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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended September 26, 2003 or

For the transition period from            to            

Commission File Number: 0-23018

PLANAR SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

(503) 748-1100

(Registrant’s 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 preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. YES x    NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x    NO ¨

The aggregate market value of voting Common Stock held by non-affiliates of the registrant at December 12, 2003 was approximately $349,249,699. For purposes of this calculation, officers and directors are considered affiliates.

Number of shares of Common Stock outstanding at December 12, 2003: 14,540,611.

Documents Incorporated By Reference

Part I

Item 1.

BUSINESS

Planar Systems, Inc. (Planar) is a leading developer, manufacturer and marketer of high-performance electronic display systems. The Company’s products range from display components to stand-alone display systems produced to address specific market applications in medical, industrial, and commercial market segments. The Company competes on a global basis with development, manufacturing and marketing operations in the United States, Asia and Europe. Major customers include Philips Medical Systems, Siemens Medical, GE Medical Systems, DataScope Corporation, Eastman Kodak Company, Diebold Inc., Allen-Bradley, and Cubic Corporation, and major channel partners include Dell Inc. and CDW Corporation.

Display technologies featured in Planar’s products include electroluminescent (EL) flat-panel displays, active matrix liquid crystal displays (AMLCDs), passive matrix liquid crystal displays (PMLCD), and plasma display panels (PDPs). The Company manufactures EL displays and sources other display components, electronics and most assembly from a global network of suppliers.

Industry Background

The electronic display industry is undergoing significant changes as the proliferation of networked devices is increasing the requirements for the display of text and graphical information. Many devices located in challenging environments, such as outdoors, in vehicles, in portable instruments and in healthcare institutions, require specialized displays with high-performance attributes. Displays designed for benign office and home environments are distinguished by visual performance, ease-of-use and design features, value, warranty and availability within sales channels.

Cathode-ray tube (CRT) displays have been the dominant display technology for decades. But CRTs tend to be bulky, inefficient in use of power, and difficult to dispose of. Various flat-screen technologies feature superior visual performance, greater versatility due to improved form factors and better efficiency, and are displacing CRTs in all markets.

There are several flat-panel display technologies currently in development or commercially available, including various forms of liquid crystal, gas plasma and EL displays. The principal differentiators among flat-panel display technologies are commercial availability, ruggedness, durability, price, size, color capability, design flexibility and power consumption.

Electroluminescent—Planar’s proprietary EL display technology is a monochrome, solid-state device with a thin-film luminescent layer between transparent insulator layers and a matrix of row and column electrodes on a single glass substrate. A circuit board, with control and drive components mounted within the viewing area on the glass panel, is connected to the back of the glass substrate. The result is a flat, compact, reliable and rugged display device.

Passive Matrix LCD—PMLCDs modulate light by reflection or transmission through the application of voltage to a liquid crystal material placed between two glass plates. These are typically monochrome displays.

Active Matrix LCD—AMLCD screens incorporate the PMLCD technology plus add a transistor at every pixel location that allows each pixel to be turned on and off independently. This increases the image quality, response time and side-to-side viewing angle of the display. These are typically full-color displays.

Plasma—Gas plasma displays create a visible image by ionizing a gas contained at each pixel between two glass plates. The ionized gas emits ultra-violet light, which excites adjacent phosphors and emits visible light. PDPs generally have higher power consumption requirements than other display technologies but provide a cost-effective solution for full-color, large-format displays.

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Other—A wide range of new technologies is constantly under development by a variety of companies in the display industry with the objective of bringing viable technologies into commercialization. Some of the more visible efforts include ferroelectric LCDs, electrophoretic displays, organic light emitting diodes (OLEDs) and various forms of projection displays.

Planar manufactures EL displays in its factory in Finland and obtains full-color and LCD display components from a variety of suppliers located primarily in Asia. The company expects to be able to obtain emerging technologies from suppliers and participate in the commercialization of new types of displays once those components achieve viability.

Markets

The Company is currently serving the following market segments:

Medical—An increasing portion of the Company’s medical business is comprised of stand-alone display systems, including digital imaging monitors and software, and monitors and workstations medically certified for use in patient proximity. Additionally, Planar display components are supplied to medical OEMs and embedded in a wide range of diagnostic and therapeutic equipment, such as defibrillators, anesthesia systems and infusion pumps. Planar’s strategy in this segment calls for identifying particular needs in the healthcare environment and applying its industry knowledge and product development versatility to produce targeted solutions. The Company believes that its products provide superior display quality and reliability for crucial medical applications, and that demand for such products in the healthcare industry will steadily grow.

Industrial—Planar displays are used in a wide range of industrial applications in process control equipment, mobile information systems, and kiosk displays such as gas pumps, automatic teller machines and transit ticket dispensers. Reliability, ruggedness, temperature tolerance, optical attributes and custom form factor distinguish the Company’s solutions used in these challenging environments. In this segment, Planar specializes in collaborative relationships to develop designs specific for particular applications. While the industrial segment is closely correlated with overall economic activity, the Company believes there is significant and ongoing demand for specialized, ruggedized displays.

Commercial—The Company markets an extensive product line of Planar-branded AMLCD desktop and PDP monitors and LCD televisions through leading online resellers. The largest category of end-users of these products has been businesses, due to the Company’s focus on serving the particular needs of the commercial sales organizations of its channel partners. Increased penetration in the home/consumer segment is expected as Planar’s brand and products become more widely known and as that market realizes forecasted growth for sales of flat-panel displays. Launched at the beginning of fiscal 2001, this segment has grown faster than the robust market. Planar was ranked in the top 10 suppliers of AMLCD flat-panel displays in the United States by the end of fiscal 2003.

Products

The Company offers a variety of displays and display systems in a wide range of resolutions, formats, viewing areas and technologies. These can be classified in two primary product categories:

Flat-Panel Display Components—This product line includes monochrome EL, AMLCD and PMLCD displays. These displays range from small and simple devices to fully integrated display systems, and are marketed to OEMs for integration into their products.

Value-added Display Solutions—The Company incorporates a variety of display components into systems and sub-systems that include such attributes as enhanced optical performance, special mounting systems, enhanced product design, local computing capability and special packaging. These products are typically designed for specific market applications. The Company differentiates its services through the development of close business relationships with its customers and channel partners.

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Research, Development and Product Engineering

The Company believes that a significant level of investment in research, development and product engineering is required to maintain market leadership. Total expenses were $13.5 million, $15.1 million and $15.1 million for the fiscal years 2003, 2002 and 2001, respectively, for research, development and product engineering. These expenses were partially offset by contract funding from both government agencies and private sector companies of $2.3 million, $2.2 million and $4.0 million in fiscal years 2003, 2002 and 2001, respectively. The Company’s research and development expenses are primarily related to the commercialization of display technologies, new system architectures and fundamental process improvements. Product engineering expenses are directly related to the design, prototyping and release to production of new 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.

