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| PLNR > SEC Filings for PLNR > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-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 Conditions 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: 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; the Company's inability to complete intended dispositions of underperforming or non-strategic assets; technological advances; shortages of manufacturing capacity from the Company's third-party manufacturing partners; final settlement of various contractual liabilities; 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.
Except for the adoption of Statement 161 as discussed in Note 11 of Notes to the Consolidated Financial 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 digitals 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 Manufacturers (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 scalable video-wall displays and large-area flat screen digital signage products. In the first quarter of 2009 the Company sold the assets related to its digital signage software business. The sale of these assets did not constitute the disposal of a component of the Company as defined by FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and accordingly, results of this business have not been reclassified to discontinued operations and are included in the results from continuing operations for the three and six month periods ended March 27, 2009 and March 28, 2008.
Home Theater
This business sells 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 unique 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.
Commercial
LCD desktop monitors, touch displays, and business projectors comprise the majority of the product offerings in this business. The slowing growth and price pressure in the desktop monitor market is being reflected in this segment as efforts have shifted from revenue growth to profit maximization. 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 profitability through the offering of higher margin products, such as touch displays, networked displays, wide format monitors, and projectors.
The Company previously sold medical diagnostic imaging monitors, the results of which were previously reported in the Company's Medical segment. In the fourth quarter of fiscal 2008 the Company sold the stock of DOME imaging systems, inc., the subsidiary in 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
Quarterly sales were $36.5 million in the second quarter of 2009 as compared to sales of $58.3 million in the second quarter of 2008. Net loss was $2.7 million, or $0.15 per share in the second quarter of 2009 as compared to a net loss of $5.2 million, or $0.29 per share in the second quarter of 2008. The decrease in sales in the second quarter of 2009 was due primarily to lower demand in all segments resulting from the challenges experienced in the current economic environment. Net loss in the second quarter of 2009 was attributed primarily to a decrease in sales which resulted in lower gross profit for the second quarter of 2009 as compared to the second quarter of 2008. The decrease in gross profit was partially offset by decreases in operating expenses as a result of various cost reductions implemented over the last few quarters.
In the Industrial segment, sales decreased by $6.8 million to $10.9 million in the second quarter of 2009 as compared to $17.7 million in the second quarter of 2008. Operating income in this segment decreased $3.1 million to $1.7 million in the second quarter of 2009 as compared to $4.8 million in the second quarter of 2008, primarily as a result of the decrease in sales.
In the Commercial segment, sales decreased by $7.7 million to $9.5 million in the second quarter of 2009 as compared to $17.2 million in the second quarter of 2008. Operating income in the Commercial segment was $0.6 million in the both the second quarter of 2009 and 2008. The relative mix of products sold in the Commercial segment has gradually shifted toward higher margin offerings such as touch monitors and projectors and away from lower margin desktop monitors, enabling consistency in operating income despite lower volumes.
In the Control Room and Signage segment, sales decreased by $3.0 million to $9.0 million in the second quarter of 2009 as compared to $12.0 million in the second quarter of 2008. Operating income in the Control Room and Signage segment was $0.3 million in the second quarter of 2009 as compared to operating loss of $0.6 million in the second quarter of 2008. The increase in operating income was due primarily to losses in the digital signage software business in the second quarter of 2008. Due to the sale of this business line in the first quarter of 2009 these losses were not experienced in the second quarter of 2009, resulting in higher operating income.
Sales in the Home Theater segment decreased by $4.1 million to $7.2 million in the second quarter of 2009 as compared to $11.3 million in the second quarter of 2008. Operating income in this segment was $17 thousand in the second quarter of 2009 as compared to operating loss of $2.3 million in the second quarter of 2008. The increase in operating income was primarily the result of the Company's strategic shift to focus on the Runco brand and to lower costs in this segment. The improvement in operating income was also the result of exiting the Company's Union City, California facility late in the second quarter of 2008 when manufacturing of Home Theater products was transitioned to the Company's facilities in Beaverton, Oregon.
