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| PLNR > SEC Filings for PLNR > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-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 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: poor or further weakened domestic and international business and economic conditions; weakening in the demand for the Company's products; 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, custom 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 primarily 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, digital signage and military applications.
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 displays, and projectors.
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 nine month period ended June 26, 2009.
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.
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
Beginning in late fiscal 2008, and through the first half of fiscal 2009, the Company has experienced the negative effects of the global economic climate. In addition, the Company has had difficulties with the financial performance of the businesses acquired in 2006 and 2007. As a result of these challenges, the Company reported declining sales in the first half of fiscal 2009, both sequentially and compared to the similar periods in fiscal 2008. In response to these decreased sales and corresponding decreases in gross margins, the Company implemented a variety of cost reduction measures over the past year to reduce costs and improve cash flow. In addition, the Company has taken actions to improve its foundation for profitable growth when economic conditions improve and also disposed of certain underperforming or non-strategic assets. These changes, along with some recent improvements in customer demand, have resulted in increases in sequential sales and profitability, as well as a strengthened balance sheet, higher net levels of cash and improved cash flows from operations when compared to the second quarter of the current year. In the third quarter of 2009 the trend of decreasing sequential sales was reversed, with sales increasing $7.6 million or 20.6% to $44.1 million in the third quarter of 2009 as compared to $36.5 million in the second quarter of 2009, while cash improved to $25.5 million.
Quarterly sales were $44.1 million in the third quarter of 2009 as compared to sales of $64.5 million in the third quarter of 2008. Net loss was $1.3 million or $0.07 per share in the third quarter of 2009 as compared to a net loss of $62.0 million, or $3.46 per share in the third quarter of 2008. The decrease in sales in the third quarter of 2009 was primarily due to lower demand in all segments due to the continued macroeconomic challenges faced in the third quarter of 2009 as compared to the third quarter of the prior year. Net loss in the third quarter of 2009 was attributed primarily to a decrease in sales as compared to the third quarter of 2008 which resulted in lower gross profit as compared to the third 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, thereby resulting in an improved loss from operations in the third quarter of 2009 as compared to the third quarter of 2008. Impairment and Restructuring charges decreased $58.7 million in the third quarter of 2009 as compared to the third quarter of 2008 and research and development, sales and marketing, and general administrative expenses decreased a combined $4.1 million in the third quarter of 2009 as compared to the third quarter of 2008. These cost reductions and increases in efficiency resulted in improvements in the Company's loss from operations, which was $1.0 million in the third quarter of 2009 as compared to $64.0 million in the third quarter of 2008.
In the Industrial segment, sales decreased by $2.9 million to $13.5 million in the third quarter of 2009 as compared to $16.4 million in the third quarter of 2008. Operating income in this segment decreased $0.8 million to $2.8 million in the third quarter of 2009 as compared to $3.6 million in the third quarter of 2008, primarily as a result of lower sales in the segment.
In the Commercial segment, sales decreased by $8.2 million to $12.2 million in the third quarter of 2009 from $20.4 million in the third quarter of 2008. Operating income in the Commercial segment increased $0.8 million to $2.5 million in the third quarter of 2009 as compared to $1.7 million in the third quarter of 2008. The relative mix of products sold in the Commercial segment has gradually shifted toward higher margin offerings such as specialty and touch monitors as well as projectors and away from lower margin commercial grade desktop monitors, enabling improved operating income despite lower volumes.
In the Control Room and Signage segment, sales decreased by $2.4 million to $12.1 million in the third quarter of 2009 as compared to $14.5 million in the third quarter of 2008. Operating income decreased $0.4 million to $0.5 million in the third quarter of 2009 from $0.9 million in the third quarter of 2008 due primarily to lower sales and changes in product mix.
In the Home Theater segment sales decreased by $6.9 million to $6.3 million in the third quarter of 2009 as compared to $13.2 million in the third quarter of 2008. Operating loss in this segment improved $1.8 million to $0.6 million in the third quarter of 2009 from $2.4 million in the third quarter of 2008 due primarily to decreases in operating expenses as a result of the Company's strategic shift to focus on the Runco brand and to lower costs in the segment. The improvement in operating income was also due to improvements in the gross profit as a percentage of sales of the segment's products.
Sales
Quarterly sales of $44.1 million in the third quarter of 2009 decreased $20.4 million or 31.7% as compared to $64.5 million in the third quarter of 2008. The decrease in sales in the third quarter of 2009 was due to decreases in sales of products in all operating segments. In the third quarter of 2009 sales in the Industrial segment decreased $2.9 million, sales in the Commercial segment decreased $8.2 million, sales in the Control Room and Signage segment decreased $2.4 million and sales in the Home Theater segment decreased $6.9 million, all as compared to the third quarter of 2008. The Company's sales of $129.7 million in the first nine months of 2009 decreased $63.1 million or 32.7% compared to $192.8 million in the first nine months of 2008. In the first nine months of 2009 sales in the Industrial segment decreased $13.1 million, sales in the Commercial segment decreased $22.6 million, sales in the Control Room and Signage segment decreased $11.7 million and sales in the Home Theater segment decreased $15.8 million.
