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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 24, 1999 Commission File No 0-23018
PLANAR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0835396
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1400 NW Compton Drive
Beaverton, OR 97006
(Address of principle executive offices,
including zip code)
(503) 690-1100
(Registrants telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K (_)
As of December 17, 1999
Aggregate market value of the voting stock held by
non-affiliates of the Registrant based upon the
closing bid price of such stock: $78,406,000
Number of shares of Common Stock outstanding 10,541,271
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the Annual Meeting
of Shareholders to be held on February 3, 2000, are incorporated by reference
into Part III of this report.
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1
Part I
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Item 1.
BUSINESS
Planar Systems, Inc. (Planar) is a leading provider of high performance
electronic information displays, display sub-systems, and complete display
systems. The Company markets products based on a variety of display technologies
including active matrix liquid crystal displays (AMLCDs), passive matrix liquid
crystal displays (PMLCDs), electroluminescent (EL) flat panel displays, active
matrix electroluminescent (AMEL) and other microdisplays, and specialized
cathode ray tubes (CRTs). These products are currently used in a wide variety of
applications in Planar's core medical, transportation, and industrial markets.
Planar has proprietary technology and manufacturing expertise in its EL, AMEL,
PMLCD, and CRT products. The Company competes on a global basis with
development, manufacturing, and marketing operations in both the United States
and Europe. Major customers include Agilent, Allen-Bradley, Datascope, GE
Marquette Medical Systems, Hewlett-Packard, Honeywell, Mack Trucks, Protocol
Systems, Sun Microsystems, Gilbarco, Siemens, Smiths Industries, and ZOLL
Medical Corporation.
Industry Background
The information display industry is undergoing significant change as
businesses and individuals demand to be connected to the text, graphics, and
video information that is currently available. People also expect that
information to be mobile and accessible wherever they are working.
These trends are converging to drive a growing demand across industries for
color, high-performance, thin, lightweight, power-efficient displays that are
capable of displaying complex information. Although commodity CRTs dominate the
overall information display market, they are large, heavy, fragile, and require
substantial amounts of power to operate.
There are several display technologies currently in development or
commercially available, including various forms of liquid crystal and EL
displays. The principal bases of competition among display suppliers are
commercial availability, long life, price, environmental and optical
performance, size, customer service, design flexibility, power usage, and
ruggedness.
Passive Matrix LCD. PMLCDs modulate light (which is either reflected or
transmitted) by applying a voltage to a liquid crystal material placed between
two glass plates. A range of colors are possible using filter or backlight
techniques.
Active Matrix LCD. AMLCD screens incorporate the PMLCD technology plus add
a transistor at every pixel location. This allows each pixel to be turned on and
off independently which increases the image quality, response time, and side-to-
side viewing angle of the display. Color AMLCDs are produced using various types
of color filters and pixel arrangements.
Electroluminescent. Planar's standard monochrome EL display technology is a
solid state device with a thin film luminescent layer sandwiched between
transparent dielectric (insulator) layers and a matrix of row and column
electrodes deposited on a single glass substrate. A circuit board, with control
and drive components mounted within the same area as the viewing area on the
glass panel, is connected to the back of the glass substrate using various
interconnect technologies. The result is a flat, compact, reliable, and rugged
display device. When AC voltage is applied to a column and a row electrode, the
phosphor thin film between them emits light that passes through the transparent
electrode, through the glass face, and on to the viewer. Increasing the number
of rows and columns, and thus the number of pixels, in a given space increases
the clarity of the display to the viewer.
Other. There is a wide diversity of new technologies constantly under
development with the objective of competing in this market. Some of the more
visible efforts include ferroelectric LCDs, AMLCDs, organic light emitting
diodes (OLEDs), and various forms of miniature displays.
2
Strategy
The Company's goal is to enhance its position as a leading supplier of
information display systems. The Company has successfully developed a broad
product line of information displays, which has resulted in large market
acceptance. In the last two fiscal years, the Company has shipped over a quarter
million units to customers with a particular emphasis on the medical,
industrial, and transportation markets, including military/avionics.
The Company believes that the trends toward information mobility and
connectivity will drive the development of devices that will require the use of
high performance display systems. The Company is now seeking to meet theses
needs and broaden its market position by adding value to its displays.
Key elements of the Company's strategy to achieve this goal include:
Expand Display Systems Capability. The Company intends to meet its
customer's need for embedded display systems by providing products which
integrate firmware, backlights, display drivers, mechanical enclosures, and
electronic hardware specific to their requirements. The Company will seek to
develop these capabilities in-house or through partnerships.
Expand Market Presence. The Company continues to identify and pursue
growing markets that have a high correlation between the capabilities of the
Company's products and the specific needs of the target market. Within these
markets, the Company focuses on a broad range of customers whose applications
receive high value and benefit from Planar's products. Today, the Company's core
markets are medical, transportation, and industrial. Additionally, Planar is
focusing increased attention on emerging markets for high information content
displays.
Pursue Strategic Relationships. The Company seeks to provide customers with
the best display solution regardless of technology. Display industry customers
are constantly asking for higher product performance at competitive prices. To
meet these customer demands, the Company intends to continue to evaluate and
actively seek to develop or acquire, promising technologies directly or through
strategic relationships.
3
Markets
The Company is currently serving the following core market segments:
Medical. Displays are used in patient monitors and a range of
administrative, diagnostic, and therapeutic equipment, including health
record terminals, defibrillators, anesthesia systems, ventilators, infusion
pumps, and blood analyzers. These medical applications typically require
certification, a wide viewing angle, and clear, crisp images readable from
across the room in varying light conditions by multiple users at the same
time. The Company believes that its displays and display systems provide
superior display quality and reliability for crucial medical applications.
Industrial. Displays are used in a wide range of production and
control environments, including process controls, industrial computers,
elevator, and crane interfaces, and machine control panels. The
reliability, ruggedness, wide operating temperature range, and low
susceptibility to electromagnetic interference of Planar displays permit
the Company to deliver solutions to a range of problems in these difficult
environments.
The Company's displays are also used in a wide range of test and
measurement products, including digital oscilloscopes, analyzers, and
telecommunications test equipment. The Company's displays can be found in a
range of sales and information terminals such as petroleum dispensers,
kiosks, and data collectors. The Company believes there is an increasing
market demand for the Company's displays in smaller, more portable test
equipment and inventory logistics products.
Transportation. The Company's sales in this market consist of embedded
display systems for commercial vehicles and high performance CRTs and
AMLCDs sold to systems integrators for military cockpits. Additionally, the
Company sells processed EL display glass to military systems suppliers for
integration into various military subsystems used in communications
applications, tactical displays, avionics, and shipboard command and
control equipment.
The Company believes that commercial vehicles will become more automated
and require high performance graphical interfaces to improve driver
productivity, safety, and satisfaction. The Company also believes that
military customers will continue to require increasing display performance,
share development costs, and have significant influence over the
distribution of research and development funding from government sources.
The pervasive use of microprocessors has increased the demand for higher
information content displays for space constrained transportation
applications. The Company has sold displays to customers for use in global
positioning applications, long-haul trucks, off road vehicle instruments,
farm equipment, cockpit displays for trains, warehouse inventory management
displays, forklift applications, and railway car information systems.
In addition to the core markets described above, Planar is serving the following
emerging markets:
Communications. As hardware becomes increasingly portable and the
support systems allow for greater transmission of data, telecommunication
devices require displays with more information capability. The Company has
sold displays to customers for use in field communication systems and
financial trader telephone turrets.
Business/Office Equipment. The Company sells displays for a variety of
applications in the office and retail markets, including high speed
photocopiers, office control panels, point-of-sale devices, custom designed
monitors, and network storage devices. The Company believes that the growth
of e-commerce and Internet-related information systems will lead to greater
demand for embedded display systems utilizing the skills and technologies
used by its other markets.
4
Products
The Company offers its customers a variety of displays and display systems
matched to their needs. The Company can supply products in a wide range of
resolutions, formats, viewing areas, and technologies. These can be classified
in four primary categories:
Flat Panel Displays. This category includes monochrome EL and LCD, multi-
color EL and LCD, and full color AMLCD displays. This is principally an OEM
(original equipment manufacturer) component market where the customers purchase
displays to incorporate directly into their products.
Flat Panel Subsystems. This category includes EL, PMLCD, and AMLCD
components which are integrated together with mechanical packages, firmware,
display drives, backlights, touch panels, and electronics to produce embedded
display solutions which meet the needs of key markets and customers.
Value-added Display Solutions. To be able to better satisfy customers'
display needs, the Company incorporates displays into systems that often include
hardware, i.e., keyboards, touch input devices, local computing capability or
special packaging and "software" that enables bus connectivity and graphical
user interfaces (GUI). The Company markets its flat panel monitors and complete
display systems for bedside computing and monitoring applications where
hospitals are increasingly recognizing the productivity gained by such
installations.
Cathode Ray Tubes. The Company offers high performance CRTs based on its
proprietary taut shadow mask technology. These displays are sold primarily to
military systems companies who integrate them into cockpit applications.
5
Research, Development and Product Engineering
The Company believes that a significant level of investment in research,
development, and product engineering is required to maintain market leadership.
Total expenses were $23.8, $19.9, and $17.3 million for the fiscal years 1999,
1998, and 1997, respectively, for research, development, and product
engineering. These expenses were partially offset by contract funding from both
government agencies (in the United States and Finland) and private sector
companies of $9.7, $11.2, and $9.6 million in fiscal years 1999, 1998, and 1997,
respectively.
Research and development expenses of the Company are primarily related to the
development of advanced products based on active matrix electroluminescent
(AMEL) and liquid crystal on silicon (LCOS) microdisplay technology, AMLCD and
PMCLD technologies, organic light emitting diodes (OLEDs), new display drive
architectures, and fundamental manufacturing process improvements. Product
engineering expenses are directly related to the design, prototyping, and
release to production of new Company products. Research, development, and
product engineering expenses consist primarily of salaries, project materials,
outside services, allocation of facility expenses, and other costs associated
with the Company's ongoing efforts to develop new products, processes, and
enhancements.
Recent development efforts have been focused on both short-term and long-
term programs designed to enhance the Company's product offerings and
capabilities. These programs include the following:
Microdisplays. This program is focused on the development of high-
resolution image sources for miniature display applications. Current development
efforts with AMEL and LCOS displays are addressing higher resolution, improved
performance, and lower manufacturing costs. Targeted markets for microdisplays
include medical, industrial, military, and transportation.
New Technology Development. As part of the Company's product strategy,
relationships are continuing to be established to explore various display
technologies and their incorporation into the product line. Some of the projects
being pursued include OLEDs, AMLCDs, fast PMLCDs, backlights, and other display
enabling technologies.
6
Manufacturing
The Company operates EL manufacturing facilities in both the United States
and Finland. These facilities are designed to produce a wide range of display
sizes and types from 1"x 4" to 12"x 14" that can be manufactured with relatively
minor changes to the basic equipment set-up. The Company's LCD facility is also
designed to produce a wide range of display sizes and types. The CRT facility is
designed to produce 5" x 5" and 6" x 6" militarized CRTs.
