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| PLNR > SEC Filings for PLNR > Form 10-Q on 4-Feb-2009 | All Recent SEC Filings |
4-Feb-2009
Quarterly Report
The following information should be read in conjunction with the consolidated interim financial statements and the notes thereto in Part I, Item I of this Quarterly Report and with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended September 26, 2008.
This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made pursuant to the safe harbor provisions of the federal securities laws. These and other forward-looking statements, which may be identified by the inclusion of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "goal" and variations of such words and other similar expressions, are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Many factors, including the following, could cause actual results to differ materially from the forward-looking statements: the possibility that Planar will experience further difficulties integrating and operating the Clarity and Runco businesses; changes or slower growth in the command and control display markets; further inability to realize expected benefits and synergies of the Clarity and Runco acquisitions; continued or further weakening of domestic and international business and economic conditions; any reduction in or delay in the timing of customer orders or the Company's ability to ship product upon receipt of a customer order; any inability to reduce costs quickly enough in response to unanticipated reductions in revenue; adverse impacts on the Company or its operations relating to or arising from Company indebtedness and difficulties in obtaining necessary financing, changes in the flat-panel monitor industry; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity from the Company's third-party manufacturing partners; final settlement of contractual liabilities; balance sheet changes related to updating certain estimates required for the purchase accounting treatment of the Clarity and Runco acquisitions; future production variables impacting excess inventory and other risk factors described under Item 1A. 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, it should not be concluded that the Company will make additional updates with respect thereto or with respect to other forward-looking statements.
The Company reaffirms the critical accounting policies and use of estimates as reported in its Form 10-K for the year ended September 26, 2008.
Planar Systems, Inc. is a provider of specialty display solutions for customers in the industrial, command and control, specialty home theater, and commercial markets. Products include display components, completed displays, and display systems based on a variety of flat panel and projection technologies. The Company has a global reach with sales offices in North America, Europe and Asia.
The electronic specialty display industry is driven by the proliferation of display products, from both the increase in "smart" devices throughout modern life and flat panels' versatility for a wider range of uses; the ongoing need for system providers and integrators to rely on display experts to provide solutions; and the emerging market for targeting advertising and messaging to consumers using large format digital signs.
Unless context otherwise requires, or as otherwise indicated, "we," "us," "our" and similar terms, as well as references to the "Company" and "Planar," refer to Planar Systems, Inc. and unless the context requires otherwise, includes all of the Company's consolidated subsidiaries.
The Company's Strategy
For a quarter century, Planar has been designing and bringing to market innovative display solutions. The Company launched a new strategic direction late in fiscal 2006 to focus on specialty, niche display markets; markets where requirements are more stringent, innovation is valued, and generally the customer is not served or is underserved by the mass-market, commodity display providers. Planar uses a common infrastructure of manufacturing and administrative services to support vertically aligned go-to-market resources and technologies.
The Company's Markets
Planar is organized around four business segments-Industrial, Control Room and Signage, Home Theater, and Commercial.
Industrial
This business focuses on providing primarily embedded, ruggedized/customized displays to Original Equipment Manufactures (OEMs) to include in their systems. Key technologies in this segment include Electroluminescent (EL) Displays, Active-matrix Liquid Crystal Displays (AMLCD), and passive Liquid Crystal Displays (LCD). These technologies are used in a wide variety of applications and industries including instrumentation, medical equipment, retail installations, vehicle dashboards, and military applications.
Control Room and Signage
This business has two primary markets: the first, Command and Control, provides high-resolution video walls for the security, governmental, telecom, energy, industrial, broadcast, and transportation sectors. Key technologies used in solutions for video walls include rear-projection video cubes and image processing hardware and software. The second market served by this segment is the Digital Signage market, to which the Company sells large-format flat panel LCD displays and digital signage management software. In the first quarter of 2009 the Company sold the assets related to its digital signage software business. On November 14, 2008 the Company sold certain assets related to the gaming portion of the digital signage software business to Bally Gaming Inc., and on December 26, 2008 the Company sold the remaining assets of its digital signage software business to CS Software Holdings LLC.