Manufacturing

The Company operates an EL manufacturing facility in Finland, which produces a wide range of display types and sizes from 1” x 4” to 12” x 14”. In 2003, the Company closed its Oregon EL plant and consolidated all EL production in its Finland plant. The Company believes production volumes and quality necessary to meet forecast demand can be achieved from the single plant.

During fiscal 2003, the Company closed its LCD components and modules production plant. Manufacturing and assembly of those components and modules are now undertaken on our behalf in China and Indonesia. The Company has worked closely with manufacturing partners to transfer process knowledge for the manufacture of these products.

The Company continues to shift manufacturing and assembly capacities to offshore partners, and many of its products are now produced entirely by a closely managed network of suppliers. The company believes that its effective management of its global supply chain is an important competency and competitive advantage.

The Company’s manufacturing operations consist of the procurement and inspection of components, manufacture of EL displays, final assembly of some components and extensive testing of finished products. The Company currently procures all of its raw materials from outside suppliers, including glass substrates, driver integrated circuits, electronic circuit assemblies, power supplies and high-density interconnects.

Quality and reliability are emphasized in the design, manufacture and assembly of the Company’s products. All of Planar’s 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 expect vendors 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. All of the Company’s operating units have received and maintain their ISO9001 certification.

Sales and Marketing

The Company’s products are distributed worldwide through both Company-employed sales personnel and through third party channels. Planar’s vertically-integrated Medical segment sales team is headquartered in Waltham, Massachusetts, with additional sales and marketing staff stationed in Beaverton, Oregon and Espoo, Finland. The Company’s Industrial segment manages sales and operations from the Beaverton office, with additional staff in Espoo also managing a network of independent sales representatives and distributors for certain European markets. The Company’s Commercial segment is run from the Beaverton office.

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As of September 26, 2003 and September 27, 2002, the Company’s backlog of domestic and international orders was approximately $43.2 million and $59.9 million, respectively. As of September 26, 2003, the Company included all accepted contracts or purchase orders in its backlog. Backlog includes orders of approximately $14.4 million related to end-of-life products which are scheduled to ship over the next 8 quarters. Variations in the magnitude and duration of contracts and customer delivery requirements may result in substantial fluctuations in backlog from period to period. The Company believes its backlog is of limited utility in predicting future sales because its Commercial segment and a growing portion of its Medical segment operate on a ship-to-order basis with very little backlog. Products sold to Dell comprised 19% of total consolidated sales in both fiscal 2003 and 2002.

Competition

The market for information displays is highly competitive. The Company believes competition will have the effect of reducing average selling prices of flat-panel displays over time. The Company’s ability to maintain operating margins depends, in part, on its ability to increase unit volumes or increase its value-added contribution to each unit; to provide additional value to its customers through peripheral devices and system integration; to reduce material costs in an amount sufficient to compensate for any decreases in selling prices; and to manage expenses in a fiscally disciplined manner.

The Company competes with other display manufacturers based upon commercial availability, price, visual performance (e.g., brightness, color capabilities, contrast and viewing angle), size, design flexibility, power usage, durability, ruggedness and customer service. The Company believes its total quality program, wide range of product offerings, flexibility, responsiveness, technical support and customer satisfaction programs are important to the competitive position.

The principal EL manufacturer against which the Company competes is Sharp Electronics Corporation. In display systems including AMLCD components sourced from manufacturers, Planar’s value-added products compete against those of Barco, Totoku and NDS in the medical market; and Sharp, Sony, NEC, Viewsonic, Dell and others in the commercial market. The Company also competes with some of its customers in the Industrial segment who often develop their own display solutions internally. In addition, other industrial display systems specialists include GDS, Three-Five Systems, White Electronic Designs Corp. and a variety of small, highly specialized producers.

Intellectual Property

The Company relies on a combination of patents, trade secrets, trademarks, copyrights and other elements of 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 2004 to 2022. Features for which the Company has and is seeking patent protection include display glass design, materials, electronics addressing, control functions and process manufacturing.

The Company has received research and development funding from government agencies pursuant to agreements under which the funding entities retain certain rights with respect to technical data developed 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 26, 2003, the Company had 460 employees worldwide; 285 in the United States and 175 in Europe. Of these, 74 were engaged in marketing and sales, 66 in research, development and product engineering, 61 in finance and administration, and 259 in manufacturing and manufacturing support.

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The Company’s future success will depend largely on 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.

Available Information

The Company’s Internet website address is www.planar.com. Planar’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, are available through the Internet website as soon as reasonably practicable after it is electronically filed with, or furnished to, the Securities and Exchange Commission. The Company’s Internet website and the information contained therein or connected thereto are not intended to be incorporated into the Annual Report on Form 10-K.

Item 2.    Properties

The Company leases its primary manufacturing facilities and various sales offices in the United States and Europe. The Company leases 37,000 square feet of custom-designed space, including 15,000 square feet of cleanroom in Beaverton, Oregon for assembly operations. 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.

The Company entered into a new lease in August 2001 for approximately 72,000 square feet of class A office space in Beaverton, Oregon. The construction of this facility was completed in June 2002 and it is now used for administrative office space, design engineering and associated lab and research and development activities.

In 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.

The Company’s Lake Mills, Wisconsin, facility, formerly the site of the Company’s PMLCD manufacturing operation, includes a 70,000 square-foot facility with approximately 7,500 square feet of cleanroom. This property has been listed for sale.

In April 2002, the Company acquired DOME imaging systems, inc. located in Waltham, Massachusetts. The Company has retained a lease on approximately 31,000 square feet, formerly leased by DOME, which is used for sales and administration office space, design engineering and associated lab and research and development activities and quality testing.

The Company has field sales offices in key U.S. metropolitan areas and three sales offices in Europe. The offices are located in the Boston, New York, Portland, Helsinki, Munich and Paris metropolitan areas. Lease commitments for most of these facilities are typically six to twelve months. None of these sales offices has 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 significant additional expansion in the near future.

Item 3.    Legal Proceedings

There are no pending, material legal proceedings to which the Company is a party or to which any of its property is subject.

Item 4.    Submission of Matter to a Vote of Security Holders

No matters were submitted to stockholders during the fourth quarter of the fiscal year.

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Part II

Item 5.    Market for Registrant’s Common Equity and Related Shareholder Matters

Shares of the Company’s Common Stock commenced trading in the over-the-counter market on the Nasdaq National Market System on December 16, 1993, under the symbol PLNR.

The 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.

As of September 26, 2003, there were approximately 129 shareholders of record.

The Company currently intends to retain its earnings to support operations and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

During the quarter ended September 26, 2003, 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 6,670 shares of Common Stock were issued at an exercise price of $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.

On May 9, 2002, the Company completed the sale of 462,963 shares of newly issued common stock to an accredited investor in a private placement transaction pursuant to section 4 (2) and Regulation D under the Securities Act of 1933, as amended. The purchase price was $21.60 per share and resulted in net proceeds of approximately $9,471,000. The Company has filed a registration statement with the Securities and Exchange Commission covering the resale of the securities issued in the private placement.