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 second quarter of 2009 with the sale of certain patents and by proactively managing working capital to favorably impact the Company's cash position. In addition, the Company has taken a number of actions in the fourth quarter of 2008 and the first half of 2009 to reduce costs, which have begun to favorably impact 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 $36.5 million in the second quarter of 2009 decreased $21.7 million or 37.3% as compared to $58.3 million in the second quarter of 2008. The decrease in sales in the second quarter of 2009 was due to decreases in sales of products in all operating segments. In the second quarter of 2009 sales in the Industrial segment decreased $6.8 million, sales in the Commercial segment decreased $7.7 million, sales in the Control Room and Signage segment decreased $3.0 million and sales in the Home Theater segment decreased $4.1 million, all as compared to the second quarter of 2008. The Company's sales of $85.6 million in the first six months of 2009 decreased $42.7 million or 33.2% compared to $128.3 million in the first six months of 2008. The decrease in sales was due to decreases in sales of products in all operating segments. In the first six months of 2009 sales in the Industrial segment decreased $10.1 million, sales in the Commercial segment decreased $14.3 million, sales in the Control Room and Signage segment decreased $9.3 million, and sales in the Home Theater segment decreased $9.0 million.
Sales in the Industrial segment decreased $6.8 million or 38.6% to $10.9 million in the second quarter of 2009 as compared to $17.7 million in the second quarter of 2008. The decrease was primarily due to a $5.3 million decrease in sales of EL products, a $1.0 million decrease in sales of AMLCD products, a $0.3 million decrease in custom glass products, and a $0.2 million decrease in sales of LCD products. The decrease in sales of EL products was primarily due to adverse macroeconomic conditions that resulted in lower demand for EL products and was also due to customer requested delays in scheduled purchases and delivery dates. The decrease in sales of EL products was also due to a large one-time order in the second quarter of 2008 that was not repeated in the second quarter of 2009. The decrease in sales of AMLCD products was primarily due to a decrease in sales to one customer in the second quarter of 2009 as compared to the same period of the prior year. The decrease in sales of custom glass products was primarily the result of the macroeconomic challenges experienced in the second quarter of 2009. Sales of LCD products decreased in the second quarter of 2009 primarily as a result of certain OEM contracts not being renewed. Industrial segment sales decreased $10.1 million or 29.0% to $24.7 million in the first six months of 2009 from $34.8 million in the same period of 2008. The decrease was primarily due to a $9.0 million decrease in sales of EL products, a $0.9 million decrease in sales of LCD products, a $0.7 million decrease in sales of AMLCD products and a $0.4 million decrease in sales of custom glass products, and smaller decreases in sales of other Industrial products, all for the reasons indicated above. These decreases were partially offset by an increase in sales of stereomirror products for the first six months of 2009 as this newer product line increased market penetration in the first half of 2009.
Sales in the Commercial segment decreased $7.7 million or 44.9% to $9.5 million in the second quarter of 2009 as compared to $17.2 million in the second quarter of 2008. The decrease in sales in the second quarter of 2009 was due primarily to decreases in volumes of commercial products sold due to an overall decline in demand for LCD monitors in the marketplace as a result of the global recession. Average selling prices in the second quarter of 2009 remained consistent with average selling prices in the second quarter of 2008. Commercial segment sales decreased $14.4 million or 38.5% to $22.9 million in the first six months of 2009 from $37.3 million in the same period of 2008. This decrease is due to decreases in both volumes and average selling prices in the first six months of 2009.
Sales in the Control Room and Signage segment decreased $3.0 million or 25.0% to $9.0 million in the second quarter of 2009 as compared to $12.0 million in the second quarter of 2008. The decrease was due primarily to a decrease in sales of command and control products as a result of the macroeconomic difficulties beginning late in calendar 2008 as customers have delayed large-scale capital projects and installations. In addition, sales in this segment decreased due to the sale of the digital signage software business that occurred in the first quarter of 2009. Sales in this segment were also negatively impacted by the weakening Euro against the U.S. dollar, as a large portion of this segment's sales are Euro-denominated. Control Room and Signage segment sales decreased $9.3 million or 31.1% to $20.5 million in the first six months of 2009 from $29.8 million in the same period of 2008, primarily as a result of the reasons discussed above.