Home Theater
This business sells innovative products for the high-end home theater enthusiast including high-performance home theater projection systems, video processing equipment, large-format thin displays, and accessories. Historically this business went to market under three uniquely positioned brands: Runco, Vidikron, and Planar branded Home Theater products. In the fourth quarter of 2008 the Company began to focus its resources primarily on the Runco brand as it reduced the number of brands marketed in this business. Runco products are primarily sold directly to custom home installation dealers in the United States and to Home Theater distributors outside the United States.
Commercial
LCD desktop monitors, touch displays, thin client monitors, and business projectors comprise the product offerings in this business. The predicted slowing growth and price pressure in the desktop monitor market is being reflected in this business unit as efforts have shifted from top-line growth to bottom-line profit. The majority of products are sold to business users in North America via third party distributors. The Company's strategy going forward is focused on improving consistent profitability through the offering of higher margin products, such as projectors, networked displays, wide format monitors, and touch displays.
The Company previously sold medical diagnostic imaging monitors. Results of this business were previously reported in the Company's Medical segment. In the fourth quarter of fiscal 2008 the Company sold the stock of DOME imaging, inc., the subsidiary under which this business operated. The transaction represented a disposal of the Medical segment. 2008 results for this segment have been reclassified to discontinued operations and are excluded from the amounts discussed below.
Overview
Sales of $49.1 million in the first three months of fiscal 2009 decreased $20.9 million or 29.9% as compared to sales of $70.0 million in the first three months of fiscal 2008. The decrease in sales was a result of slower demand in the Industrial, Control Room and Signage, and Home Theater segments resulting from the challenges experienced in the current economic environment. Sales also decreased as a result of a decrease in average selling prices for commercial products. In the first quarter of 2009 net income was $0.9 million or $0.05 per share as compared to a net loss of $3.5 million or $0.20 per share in the first quarter of 2008. Net income in the first quarter of 2009 was primarily due to a $5.5 million gain recognized on the sale of the digital signage software business, which occurred in the first quarter of 2009. In the first quarter of 2009 income from operations of $0.8 million increased $3.5 million, from a $2.7 million loss from operations in the first quarter of 2008. Income from operations in the first quarter of 2009 was primarily a result of the $5.5 million gain recognized on the sale of the digital signage software business.
In the Industrial segment, sales decreased by $3.3 million to $13.8 million in the first quarter of 2009 as compared to $17.1 million in the first quarter of 2008 due to deteriorating economic conditions experienced in the first quarter of 2009. Operating income in this segment decreased $0.7 million to $2.5 million in the first quarter of 2009 as compared to $3.2 million in the first quarter of 2008. The decrease in operating income was primarily a result of a decrease in this segment's sales, as well as increases in research and development and sales and marketing expenses, which were partially offset by a favorable mix of products sold.
In the Commercial segment, sales decreased $6.6 million to $13.4 million in the first quarter of 2009 as compared to $20.0 million in the first quarter of 2008 due to a decrease in average selling prices of commercial products. Operating income in the Commercial segment decreased $0.4 million to $0.6 million in the first quarter of 2009 as compared to $1.0 million in the first quarter of 2008. The decrease in operating income was primarily a result of a decrease in the segment's sales which was partially offset by a decrease in sales and marketing expenses.
In the Control Room and Signage segment, sales decreased $6.2 million to $11.6 million in the first quarter of 2009 as compared to $17.8 million in the first quarter of 2008. The decrease in sales was due primarily to a decrease in sales of command and control and digital signage products as a result of the worldwide economic slowdown and also due to the impact of the weakening Euro against the U.S. Dollar, as a large portion of this segment's sales are Euro-denominated. Operating income in this segment increased $3.5 million to $6.3 million in the first quarter of 2009 as compared to $2.8 million in the first quarter of 2008. The increase in operating income was primarily a result of the $5.5 million gain on sale of the digital signage software business and decreases in research and development and sales and marketing expenses, which were partially offset by a decrease in the segment's gross profit.