The Company's manufacturing operations consist of the procurement and
inspection of components, manufacture of the display component, final assembly
of all components and extensive testing of finished products. The Company
currently procures all of its raw materials from outside suppliers. This
includes glass substrates, driver integrated circuits, electronic circuit
assemblies, power supplies and high density interconnects.
Quality and reliability are emphasized in the design and manufacture of the
Company's products. All of the Company's manufacturing facilities have active
operator training/certification programs and regularly use advanced statistical
process control techniques. The Company's products undergo thorough quality
inspection and testing throughout the manufacturing process.
The Company believes that worldwide quality standards are increasing and
that many customers now want manufacturers to have ISO9001 certification. This
certification requires that a company meet a set of criteria, established by an
independent, international quality organization that measures the quality of
systems, procedures and implementation in manufacturing, marketing and
development of products and services. As of September 24, 1999, all of the
operating divisions have received and maintain their ISO9001 certification.
Sales and Marketing
The Company's products are distributed worldwide through a combination of
independent sales representatives, resellers, distributors, and Company-employed
sales personnel. In the United States, Planar has regional sales personnel in
the Boston, Chicago, Milwaukee, Minneapolis, St. Paul, Philadelphia, Portland,
and Tampa metropolitan areas. In addition, there are three sales offices in
Europe: Helsinki, London, and Munich. Each of these locations is staffed by a
regional sales manager who has responsibility for sales in a specific region.
Each region also has a number of independent sales representatives who generally
have exclusive marketing and sales rights in their area and are managed by the
regional sales manager. International sales are conducted through a combination
of direct sales offices (Finland, Germany, and the United Kingdom), independent
sales representatives and distributors.
As of September 24, 1999, the Company's backlog of domestic and
international orders aggregated approximately $40.5 million. The Company
includes in its backlog all accepted contracts or purchase orders that are
scheduled for delivery in the next six months. The Company believes that its
backlog may be of limited utility in predicting future sales, particularly since
its international sales are primarily conducted through distributors, which
typically do not place purchase orders substantially in advance of delivery
dates. Variations in the magnitude and duration of contracts received by the
Company and customer delivery requirements may result in substantial
fluctuations in backlog from period to period.
7
Competition
The market for information displays and display intensive systems is highly
competitive, and the Company expects this to continue. The Company believes that
over time this competition will have the effect of reducing average selling
prices of flat panel displays. If the Company were unable to increase unit
volumes or increase the performance of its products in order to offset or reduce
any decreases in selling prices, the Company's results of operations would be
adversely impacted. In addition, the Company's ability to maintain gross margins
will depend in part on its ability to reduce cost of sales in an amount
sufficient to compensate for any decreases in selling prices.
The Company competes with other display manufacturers based upon commercial
availability, long life, price, display performance (e.g., brightness, color
capabilities, contrast, and viewing angle), size, customer service, design
flexibility, power usage, durability, and ruggedness. Of particular competitive
interest is the Company's ability to provide custom display systems involving
both hardware and software. The Company believes its total quality program, wide
range of product offerings, flexibility, responsiveness, regional production
sites, technical support, and customer satisfaction programs are important to
the competitive position of the Company.
The principal display competitors against which the Company competes
include Sharp, Toshiba, Optrex, Seiko-Epson and Hitachi for LCDs; Sharp for EL;
Sharp, DTI, Hitachi and NEC for AMLCDs. In addition, a significant number of
Korean companies including Samsung, Hyundai, and Goldstar have also made large
investments in AMLCD technology.
The Company's CRT products dominate the United States market for high
performance full color avionics CRTs and have a significant share of the market
worldwide. Increasingly, the Company is seeing commercial display ruggedizers
attempting to move into the military avionics markets with commercial AMLCD
products for avionics applications.
8
Intellectual Property
The Company relies on a combination of patents, trade secrets, trademarks,
copyrights and other intellectual property law, nondisclosure agreements and
other measures to protect its proprietary rights. The Company currently owns or
has license rights to over 50 patents and several more pending patent
applications for its technologies. The expiration dates of the Company's
existing patents range from 2000 to 2012. Features for which the Company has and
is seeking patent protection include display glass design, materials,
electronics addressing and control functions and process manufacturing.
Pursuant to the agreements under which the Company receives research and
development funding from government agencies, the funding entities retain
certain rights with respect to technical data developed by the Company pursuant
to funded research. Generally, these rights restrict the government's use of the
specific data to governmental purposes, performed either directly or by third
parties sub-licensed by the government. Rights under the Company's funding
agreements with private sector companies vary significantly, with the Company
and the third party each retaining certain intellectual property rights.
Employees
As of September 24, 1999, the Company had 876 employees worldwide, 636 in
the United States and 240 in Europe. Of these employees, 68 were engaged in
marketing and sales, 97 in research, development and product engineering, 74 in
finance and administration, and 637 in manufacturing and manufacturing support.
The Company's future success will depend in a large part upon its ability
to continue to attract, retain and motivate highly skilled and qualified
manufacturing, technical, marketing, engineering and management personnel. The
Company's U.S. employees are not represented by any collective bargaining units
and the Company has never experienced a work stoppage in the U.S. The Company's
Finnish employees are, for the most part, covered by national union contracts.
These contracts are negotiated annually between the various unions and the
Employer's Union and stipulate benefits, wage rates, wage increases, grievance
and termination procedures and work conditions.
Item 2. Properties
The Company leases three of its primary manufacturing facilities and
various sales offices in the United States and Europe. The EL manufacturing
operation, located in Beaverton, Oregon, leases 79,000 square feet of custom
designed space, including 15,000 square feet of cleanroom. The CRT operation is
located in a large facility in which it leases 29,000 square feet, including
approximately 7,000 square feet of cleanroom. The European facility, located in
Espoo, Finland, is a custom designed facility in which Planar leases 85,000
square feet, including approximately 15,000 square feet of cleanroom.
9
During 1994, the Company acquired a 21,000 square foot facility with
approximately 6,000 square feet of cleanroom also located in Beaverton, Oregon.
This facility is being used for research and development activities and
production of miniature displays. Additionally, the Company has leased 17,000
square feet of an adjacent building.
As of September 26, 1997, the Company acquired Standish Industries, Inc and
its Lake Mills, Wisconsin LCD manufacturing operation, which includes a 70,000
square foot facility with approximately 7,500 square feet of cleanroom.
The Company has eight field sales offices in key U.S. metropolitan areas
and three sales offices in Europe. The offices are located in the Boston,
Chicago, Milwaukee, Minneapolis, St. Paul, Philadelphia, Portland, Tampa,
Helsinki, London and Munich metropolitan areas. Lease commitments for these
facilities are short term, typically six to twelve months. None of these sales
offices has any significant leasehold improvements nor are any planned.
The Company believes that its facilities are adequate for its immediate and
near term requirements and does not anticipate the need for any significant
additional expansion in the near future.
Item 3. Legal Proceedings
There are no pending material legal proceedings to which the Company is a
party or to which any of its property is subject.
Item 4. Submission of Matter to a Vote of Security Holders
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
Part II
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Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Shares of the Company's Common Stock commenced trading in the
over-the-counter market on the Nasdaq National Market System on December 16,
1993, under the symbol PLNR.
10
The Company currently intends to retain its earnings to support operations and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The following table sets forth for the fiscal periods indicated, the
range of the high and low closing prices for the Company's Common Stock on the
Nasdaq National Market System.
High Low
Fiscal 1998
First Quarter $13.00 $10.13
Second Quarter 13.00 10.13
Third Quarter 13.13 10.88
Fourth Quarter 13.31 9.88
Fiscal 1999
First Quarter 12.50 6.69
Second Quarter 9.81 7.13
Third Quarter 9.00 7.13
Fourth Quarter 7.81 6.13
During the quarter ended September 24, 1999, 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 6,425 shares of Common Stock were
issued at exercises prices ranging from $2.25 to $6.50 These transactions were
effected in reliance upon the exemption from registration under the Securities
Act provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3 (b) of the Securities Act.
Item 6. Selected Financial Data
Fiscal year
(in thousands, except per share amounts) 1999 1998 1997 1996 1995
Operations
Sales $122,914 $129,015 $ 88,850 $80,371 $78,523
Gross profit 33,175 40,252 28,488 27,988 28,388
Income (loss) from operations (3,151) 11,827 (1,395) 9,104 12,102
Net income (loss) $ (5,125) $ 8,951 $ 274 $ 8,672 $10,537
Diluted net income (loss) per share $ (0.48) $ 0.81 $ 0.02 $ 0.77 $ 0.98
Balance Sheet
Working capital $ 54,378 $ 51,520 $ 52,871 $56,924 $59,078
Assets 111,771 118,629 114,196 97,295 88,674
Long-term liabilities 16,622 4,526 8,851 6,015 4,685
Shareholders' equity 72,744 83,378 77,280 79,969 72,356
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company is a worldwide leader in the development, manufacture and marketing
of high performance electronic display products. Planar began shipping products
in 1983 and has experienced revenue growth based upon the expansion of its
product line and market acceptance of its products for a variety of
applications.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales of certain items in the Consolidated Financial Statements of the Company.
The table and the discussion below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Fiscal year ended Sept. 24, 1999 Sept. 25, 1998 Sept 26, 1997
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Sales 100.0% 100.0% 100.0%
Cost of sales 73.0 68.8 67.9
---- ---- ----
Gross profit 27.0 31.2 32.1
Operating expenses:
Research and development, net 11.4 6.7 8.6
Purchased research & development - - 9.3
Sales and marketing 9.2 8.5 9.1
General and administrative 7.7 6.7 7.1
Restructuring charges 1.0 - -
Amortization of goodwill and excess
fair market value of acquired net
assets over purchase price 0.2 0.1 (0.5)
---- ---- ----
Total operating expenses 29.5 22.0 33.6
---- ---- ----
Income (loss) from operations (2.5) 9.2 (1.5)
Non-operating income (expense):
Interest, net (0.2) 0.5 1.5
Foreign exchange, net 1.3 (0.5) 1.7
Other, net (4.4) - (2.3)
---- ---- ----
Net non-operating income (expense) (3.3) - 0.9
---- ---- ----
Income (loss) before income taxes (5.8) 9.2 (0.6)
Provision (benefit) for income taxes (1.6) 2.3 (0.9)
---- ---- ----
Net income (loss) (4.2)% 6.9% 0.3%
==== ==== ====
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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
12
royalties. In addition, the Company intends 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 and expects that cash of $243,000 will be used in connection
with severance benefits that have not yet been paid.
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.
The Company is actively seeking to sell the business and expects this action to
be completed during fiscal year 2000.
The Company also has recorded 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 prepaid royalty 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.
Sales
The Company's sales of $122.9 million in 1999 decreased $6.1 million or 4.7% as
compared to $129.0 million in 1998. The decrease in sales was principally due to
a slowdown across all of the Company's component markets in both Europe and
North America due to customers pushing out shipment dates and reduced sales due
to weak end-product sales. The Company's sales increased by 45.2% to $129.0
million in 1998 from $88.9 million in 1997. The increase in 1998 was primarily
due to the additional sales attributable to the Company's LCD operation, which
was acquired in September 1997. In addition in 1998, sales increases were
realized in the medical, transportation, business/office, and defense markets.