Sales in the Home Theater segment decreased $4.1 million or 36.6% to $7.2 million in the second quarter of 2009 as compared to $11.3 million in the second quarter of 2008. The decrease in sales was due primarily to a decrease in demand for high-performance home theater products as a result of the weakness in the economy, especially in the United States. Sales in the Home Theater segment were also impacted by 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 in the Home Theater segment decreased $8.9 million to $17.5 million in the first six months of 2009 as compared to $26.4 million in the same period of the prior year, primarily as a result of the reasons discussed above.
International sales decreased $5.9 million or 36.7% to $10.1 million in the second quarter of 2009 as compared to $16.0 million in the same period of the prior year. International sales for the first six months of 2009 decreased $13.3 million or 37.9% to $21.8 million from $35.1 million in the same period of 2008. The decrease in international sales in both the three and six month periods was due primarily to decreases of international sales in the Industrial and Control Room and Signage segments. The decrease in the Industrial segment was primarily due to an overall decrease in demand as a result of the challenges currently faced in the global economy. Decreases in the Control Room and Signage segment were primarily the result of a poor economic climate for large capital projects which negatively impacted the overall demand for, and delayed the timing of purchases of command and control products. The decrease was also due to the weakening Euro against the U.S. Dollar, as a large portion of the Control Room and Signage segment's sales are Euro-denominated. As a percentage of total sales, international sales were 27.7% in the second quarter of 2009, as compared to 27.4% in the second quarter of 2008. In the first six months of 2009, international sales as a percentage of total sales were 25.4% as compared to 27.3% in the first six months of 2008.
Gross Profit
The Company's gross profit as a percentage of sales improved to 25.5% in the second quarter of 2009 from 23.0% in the second quarter of 2008. The improvement was primarily due to improvements in the Home Theater and Commercial segments which were partially offset by decreases in gross profit as a percentage of sales in the Industrial and Control Room and Signage segments. The improvements in the Home Theater segment are primarily a result of various cost reductions implemented over the last few quarters targeted at improving the efficiency of the Company's manufacturing processes. The improvement in the Commercial segment was due primarily to this segment's strategic focus on higher profit opportunities and a favorable product mix. In the Industrial segment gross profit as a percentage of sales decreased as sales decreased at a faster rate than costs of goods sold and changes in product mix. Gross profit as a percentage of sales in the Control Room and Signage segment decreased as a result of a decrease in signage software sales due to the sale of the digital signage software business in the first quarter of 2009.
For the first six months of 2009, the Company's gross margin as a percentage of sales was 25.2% compared to 23.8% in the first six months of 2008. The improvement in gross margin as a percentage of sales was primarily due to improvements in the Home Theater and Commercial segments which were partially offset by decreases in gross profit as a percentage of sales in the Control Room and Signage segment. The changes in the Home Theater, Commercial, and Control Room and Signage segments were a result of the reasons discussed above. In the Industrial segment gross profit as a percentage of sales for the first six months of 2009 was consistent with the same period of 2008.
Research and Development
Research and development expenses decreased $0.9 million or 30.9% to $2.1 million in the second quarter of 2009 from $3.0 million in the second quarter of 2008. For the first six months of 2008, research and development expenses decreased $0.6 million or 11.3% to $5.1 million from $5.7 million in the same period of the prior year. The three month decrease was primarily due to decreases in the Control Room and Signage segment which was the result of the sale of the digital signage software business during the first quarter of 2009 which had relatively high software engineering costs and also due to the recognition of research and development tax credits by one of the Company's foreign subsidiaries. Overall, the Company continues to reduce costs in all areas and looks only to fund those initiatives with the highest return on investment or most strategic value. As a result, the Company has few projects in development in the first half of 2009 as compared with the first half of 2008.