In the Home Theater segment, sales decreased $4.8 million to $10.3 million in the first quarter of 2009 as compared to $15.1 million in the first quarter of 2008 due to the Company's strategic decision to reduce the number of brands being marketed in this segment and to focus its resources on the Runco Brand. This strategic change was announced in the fourth quarter of 2008. The decrease in sales was also due to slower demand for home theater products as a result of the deteriorating economic conditions experienced in the first quarter of 2009. Operating loss in this segment increased $0.1 million to $0.7 million in the first quarter of 2009 as compared to $0.6 million in the first quarter of 2008. The increase in operating loss was due primarily to the decrease in sales in the first quarter of 2009 and increased research and development expenses which were partially offset by decreases in sales and marketing expenses.
In fiscal 2008 the Company initiated a new strategic direction intended to fix or fix and sell its under-performing or non-strategic business segments, reduce costs, and improve and strengthen its balance sheet. The Company continued progress on this strategy in the first quarter of 2009 with the sale of the digital signage software business as discussed above. The Company has taken action in the fourth quarter of 2008 and the first quarter of 2009 to reduce costs, which have begun to favorably impact its profitability. The Company will continue to proactively reduce costs, pursue opportunities to dispose of underperforming or non-strategic assets, and improve working capital in the future.
Sales
The Company's sales of $49.1 million in the first quarter of 2009 decreased $20.9 million or 29.9% as compared to $70.0 million in the first quarter of 2008. The decrease in sales was due to decreases in sales in all segments. In the first quarter of 2009 sales in the Industrial segment decreased $3.3 million, sales in the Commercial segment decreased $6.6 million, sales in the Control Room and Signage segment decreased $6.2 million and sales in the Home Theater segment decreased $4.8 million, all as compared to the first quarter of 2008.
In the Industrial segment sales decreased $3.3 million or 19.0% to $13.8 million in the first quarter of 2009 from $17.1 million in the same period of 2008. The decrease was primarily due to a $3.7 million decrease in sales of EL products and a $0.6 million decrease in sales of LCD products, which were partially offset by a $1.0 million increase in sales of stereomirror products and smaller increases in sales of other industrial products. The decrease in sales of EL products was primarily due to slower demand as a result of the worldwide economic slowdown experienced in the first quarter of 2009 and also due to customer caused delays in scheduled purchases and delivery dates. The decrease in sales of LCD products is primarily the result of certain OEM contracts not being renewed. Sales of stereomirror products increased as these newer products continue to increase their market penetration.
Sales in the Commercial segment decreased $6.6 million or 32.9% to $13.4 million in the first quarter of 2009 from $20.0 million in the same period in 2008. The decrease in sales was due primarily to a decrease in average selling prices of desktop monitors due to an oversupply of these products in the market. Volumes in the first quarter of 2009 remained consistent with volumes in the first quarter of 2008.
Sales in the Control Room and Signage segments decreased $6.2 million or 35.2% to $11.6 million in the first quarter of 2009 from $17.8 million in the first quarter of 2008. The decrease was primarily due to decreased demand for command and control products as a result of the worldwide economic slowdown experienced in the first quarter of 2009 and also due to the impact of the weakening Euro against the U.S. Dollar, as a large portion of this segment's sales are Euro-denominated. The decrease in sales was also due to the sale of the gaming portion of the digital signage software business midway through the first quarter of 2009.
Sales in the Home Theater segment decreased $4.8 million or 31.9% to $10.3 million in the first quarter of 2009 from $15.1 million in the first quarter of 2008. The decrease was primarily due to the Company's strategic decision to reduce the number of brands being marketed as the Company focuses its resources on the Runco brand. This strategic change was announced in the fourth quarter of 2008. Sales were also impacted by slower demand for home theater products as a result of the deteriorating macroeconomic conditions experienced in the first quarter of 2009.
International sales decreased $7.4 million or 38.8% to $11.7 million in the first quarter of 2009 as compared to $19.1 million in the same quarter of the prior year. As a percentage of total sales, international sales decreased to 23.8% in the first quarter of 2009 as compared to 27.3% in the first quarter of 2008. This decrease was due primarily to decreases in international sales in the Industrial and Control Room and Signage segment. These decreases were due to the impact of the weakening Euro against the U.S. Dollar, as a large portion of the Control Room and Signage segment's sales are Euro-denominated. The decrease in international sales was also due to an overall decrease in demand as a result of the challenges currently faced in the global economy.