The Company presently expects sales for fiscal year 2000 to be approximately 10%
to 20% greater than the sales in 1999.
International sales, net of intercompany eliminations, decreased by 4.6% to
$25.2 million in 1999 as compared to $26.5 million recorded in 1998, and
increased 12.3% in 1998 from 1997 sales of $23.6 million. The decrease in
international sales was due primarily to decreased sales in existing product
lines in the Company's foreign markets. The increase in international sales in
1998 was primarily attributable to the Company's LCD operation. As a percentage
of total sales, international sales remained constant at 20.5% in both 1999 and
1998 and decreased from 26.6% in 1997. The decline in international sales as a
percentage of total sales in 1998 was mainly attributable to the addition of
sales from the LCD operation, which were primarily domestic sales.
13
Gross Profit
The Company's gross margin as a percentage of sales decreased to 27.0% in 1999
from 31.2% in 1998. This decrease was largely attributable to increased
inventory reserves for the end-user products and start-up manufacturing issues
associated with the military avionics AMLCD products. The Company's gross profit
as a percentage of sales decreased to 31.2% in 1998 from 32.1% in 1997. The
decline in gross margin in fiscal 1998 was related mainly to the increase in
sales of LCD products, which historically are at a lower margin. The Company
intends to record charges related to inventory up to $1.7 million in the first
quarter of 2000. Such charges are due to a management decision to discontinue
certain products and record potential reserves for other products. This is in
line with management's efforts to rationalize the product portfolio.
Research and Development
Research and development expenses increased $5.4 million or 61.7% to $14.0
million in 1999 from $8.7 million in 1998. The increase is due primarily to
additional expenses related to the development of new technologies and product
engineering associated with the development of color AMLCD products in both the
commercial and military avionics businesses. In addition, the Company also
received $1.5 million less in contract funding in 1999 as compared to 1998.
Research and development expenses increased 15.4% in 1998 from 1997. This
increase in fiscal 1998 related primarily to LCD development at the Company's
LCD facility. Increases in net expenses in both years related to continued work
on the next generation color products, and technology development on AMLCDs,
FEDs, AMEL miniature displays, and organic light emitting diodes (OLEDs).
Research and development expenses are expected to decrease in fiscal year 2000
due to anticipated reductions in spending. As a result of these reductions and
other cost savings associated with the restructuring charges recorded in 1999,
operating expenses are expected to decline to approximately 24.0% in fiscal 2000
as a percentage of sales as compared to 29.5% in 1999.
Purchased Research and Development Costs
Purchased research and development costs were $8.3 million for fiscal 1997.
These one-time, non-recurring costs represent in-process research and
development costs expensed by the Company in connection with its acquisition of
Standish Industries, Inc.
Sales and Marketing
Sales and marketing expenses increased $453,000 or 4.2% to $11.4 million in 1999
as compared to $10.9 million in 1998. The increase was primarily due to
additional marketing resources associated with the medical and transportation
markets. As a percentage of sales, sales and marketing expenses increased from
8.5% in 1998 to 9.2% in 1999 due to higher expenses and lower sales levels in
1999. Sales and marketing expenses increased by 34.7% to $10.9 million in 1998
from $8.1 million in 1997. The increase in marketing and sales costs in 1998 was
primarily attributable to costs incurred in connection with the LCD operation.
The increases in 1998 and
14
1997 were also attributable to sales commissions paid on a higher level of sales
and an increased focus on marketing. As a percentage of sales, sales and
marketing expenses decreased to 8.5% in 1998 from 9.1% in 1997. This decrease in
1998 expenses was attributable to the addition of the LCD operation, which had
lower sales and marketing expenses as a percentage of sales.
General and Administrative
General and administrative expenses increased $834,000 or 9.6% to $9.5 million
in 1999 from $8.7 million in 1998. The increase in general and administrative
expenses was primarily due to increased bad debt expense and the search and
transition related to a new President and Chief Executive Officer. As a
percentage of sales, general and administrative expenses increased to 7.7% in
1999 from 6.7% in 1998. This increase is due to higher expenses and lower sales
levels in 1999. General and administrative expenses increased by 37.5% to $8.7
million in 1998 from $6.3 million in 1997. The increase in general and
administrative expenses in 1998 was primarily attributable to costs incurred in
connection with the LCD operation. In addition, the increases in 1998 were
related to the additional administrative costs required to build the
infrastructure to support the growth of the Company, specifically in areas of
management systems and overall management development. As a percentage of sales,
general and administrative expenses decreased to 6.7% in 1998 from 7.1% in 1997.
The decrease in fiscal 1998 expenses as a percentage of sales was attributable
primarily to the addition of the LCD operation, which had lower general and
administrative expenses as a percentage of sales.
Amortization of Goodwill and Excess of Fair Market Value of Acquired Net Assets
over Purchase Price
In connection with the Company's acquisition of Standish Industries, Inc. in
September 1997, the Company recorded goodwill on its balance sheet for the
excess of the purchase price over the fair value of the net assets acquired. The
goodwill is being amortized over a ten-year period, resulting in operating
expenses of $571,000 per year.
In connection with the Company's acquisition of its Finland operation in
January 1991, the Company exchanged Common Stock with a fair market value (based
upon an independent valuation) equivalent to the value of the business acquired.
Due to historical losses of this business and the expectation of future losses,
the value of the Common Stock paid was less than the fair market value of the
net assets acquired. This required the Company to write fixed assets down to
zero and to record negative goodwill on its balance sheet for the remaining
amount of the excess fair market value of the net assets acquired over the
purchase price. Amortization of this negative goodwill has created a positive
offset to operating expenses in the amount of $476,000 per year. Negative
goodwill is being amortized over a ten-year period.
Non-operating Income and Expense
Non-operating income and expense includes interest income on investments,
interest expense and net foreign currency exchange gain or loss. Net interest
income (expense) decreased from net interest income of $736,000 in 1998 to net
interest expense of $233,000 in 1999 due to lower
15
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. Net interest
income decreased in 1998 from 1997 as a result of lower cash balances in 1998,
due to the cash paid for the acquisition of Standish Industries, Inc. in
September, 1997 and the retirement of its debt in 1998, and cash used for stock
repurchases.
On July 6, 1999, the Company acquired a 20% interest in dpiX Holding Company
LLC. dpiX Holding Company LLC owns 80.1% of dpiX LLC. The Company paid $5.0
million in cash for its interest in dpiX Holding Company LLC. dpiX LLC
manufactures and sells amorphous silicon thin-film transistor arrays for use in
x-ray digital detectors and liquid crystal displays. The investment has been
accounted for under the equity method of accounting. As part of the acquisition
agreement, there is a disproportionate allocation of profit and losses where the
Company recognizes the first $5.0 million of losses incurred. The Company has
written off the entire investment of $5.4 million, which includes transaction
costs of $395,000, in the fourth quarter of fiscal year 1999 based upon the
actual losses incurred since the date of acquisition and the belief that the
investment is other than temporarily impaired.
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 $1.7
million in 1999, a loss of $659,000 in 1998 and a gain of $1.5 million in 1997.
These amounts are comprised of realized gains and losses on cash transactions
involving various currencies and unrealized gains and losses related to foreign
currency denominated receivables and payables resulting from exchange rate
fluctuations between the various currencies in which the Company 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.
The other expense recognized for the fiscal year ended September 26, 1997
reflects the write off of an equity investment in Virtual i-O, a privately held
virtual reality headset manufacturing company. The investment was accounted for
under the cost method. In December 1996, as a result of delays in product
developments and supplier issues, Virtual i-O needed additional funding which it
received at a price per share lower than that paid by the Company. Based upon
the lower of cost or market method, the Company's investment was written down
based on the price paid in the last round of independent financing. Virtual i-O
declared bankruptcy during 1997 and the Company's investment was written off.
Provision for Income Taxes
The Company recorded a tax benefit of $2.0 million in 1999, an effective tax
rate of 24.8% for 1998 and a tax benefit of $784,000 for 1997. The change in the
effective tax rate for 1998 was
16
due to the relative profitability of the Company's Finland subsidiary compared
to the United States entities. For fiscal 1999 and 1997, the change in the
effective tax rates was due to recognition of book losses in the United States
compared to book income for the Company's Finland subsidiary. In 1999, the book
loss in the United States was due primarily to the write-off of the dpiX
investment and the restructuring charges. In 1997, the book loss in the United
States was largely due to the write off of the purchased research and
development associated with the acquisition of Standish Industries, Inc. As a
result of the acquisition of the Company's Finland subsidiary in January 1991,
the Company recognized a change in ownership for tax purposes that resulted in a
limitation on the annual utilization of net operating loss carryforwards for
United States tax purposes. In fiscal 1999, 1998 and 1997, the Company was
subject to the $2.1 million annual limitation.
QUARTERLY RESULTS OF OPERATIONS
The table below presents unaudited consolidated financial results for each
quarter in the two-year period ended September 24, 1999. The Company believes
that all necessary adjustments have been included to present fairly the
quarterly information when read in conjunction with the Consolidated Financial
Statements. The operating results for any quarter are not necessarily indicative
of the results that may be expected for any future period.
Three months ended Sept. 24, June 25, March 26, Dec. 25, Sept. 25, June 26, March 27, Dec. 26,
(in thousands, except per share data) 1999 1999 1999 1998 1998 1998 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Sales $32,773 $30,426 $29,239 $30,476 $33,028 $32,411 $ 32,102 $31,474
Gross profit 7,267 8,190 8,462 9,256 10,327 10,367 10,437 9,121
Income (loss) from operations (4,065) (652) 181 1,385 2,949 3,424 2,997 2,457
Net income (loss) (7,088) 68 955 940 1,633 2,636 2,551 2,131
Net income (loss) per share
(diluted) $ (0.67) $ 0.01 0.09 $ 0.09 $ 0.15 $ 0.24 $ 0.23 $ 0.19
Weighted average number of common
shares outstanding (diluted) 10,527 10,779 10,838 10,975 11,109 11,130 11,098 11,141
- -------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.8 million, $4.1 million and
$12.7 million in fiscal years 1999, 1998 and 1997, respectively. The increase in
1999 was primarily due to the loss on the dpiX investment and the restructuring
charges offset by the change in deferred taxes and other balance sheet accounts.
The decrease in 1998 was primarily related to changes in the balance sheet
accounts including inventory, accounts receivable, other current assets and
other current liabilities.
Additions to plant and equipment were $4.8 million, $4.0 million and $2.5
million in 1999, 1998 and 1997, respectively. The significant acquisitions
during 1999 and 1998 were purchases of equipment for the Wisconsin and Finland
manufacturing operations. The principal acquisitions during fiscal 1997 were
related to the acquisition of equipment to be used in connection with the
development of the military flat panel displays and the continued development of
AMEL miniature displays.