The six month decrease in research and development expense was due primarily to decreases in the Control Room and Signage segment which were due to the reasons discussed above. These decreases were partially offset by increases in the Home Theater segment which was primarily due to increased spending in the first three months of 2009 for one-time new product development and
certification costs which were not repeated in the second quarter of 2009. As a percentage of sales, research and development expenses increased to 5.7% in the second quarter of 2009 as compared to 5.2% in the same quarter of the prior year. As a percentage of sales, research and development expenses increased to 5.9% in the first six months of 2009 as compared to 4.5% in the same period of the prior year. The three and six month increases in research and development expenses as a percentage of sales were primarily due to sales decreasing at a faster rate than research and development spending.
Sales and Marketing
Sales and marketing expenses decreased $3.7 million or 40.5% to $5.3 million in the second quarter of 2009 as compared to $9.0 million in same quarter of the prior year. Sales and marketing expenses decreased $5.3 million or 29.9% to $12.5 million in the first six months of 2008 as compared to $17.8 million in the same period of the prior year. The three month decrease was primarily due to decreases in the Industrial, Home Theater, and Control Room and Signage segments which were partially offset by increases in sales and marketing expenses in the Commercial segment. The decrease in the Industrial segment was due primarily to decreased headcount and a focused effort to reduce costs. The decrease in the Home Theater segment was primarily due to decreased spending as result of the Company's strategic decision to reduce the number of brands marketed in this segment and focus its efforts on the Runco brand and also due to decreased headcount and related compensation costs. The decrease in the Control Room and Signage segment was primarily the result of the sale of the digital signage business during the first quarter of 2009 and also due to decreased headcount, decreased spending on marketing materials and promotions and lower commissions due to lower sales.
The six month decrease in sales and marketing expense was due to decreases in all segments as a result of decreased headcount, decreased spending on marketing and sales promotions and materials, and lower commissions paid to sales representatives as a result of lower sales in the second quarter of 2009 as compared to the same period of 2008. As a percentage of sales, sales and marketing expenses improved to 14.6% in the second quarter of 2009 as compared to 15.4% in the same period of the prior year due to lower sales and marketing expenses which were partially offset by lower sales. As a percentage of sales, sales and marketing expenses were 14.6% in the first six months of 2009 as compared to 13.9% in the same period of the prior year, as sales and marketing expense did not decrease as quickly as sales for the same period.
General and Administrative
General and administrative expenses decreased $0.8 million or 12.6% to $5.2 million in the second quarter of 2009 from $6.0 million in the same period of the prior year. General and administrative expenses decreased $1.4 million or 11.7% to $10.6 million in the first six months of 2009 from $12.0 million in the same period of the prior year. The three and six month decreases were due primarily to reductions in headcount and decreases in outsourced professional service fees and general overhead as a result of the Company's initiatives to reduce costs. These decreases were partially offset by increases in non-cash share based compensation. As a percentage of sales, general and administrative expenses increased to 14.3% in the second quarter of 2009 from 10.2% in the same period of the prior year. In the first six months of 2009, general and administrative expenses, as a percentage of sales, increased to 12.4% from 9.4% for the same period of the prior year. The three and six month increases in general and administrative expenses as a percentage of sales were due primarily to sales decreasing at a faster rate than general and administrative expenses.
Amortization of Intangible Assets
Expenses for the amortization of intangible assets decreased $1.1 million or 64.3% to $0.6 million in the second quarter of 2009 from $1.7 million in the second quarter of 2008. Expenses for the amortization of intangible assets decreased $2.2 million or 59.9% to $1.4 million in the first half of 2009 from $3.6 million in the same period of the prior year. The decrease in amortization expense for the three and six months ended March 27, 2009 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 and also due to the sale of the digital signage software business in the first quarter of 2009. The intangible assets that were associated with that business are no longer reflected on the Company's balance sheet. At March 27, 2009 the consolidated identifiable intangible assets subject to amortization, net of accumulated amortization, consist of $3.7 million for developed technology, $2.6 million for customer relationships, and $0.7 million for trademarks and tradenames. These assets, all of which are associated with the Control Room and Signage segment, . . .
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