Gross Profit
Gross profit as a percentage of sales increased to 24.9% in the first quarter of 2009 from 24.4% in the first quarter of 2008. Total gross profit decreased $4.9 million to $12.2 million for the first three months of 2009 as compared to $17.1 million in the same period of the previous year. The decrease in gross profit was due to decreases in all of the Company's operating segments primarily as a result of lower sales in the first quarter of 2009 as compared to the first quarter of 2008. Gross profit in the Industrial and Commercial segments decreased primarily due to lower sales in the first quarter of 2009 as compared to the first quarter of 2008. Gross profit in the Control Room and Signage segment decreased as a result of lower sales and a shift in product mix towards lower margin command and control products as a result of the sale of the gaming portion of the digital signage software business during the first quarter of 2009. Gross profit in the Home Theater segment decreased due primarily to lower sales as demand for home theater products slowed in the first quarter of 2009 as a result of the worldwide economic slowdown. The improvement in gross profit as a percentage of sales was due primarily to various cost reductions implemented over the last few quarters targeted at improving the efficiency of the Company's manufacturing processes. Gross profit as a percentage of sales also improved due to a favorable business unit mix with a shift towards higher margin Industrial displays. In the Industrial segment gross profit as a percentage of sales improved as costs of goods sold decreased at a faster rate than sales, which was due to currency fluctuations. A large portion of the cost of goods sold for the Industrial segment are incurred in Euros to support U.S. Dollar denominated sales and the weakening Euro resulted in lower cost of goods sold in the first quarter of 2009 as compared to the first quarter of 2008. The improvement in the Industrial segment's gross profit as a percentage of sales was also due to changes in product mix including increased sales of higher margin stereomirror products in the first quarter of 2009 as compared to the first quarter of 2008. The improvement in the Industrial segment was partially offset by decreases in gross profit as a percentage of sales in the Control Room and Signage segment. The decrease in the Control Room and Signage segments was due primarily to the decrease in sales, the impact of the weakening Euro on Euro-denominated sales, and a shift towards lower margin command and control products due to the sale of the digital signage software business.
Research and Development
Research and development expenses increased $0.3 million or 10.6% to $3.0 million in the first quarter of 2009 from $2.7 million in the same quarter of the prior year. The increase was primarily due to increased research and development expenses associated with the Home Theater and Industrial segments which were partially offset by decreased research and development expenses associated with the Control Room and Signage segment. The increase in the Home Theater segment was due primarily to development expenses for new product offerings while the increase in the Industrial segment was primarily driven by increased headcount to support new product development. The decrease in the Control Room and Signage segment was primarily a result of fewer research and development projects in the first quarter of 2009 as compared to the same period of the previous year. As a percentage of sales, research and development expenses increased to 6.1% in the first three months of 2009 as compared to 3.9% in the same quarter of the prior year, due to the combination of increased spending and decreased sales in the first quarter of 2009 as compared to the first quarter of 2008.
Sales and Marketing
Sales and marketing expenses decreased $1.7 million or 19.1% to $7.2 million in the first quarter of 2009 as compared to $8.9 million in the same quarter of the prior year. This decrease was primarily due to decreased sales and marketing expenses associated with the Commercial, Control Room and Signage, and Home Theater segments which were partially offset by increases in the Industrial segment. Sales and marketing expenses in the Commercial segment decreased primarily as a result of lower headcount and related compensation as well as decreased spending on marketing and sales promotions. The decreases in the Control Room and Signage and Home Theater segments were primarily a result of lower headcount, decreased spending on marketing materials and promotions as well as lower commissions paid to sales representatives as a result of lower sales in the first quarter of 2009 as compared to the same period of 2008. The Home Theater segment also experienced lower costs as a result of promoting fewer brands in the first quarter of 2009 as compared to the first quarter of 2008. The increase in the Industrial segment was due primarily to higher headcount and increased spending on marketing programs. Sales and marketing expenses, as a percentage of sales, increased to 14.6% in the first quarter of 2009 from 12.7% in the same quarter of the prior year, as sales and marketing expense did not decrease as quickly as sales during the same period.