Item 6.    Selected Financial Data

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report contain statements that are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors including the following: domestic and international business and economic conditions, changes in growth in the flat panel monitor industry, changes in customer demand or ordering patterns, changes in the competitive environment including pricing pressures or technological changes, continued success in technological advances, shortages of manufacturing capacities from our third party partners, final settlement of contractual liabilities, future production variables impacting excess inventory and other risk factors described below under “Outlook: Issues and Uncertainties”. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, bad debts, inventories, warranty obligations, intangible asset valuation and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies and the related judgments and estimates affect the preparation of the consolidated financial statements.

Revenue Recognition.    The Company’s policy is to recognize revenue for product sales when title transfer and risk of loss has passed to the customer, which is generally upon shipment of our products to our customers. The Company defers and recognizes service revenue over the contractual period or as services are rendered. The Company estimates expected sales returns and records the amount as a reduction of revenue at the time of shipment. The Company’s policies comply with the guidance provided by Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, issued by the Securities and Exchange Commission. Judgments are required in evaluating the credit worthiness of our customers. Credit is not extended to customers and revenue is not recognized until the Company has determined that the risk of uncollectibility is minimal.

Allowance for Doubtful Accounts.    The Company’s policy is to maintain allowances for estimated losses resulting from the inability of its customers to make required payments. Credit limits are established through a

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process of reviewing the financial history and stability of each customer. Where appropriate, the Company obtains credit rating reports and financial statements of the customer when determining or modifying their credit limits. The Company regularly evaluates the collectibility of its trade receivable balances based on a combination of factors. When a customer’s account balance becomes past due, the Company initiates dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to the Company, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results or financial position or other material events impacting their business, the Company records a specific allowance to reduce the related receivable to the amount the Company expects to recover.

The Company also records an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers. The Company believes its reported allowances are adequate. If the financial conditions of those customers were to deteriorate, however, resulting in their inability to make payments, the Company may need to record additional allowances which would result in additional general and administrative expenses being recorded for the period in which such determination was made.

Inventory Reserves.    The Company is exposed to a number of economic and industry factors that could result in portions of its inventory becoming either obsolete or in excess of anticipated usage, or subject to lower of cost or market issues. These factors include, but are not limited to, technological changes in the Company’s markets, the Company’s ability to meet changing customer requirements, competitive pressures in products and prices, and the availability of key components from the Company’s suppliers. The Company’s policy is to establish inventory reserves when conditions exist that suggest that its inventory may be in excess of anticipated demand or is obsolete based upon its assumptions about future demand for its products and market conditions. The Company regularly evaluates its ability to realize the value of its inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, product end-of-life dates, estimated current and future market values and new product introductions. Purchasing practices and alternative usage avenues are explored within these processes to mitigate inventory exposure. When recorded, the Company’s reserves are intended to reduce the carrying value of its inventory to its net realizable value. If actual demand for the Company’s products deteriorates, or market conditions are less favorable than those that the Company projects, additional inventory reserves may be required.

Product Warranties.    The Company’s products are sold with warranty provisions that require it to remedy deficiencies in quality or performance of our products over a specified period of time, generally between 12 and 36 months, at no cost to the Company’s customers. The Company’s policy is to establish warranty reserves at levels that represent its estimate of the costs that will be incurred to fulfill those warranty requirements at the time that revenue is recognized. The Company believe that its recorded liabilities are adequate to cover its future cost of materials, labor and overhead for the servicing of its products sold through that date. If actual product failures, or material or service delivery costs differ from the Company’s estimates, its warranty liability would need to be revised accordingly.

Intangible assets.    The Company adopted the Financial Accounting Standards Board (“FASB”) Statements of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets” on accounting for business combinations and goodwill as of the beginning of fiscal year 2002. Accordingly, the Company no longer amortizes goodwill from acquisitions, but continues to amortize other acquisition-related intangibles and costs.

As required by these rules, the Company will perform an impairment review annually, or earlier if indicators of potential impairment exist. This annual impairment review was completed during the second quarter of fiscal year 2003, and no impairment was found. The impairment review is based on a discounted cash flow approach that uses estimates of future market share and revenues and costs for the Company’s segments as well as appropriate discount rates. The estimates used are consistent with the plans and estimates that the Company uses to manage the underlying businesses. However, if the Company fails to deliver new products for these groups, if

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the products fail to gain expected market acceptance, or if market conditions in the related businesses are unfavorable, revenue and cost forecasts may not be achieved, and the Company may incur charges for impairment of goodwill.

For identifiable intangible assets, the Company amortizes the cost over the estimated useful life and assesses any impairment by estimating the future cash flow from the associated asset in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. If the estimated undiscounted cash flow related to these assets decreases in the future or the useful life is shorter than originally estimated, the Company may incur charges for impairment of these assets. The impairment is based on the estimated discounted cash flow associated with the asset. An impairment could result if the underlying technology fails to gain market acceptance, the Company fails to deliver new products related to these technology assets, the products fail to gain expected market acceptance or if market conditions in the related businesses are unfavorable.

Income Taxes.    In the past, the Company has recorded a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has assessed the valuation allowance based upon its estimate of future taxable income covering a relatively short time horizon given the volatility in the markets the Company serves and its historic operating results. The availability of tax planning strategies to utilize the Company’s recorded deferred tax assets is also considered. If the Company is able to realize the deferred tax assets in an amount in excess of its reported net amounts, an adjustment to the deferred tax assets would increase earnings in the period such determination was made. Similarly, if the Company should determine that the Company may be unable to realize its net deferred tax assets to the extent reported, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

BUSINESS ACQUISITIONS

In April 2002, the Company completed the acquisition of DOME imaging systems, inc. (“DOME”). DOME designs, manufactures and markets computer graphic imaging boards, flat panel displays and software for original equipment manufacturers in the medical field and other advanced image processing applications. As a result of the acquisition, the Company is able to offer a broader range of medical display solutions, which complements our medical product line. The acquisition was accounted for as a purchase and, accordingly, the operations of DOME have been included in the consolidated financial statements from the date of acquisition. The total consideration paid was $65.7 million which consisted of $52.2 million of cash, stock options assumed which were valued at $11.3 million, cash to be paid for stock options of $1.2 million and closing and related costs of $1.0 million. The Company recorded a non-recurring charge of $2.3 million in the third quarter of fiscal 2002 for in-process research and development costs. See Note 3 – Business Acquisitions in the Notes to Consolidated Financial Statements which is included in Item 8 – Financial Statements and Supplementary Data in this report.

In December 2000, the Company acquired AllBrite Technologies, Inc., by exchanging 941,823 shares of Common Stock for all of the outstanding capital stock of AllBrite. The acquisition qualified as a tax-free reorganization and has been accounted for as a pooling of interests under Accounting Principles Board Opinion No. 16.

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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.