17
The Company invested $9.6 million and $6.3 million in 1998 and 1997,
respectively, associated with the implementation of a new production facility
and equipment, which had not been placed in service at the end of each fiscal
year. As of September 24, 1999, the equipment had not yet been placed in
service. The Company expects to bring its new production facility on line during
the second quarter of fiscal 2000.
At September 24, 1999, the Company had two bank lines of credit agreements
with a total borrowing capacity of $20 million and credit facilities for
financing equipment of $18.0 million. As of September 24, 1999 and September 25,
1998, borrowings outstanding under the credit line were $0 and $10 million,
respectively. Borrowings outstanding under the equipment financing lines were
$17.4 million and $4.0 million as of September 24, 1999 and September 25, 1998,
respectively. The Company was in violation of certain financial covenants under
both lines of credit as of September 24, 1999. The banks have waived the
covenant violations. The Company believes its existing cash and investments
together with cash generated from operations and existing borrowing capabilities
will be sufficient to meet the Company's working capital requirements for the
foreseeable future.
On April 23, 1997, the Company announced its intention to repurchase up to
400,000 shares of the Company's outstanding common stock from time to time over
the following twelve months in open market and negotiated transactions. On May
13, 1998, the Company announced its intention to repurchase up to an additional
$5.0 million of the Company's outstanding common stock from time to time over
the following twelve months in open market and negotiated transactions. During
the twelve months ended September 24, 1999, the Company repurchased
approximately 376,000 shares of its outstanding common stock for $3.4 million.
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 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
18
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.
YEAR 2000 ISSUE
Like most other companies, the Year 2000 computer issue creates risks for the
Company. The Year 2000 issue exists because many computer programs use two digit
rather than four digit date fields to define the applicable year. As a result,
computer equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, production delays, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. Incomplete or untimely resolution of the Year 2000
issue by the Company or critically important suppliers or customers of the
Company could have a materially adverse effect on the Company's business,
financial condition, or results of operations.
The Company has undertaken various initiatives intended to ensure that its
computer systems, software and other operational equipment will function
properly with respect to dates in the Year 2000 and thereafter. For this
purpose, the term "computer systems and software" includes systems that are
commonly thought of as information technology ("IT") systems, including
enterprise software, operating systems, networking components, application and
data servers, PC hardware, accounting, data processing and other information
systems, as well as systems that are not commonly thought of as IT systems, such
as telephone systems, fax machines, manufacturing equipment and other
miscellaneous systems and equipment. Both IT and non-IT systems may contain
embedded technology, which complicates the Company's Year 2000 assessment,
remediation and testing efforts.
All of the Company's financial and information systems are believed to be Year
2000 compliant. The Company has completed the process of inventorying and
assessing its primary manufacturing and other non-IT systems. To date, no
significant issues have been identified with the Company's manufacturing and
other non-IT systems.
The Company has surveyed its major vendors, suppliers, and customers to assess
the potential impact on its operations of these key third parties. The process
included obtaining information as to their efforts associated with Year 2000
compliance. To date, no significant compliance issues have been identified with
these third parties.
The Company currently estimates that the cost of its Year 2000 assessment,
remediation and testing efforts, as well as current anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, will
not exceed $500,000. The expenditures will be funded from operating cash flows.
This estimate is subject to change as additional information is obtained in
connection with the Company's assessment of the Year 2000 issue. As of September
24, 1999, the Company had incurred costs of approximately $325,000 related to
its Year 2000 assessment, remediation, and testing efforts. In addition, the
Company has incurred $963,000 (which was capitalized and will be amortized over
the expected useful life) associated with the
19
implementation of the new ERP system in its Finland facility, which was funded
from operating cash flows and existing cash balances.
The Company presently believes that Year 2000 issues will not pose significant
problems for the Company. However, if all Year 2000 issues have not been
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that the Year 2000 issue will not have a material adverse impact on
the Company's business, financial condition or results of operations, or
adversely affect the Company's relationships with customers, vendors and others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities, such as one or more of the Company's critical customers or suppliers,
will not have a material adverse impact on the Company's systems or its
business, financial condition or results of operations. Finally, if there are
infrastructure failures, such as disruptions in the supply of power, water,
transportation, communications services, or if major institutions, such as the
government, foreign or domestic banking systems, are unable to continue to
provide their services or support resulting in a disruption in services or
support to the Company, the Company may be unable to operate for the duration of
the disruption.
The foregoing statements as to the Company's expectations regarding the impact
on the Company of the Year 2000 problem are forward-looking statements that are
based upon management's assumptions and expectations regarding future events,
third party remediation plans and certifications, and other factors. There can
be no assurance that these expectations will prove to be accurate and actual
results could differ materially from those currently anticipated. Specific
factors that could cause such material differences include, but are not limited
to, the ability to identify, assess, remediate and test all relevant computer
codes and embedded technology, the reliability of third party assessments and
certifications, and similar uncertainties.
INTRODUCTION OF THE EURO
The Company has established a team to address the issues raised by the
introduction of the Single European Currency (Euro) for initial implementation
as of October 1, 1999 and during the transition period through to January 1,
2002. The Company expects that its internal systems that will be affected by the
initial introduction of the Euro will be Euro capable by January 1, 2000, and
does not expect the costs of system modifications to be material. The Company
does not presently expect that introduction and use of the Euro will result in
any material increase in costs to the Company. While the Company will continue
to evaluate the impact of the Euro introduction over time, based on currently
available information, management does not believe that the introduction of the
Euro currency will have a material adverse impact on the Company's financial
condition or overall trends in results of operation.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Report contain forward-looking statements
within the meaning of the Securities Litigation Reform Act of 1995 that are
based on current expectations, estimates and
20
projections about the Company's business, management's beliefs and assumptions
made by management. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements due to numerous factors, including, but not
limited to those discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as those discussed from time to
time in the Company's other Securities and Exchange Commission filings and
reports. In addition, such statements could be affected by general industry and
market conditions and growth rates, and general domestic and international
economic conditions. The forward-looking statements contained in this Report
speak only as of the date on which they are made, and the Company does not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this Report. If the Company does
update one or more forward-looking statements, investors and others should not
conclude that the Company will make additional updates with respect thereto or
with respect to other forward-looking statements.
Outlook: Issues and Uncertainties
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
21
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.
The Company's military product sales are significantly based on CRT
technology. Military avionics contractors are increasingly focused on
incorporating displays, primarily AMLCDs, into cockpit applications that have
traditionally used CRTs. The Company's ability to transition the military
product line to flat panel displays over the next few years will be important to
the long-term success of Planar's military avionics business.
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 loss or decline of external research funding, the loss or
substantial reduction of such funding could adversely affect the Company's
results of operations and its ability to continue research and development
activities at current levels. See Note 1 in the "Notes to Consolidated Financial
Statements".
22
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). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Declining Military Expenditures
The Company's sales associated with military applications have been
increasing. However, military capital expenditure levels have been declining for
several years and depend largely on factors outside of the Company's control.
Although the Company believes that its 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.
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, the timing of expenses and other
factors affect results of operations. Quarterly fluctuations may adversely
affect the market price of the Common Stock.
The Company's backlog at the beginning of each quarter does not normally
include all orders needed to achieve expected sales for the quarter.
Consequently, the Company is dependent upon obtaining orders for shipment in a
particular quarter to achieve its sales objectives for that quarter. The
Company's expense levels are based, in part, on expected future sales. If sales
levels in a particular quarter do not meet expectations, operating results may
be adversely affected.
23
Item 8. Financial Statements and Supplementary Data
PLANAR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.............................................. 25
Consolidated Balance Sheets............................................... 26
Consolidated Statements of Operations..................................... 27
Consolidated Statements of Shareholders' Equity........................... 28
Consolidated Statements of Cash Flows..................................... 29
Notes to Consolidated Financial Statements................................ 30
24
Independent Auditors' Report
The Board of Directors
Planar Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Planar Systems,
Inc. and subsidiaries as of September 24, 1999 and September 25, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended September 24, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Planar
Systems, Inc. and subsidiaries as of September 24, 1999 and September 25, 1998,
and the results of their operations, and their cash flows for each of the years
in the three-year period ended September 24, 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
Portland, Oregon
November 3, 1999, except as to Note 15, which is as of December 13, 1999
25
Consolidated Balance Sheets
(In thousands, except share amounts) Sept. 24, 1999 Sept. 25, 1998
- -------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 17,795 $ 23,426
Short-term investments (Note 2) 2,010 -
Accounts receivable, net of allowance for doubtful
accounts of $601 at 1999 and $310 at 1998 (Note 2) 20,982 22,762
Inventories 25,373 25,744
Other current assets (Note 9) 10,623 10,313
-------- --------
Total current assets 76,783 82,245
Property, plant and equipment, net (Note 6) 16,245 16,689
Goodwill (Note 3) 4,000 5,222
Other assets 14,743 14,473
-------- --------
$111,771 $118,629
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 7) $ - $ 10,000
Accounts payable 11,513 9,288
Accrued compensation 3,975 4,039
Current portion of long-term debt (Note 7) 1,778 1,505
Deferred revenue 1,301 1,180
Other current liabilities (Note 8) 3,362 4,237
Current portion of excess fair market value of acquired net
assets over purchase price 476 476
-------- --------
Total current liabilities 22,405 30,725
Deferred taxes (Note 9) 353 915
Long-term debt, less current portion (Note 7) 15,599 2,516
Other long-term liabilities 550 499
Long-term portion of excess fair market value of acquired
net assets over purchase price 120 596
-------- --------
Total liabilities 39,027 35,251
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 10,000,000 shares,
no shares issued at 1999 or 1998
Common stock, no par value. Authorized 30,000,000 shares;
issued 10,490,233 and 10,787,526 shares at 1999 and 1998,
respectively 75,319 74,385
Retained earnings 5,709 14,216
Accumulated other comprehensive loss (Note 14) (8,284) (5,223)
-------- --------
Total shareholders' equity 72,744 83,378
-------- --------
$111,771 $118,629