General and Administrative
General and administrative expenses decreased $0.6 million or 10.8% to $5.4 million in the first quarter of 2009 from $6.0 million in the same period of the prior year. The decrease in general and administrative expense was primarily due to decreased headcount which was partially offset by an increase in stock based compensation. As a percentage of sales, general and administrative expenses increased to 11.0% in the first quarter of 2009 from 8.6% in the same period of the prior year, as general and administrative expenses did not decrease as quickly as sales during the same period.
Amortization of Intangible Assets
Expenses for the amortization of intangible assets decreased $1.1 million or 55.8% to $0.8 million in the first quarter of 2009 from $1.9 million in the same quarter of the prior year. The decrease in amortization expense was due to the impairment and write-off of certain intangible assets associated with the Home Theater and Control Room and Signage segments in fiscal 2008. At December 26, 2008 the consolidated identifiable intangible assets subject to amortization, net of accumulated amortization, consist of $4.1 million for developed technology, $2.7 million for customer relationships, and $0.8 million for trademarks and tradenames. These assets, all of which are associated with the Control Room and Signage segment, and are being amortized over their estimated useful lives of approximately 3.4 years.
Restructuring Charges
During the first quarter of 2009 the Company recorded $0.6 million in net restructuring charges. As discussed in Note 4 to the financial statements the charges consisted of $0.7 million related to severance benefits estimated in the first quarter of 2009 for the termination of employment of certain employees that perform primarily engineering, sales, marketing, and administrative functions. In the first quarter of 2009 the Company also reduced the severance liability associated with the restructuring plan adopted in the fourth quarter of 2008 by $0.1 million to reflect the current estimate of amounts to be paid under that plan. The revision was recorded as a reduction in operating expenses for the three months ended December 26, 2008.
Acquisition Related Costs
No acquisition related costs were recorded in the first quarter of 2009. Acquisition related costs of $0.8 million in the first three months of fiscal 2008 consist of incremental costs associated with the acquisition and integration of both Clarity and Runco which were not capitalizable as property, plant, or equipment.
Gain on Sale of Assets
During the first quarter of 2009 the Company recorded a $5.5 million gain on the sale of the digital signage assets sold to Bally Gaming Inc. and CS Software Holdings LLC in two separate transactions. The gain recognized on these transactions was net of transaction costs.
Total Operating Expenses
Total operating expenses decreased $8.4 million or 42.3% to $11.4 million in the first quarter of 2009, from $19.8 million in the same quarter of the prior year. The decrease in operating expenses was due primarily to the gain on the sale of the digital signage software assets, which reduced operating expense by $5.5 million. The remaining decrease in operating expenses was due to decreases in sales and marketing, general and administrative expenses and also due to decreases in amortization of intangible assets and acquisition related costs. These decreases were partially offset by increases in research and development expenses and restructuring charges. As a percentage of sales, operating expenses decreased to 23.2% in the first quarter of 2009 from 28.2% in the first quarter of the prior year due primarily to the gain on the sale of the digital signage assets in the first quarter of 2009.
Non-operating Income and Expense
Non-operating income and expense includes interest income on investments, interest expense, net foreign exchange gain or loss and other income or expense. Net interest expense was $30 thousand in the first quarter of 2009 as compared to $0.3 million in the same period of the prior year. The decrease in interest expense was related to the decrease in amounts borrowed under the Company's credit agreement.
Foreign currency exchange gains and losses are caused by 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. Gains or losses on foreign currency also result from reflecting existing foreign exchange forward contracts at market value. Foreign currency gains and losses amounted to a gain of $0.5 million in the first quarter of 2009 as compared to a loss of $0.1 million in the same period of the prior year as a result of the volatility of the exchange rate between the U.S. Dollar and the Euro and the resulting translation effect on the Company's financial statements.
Net other income was $0.1 million in the first quarter of 2009 as compared to net other loss of $0.1 million in the first quarter of 2008.
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