Sales

Sales of $251.9 million in 2003 increased $46.0 million or 22.3% as compared to sales of $205.9 million in 2002. The increase in sales was principally due to higher sales in both the Commercial and Medical segments, offset by lower sales in the Industrial segment. Sales in the Commercial segment increased $42.4 million or 77.3% to $97.3 million in 2003 from $54.9 million in 2002. This increase in the Commercial segment was due to new product introductions, a broader distributor network, increased market penetration, and growth in the overall market. Sales in the Medical segment increased by $9.7 million or 12.2% year over year. This increase in the Medical segment was primarily due to revenues associated with the acquisition of DOME, which were only included in the results of operations for five months in the prior year, offset by decreases in revenues associated with EL and AMLCD products. Increases in the Medical segment were offset by a decrease in sales of $6.1 million or 8.4% in the Industrial segment. Sales in the Industrial segment were lower due to the Company’s streamlining of the product portfolio to increase profitability and support the manufacturing consolidation. The Company’s sales of $205.9 million in 2002 decreased $2.0 million or 1.0% as compared to sales of $208.0 million in 2001. The decrease in sales was principally due to lower sales of $50.2 million within the Industrial segment, which decreased 41.0%. Sales in the Medical segment increased by $7.8 million or 11.0% year over year. Commercial sales increased by $40.3 million or 277.4% due to higher volumes and also due to increasing the number of distributors and resellers from the time the Company entered the market in October 2000. The increase in sales in the Medical segment was due primarily to the acquisition of DOME in the third quarter of fiscal 2002. Sales in the Industrial segment were lower due to the current economic conditions, the Company’s exit from the military business, lower volumes in the vehicle market, and softness across all applications. Sales related to the exited military businesses were $29.9 million in fiscal 2001.

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Sales outside the United States decreased by 1.4% to $47.9 million in 2003 as compared to $48.6 million recorded in 2002, and decreased by 1.6% in 2002 from 2001 sales of $49.4 million. In fiscal 2003, the decrease in international sales was due primarily to decreased sales in the Medical segment. In fiscal 2002, the decrease in international sales was due primarily to decreased sales in the Industrial segment. As a percentage of total sales, international sales decreased to 19.0% in 2003 and decreased to 23.6% in 2002 from 23.8% in 2001. In fiscal 2003, the decline in international sales as a percentage of total sales was mainly attributable to the increased sales of commercial and digital imaging products in the United States. In fiscal 2002, the decline in international sales as a percentage of total sales was mainly attributable to the higher volumes of Commercial segment sales, which almost exclusively are to US customers.

Gross Profit

Gross margin as a percentage of sales increased to 30.3% from 29.3% in 2002. The increase was primarily due to the benefits of the EL plant consolidation, the negative impact related to $1.5 million of non-recurring charges recorded in 2002 and changes in product mix including the incremental impact related to the DOME line of products. These increases were offset by a higher percentage of total sales coming from the commercial market, which have lower gross margins. The Company’s gross margin as a percentage of sales decreased to 29.3% in 2002 from 31.2% in 2001. The decrease was primarily due to $1.5 million of non-recurring charges recorded in 2002 and a higher percentage of total sales attributable to the Commercial segment, which has lower gross margins. This decrease was partially offset by higher gross margins on the new digital imaging products acquired in the acquisition of DOME.

Research and Development

Net research and development expenses of $11.1 million decreased $1.8 million or 13.6% from $12.9 million in the prior year. This decrease was primarily due to lower spending on new projects and lower personnel costs. As a percentage of sales, research and development expenses decreased to 4.4% in 2003 from 6.3% in 2002. Research and development efforts are almost entirely focused on our medical and industrial segments. These changes were primarily due to higher revenues in the Commercial segment in 2003. In 2002, research and development expenses of $12.9 million increased $1.8 million or 16.5% from $11.1 million in 2001. This increase reflected the continued investment in the development of new products and the additional product development expenses related to the DOME acquisition, offset by lower personnel costs and lower contract funding as compared to 2001. As a percentage of sales, research and development expenses increased to 6.3% in 2002 from 5.3% in 2001. This increase was primarily due to the increase in research and development spending.

Sales and Marketing

Sales and marketing expenses increased $4.4 million or 28.6 % to $19.7 million in 2003 from $15.3 million in 2002. This increase was primarily due to higher sales and marketing expenses due to the acquisition of DOME, higher advertising expenses associated with our Commercial segment, higher personnel costs and higher marketing expenses due to a brand development project. As a percentage of sales, sales and marketing expenses increased to 7.8% in 2003 as compared to 7.4% in 2002. These percentage increases were primarily due to higher revenues in 2003. Sales and marketing expenses decreased $1.6 million or 9.5% to $15.3 million in 2002 from $16.9 million in 2001. This decrease was primarily due to lower commissions on lower sales volumes and the savings related to the completion of a strategic change to the Company’s direct sales force offset by increased headcount and higher advertising expenses associated with our commercial business. As a percentage of sales, sales and marketing expenses decreased to 7.4% in 2002 as compared to 8.1% in 2001.

General and Administrative

General and administrative expenses increased $3.5 million or 25.8% to $17.2 million in 2003 from $13.6 million in 2002. The increase in general and administrative expenses was primarily due to higher personnel costs, higher professional services costs, and the inclusion of DOME’s expenses for a full year. As a percentage of

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sales, general and administrative expenses increased to 6.8% in 2003 from 6.6% in 2002. These changes in 2003 as compared to 2002 were primarily due to the acquisition of DOME and higher personnel costs. General and administrative expenses decreased $1.3 million or 8.8% to $13.6 million in 2002 from $15.0 million in 2001. The decreases in general and administrative expenses were primarily due to lower personnel costs and lower acquisition costs which were included in the prior year related to the acquisition of AllBrite Technologies, Inc., offset by increased general and administrative expenses related to the DOME operations. As a percentage of sales, general and administrative expenses decreased to 6.6% in 2002 from 7.2% in 2001.

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 was being amortized over a ten-year period resulting in operating expenses of $571,000 per year. During fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). FAS 142 changed the accounting for goodwill from an amortization method to an impairment only approach and accordingly, the Company had no amortization expense related to goodwill in fiscal 2003 and 2002.

In connection with the Company’s acquisition of its Finnish 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. The Company was, therefore, required 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 created a positive offset to operating expenses in the amount of $120,000 in fiscal 2001. Negative goodwill was amortized over a ten-year period in general and administrative expenses. The amount was fully amortized during fiscal 2001.

Amortization of Intangible Assets

On April 22, 2002, the Company completed the acquisition of DOME. $14.6 million of the purchase price was allocated to identifiable intangible assets. The identifiable intangible assets consist primarily of developed technology and are being amortized over their estimated useful lives. The weighted average amortization period was approximately four years at the date of acquisition. During fiscal 2003 and 2002, the Company recorded amortization of intangible assets of $2.8 million and $1.2 million, respectively.

