impact the Company’s net income (loss). The net gain on foreign currency exchange transactions was $313 in the year ended September 26, 2014. This compared to a net loss on foreign currency exchange transactions of $250 in the year ended September 27, 2013 and a net gain on foreign currency exchange transactions of $479 in the year ended September 28, 2012. These amounts were recorded as foreign exchange, net in the Consolidated Statements of Operations.

Share based compensation

Share based compensation expense recognized for the twelve months ended September 26, 2014, September 27, 2013, and September 28, 2012 was $1,659, $1,462, and $1,604, respectively, which consisted of share based compensation expense related to employee stock options, restricted stock and the Company’s Employee Stock Purchase Plan. See Note 8—Shareholders’ Equity for additional information.

ASC Topic 718 requires companies to estimate the fair value of share based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. The Company values employee stock options granted using the Black-Scholes option pricing model (“Black-Scholes model”). This model is also used to estimate the fair value of employee stock purchases related to the Employee Stock Purchase Plan. The Company values restricted stock awards at the closing price of the Company’s shares on the date of grant. For additional information, see Note 8—Shareholders’ Equity. The Company’s determination of fair value of share based payment awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of variables, including the risk-free interest rate, the expected dividend yield, the expected option life, and expected volatility over the term of the awards.

Recently adopted accounting pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“ASU 2013-02”) which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income. ASU 2013-02 effectively replaces the requirements previously included in ASU 2011-05 and 2011-12. ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Accordingly, the Company adopted this standard on September 28, 2013. The Company did not have any reclassifications during 2014 that would require additional disclosure under this ASU, and as such the adoption of this ASU did not have an impact on the Company’s financial position, results of operations or cash flows.