======== ========
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
Consolidated Statements of Operations Fiscal year ended
(In thousands, except per share amounts) Sept. 24, 1999 Sept. 25, 1998 Sept. 26, 1997
- ----------------------------------------------------------------------------------------------------------
Sales $122,914 $129,015 $88,850
Cost of sales 89,739 88,763 60,362
-------- -------- -------
Gross profit 33,175 40,252 28,488
-------- -------- -------
OPERATING EXPENSES:
Research and development, net 14,047 8,685 7,638
Purchased research and development (Note 5) - - 8,305
Sales and marketing 11,357 10,904 8,095
General and administrative 9,486 8,652 6,293
Restructuring charges (Note 4) 1,251 - -
Amortization of goodwill and excess fair market
value of acquired net assets over purchase price 185 184 (448)
-------- -------- -------
Total operating expenses 36,326 28,425 29,883
-------- -------- -------
Income (loss) from operations (3,151) 11,827 (1,395)
NON-OPERATING INCOME (EXPENSE):
Interest income 1,341 1,029 1,734
Interest expense (1,574) (293) (381)
Foreign exchange, net 1,658 (659) 1,543
Other, net (Note 3) (5,395) - (2,011)
-------- -------- -------
Net non-operating income (expense) (3,970) 77 885
-------- -------- -------
Income (loss) before income taxes (7,121) 11,904 (510)
Provision (benefit) for income taxes (Note 9) (1,996) 2,953 (784)
-------- -------- -------
Net income (loss) $ (5,125) $ 8,951 $ 274
======== ======== =======
Basic net income (loss) per share $ (0.48) $ 0.83 $ 0.03
Average shares outstanding - basic 10,654 10,837 10,944
Diluted net income (loss) per share $ (0.48) $ 0.81 $ 0.02
Average shares outstanding - diluted 10,654 11,098 11,247
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
Consolidated Statements of Shareholders' Equity
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders'
(In thousands, except share amounts) Shares Amount Earnings Income (Loss) Equity
- --------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1996 10,925,218 $71,867 $10,579 $(2,477) $79,969
Components of comprehensive loss:
Net income - - 274 - 274
Currency translation adjustment - - - (3,936) (3,936)
Unrealized gain on investments - - - 17 17
-------
Total comprehensive loss (3,645)
Proceeds from issuance of common stock 97,195 395 - - 395
Issuance of common stock in connection
with acquisition (Note 3) 89,126 891 - - 891
Tax benefit from stock option exercises (Note 9) - 37 - - 37
Stock repurchase (35,809) - (367) - (367)
---------- ------- ------- ------- -------
BALANCE, SEPTEMBER 26, 1997 11,075,730 73,190 10,486 (6,396) 77,280
Components of comprehensive income:
Net income - - 8,951 - 8,951
Currency translation adjustment - - - 1,180 1,180
Unrealized loss on investments - - - (7) (7)
-------
Total comprehensive income 10,124
Proceeds from issuance of common stock 154,946 1,102 - - 1,102
Tax benefit from stock option exercises (Note 9) - 93 - - 93
Stock repurchase (443,150) - (5,221) - (5,221)
---------- ------- ------- ------- -------
BALANCE, SEPTEMBER 25, 1998 10,787,526 74,385 14,216 (5,223) 83,378
Components of comprehensive loss:
Net loss - - (5,125) - (5,125)
Currency translation adjustment - - - (3,061) (3,061)
-------
Total comprehensive loss (8,186)
Proceeds from issuance of common stock 79,166 912 - - 912
Tax benefit from stock option exercises (Note 9) - 22 - - 22
Stock repurchase (376,459) - (3,382) - (3,382)
---------- ------- ------- ------- -------
BALANCE, SEPTEMBER 24, 1999 10,490,233 $75,319 $ 5,709 $(8,284) $72,744
========== ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
28
Consolidated Statements of Cash Flows
Fiscal year ended
(In thousands) Sept. 24, 1999 Sept. 25, 1998 Sept. 26, 1997
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,125) $ 8,951 $ 274
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,473 4,712 3,260
Amortization of excess market value of acquired net
assets over purchase price (476) (476) (476)
Loss on investment 5,395 - 2,011
Restructuring charges 1,488 - -
Loss (gain) on sale of equipment (8) 35 (3)
Deferred taxes (3,497) 1,614 4
Foreign exchange (gain) loss (1,658) 659 (1,100)
Purchased research and development - - 8,305
Tax benefit of stock options exercised 22 93 37
(Increase) decrease in accounts receivable 1,504 (1,451) (2,879)
Increase in inventories (134) (4,456) (1,444)
(Increase) decrease in other current assets 3,367 (3,416) (3,225)
Increase in accounts payable 2,126 932 4,227
Increase (decrease) in accrued compensation (447) (918) 1,069
Increase (decrease) in deferred revenue 270 (252) 1,389
Increase (decrease) in other current liabilities (2,451) (1,920) 1,207
-------- ------- --------
Net cash provided by operating activities 5,849 4,107 12,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (4,797) (3,996) (2,511)
Investment in a business (5,395) - (13,897)
Equipment and rent deposits (161) (9,601) (6,286)
Increase (decrease) in other long-term liabilities 593 (183) (35)
Net sales (purchases) of short-term investments (2,010) 8,170 (1,059)
Net sales (purchases) of long-term investments (211) 2,245 8,399
-------- ------- --------
Net cash used by investing activities (11,981) (3,365) (15,389)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) of long-term debt 13,356 (4,555) 895
Net proceeds under long-term accounts receivable 120 1,221 574
Net proceeds from issuance of capital stock 912 1,102 395
Net proceeds (payments) under short-term debt (10,000) 8,870 -
Stock repurchase (3,382) (5,221) (367)
-------- ------- --------
Net cash provided by financing activities 1,006 1,417 1,497
Effect of exchange rate changes (505) (510) (76)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents (5,631) 1,649 (1,312)
Cash and cash equivalents at beginning of period 23,426 21,777 23,089
-------- ------- --------
Cash and cash equivalents at end of period $ 17,795 $23,426 $ 21,777
======== ======= ========
Supplemental cash flow disclosure:
Cash paid for interest $ 1,172 $ 914 $ 381
Cash paid for income taxes $ 1,547 $ 3,419 $ 2,999
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
29
Notes to Consolidated Financial Statements
Three Years Ended September 24, 1999
(Dollars in thousands, except per share amounts)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Planar Systems, Inc. was incorporated on April 27, 1983 and commenced operations
in June 1983. Planar Systems, Inc., and its wholly owned subsidiaries
(collectively, the "Company") are engaged in the developing, manufacturing and
marketing of electronic display products. These display products primarily
include electroluminescent displays (EL), liquid crystal displays (LCDs), active
matrix liquid crystal displays (AMLCDs) and high performance taut shadow mask
cathode ray tubes (CRT) technologies.
Principles of consolidation
The consolidated financial statements include the financial statements of Planar
Systems, Inc. and its wholly-owned subsidiaries, Planar International Ltd.,
Planar America, Inc., Planar Standish, Inc., Planar Flat Candle, Inc. and Planar
Advance, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
Fiscal year
The Company's fiscal year ends on the last Friday in September. The last day of
fiscal 1999, 1998 and 1997 was September 24, September 25 and September 26,
respectively. Due to statutory requirements, Planar International's fiscal year-
end is September 30. All references to a year in these notes are to the
Company's fiscal year ended in the period stated which includes the fiscal year
results of Planar International.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 local currency is the functional currency of the Company's foreign
subsidiary. Assets and liabilities of the foreign subsidiary are translated into
U.S. Dollars at current exchange rates, and sales and expenses are translated
using average rates. Gains and losses from translation of net
30
assets are included in accumulated other comprehensive income (loss). Gains and
losses from foreign currency transactions are included as a component of non-
operating income (expense).
Cash and cash equivalents
Cash and cash equivalents include cash deposits in banks and highly liquid
instruments with maturities of three months or less from the time of purchase.
Investments
Debt securities for which the Company does not have the intent or ability to
hold to maturity are classified as available for sale, along with the Company's
investment in equity securities. Securities available for sale are carried at
fair value, with unrealized gains and losses, net of tax, reported in
accumulated other comprehensive loss. At September 24, 1999 and September 25,
1998, the Company had no investments that qualified as trading or held to
maturity.
As of September 24, 1999, the Company's investments in debt and equity
securities were $9,319 of which $2,010 were classified as investments and the
remainder were classified as cash and cash equivalents. As of September 25,
1998, the Company's investments in debt and equity securities were classified as
cash and cash equivalents. The investments are diversified among high credit
quality securities in accordance with the Company's investment policy. As of
September 24, 1999 and September 25, 1998, all debt securities were invested in
either government securities or commercial paper. These securities have been
reported at their fair market value, which equaled their historical cost. The
contractual maturities of the investments as of September 24, 1999 and September
25, 1998 were less than three months.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market, net of reserves for estimated inventory obsolescence based upon the
Company's best estimate of future product demand. Inventories consist of:
1999 1998
- --------------------------------------------------------------------------------
Raw materials $16,632 $15,892
Work in process 4,058 3,798
Finished goods 4,683 6,054
------- -------
$25,373 $25,744
======= =======
- --------------------------------------------------------------------------------
Included in cost of sales are $2,909, $1,305 and $644 of charges related to
inventory obsolescence reserves for the years ended September 24, 1999,
September 25, 1998 and September 26, 1997, respectively. The Company has
inventory reserves of $4,283 and $1,717 as of September 24, 1999 and September
25, 1998, respectively.
31
Property, plant and equipment
Depreciation of equipment is computed on a straight-line basis over the
estimated useful lives of the assets, generally three 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 is computed on a straight-line basis over the estimated useful life of
the building, estimated to be 39 years.
Other assets
Included in other assets of $14,743 and $14,473 as of September 24, 1999 and
September 25, 1998, respectively, are assets associated with the implementation
of a new production facility and equipment which had not been placed in service
as of September 24, 1999 and September 25, 1998 in the amounts of $13,982 and
$13,271, respectively. In fiscal years 1999, 1998 and 1997 interest was
capitalized in the amounts of $0, $621 and $61, respectively.
Income taxes
Deferred tax assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at the enacted tax rates expected to be in
effect when such amounts are realized or settled. 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.
Revenue recognition
The Company recognizes revenue from product sales generally at the time the
product is shipped. Service revenue is deferred and recognized over the contract
period or as services are rendered.
Research and development costs
Research and development costs are expensed as incurred. The Company
periodically enters into research and development contracts with certain
governmental agencies and private sector companies. These contracts generally
provide for reimbursement of costs. Funding from research and development
contracts is recognized as a reduction in operating expenses during the period
in which the services are performed and related direct expenses are incurred, as
follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Research and
development expense $23,758 $ 19,927 $17,274
Contract funding (9,711) (11,242) (9,636)
------- -------- -------
Research and development, net $14,047 $ 8,685 $ 7,638
======= ======== =======
- --------------------------------------------------------------------------------
32
As of September 24, 1999 and September 25, 1998, included in other current
assets is $2,782 and $3,489, respectively, related to these research and
development contracts.
Product warranty
The Company provides a warranty for its products and establishes an allowance at
the time of sale adequate to cover warranty costs during the warranty period.
The warranty period is generally between twelve and fifteen months. This reserve
is included in other current liabilities (Note 8).
Goodwill and excess fair market value of acquired net assets over purchase price
Goodwill and the excess of fair market value of acquired net assets over
purchase price are being amortized over a ten-year period using the straight-
line method. Long-lived assets and intangibles are reviewed for impairment when
events or circumstances indicate costs may not be recoverable. Impairment exists
when the carrying value of the asset is greater than the net undiscounted future
cash flows expected to be provided by the asset. If impairment exists, the
asset's book value will be written down to its fair value. Fair value is
determined through quoted market values or through the calculation of the net
present value of discounted future cash flows expected to be provided by the
asset. Accumulated amortization was $1,143 and $656 as of September 24, 1999 and
September 25, 1998, 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. Incremental
shares of 0, 261,000 and 303,000 for the fiscal years ended September 24, 1999,
September 25, 1998 and September 26, 1997, respectively, 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 as they are antidilutive.