Non-recurring Charges

2003 Severance Charges

During the fourth quarter of fiscal 2003, the Company decided to reduce its workforce by 28 employees in order to align operations with current market conditions, improve profitability, and close a European sales office. As a result of this decision, the Company recorded severance charges of $898,000, which have been recorded as non-recurring charges in the Consolidated Statement of Operations in the fourth quarter of fiscal 2003. Cash of $898,000 is expected to be used in connection with these severance costs. This action is expected to be completed by the end of the first quarter of fiscal 2004.

LCD, EL and Photonics Charges

During the fourth quarter of fiscal 2002, the Company decided to transition its PMLCD product manufacturing from Wisconsin to China, consolidate its EL product manufacturing into a single factory in Finland and terminate the photonics Quantum programs that were directed at the optical telecommunication

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markets. These actions were intended to align operations with current market conditions and to improve the profitability of the Company’s operations. The Company completed its transition of PMLCD product manufacturing to China at the end of the first quarter of fiscal 2003. The consolidation of its EL manufacturing facilities into one facility in Finland was completed by the end of fiscal 2003. The termination of the photonics Quantum programs was completed by the end of fiscal 2002. As a result of these decisions, the Company recorded charges of $20.0 million, including charges primarily for impairment of fixed assets, workforce reductions of 236 employees, excess inventory and lease cancellation and restoration costs. Cash of $4.1 million was expected to be used in connection with severance and lease cancellation and restoration costs.

The Company recorded fixed asset impairment charges of $14.3 million as a result of these decisions. The majority of these charges are for equipment and machinery and includes estimates for the sales proceeds based upon prices for similar assets in the used equipment market. There are also amounts included in the impairment charge for the building and land at the Wisconsin manufacturing facilities, which are based upon quoted real estate market prices. This facility is currently listed for sale. The Company also recorded charges of $1.5 million for excess and obsolete inventory, which has been identified as a direct result of the decision to consolidate facilities or transition the products to offshore manufacturers resulting in the exit of certain product lines. The Company has also recorded a charge of $1.7 million for lease cancellations and restoration. In addition, the Company has recorded severance charges of $2.4 million. The charges of $1.5 million related to inventory have been recorded as cost of sales in the Consolidated Statements of Operations in the fourth quarter of fiscal 2002. The remaining charges of $18.5 million have been recorded as non-recurring charges in the Consolidated Statements of Operations in the fourth quarter of fiscal 2002.

During the fourth quarter of fiscal 2003, the Company recorded an additional charge of $335,000 for fixed asset impairment charges. This additional charge was due to changes in the original estimates of expected cash proceeds from the sale of fixed assets. In addition, the Company determined that $738,000 of the original $20.0 million charge was not required. The original estimates changed due to lease cancellation, restoration and severance costs being less than originally anticipated as employees left voluntarily or filled other vacant positions within the Company. These changes in estimates from the original reserve were not anticipated and resulted in a non-recurring gain of $403,000 which has been recorded as non-recurring charges in the Consolidated Statement of Operations in the fourth quarter of 2003.

CRT Charges

During the third quarter of fiscal 2001, the Company made a decision to close its military CRT business. This business was a mature business, in which the customers had been converting to flat-panel displays over the previous few years. The Company received last time buy orders from customers and shipped all of those orders in the fourth quarter of fiscal 2001. The Company completed the closing of this business in the first quarter of fiscal 2002. As a result of this decision, the Company recorded non-recurring charges of $1.2 million, including charges for excess inventory, severance related to workforce reductions of 29 employees and lease cancellation costs. The inventory charge of $826,000 has been recorded as cost of sales and the remaining charges of $383,000 for severance charges and lease termination costs have been recorded as non-recurring charges in the Consolidated Statements of Operations. These actions were completed by the end of fiscal 2002.

Military AMLCD Charges

In the fourth quarter of fiscal year 2000, the Company decided to exit its unprofitable business of supplying high-performance, full-color AMLCD flat panel displays for military avionics. As a result of this decision, the Company recorded non-recurring charges of $13.0 million, including charges primarily for excess inventory, recognition of losses on contracts which would not be fulfilled and the expected losses to be incurred in fulfilling the existing contracts, impairment of fixed assets and workforce reductions of 27 people. The Company completed the fulfillment of existing contracts during the third quarter of fiscal year 2001. Other actions were completed by the end of fiscal year 2001.

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During the third quarter of fiscal year 2001, the Company determined that $3.3 million of the original $13.0 million reserve was not required. The original estimates changed due to the unanticipated sale of inventory which had been fully reserved, the use of inventory to build warranty and replacement units, which was higher than originally anticipated, and the cancellation of firm purchase commitments all of which were included in the original inventory reserves. In addition, the estimates changed due to higher than anticipated yields resulting in lower losses on contracts which were included in the original reserve and the settlement of contractual liabilities and commitments, which were lower than originally anticipated. These changes in estimates from the original reserve were not anticipated and resulted in a non-recurring gain in the third quarter of fiscal year 2001 of $2.2 million, which has been included in cost of sales and a non-recurring gain of $1.1 million, which was included in non-recurring charges in the Consolidated Statements of Operations in the third quarter of fiscal 2001.

Current-Year Activity

During fiscal year 2003, the Company paid cash of $1.9 million related to contractual liabilities, severance, and lease termination costs. The remaining amounts are expected to be paid primarily by the end of the second quarter of fiscal 2004.

Operating Expenses

Operating expenses decreased $12.4 million or 19.5% to $51.3 million in 2003 from $63.7 million in 2002. As a percentage of sales, operating expenses decreased to 20.4% in 2003 from 30.9% in 2002. The decrease was primarily due to the impact of recording the $20.7 million of non-recurring charges in 2002, offset by higher operating expenses primarily associated with the acquisition of DOME and the payment of variable compensation in 2003. Operating expenses increased $21.5 million or 50.8% to $63.7 million in 2002 from $42.3 million in 2001. The increase was primarily due to non-recurring charges of $20.7 million during fiscal 2002. As a percentage of sales, operating expenses increased to 30.9% in 2002 from 20.3% in 2001.

Non-operating Income and Expense

Non-operating income and expense includes interest income on investments, interest expense and net foreign currency exchange gain or loss. Net interest expense decreased to $1.2 million in 2003 from $1.4 million in 2002 due to lower interest expense on decreased average borrowings. Net interest expense increased to $1.4 million in 2002 from $376,000 in 2001, primarily due to increased borrowings related to the acquisition of DOME.

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 receivable and accounts payable denominated in foreign currencies to the applicable functional currency. Foreign currency exchange gains and losses amounted to net losses of $40,000, $154,000, and $444,000 in 2003, 2002 and 2001, respectively. The impact of fluctuations in the exchange rate subsequent to January 1, 2001 was mitigated by the adoption of the Company’s hedging strategy.