Sales in the Industrial segment decreased $2.9 million or 18.0% to $13.5 million in the third quarter of 2009 as compared to $16.4 million in the third quarter of 2008. The decrease was primarily due to a $5.4 million decrease in sales of EL products, a $0.3 million decrease in sales of custom glass products and a $0.2 million decrease in sales of LCD products which were partially offset by a $2.7 million increase in sales of AMLCD products and a $0.3 million increase in stereomirror products. The decrease in sales of EL, custom glass, and LCD products is primarily the result of the adverse macroeconomic conditions experienced in the third quarter of 2009 which resulted in decreased demand for these products. The decrease in sales of LCD products was also impacted by the Company focusing its sales efforts on the EL and AMLCD product lines. The increase in sales of AMLCD products was primarily due to the fulfillment of an installment of an order of custom retail display products developed for one customer as part of their continued roll-out of these displays. The increase in sales of stereomirror products was the result of this newer product line continuing to increase its market penetration throughout 2009. Industrial segment sales decreased $13.1 million or 25.5% to $38.2 million in the first nine months of 2009 from $51.3 million in the same period of 2008. The decrease was primarily due to the reasons discussed above.
Sales in the Commercial segment decreased $8.2 million or 40.5% to $12.2 million in the third quarter of 2009 as compared to $20.4 million in the third quarter of 2008. The decrease 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 third quarter of 2009 remained consistent with average selling prices in the third quarter of 2008. Commercial segment sales decreased $22.6 million or 39.2% to $35.1 million in the first nine months of 2009 from $57.7 million in the same period of 2008, primarily as a result of decreases in both volumes and average selling prices in the first nine months of 2009 as the segment focused on higher margin opportunities.
Sales in the Control Room and Signage segment decreased $2.4 million or 16.4% to $12.1 million in the third quarter of 2009 as compared to $14.5 million in the third quarter of 2008. The decrease was primarily due to the sale of the digital signage software business in the first quarter of 2009. Sales of command and control products also decreased as a result of the macroeconomic difficulties that began late in calendar 2008 as customers have delayed large-scale capital projects and installations. Control Room and Signage segment sales decreased $11.7 million or 26.3% to $32.6 million in the first nine months of 2009 from $44.3 million in the same period of 2008, primarily as a result of the reasons discussed above.
Sales in the Home Theater segment decreased $6.9 million or 51.9% to $6.3 million in the third quarter of 2009 as compared to $13.2 million in the third quarter of 2008. The decrease in sales was primarily due 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 decision was announced in the fourth quarter of 2008. Sales in the Home Theater segment decreased $15.8 million or 39.9% to $23.8 million in the first nine months of 2009 as compared to $39.6 million in the same period of the prior year. This decrease was primarily a result of the reasons discussed above.
International sales decreased $3.6 million or 20.4% to $14.1 million in the third quarter of 2009 as compared to $17.7 million in the same period of the prior year. International sales for the first nine months of 2009 decreased $16.8 million or 32.0% to $35.9 million from $52.7 million in the same period of 2008. The decrease in international sales for the third quarter was due primarily to decreases in international sales in the Industrial and Home Theater segments. Decreases in the Industrial segment were primarily due to an overall decrease in demand as a result of the challenges currently faced in the global economy. The decreases in the Home Theater segment is primarily due to the Company's strategic change to focus its efforts on selling the Runco brand in the United States. The decrease in international sales for the first nine months of 2009 was due primarily to decreases in international sales in the Control Room and Signage, Industrial, and Home Theater segments. The 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 decreases in the Industrial and Home Theater segments were due to the reasons discussed above. As a percentage of total sales, international sales were 31.9% in the third quarter of 2009, as compared to 27.4% in the third quarter of 2008. In the first nine months of 2009, international sales were 27.6% as compared to 27.3% in the first nine months of 2008.
Gross Profit
The Company's gross profit as a percentage of sales improved to 28.7% in the third quarter of 2009 from 21.3% in the third quarter of 2008. The improvement was primarily due to improvements in the gross margin as a percentage of sales in the Commercial, Home Theater, and Industrial segments which were partially offset by a decrease in the Control Room and Signage segment. Margins in the Commercial segment increased due primarily to favorable product mix. The improvements in the Home Theater segment were primarily the result of decreases in manufacturing headcount and decreases in warranty costs. In the Industrial segment gross profit as a percentage of sales improved as a result of changes in product mix, as sales have shifted towards higher margin AMLCD products, and also due to decreased manufacturing headcount and lower product costs. 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 nine months of 2009, the Company's gross profit as a percentage of sales was 26.3% as compared to 22.9% in the first nine months of 2008. The improvement in gross margin was primarily due to improvements in the Commercial, Home Theater, and Industrial segments which were partially offset by a decrease in the Control Room and Signage segment. The changes in all segments were a result of the reasons discussed above.