Financial instruments
For short-term financial instruments, including cash and cash equivalents,
accounts receivable, short-term debt, accounts payable and accrued compensation,
the carrying amount approximates the fair value because of the immediate short-
term nature of those instruments. The fair value of long-term debt is estimated
based upon quoted market prices for similar instruments or by discounting
expected cash flows at rates currently available to the Company for instruments
with similar risks and maturities. The differences between the fair values and
carrying amounts of the Company's financial instruments at September 24, 1999
and September 25, 1998 were not material.
33
Stock-based compensation plans
The Company accounts for its stock-based plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees".
Future accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new
statement will require recognition of all derivatives as either assets or
liabilities on the balance sheet at fair value. The new statement is effective
for fiscal year 2001, but early adoption is permitted. Management has not yet
completed an evaluation of the effect this standard will have on the Company's
consolidated financial statements.
NOTE 2 CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of trade receivables and investments. The risk
in trade accounts receivable is limited due to the credit worthiness of the
companies comprising the Company's customer base and their dispersion across
many different sectors of the electronics industry and geographies. The risk in
investments is limited due to the credit worthiness of investees comprising the
portfolio, the diversity of the portfolio and relative low risk of municipal
securities. At September 24, 1999, the Company does not believe it had any
significant credit risks.
NOTE 3 BUSINESS ACQUISITIONS
On June 4, 1997, the Company acquired Flat Candle Corporation for $1,128 cash.
Flat Candle Corporation's primary business is that of developing, manufacturing
and marketing of backlights. The transaction was accounted for as a purchase.
Intangibles of $803 were recorded, which are being amortized over ten years. The
financial statements include the operating results of Flat Candle Corporation
from the date of acquisition. Pro forma results of operations have not been
presented because the effect of this acquisition is not significant.
On September 26, 1997, the Company acquired all of the outstanding capital
stock of Standish Industries, Inc. for approximately $15 million in cash and
stock. Standish Industries, Inc.'s primary business is that of developing,
manufacturing, and marketing LCD electronic displays. The transaction was
accounted for as a purchase. Intangibles of $5,714 were recorded, after
adjusting for purchased research and development costs (Note 5), which are being
amortized over ten years. The financial statements include the operating results
of Standish Industries, Inc. from the date of acquisition.
On July 6, 1999, the Company acquired a 20% interest in dpiX Holding Company
LLC. dpiX Holding Company LLC owns 80.1% of dpiX LLC. The Company paid $5,000 in
cash for its interest in dpiX Holding Company LLC. dpiX LLC manufactures and
sells amorphous silicon thin-film transistor arrays for use in x-ray digital
detectors and liquid crystal displays. The
34
investment has been accounted for under the equity method of accounting. As part
of the acquisition agreement, there is a disproportionate allocation of profit
and losses where the Company recognizes the first $5,000 of losses incurred. The
Company has written off the entire investment of $5,395, which includes
transaction costs of $395, in the fourth quarter of fiscal year 1999 based upon
the actual losses incurred since the date of acquisition and the belief that the
investment is other than temporarily impaired. This charge has been recorded in
other non-operating expenses in the Consolidated Statement of Operations. During
the year ended September 24, 1999, the Company purchased $4,462 of materials
from dpiX LLC.
NOTE 4 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
include a workforce reduction of 18 people and the write-off of prepaid
royalties. In addition, the Company intends 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 and expects that cash of $243 will be used in connection with
severance benefits that have not yet been paid.
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. The Company is actively seeking to sell
the business and expects this action to be completed during fiscal year 2000.
The Company also has 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.
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) -
----- ----- ----- -----
Ending balance $ - $ - $ - $ 243
===== ===== ===== =====
35
NOTE 5 PURCHASED RESEARCH AND DEVELOPMENT EXPENSE
In connection with the acquisition of Standish Industries, Inc. at September 26,
1997, the Company allocated $8,300 of the purchase price to in-process research
and development projects as determined by independent appraisal. Accordingly,
these costs were expensed as of the acquisition date. These allocations
represent the estimated fair value based on risk adjusted cash flows (assuming a
23% discount rate) related to incomplete projects. The development of these
projects had not yet reached technological feasibility, and the technology had
no alternative future use. The technology acquired in these acquisitions
required substantial additional development by the Company. The $8,300 relates
mainly to four significant projects including the Color Enhancements project,
the Low Power project, the Fast Switching project, and the Miniature Display
project.
The Color Enhancement project is targeted at developing a manufacturing
process to add a color mosaic, specifically vertical color strips to LCDs,
resulting in a full color LCD display. At the time of acquisition, the project
was approximately 60% complete. The appropriate materials had been identified,
the process had been run, color filters were created, prototype LCDs were built
out of the color filters, and electronics were attached to the prototype LCDs.
However, none of the prototypes met the design criteria necessary to offer a
color display for sale to a customer. The technological uncertainties involved
the process of applying the topcoat over the color mosaic within required
tolerances and manufacturing consistencies. This technology required the
construction of internal color filters, planarization layers and low temperature
Indium Tin Oxide deposition. Due to the recent substantial decrease in the price
of full color Active Matrix displays, it became apparent that this technology is
uncompetitive and unviable. The Company changed the direction of the development
project toward a new technology, which utilizes external color filters which
significantly reduces the process complexity and cost. Most of the original
development efforts, however, are being utilized in this new technology,
including the fundamental materials being used, the pattern development of the
electrodes, the electronic circuit design and electronic circuit integration,
and the developed knowledge of color imagery and color filters necessary to meet
required performance levels. Remaining efforts include constructing color
filters, constructing holographic elements for light manipulation, integrating
these components into a display, constructing the electrical package, and the
environmental qualification of all components. It is estimated that this project
is approximately 26% complete, and will be completed by December 2000. The
expected costs to complete this project are approximately $185. $3,100 of the
$8,300 in-process research and development related to this Color Enhancement
project. The major assumption underlying the purchase price allocation was that
revenues would reach $25,000 in 2004 based upon an annual increase in revenues
of approximately $4,000 per year.
The Low Power project objective is to define materials and manufacturing
processes to reduce the drive voltage required for graphic displays. Currently
high-level multiplex graphic displays require the use of high voltage drivers,
which have a higher component cost. The combination of the liquid crystal
materials and cell design could result in a display that requires less voltage
and therefore less power and a lower cost to drive the image. At the time of the
acquisition, prototype LCDs, which require lower voltage were undergoing
qualification and image retention testing.
36
The uniqueness of this project is to find a liquid crystal, which offers both a
wide temperature performance and a low voltage switching characteristic. It was
not known at the acquisition date which fluids, if any, would ultimately meet
the required operating criteria. At the time of acquisition, it was estimated
that the project was approximately 70% complete. Currently, the final liquid
crystal candidate has been pre-released for production, and is waiting for final
release. The project is 91% complete. The estimated cost to complete the project
is approximately $48. Approximately $2,300 of the $8,300 purchase price
allocation relates to the Low Power project. The major assumption associated
with this allocation amount was that related revenues will increase to over
$40,000 by 2005.
The Fast Switching project is targeted at developing fast switching LCD
shutters for "opto-electronics" usage. Standard LCDs typically contain a nematic
liquid crystal, which does not respond to voltage fast enough to be used in fast
switching applications. This project is attempting to decrease the response time
of a nematic LCD below that of the standard LCD that is currently offered for
sale, by modifying the structure of certain liquids. Several different fluids
were being tested at the acquisition date for use in developing various
applications. This project contains several technologies including Fast Twisted
Nematic, Electrically Controlled Birefringence (ECB), and a Field Sequential
Color Active Matrix EL. These technologies have been completed and constructed
in manufacturing and are being sold to customers. Approximately $1,300 of the
$8,300 purchase price allocation related to this Fast Switching project. The
major assumption associated with this allocation amount was that revenues would
increase to $26,000 in 2004. The impact on operations from this project has not
been material to date.
The Miniature Display Project is a co-development activity with an outside
company to create a commercially viable "miniature display" system. The system
will use optics to create a large "virtual" display by projecting the image
generated by a miniature AMLCD into the user's eye. Standish Industries'
contribution was to develop a Liquid Crystal on Silicon (LCOS) display and the
process by which silicon can be fabricated into an LCD. Changing the fabrication
material of an LCD from all glass to both silicon and glass presents particular
challenges in the processing phase. At the time of purchase, prototype LCOS
displays had been produced, however, none of the prototypes met the criteria
necessary to offer the system for sale to a customer. The project was completed
December 31, 1998. Approximately $1,000 of the $8,300 purchase price allocation
related to this project. The major assumption underlying this allocation was
that related revenues would reach $15,000 in 2005, based upon annual revenue
increases of approximately $3,000 per year. On October 5, 1998 the Company
signed a value-added distribution partnership agreement with a third party to
provide full-color, high resolution, and full-motion micro display solutions for
select military, industrial, and commercial markets. The Company will market,
distribute, sell and support the third party's proprietary microdisplay
technology, and may also choose to manufacture the Dynamic Nematic Liquid
Crystal on Silicon (DNLCOS) based products for its customers' critical needs.
The impact of this project on operations has not been material to date.
37
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of:
1999 1998
- --------------------------------------------------------------------------------
Land $ 115 $ 115
Building and improvements 3,731 3,731
Machinery and equipment 34,693 31,164
-------- --------
Total property, plant and equipment 38,539 35,010
Less accumulated depreciation (22,294) (18,321)
-------- --------
Net property, plant and equipment $ 16,245 $ 16,689
======== ========
- --------------------------------------------------------------------------------
NOTE 7 BORROWINGS
Line of credit
The Company has two bank lines of credit, which allow for total borrowings up to
$20,000. The lines bear interest at the LIBOR rate plus 125 basis points (6.6%
at September 24, 1999) or the prime rate plus 1% (8.3% at September 24, 1999)
and are unsecured with a negative pledge on accounts receivable and inventories.
The agreements will expire in May 2000. There were $0 and $10,000 of borrowings
outstanding on these lines at September 24, 1999 and September 25, 1998,
respectively. The Company was in violation of certain financial covenants under
both lines of credit as of September 24, 1999. The banks have waived these
covenant violations.
Long-term debt
The Company has entered into credit facilities with financial institutions to
finance equipment purchases. These loans are secured by the financed equipment
and bear interest at an average rate of 6.4%. As of September 24, 1999 and
September 25, 1998, the company has $17,377 and $4,021 outstanding under these
loans. Aggregate maturities over the next five years are $1,778 in 2000, $1,893
in 2001, $2,018 in 2002, $2,150 in 2003 and $2,291 in 2002. Covenants under
these agreements are not considered restrictive to normal operations.