The Company currently realizes about one-fifth of its revenue outside the United States and expects this to continue in the future. The functional currency of the Company’s foreign subsidiary is the Euro which must be translated to U.S. Dollars for consolidation. Beginning January 1, 2001, the Company began hedging its Euro exposure with foreign exchange forward contracts. The Company believes that this hedging will mitigate the risks associated with foreign currency fluctuations.

Provision for Income Taxes

The Company recorded a tax provision of $8.6 million in 2003, a tax benefit of $1.9 million in 2002, and a tax provision of $7.2 million in 2001. For fiscal 2003, the differences between the effective tax rate and the

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federal statutory rate were due to state income taxes, research credits, changes in the valuation allowance, and the effects of the Company’s foreign tax rates. For fiscal 2002, the differences between the effective tax rate and the federal statutory rate were due to state income taxes, permanent differences resulting from purchase accounting adjustments, research credits, changes in the valuation allowance, federal and state settlements and the effects of the Company’s foreign tax rates. For fiscal 2001, the differences between the effective tax rate and the federal statutory tax rate were due to state income taxes, permanent differences resulting from purchase accounting adjustments, research credits, changes in the valuation allowance and the effects of the Company’s foreign tax rates.

Net Income (Loss)

In 2003, net income was $15.2 million or $1.04 per diluted share. In 2002, net loss was $3.1 million or $0.24 per share. Net income for 2001 was $14.5 million or $1.13 per diluted share.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $28.7 million, $23.7 million, and $16.0 million in fiscal years 2003, 2002 and 2001, respectively. Net cash provided by operations in 2003 was due primarily to net income, depreciation and amortization, and changes in accounts payable and other current liabilities, offset by the changes in inventories and accounts receivable. Net cash provided by operations in 2002 was due primarily to the non-recurring charges, depreciation and amortization and the change in accounts receivable offset by the net loss and the changes in inventories, accounts payable and other current liabilities. Net cash provided by operations in 2001 was due primarily to the net income, depreciation and amortization and the changes in inventories and other current assets offset by the changes in accounts receivable, other current liabilities and deferred taxes.

Working capital decreased $3.0 million to $73.4 million at September 26, 2003 from $76.4 million at September 27, 2002. Current assets increased $13.8 million in fiscal 2003. Accounts receivable increased $5.7 million due to higher revenues in 2003 offset by reductions in days sales outstanding. Inventories increased $10.0 million due primarily to increased inventory levels and requirements related to the growth in the Commercial segment. Other current assets decreased $1.9 million primarily due to decreases in current deferred tax asset balances. Current liabilities increased $16.7 million in fiscal 2003. Accounts payable increased $14.7 million due primarily to the increasing purchasing activity of products in our Commercial segment and the related timing of payments. Other current liabilities increased $2.2 million due primarily to increases in income taxes payable. During 2003, the Company also reduced its outstanding long-term debt and capitalized lease balances through payments of $35.6 million.

Additions to plant and equipment were $2.7 million, $5.7 million, and $13.0 million in 2003, 2002 and 2001, respectively. In 2003, expenditures for plant and equipment primarily related to manufacturing equipment and upgrades to computer hardware and software. In 2002, expenditures for plant and equipment primarily related to additional costs associated with the ERP implementation, the leasehold improvements in a new office and improvements to information systems. In 2001, ERP systems in the U.S. were replaced. Additions and upgrades were also made to all of the manufacturing facilities. Cash used in the acquisition of DOME was provided by increased long-term borrowings and the proceeds from the issuance of common stock.

The Company entered into a new credit agreement on April 22, 2002. This agreement replaced the Company’s existing lines of credit. The total borrowings were $40.0 million, which consisted of a revolving loan of $25.0 million and a term loan of $15.0 million. The total amounts outstanding at September 26, 2003 were $10.0 million under the revolving loan and $1.8 million under the term loan. The revolving loan is due in April 2004. The term loan is payable in quarterly installments of $1.9 million. The loans are secured by substantially all assets of the Company. The interest rate can fluctuate quarterly based upon the actual leverage ratio between the lesser of the LIBOR rate plus 125 basis points or the prime rate and the greater of the LIBOR rate plus 325

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basis points or the prime rate plus 50 basis points. The loans also include various financial covenants including a leverage ratio, a fixed charge coverage ratio, tangible net worth and capital expenditure limits. The Company was in compliance with these covenants as of September 26, 2003. Borrowings outstanding under certain equipment financing loans were $2.6 million and $11.7 million as of September 26, 2003 and September 27, 2002, respectively. As the equipment that is used as collateral under these agreements is sold or disposed of, the amounts outstanding under these loans will be repaid. The Company also entered into a capital lease during the third quarter of 2002 for leasehold improvements in new offices. The total minimum lease payments are $1.4 million which are payable over seven years. The Company believes its existing cash and investments together with cash generated from operations and existing borrowing capabilities will be sufficient to meet working capital requirements for the foreseeable future.

On December 16, 2003, the Company entered into a $50.0 million credit agreement, replacing the Company’s existing credit agreement. The agreement expires December 1, 2008. The borrowings are secured by substantially all assets of the Company. The interest rates can fluctuate quarterly based upon the actual funded debt to EBITDA ratio and the LIBOR rate. The agreement includes the following financial covenants: a fixed charge ratio, minimum EBITDA, minimum net worth and a funded debt to EBITDA ratio.

During the third quarter of fiscal 2002, the Company completed the sale of approximately 463,000 shares of newly issued common stock in a private placement transaction. The purchase price was $21.60 per share and resulted in net proceeds of $9.5 million.

QUARTERLY RESULTS OF OPERATIONS

The table below presents unaudited consolidated financial results for each quarter in the two-year period ended September 26, 2003. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board, (“FASB”) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”, (“FAS 143”). FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company has adopted the provisions of this statement and has determined that this statement did not have a material impact on its results of operations or its financial position upon adoption.

The FASB also issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, (“FAS 144”). FAS 144 supercedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”. This new standard also supercedes certain aspects of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, (“APB 30”), with

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regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in the period incurred (rather than on the measurement date as required by APB 30). In addition, more dispositions will qualify for discontinued operations treatment. This statement was required to be adopted for fiscal year 2003 and interim periods within that fiscal year. The Company has determined that this statement did not have a material impact on its results of operations or its financial position.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, (“FAS 146”). FAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. FAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and did not materially impact the Company’s consolidated financial statements.

In October 2002, the Emerging Issues Task Force (“EITF”) issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This standard addresses revenue recognition accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This statement is to be effective for the Company’s fiscal year 2004. Management believes the adoption of the provisions of this statement will not have a material effect on its result of operations or its financial position.

In November 2002, the FASB issued Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations do not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the recognition and measurement provisions of Interpretation 45 did not have a material impact on its results of operations or its financial position.

In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure- an amendment of FASB Statement No. 123.” This standard amends FAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions of FAS No. 148 are not applicable to the Company since the expense recognition provisions of FAS No. 123 have not been adopted. The Company has adopted the disclosure provisions of FAS No. 148.