Research and Development
Research and development expenses decreased $0.8 million or 25.4% to $2.3 million in the third quarter of 2009 from $3.1 million in the third quarter of 2008. The decrease was due primarily to decreases in the Control Room and Signage and Home Theater segments. The decrease in the Control Room and Signage segment 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. The decrease in the Home Theater segment was a result of fewer projects and lower headcount. The decreases in the Control Room and Signage and Home Theater segments were partially offset by increases in the Industrial segment as a result of increased headcount to support product development. For the first nine months of 2009, research and development expenses decreased $1.5 million or 16.3% to $7.4 million from $8.9 million in the first nine months of 2008. The nine month decrease was primarily due to decreases in the Control Room and Signage segment as a result of the reasons discussed above. These decreases were partially offset by increases in the Industrial and Home Theater segments. The Increase in the Industrial segment is due to the reasons indicated above, while the increase in the Home Theater segment is due primarily to increased spending in the first quarter of 2009 for one-time new product development and certification costs which were not repeated in the second and third quarters of 2009. Overall, the Company continues to look for opportunities 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 increased the number of projects in its profitable business segments, while there were fewer projects in development in the Company's underperforming segments in the first nine months of 2009 as compared with the first nine months of 2008.
As a percentage of sales, research and development expenses increased to 5.3% in the third quarter of 2009 as compared to 4.8% in the same quarter of the prior year. As a percentage of sales, research and development expenses increased to 5.7% in the first nine months of 2009 as compared to 4.6% in the same period of the prior year. The three and nine month increases in research and development expenses as a percentage of sales were primarily the result of sales decreasing at a greater rate than research and development spending.
Sales and Marketing
Sales and marketing expenses decreased $2.4 million or 29.0% to $5.9 million in the third quarter of 2009 as compared to $8.3 million in the same quarter of the prior year. Sales and marketing expenses decreased $7.7 million or 29.6% to $18.4 million in the first nine months of 2009 as compared to $26.1 million in the same period of the prior year. The three and nine month decreases were
due to decreases in sales and marketing spending in all of the Company's segments due to the Company's continued efforts to reduce costs which resulted in decreased headcount, decreased spending on marketing material and promotions and lower commissions as a result of lower sales. Decreases in the Home Theater segment were also the 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. Decreases in the Control Room and Signage segment were also due to the sale of the digital signage software business during the first quarter of 2009.
As a percentage of sales, sales and marketing expenses increased to 13.4% in the third quarter of 2009 from 12.9% in the same period of the prior year. In the first nine months of 2009, sales and marketing expenses, as a percentage of sales increased to 14.2% in the third quarter of 2009 from 13.6% in the same period of the prior year. The three and nine month increases were due to sales decreasing at a greater rate than sales and marketing expenses.
General and Administrative
General and administrative expenses decreased $0.9 million or 15.3% to $4.7 million in the third quarter of 2009 from $5.6 million in the same period of the prior year. General and administrative expenses decreased $2.3 million or 12.8% to $15.3 million in the first nine months of 2009 from $17.6 million in the same period of the prior year. The three and nine month decreases were due primarily to reductions in headcount and program spending as a result of the Company's initiatives to reduce costs. As a percentage of sales, general and administrative expenses increased to 10.7% in the third quarter of 2009 from 8.7% in the same period of the prior year. In the first nine months of 2009, general and administrative expenses, as a percentage of sales, increased to 11.8% from 9.1% for the same period of the prior year. The three and nine month increases in general and administrative expenses as a percentage of sales were due primarily to sales decreasing at a greater rate than general and administrative expenses.
Amortization of Intangible Assets
Expenses for the amortization of intangible assets decreased $1.2 million or 66.0% to $0.6 million in the third quarter of 2009 from $1.8 million in the third quarter of 2008. Expenses for the amortization of intangible assets decreased $3.3 million or 62.0% to $2.1 million in the first nine months of 2009 from $5.4 million in the same period of the prior year. The decrease in amortization expense for the three and nine months ended June 26, 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. As of June 26, 2009 the consolidated identifiable intangible assets subject to amortization, net of accumulated amortization, consist of $3.3 million for developed technology, $2.5 million for customer relationships, and $0.5 million for trademarks and tradenames. These assets, all of which are associated with the Control room and Signage segment, are being amortized over their estimated useful lives of approximately 3.0 years.
Impairment and Restructuring Charges
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