38
NOTE 8 OTHER CURRENT LIABILITIES
Other current liabilities consist of:
1999 1998
- --------------------------------------------------------------------------------
Warranty reserve $1,443 $1,153
Income taxes payable - 1,344
Deferred income taxes 325 433
Other 1,594 1,307
------ ------
Total $3,362 $4,237
====== ======
- --------------------------------------------------------------------------------
NOTE 9 INCOME TAXES
The components of income (loss) before income taxes consist of the following:
1999 1998 1997
- --------------------------------------------------------------------------------
Domestic $(8,958) $10,235 $(8,803)
Foreign 1,837 1,669 8,293
------- ------- -------
Total $(7,121) $11,904 $ (510)
======= ======= =======
- --------------------------------------------------------------------------------
The following table summarizes the provision for US federal, state and foreign
taxes on income:
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $ 176 $ 550 $ 266
State 238 248 242
Foreign 1,087 541 2,425
------- ------ -------
1,501 1,339 2,933
------- ------ -------
Deferred:
Federal (2,951) 1,324 (3,638)
State (350) 150 -
Foreign (196) 140 (79)
------- ------ -------
(3,497) 1,614 (3,717)
------- ------ -------
$(1,996) $2,953 $ (784)
======= ====== =======
39
The differences between the U.S. federal statutory tax rate and the Company's
effective rate are as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
Computed statutory rate (34.0)% 34.0% (34.0)%
State income taxes, net of federal tax benefits 2.7 1.4 (23.7)
Effect of foreign tax rates 0.4 1.7 (97.6)
Permanent differences resulting
from purchase accounting 3.6 (1.0) 24.0
Change in valuation reserve (3.9) (9.2) 37.6
State tax impact for reversal of
intangible basis differences - (2.2) -
Benefit of tax exempt interest earned (0.1) (0.1) (59.6)
Other, net 3.3 0.2 (0.4)
------ ---- -------
Effective tax rate (28.0)% 24.8% (153.7)%
====== ==== =======
- --------------------------------------------------------------------------------
The tax effects of temporary differences and carryforwards which gave rise to
significant portions of the deferred tax assets and liabilities as of September
24, 1999 and September 25, 1998 were as follows:
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation reserve $ 1,948 $ 1,705
Loss on investment 2,077 -
Other reserves and liabilities 1,332 1,229
Restructuring charges 490 -
Intangibles 215 75
Capital loss carryforwards 511 578
General business credits 480 480
Net operating loss carryforwards 1,336 1,734
Foreign tax credits 762 287
------- -------
Gross deferred tax assets 9,151 6,088
Valuation allowance (2,327) (2,563)
------- -------
Deferred tax assets 6,824 3,525
Deferred tax liabilities:
Inventory valuation reserve (325) (433)
Accumulated depreciation (680) (682)
Operating reserves (145) (233)
------- -------
Deferred tax liabilities (1,150) (1,348)
------- -------
Net deferred tax asset $ 5,674 $ 2,177
======= =======
- --------------------------------------------------------------------------------
40
The deferred tax assets and liabilities are recorded in the following balance
sheet accounts:
1999 1998
- --------------------------------------------------------------------------------
Other current assets $6,352 $3,525
Other current liabilities (325) (433)
Long-term deferred taxes (353) (915)
------ ------
Total $5,674 $2,177
====== ======
- -------------------------------------------------------------------------------
During fiscal years 1999, 1998, and 1997 the Company recognized tax benefits
of $22, $93, and $37, respectively, related to differences between financial and
tax reporting of stock option transactions. This difference was credited to
common stock.
The Company has established a valuation allowance for certain deferred tax
assets, including net operating loss and tax credit carryforwards. SFAS No. 109
requires that such a valuation allowance be recorded when it is more likely than
not that some portion of the deferred tax assets will not be realized. For
fiscal year 1999 and 1998, the valuation reserve decreased by $236 and $1,097,
respectively.
At September 24, 1999, the Company had net operating loss carryforwards of
approximately $3,470 available to reduce future federal taxable income. The
carryforwards expire at various dates through 2004. Utilization of the
carryforwards is subject to certain limitations due to the change in ownership
of the Company, which occurred in conjunction with the acquisition of its
Finland operation. As a result of the acquisition, utilization of available net
operating loss carryforwards is limited to approximately $2,060 per year.
NOTE 10 SHAREHOLDERS' EQUITY
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock at
$.01 par value. At September 24, 1999, no shares of preferred stock have been
issued; however, 200,000 shares of Series D Junior Participating Preferred Stock
have been reserved for issuance in connection with the Company's Shareholder
Rights Plan. Additional series of preferred stock may be designated and the
related rights and preferences fixed by action of the Board of Directors.
Stock options
In fiscal 1994, the Company adopted the 1993 Stock Incentive Plan, which
provides for the granting of options to buy shares of Common Stock. These
options are intended to either qualify as "incentive stock options" under the
Internal Revenue Code or "non-qualified stock options" not intended to qualify.
Under the 1993 plan, options generally become exercisable 25% one year after
grant and 6.25% per quarter thereafter, and expire ten years after grant. During
fiscal 1997, the Company adopted the 1996 Stock Incentive Plan with the same
provisions and guidelines as
41
the aforementioned 1993 plan. The Company reserved 1,200,000 shares of common
stock for issuance under this plan. During fiscal 1999, the Company adopted the
1999 Non Qualified Stock Option Plan with the same provisions and guidelines as
the aforementioned 1993 plan. The Company reserved 100,000 shares of common
stock for issuance under this plan. The option price under all plans is the fair
market value as of the date of the grant. Total shares reserved under these
plans are 2,118,000 shares.
The Company also adopted a 1993 stock option plan for Nonemployee Directors
that provides an automatic annual grant to each outside director of the Company.
Total annual grants under this plan cannot exceed 60,000 shares per year.
Information regarding these option plans is as follows:
Number of Weighted Average
Shares Option Prices
- --------------------------------------------------------------------------------
Options outstanding at
September 27, 1996 1,171,864 $ 9.42
Granted 271,450 13.46
Exercised (71,916) 3.28
Canceled (10,074) 13.44
--------- ------
Options outstanding at
September 26, 1997 1,361,324 10.49
Granted 389,700 11.39
Exercised (114,489) 6.26
Canceled (101,371) 12.11
--------- ------
Options outstanding at
September 25, 1998 1,535,164 10.92
Granted 818,350 6.39
Exercised (38,614) 3.59
Canceled (92,220) 9.67
--------- ------
Options outstanding at
September 24, 1999 2,222,680 $ 9.04
========= ======
Exercisable at September 24, 1999 1,140,524
=========
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
As is permitted under SFAS No. 123, the Company has elected to continue to
account for its stock-based compensation plans under APB
42
Opinion No. 25. The Company has computed, for pro forma disclosure purposes, the
value of all options granted during 1999, 1998 and 1997 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 using the following weighted
average assumptions for grants:
1999 1998 1997
- --------------------------------------------------------------------------------
Risk free interest rate 6.0% 4.5% 6.0%
Expected dividend yield - - -
Expected lives (in years) 4.2 4.2 4.2
Expected volatility 65.0% 54.6% 55.7%
- --------------------------------------------------------------------------------
Using the Black-Scholes methodology, the total value of options granted during
fiscal 1999, 1998 and 1997 was $3,335, $2,579 and $1,363, respectively, which
would be amortized on a pro forma basis over the vesting period of the options.
The weighted average fair value of options granted during fiscal 1999, 1998 and
1997 was $6.39 per share, $11.39 per share and $13.46 per share, respectively.
If the Company accounted for its stock based compensation plans in accordance
with SFAS No 123, the Company's net income and net income per share would
approximate the pro forma disclosures below:
1999 1998 1997
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
- --------------------------------------------------------------------------------
Net income (loss) $(5,125) $(6,896) $8,951 $7,720 $ 274 $ (581)
Net income (loss)
per share (diluted) $ (0.48) $ (0.65) $ 0.81 $ 0.70 $0.02 $(0.05)
- --------------------------------------------------------------------------------
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
January 1, 1995, and additional awards are anticipated in future years.
43
The following table summarizes information about stock options and grants
outstanding at September 24, 1999:
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------
Weighted
Weighted Average of Weighted Number of Weighted
Number Remaining Average Shares Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 9/24/99 Life Price at 9/24/99 Price
- -----------------------------------------------------------------------------
$ 0.00 - $ 7.88 826,624 7.89 $ 4.72 239,924 $ 3.73
$ 8.00 - $11.50 797,242 7.89 9.90 426,182 10.05
$12.00 - $23.38 598,814 7.06 13.84 474,418 13.99
- --------------- --------- ---- ------ --------- ------
$ 0.00 - $23.38 2,222,680 7.67 $ 9.04 1,140,524 $10.36
=============== ========= ==== ====== ========= ======
- -----------------------------------------------------------------------------
Performance restricted stock
The 1996 Stock Incentive Plan provides for the issuance of restricted stock to
employees. The shares issued vest over a two to five year period, based on the
attainment of specified performance measures or the passage of time. In the
event the performance measures are not met, any unvested shares would vest at
the end of ten years. Data relative to shares awarded is presented below:
1999 1998 1997
- --------------------------------------------------------------------------------
Number of shares awarded 142,400 80,000 -
Fair value of restricted stock
granted during the year $ 1,061 $ 920 $ -
- --------------------------------------------------------------------------------
Employee Stock Purchase Plan
In fiscal 1995, the Company adopted the 1994 Employee Stock Purchase Plan, which
provides that eligible employees may contribute, through payroll deductions, up
to 10% of their earnings toward the purchase of the Company's Common Stock at 85
percent of the fair market value at specific dates. At September 24, 1999,
117,246 shares remain available for purchase through the plan and there were 790
employees eligible to participate in the plan, of which 161, or 20.4%, were
participants. Employees purchased 67,211 shares, at an average price of $6.02
per share during the year. Total receipts to the Company were $408. Since the
plan is noncompensatory, no charges to operations have been recorded.
Shareholders Rights Plan
In February 1996, the Board of Directors approved a shareholder rights plan and
declared a dividend of one preferred share purchase right for each outstanding
common share. Each right represents the right to purchase one hundredth of a
share of Preferred Stock, at an exercise price
44
of $60.00, subject to adjustment. The rights are only exercisable ten days after
a person or group acquires, or commences a tender or exchange offer to acquire,
beneficial ownership of 15% or more of the Company's outstanding common stock.
Subject to the terms of the shareholder rights plan and the discretion of the
Board of Directors, each right would entitle the holder to purchase one share of
Common Stock of the Company for each right at one-half of the then-current
price. The rights expire in February 2006, but may be redeemed by action of the
Board of Directors prior to that time at $.01 per right.
NOTE 11 COMMITMENTS
Most of the Company's office and manufacturing facilities are subject to long-
term operating leases. In addition, regional sales offices and automobiles are
subject to leases with terms ranging from one to twelve months.
At September 24, 1999, the minimum annual operating lease payments are:
Fiscal year ending in September:
- --------------------------------------------------------------------------------
2000 $ 1,451
2001 1,414
2002 1,335
2003 1,010
2004 1,020
Thereafter 2,130
----------
$ 8,360
==========
- --------------------------------------------------------------------------------
Total rent expense was $2,268, $2,344 and $1,920 for the years ended September
24, 1999, September 25, 1998 and September 26, 1997, respectively.
NOTE 12 BUSINESS SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", as of the fiscal year ended September 24,
1999. Information presented for earlier years has been restated for comparative
purposes.
The Company is organized based upon the products and services that it offers.