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.

A significant slowdown in the demand for our customers’ products would adversely affect our business.

In portions of our medical and industrial segments, we design and manufacture various display solutions that our customers incorporate into their products. As a result, our success depends in part upon the widespread market acceptance of our customers’ products. Accordingly, we must identify industries that have significant

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growth potential and establish relationships with Original Equipment Manufacturers (OEMs) or resellers in those industries. Failure to identify potential growth opportunities or establish relationships with OEMs or resellers in those industries would adversely affect our business. Dependence on the success of our customers’ products exposes us to a variety of risks, including the following:

Failure to address these risks could have a material adverse effect on our business, financial condition and results of operations.

We are subject to lengthy development periods and product acceptance cycles.

Some of our industrial and medical segment products are sold to OEMs, which then incorporate them into the products they sell. OEMs make the determination during their product development programs whether to incorporate our displays or pursue other alternatives. This requires us to make significant investments of time and capital in the custom design of display modules well before our customers introduce their products incorporating these displays and before we can be sure that we will generate any significant sales to our customers or even recover our investment. During a customer’s entire product development process, we face the risk that our display will fail to meet our customer’s technical, performance, or cost requirements or will be replaced by a competing product, an alternative technological solution or the customer’s own internally produced product. Even if we complete our design process in a manner satisfactory to our customer, the customer may delay or terminate its product development efforts. The occurrence of any of these events would adversely affect our business, financial condition and results of operations.

We do not have long-term purchase commitments from our customers.

Our business is generally characterized by short-term purchase orders. We typically plan our production and inventory levels based on internal forecasts of customer demand which rely in part on nonbinding forecasts provided by our customers. As a result, our backlog generally does not exceed three or four months, which makes forecasting our revenues difficult. Inaccuracies in our forecast as a result of changes in customer demand or otherwise may result in our holding excess and obsolete inventory or having unabsorbed manufacturing overhead. The failure to obtain anticipated orders and deferrals or cancellations of purchase commitments because of changes in customer requirements could have a material adverse effect on our business, financial condition and results of operations. We have experienced such problems in the past and may experience such problems in the future.

We face intense competition.

The market for information displays is highly competitive, and we expect this to continue. We believe that over time this competition will have the effect of reducing average selling prices of our flat panel displays. Certain of our competitors have substantially greater name recognition and financial, technical, marketing and other resources than we do. There is no assurance that our competitors will not succeed in developing or marketing products that would render our products obsolete or noncompetitive. To the extent we are unable to compete effectively against our competitors, whether due to such practices or otherwise, our business, financial condition and results of operations would be materially adversely affected.

Our ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:

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Shortages of components and materials may delay or reduce our sales and increase our costs.

Inability to obtain sufficient quantities of components and other materials necessary to produce our displays could result in reduced or delayed sales or lost orders. Many of our products, including our Commercial segment, operate with little backlog, and therefore, supply issues could adversely impact our operating results. We obtain much of the material we use in the manufacture of our displays from a limited number of suppliers, and we do not have long-term supply contracts with any of them. For some of this material we do not have a guaranteed alternative source of supply. As a result, we are subject to increased costs, supply interruptions and difficulties in obtaining materials. Our customers also may encounter difficulties or increased costs in obtaining from others the materials necessary to produce their products into which our displays are incorporated.

We are increasing our reliance on Asian manufacturing companies for the manufacture of displays that we sell in all markets that the Company serves. We also rely on certain other contract manufacturing operations in Asia for the manufacture of circuit boards and other components and the manufacture and assembly of certain of our products. We do not have long-term supply contracts with the Asian contract manufacturers on which we rely. If any of these Asian manufacturers were to terminate its arrangements with us or become unable to provide these displays to us on a timely basis, we could be unable to sell our products until alternative manufacturing arrangements could be made. Furthermore, there is no assurance that we would be able to establish replacement manufacturing or assembly arrangements and relationships on acceptable terms, which could have a material adverse effect on our business, financial condition and results of operation.

Our reliance on contract manufacturers involves certain risks, including:

Some of the Asian contract manufacturers with which we do business are located in Taiwan. In 1999, Taiwan experienced several earthquakes which resulted in many Taiwanese companies experiencing related business interruptions. Our business could suffer significantly if significant vendors’ operations were disrupted for an extended period of time.

We must maintain satisfactory manufacturing yields and capacity.

Our inability to maintain high levels of productivity or to satisfy delivery schedules at our manufacturing facilities would adversely affect our operating results. The design and manufacture of our displays involves highly complex processes that are sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used and the performance of personnel and equipment. At times we have experienced lower than anticipated manufacturing yields and lengthening of delivery schedules

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and may experience such problems in the future, particularly with respect to new products or technologies. Any such problems could have a material adverse effect on our business, financial condition and results of operations.

Our continued success depends on the development of new products and technologies.

Our future results of operations will depend in part on our ability to improve and market our existing products and to successfully develop and market new products. If we are not able to continue to improve and market our existing products, develop and market new products and continue to make technological developments, our products or technology could become obsolete or noncompetitive. New products and markets, by their nature, present significant risks of failure. Even if we are successful in developing new products, new products typically result in pressure on gross margins during the initial phases as start-up activities are spread over lower initial sales volumes. We have experienced lower-than-expected yields with respect to new products and processes in the past negatively impacting gross margins. In addition, customer relationships can be negatively impacted due to production problems and late delivery of shipments.

Our future operating results will depend to a significant extent on our ability to continue to provide new product solutions that compare favorably on the basis of time to introduction, cost and performance with the design and manufacturing capabilities of OEMs and competitive third-party suppliers. Our success in attracting new customers and developing new business depends on various factors, including the following:

Our efforts to develop new technologies may not result in commercial success.

Our research and development efforts with respect to new technologies may not result in market acceptance. Some or all of those technologies may not successfully make the transition from the research and development lab to cost-effective production as a result of technology problems, cost issues, yield problems and other factors. Even when we successfully complete a research and development effort with respect to a particular technology, our customers may determine not to introduce or may terminate products utilizing the technology for a variety of reasons, including the following:

Our efforts to sell commercial products in the end-user market may not continue to be successful.

The market for commercial products is highly competitive, subject to rapid technological change and subject to changes in consumer tastes and demand. Our failure to successfully manage inventory levels or quickly respond to pricing changes, technological changes or changes in consumer tastes and demand could result in excess and obsolete inventories of our commercial products which could adversely affect our business, financial condition and results of operations.

We do not have long-term agreements with our resellers, who generally may terminate our relationship with 30 to 60 days notice. Such action by our resellers could substantially harm our operating results in this segment. Products sold to Dell comprised 19% of total consolidated sales in both fiscal 2003 and 2002. This concentration of sales if lost would have a material, adverse impact on the results of operations.