Under this organizational structure, the Company operates in three main
segments: Components, Federal and Flat Candle. Components derive revenue
primarily through the development and marketing of electroluminescent displays,
liquid crystal displays and color active matrix liquid crystal displays. Federal
derives revenue from the development and marketing of high performance taut
shadow mask cathode ray tubes and color active matrix liquid crystal displays.
Flat Candle derives revenues from the sale of backlights. No single customer
provides 10% or more of the Company's revenues.
45
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.
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales to external
customers (by segment):
Components $104,240 $113,890 $76,759
Federal 17,888 13,744 11,925
Flat Candle 786 1,381 166
-------- -------- -------
Total sales $122,914 $129,015 $88,850
======== ======== =======
Net sales to external
customers (by geography):
United States $ 97,665 $102,557 $65,216
Other 25,249 26,458 23,634
-------- -------- -------
Total sales $122,914 $129,015 $88,850
======== ======== =======
Operating income (loss):
Components $ 1,395 $ 11,091 $ 6,032
Federal (2,349) 979 1,136
Flat Candle (709) (243) (258)
Restructuring charges (1,488) - -
Purchased research and development expense - - (8,305)
-------- -------- -------
Total operating income (loss) $ (3,151) $ 11,827 $(1,395)
======== ======== =======
46
Certain facility, information systems and other expenses are incurred by
Corporate and allocated to the segments based on a percentage of sales. The
assets and related capital expenditures of Flat Candle are not reported
separately and are included within Federal.
1999 1998 1997
- -------------------------------------------------------------------------------
Segment assets:
Components $ 92,070 $100,807 $ 96,654
Federal 19,701 17,822 17,542
-------- -------- --------
Total assets $111,771 $118,629 $114,196
======== ======== ========
Long-lived assets:
United States $ 90,501 $ 92,659 $ 84,553
Finland 14,918 22,445 24,608
Deferred tax assets 6,352 3,525 5,035
-------- -------- --------
Total assets $111,771 $118,629 $114,196
======== ======== ========
Capital expenditures:
Components $ 2,993 $ 3,500 $ 2,289
Federal 1,804 496 222
-------- -------- --------
Total capital expenditures $ 4,797 $ 3,996 $ 2,511
======== ======== ========
- --------------------------------------------------------------------------------
NOTE 13 401(K) AND PROFIT SHARING
All employees in North America over 21 years of age who have completed at least
three months of service are eligible to participate in the 401(k) savings and
profit sharing plan. Employees can contribute up to 15% of their gross pay
subject to statutory maximums. The Company matches 55% of the first 10% of each
participating employee's contributions, also subject to statutory maximums.
Employer contributions vest over four years. The 401(k) plan expense amounted to
$873, $666 and $466 for the years ended September 24, 1999, September 25, 1998
and September 26, 1997, respectively.
47
NOTE 14 COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of the
first quarter of fiscal year 1999. SFAS No. 130 establishes new rules for the
reporting of comprehensive income (loss) and its components, but has no impact
on the Company's net income (loss) or total shareholders' equity. Comprehensive
income (loss) and its components were as follows:
1999 1998 1997
- -------------------------------------------------------------------------------------------
Net income (loss) (net of tax of $(1,996), $2,953 and
$(784), respectively) $(5,125) $ 8,951 $ 274
Other comprehensive income (loss):
Currency translation adjustment (net of tax
$(1,175), $453 and $(1,511), respectively) (3,061) 1,180 (3,936)
Unrealized gain (loss) on available for sale securities
(net of tax of $0, $(3), and $7, respectively) - (7) 17
------- ------- -------
Total comprehensive
income (loss) $(8,186) $10,124 $(3,645)
======= ======= =======
NOTE 15 SUBSEQUENT EVENT
The Company intends to record charges related to inventory up to $1,700 in the
first quarter of 2000. Such charges are due to a management decision to
discontinue certain products and record potential reserves for other products.
48
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
- --------
Item 10. Directors and Executive Officers of Planar Systems, Inc.
The information set forth under the captions "Election of Directors" and
"Management" in the Proxy Statement to be used in connection with the Annual
Meeting of Shareholders on February 3, 2000, is incorporated by reference into
this Report.
Item 11. Executive Compensation
The information set forth under the caption "Executive Compensation" in the
Proxy Statement to be used in connection with the Annual Meeting of Shareholders
on February 3, 2000, is incorporated by reference into this Report.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Stock Owned by Management and
Principal Shareholders" in the Proxy Statement to be used in connection with the
Annual Meeting of Shareholders on February 3, 2000, is incorporated by reference
into this Report.
Item 13: Certain Relationships and Related Transactions
The Company owns a 20% interest in dpiX Holding Company LLC, which owns an 80.1%
interest of dpiX LLC. The Company paid $5.0 million for its interest in dpiX
Holding Company LLC. During fiscal 1999 the Company purchased $4.5 million of
components from dpiX LLC and dpiX LLC purchased $700,000 of components from the
Company. As of September 24, 1999 the Company had accounts receivable due from
dpiX LLC of $100,000 and accounts payable due to dpiX LLC of $800,000.
Part IV
- -------
Item 14: Exhibits, Financial Statements, Schedules and Reports on 8-K
(a) Financial Statements and Schedules
The financial statements of Planar Systems, Inc. as set forth under Item 8
are filed as part of this report.
Financial statement schedules have been omitted since the information
called for is not present in amounts sufficient to require submission of the
schedules.
49
The independent auditors' report with respect to the above-listed financial
statements appears on page 25 of this report.
(b) Reports on 8-K
Form 8-K/A filed on September 17, 1999 providing the financial information
required for the dpiX LLC transaction.
(c) Exhibits
Exhibit
Number Title
- --------------------------------------------------------------
3.1 Second Restated Articles of Incorporation of Planar Systems, Inc./(1)/
3.2 Second Restated Bylaws of Planar Systems, Inc., as amended
3.3 Amendment to Second Restated Articles of Incorporation of Planar Systems,
Inc./(2)/
4.1 Specimen stock certificate/(1)/
4.4 Rights Agreement dated as of February 1, 1996 between Planar Systems, Inc.
and First Interstate Bank of Oregon, N.A./(3)/
10.1 Form of Indemnity Agreement between Planar Systems, Inc. and each of its
executive officers and directors/(1)/
10.2 Amended and Restated 1983 Incentive Stock Option Plan/(1)/
10.3 1993 Stock Option Plan for Nonemployee Directors/(1)/
10.4 1993 Incentive Stock Option Plan/(1)/
10.5 1994 Employee Stock Purchase Plan/(4)/
10.6 Lease agreement dated as of September 30, 1993 between Science Park Limited
Partnership I and Planar Systems, Inc./(1)/
10.7 Lease agreement dated as of May 20, 1998 between Metra Corporation and
Planar International, Ltd (English translation)/(8)/
10.8 Lease agreement dated as of August 26, 1994 between Tektronix, Inc. and
Planar Systems, Inc./(5)/
10.9 Asset Purchase Agreement dated August 26, 1994 between Tektronix, Inc. and
Tektronix Federal Systems, Inc. and Planar Systems, Inc and Planar Advance/(5)/
50
10.10 Stock Purchase Agreement dated August 25, 1997 by and among Planar
Systems, Inc., Standish Industries, Inc., Standish International, Inc., Charles
P. Hoke, Elizabeth A. Hoke and William R. Steinmetz, Trustee of the Steven Hoke
Management Trust, the Catherine Hoke Management Trust, the Lauren Hoke
Management Trust and the Charles D. Hoke Management Trust ('the Agreement")
(certain schedules to the Agreement and its exhibits are omitted)./(6)/
10.11 Amendment to Stock Purchase Agreement dated August 26, 1997/(6)/
10.12 1996 Stock Incentive Plan/(7)/
10.13 Lease agreement dated May 30, 1997 between Pacific Realty Associates,
L.P. and Planar America, Inc./(7)/
10.14 Agreement and Plan of Merger dated as of May 13, 1999 by and among dpiX,
Inc., Xerox Corporation and New dpiX LLC/(9)/
10.15 Credit Agreement between Planar Systems, Inc. and Norwest Bank Wisconsin,
National Association dated July 29, 1999/(10)/
10.16 Employment Agreement between Planar Systems, Inc. and James M. Hurd dated
as of April 30, 1999/(10)/
10.17 Planar Systems, Inc. Nonqualified Stock Option Agreement between Planar
Systems, Inc. and William D. Walker dated as of May 13, 1999/(10)/
10.18 Executive Employment Agreement between Planar Systems, Inc. and
Balakrishnan Krishnamurthy dated as of September 24, 1999
10.19 Restricted Stock Award Agreement between Planar Systems, Inc. and
Balakrishnan Krishnamurthy dated as of September 24, 1999
10.20 Nonqualified Stock Option Agreement between Planar Systems, Inc. and
Balakrishnan Krishnamurthy dated as of September 27, 1999
10.21 Form of Restricted Stock Award Agreement under Planar Systems, Inc. 1996
Stock Incentive Plan dated as of May 24, 1999
10.22 Form of Restricted Stock Award Agreement under Planar Systems, Inc. 1996
Stock Incentive Plan dated as of May 24, 1999
10.23 Planar Systems, Inc. 1999 Nonqualified Stock Option Plan
10.24 Planar Systems, Inc. Deferred Compensation Plan
21 Subsidiaries of Planar Systems, Inc.
23 Consent of KPMG LLP
24 Power of Attorney (included on Signature Page)
27 Financial Data Schedule
/(1)/ Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 33-71020), declared effective on December 15, 1993.
/(2)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 27, 1996.
/(3)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on February 21, 1996.
/(4)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 30, 1994.
/(5)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed as of September 12, 1994.
/(6)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on October 10, 1997.
/(7)/ Incorporated by reference to the Company's Annual report on form 10-K for
the year ended September 26, 1997.
/(8)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 25, 1998.
/(9)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on July 20, 1999.
/(10)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 25, 1999.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PLANAR SYSTEMS, INC.
December 22, 1999 By: /s/ JACK RAITON
---------------
Jack Raiton
Vice President
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Balaji Krishnamurthy and Jack Raiton, and each of
them singly, as his true and lawful attorneys-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dated indicated.
/s/ BALAJI KRISHNAMURTHY President, Chief Executive Officer, December 22, 1999
- -----------------------------
Balaji Krishnamurthy Director (Principle Executive Officer)
/s/ JACK RAITON Vice President, Chief Financial Officer, December 22, 1999
- -----------------------------
Jack Raiton (Principle Financial and Accounting Officer)
/s/ WILLIAM D. WALKER Chairman of the Board December 22, 1999
- -----------------------------
William D. Walker
Director December 22, 1999
- -----------------------------
James M. Hurd
/s/ HEINRICH STENGER Director December 22, 1999
- -----------------------------
Heinrich Stenger
/s/ E. KAY STEPP Director December 22, 1999
- -----------------------------
E. Kay Stepp
/s/ J. KENNETH STRINGER III Director December 22, 1999
- -----------------------------
J. Kenneth Stringer III
/s/ GREGORY H. TURNBULL Director December 22, 1999
- -----------------------------
Gregory H. Turnbull
/s/ STEVEN E. WYNNE Director December 22, 1999
- -----------------------------
Steven E. Wynne
52