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The Commercial segment has seen tremendous growth since we entered the market in fiscal 2001. Our revenue from commercial products grew to $97.3 million in fiscal 2003. This revenue could also just as quickly decrease due to competition, alternative products, pricing changes in the market place and potential shortages of products which would adversely affect our revenue levels and our results of operations.

We face risks associated with international operations.

Our manufacturing, sales and distribution operations in Europe and Asia create a number of logistical and communications challenges. Our international operations also expose us to various economic, political and other risks, including the following:

Changes in policies by the United States or foreign governments resulting in, among other things, increased duties, higher taxation, currency conversion limitations, restrictions on the transfer or repatriation of funds, limitations on imports or exports, or the expropriation of private enterprises also could have a material adverse effect on us. Any actions by our host countries to reverse policies that encourage foreign investment or foreign trade also could adversely affect our operating results. In addition, U.S. trade policies, such as “most favored nation” status and trade preferences for certain Asian nations, could affect the attractiveness of our services to our U.S. customers.

Variability of customer requirements may adversely affect our operating results.

Custom manufacturers for OEMs must provide increasingly rapid product turnaround and respond to ever-shorter lead times. A variety of conditions, both specific to individual customers and generally affecting the demand for their products, may cause customers to cancel, reduce, or delay orders. Cancellations, reductions, or delays by a significant customer or by a set of customers could adversely affect our business. On occasion, customers require rapid increases in production, which can strain our resources and reduce our margins. We may lack sufficient capacity at any given time to meet our customers’ demands if their demands exceed anticipated levels.

Our operating results have significant fluctuations.

In addition to the variability resulting from the short-term nature of our customers’ commitments, other factors contribute to significant periodic quarterly fluctuations in our results of operations. These factors include the following:

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Accordingly, the results of any past periods should not be relied upon as an indication of our future performance. It is likely that, in some future period, our operating results may be below expectations of public market analysts or investors. If this occurs, our stock price may decrease.

We must effectively manage our growth.

The failure to manage our growth effectively could adversely affect our operations. We have increased the number of our marketing and design programs and may expand further the number and diversity of our programs in the future. Our ability to manage our planned growth effectively will require us to:

The expansion and diversification of our product and customer base may result in increases in our overhead and selling expenses. We also may be required to increase staffing and other expenses as well as our expenditures in order to meet the anticipated demand of our customers. Any increase in expenditures in anticipation of future orders that do not materialize would adversely affect our profitability. Customers also may require rapid increases in design and production services that place an excessive short-term burden on our resources.

We must protect our intellectual property, and others could infringe on or misappropriate our rights.

We believe that our continued success depends in part on protecting our proprietary technology. We rely on a combination of patent, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect our intellectual property. We seek to protect our technology under trade secret laws, which afford only limited protection. We face risks associated with our intellectual property, including the following:

We may find it necessary to take legal action in the future to enforce or protect our intellectual property rights or to defend against claims of infringement. Litigation can be very expensive and can distract our management’s time and attention, which could adversely affect our business. In addition, we may not be able to obtain a favorable outcome in any intellectual property litigation.

Others could claim that we are infringing their patents or other intellectual property rights. In the event of an allegation that we are infringing on another’s rights, we may not be able to obtain licenses on commercially reasonable terms from that party, if at all, or that party may commence litigation against us. The failure to obtain necessary licenses or other rights or the institution of litigation arising out of such claims could materially and adversely affect our business, financial condition and results of operations.

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The market price of our common stock may be volatile.

The market price of our common stock has been subject to wide fluctuations. During fiscal 2003, the closing market price of our stock has ranged from $10.57 to $24.49. The trading price of our common stock in the future is likely to continue to be subject to wide fluctuations in response to various factors, including the following:

In addition, the public stock markets have experienced extreme price and volume fluctuations that have particularly affected the market prices for many high-technology companies and that often have been unrelated to the operating performance of these companies. These broad market fluctuations and other factors may adversely affect the market price of our common stock.

We must finance the growth of our business and the development of new products.

To remain competitive, we must continue to make significant investments in research and development, equipment and facilities. From time to time, we pursue research and development of new technologies and products. Some of these projects can result in significant expenditures for materials, labor and overhead, and there are no guarantees that these new technologies or products will result in future revenues which would materially adversely affect our operating results. As a result of the increase in fixed costs and operating expenses related to these development expenditures, our failure to increase sufficiently our net sales to offset these increased costs would adversely affect our operating results.

From time to time, we may seek additional equity or debt financing to provide for the capital expenditures and working capital required to maintain or expand our design and production facilities and equipment. We cannot predict the timing or amount of any such capital requirements at this time. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer. Debt financing increases expenses and must be repaid regardless of operating results. Debt financing is often subject to financial covenants such as leverage ratio, fixed-charge coverage ratio, tangible net worth and capital expenditure limits. As these financial ratios change, they could impact the interest rates on the related debt and failure to meet required financial covenants could cause lenders to demand early repayment of debt with negative consequences for the Company. Equity financing could result in additional dilution to existing stockholders.

We may pursue acquisitions and investments that could adversely affect our business.

In the past we have made, and in the future we may make, acquisitions of and investments in businesses, products and technologies that are intended to complement our business, expand the breadth of our markets, enhance our technical capabilities, or otherwise offer growth opportunities. If we make any future acquisitions, we could issue stock, incur substantial debt, or assume contingent liabilities. Any acquisitions that we undertake, including our recent acquisitions of DOME imaging systems, inc. and AllBrite Technologies, Inc., could be difficult to integrate, disrupt our business, dilute shareholder value and harm our operating results. Any such acquisitions also involve numerous risks, including the following:

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There can be no assurance that we would be successful in overcoming problems encountered in connection with such acquisitions, and our inability to do so could adversely affect our business, financial condition and results of operations.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

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 are not material. The Company primarily enters into debt obligations to support acquisitions, 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 at least partially offset by a corresponding increase in interest earned on the Company’s investments.

The Euro is the functional currency of the Company’s subsidiary in Finland. The Company enters into foreign exchange forward contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. The forward exchange contracts are settled and renewed on a monthly basis in order to maintain a balance between the balance sheet exposures and the contract amounts. The Company maintained open contracts of approximately $11.4 million at September 26, 2003. If rates shifted dramatically, the Company believes it would not be materially impacted. In addition, the Company does maintain cash balances denominated in currencies other than the U.S. Dollar. If foreign exchange rates were to weaken against the U.S. Dollar, the Company believes that the fair value of these foreign currency amounts would not decline by a material amount.

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Item 8.    Financial Statements and Supplementary Data

PLANAR SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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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 26, 2003 and September 27, 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended September 26, 2003. 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 auditing standards generally accepted in the United States of America. 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 26, 2003 and September 27, 2002, and the results of their operations, and their cash flows for each of the years in the three-year period ended September 26, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill amortization and impairment in 2002.

/s/ KPMG LLP

Portland, Oregon

October 20, 2003, except as to Note 14, which is as of December 16, 2003

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PLANAR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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PLANAR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

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PLANAR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

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PLANAR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY