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PLNR > SEC Filings for PLNR > Form 10-Q on 13-May-2013All Recent SEC Filings

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Form 10-Q for PLANAR SYSTEMS INC


13-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 28, 2012.

FORWARD-LOOKING STATEMENTS

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. 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 risk factors included in Part II, Item 1A of this report and 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; changes or continued reductions in the demand or order rates for products in the various display markets served by the Company; any delay in the timing of customer orders or the Company's ability to ship product upon receipt of a customer order; the extent and timing of any additional expenditures by the Company to address business growth opportunities; any inability to reduce costs or to do so quickly enough, in either case, in response to reductions in revenue; the ability of the Company to successfully implement any cost reduction initiatives or generally cause ongoing operating expenses to be maintained at levels permitting Company profitability; adverse impacts on the Company or its operations relating to or arising from any inability to fund desired expenditures, including due to 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 the ability to keep pace with technological changes; technological advances; shortages of manufacturing capacity from the Company's third-party manufacturing partners or other interruptions in the supply of components the Company incorporates in its finished goods including as a result of natural disasters and future production variables resulting in excess inventory. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company reaffirms the critical accounting policies and use of estimates reported in its Form 10-K for the year ended September 28, 2012.

INTRODUCTION

Planar Systems, Inc. is a provider of specialty display products, solutions and services for customers in a number of end-market segments. Products include display components, completed displays, and display solutions and systems based on a variety of flat panel and front- and rear-projection technologies. The Company has a global reach with sales offices in North America, Europe and Asia and manufacturing facilities in France and North America.

The electronic specialty display industry is driven by the proliferation of display products, from both the increase in functionality in "smart" devices and the availability and versatility of LCD flat panel displays at increasingly lower costs; the ongoing need for system providers and integrators to rely on display experts to provide customized solutions; and from the growth in the market for targeted marketing and messaging to consumers using digital signage in a variety of form factors in both indoor and outdoor applications.

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 over 30 years, Planar has been designing and bringing to market innovative display solutions. The Company has historically focused on customized or specialty display products and systems, generally in niche display markets where requirements are more stringent, innovation is valued, and the customer is not served or is underserved by the mass-market, commodity display providers. In recent years, the Company has been transitioning its focus, strategic direction, and resources to target the larger and faster-growing market for digital signage displays, where a variety of its customers use the Company's video wall and large format stand-alone monitors for digital signage applications in retail, airport, sports arena and stadium, hospitality, quick serve restaurant, corporate and higher-education venues, as well as in applications that have traditionally used customized or specialty display products and systems.


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The Company's Products

Planar delivers display products and related solutions for a wide variety of applications and vertical markets. It categorizes the products into two areas, "Digital Signage" and "Commercial and Industrial."

Digital Signage

The Digital Signage display market has experienced rapid growth in recent years and is expected to have strong growth over the next three to five years. Digital Signage solutions are being installed in many environments including retail locations, airports, and sports arenas, as well as in emerging applications and in applications historically served by Commercial and Industrial products, including rear-projection cubes. Planar provides solutions for a number of display applications for the digital signage market utilizing a variety of technologies and products.

• Matrix and Mosaic (tiled LCD) Systems: Planar's super narrow bezel LCD display systems allow customers to create flat, large video walls for a number of applications including ambience, advertising, architectural and brand promotion, and are being deployed in a large range of markets including retail, hospitality, commercial, sports venues and airports, as well as in markets traditionally served by rear-projection cubes, such as control rooms. Solutions utilize specialized LCD panels and "tile" them together using video processing to create large video wall displays. Products offered are well suited to these applications as they are designed for simple installation, easy and cost effective maintainability and off-boarding of power and video processing. The Company offers and supports a growing number of sizes and resolutions of super narrow bezel displays, including touch panels, that can be utilized in creating a wide variety of video wall solutions.

• LCD Commercial Flat Panel Displays: Planar provides a line-up of commercial-grade LCD displays, including the recently launched zero bezel "UltraLux" and Ultra HD "UltraRes" product offerings, suitable for a wide range of digital signage uses. Included in this category are outdoor signage displays, which are designed and manufactured by Planar and are uniquely suited to demanding environmental conditions.

• Custom Signage Displays: Planar manufactures a variety of customized LCD solutions for customers with requirements which go beyond those available from off the shelf products. Included in this category are customized and ruggedized indoor retail signage products used for direct marketing purposes. These displays are typically ruggedized to withstand extreme weather, direct sunlight, moisture, dust, vibration and other conditions present in public viewing spaces

Commercial and Industrial

The Commercial and Industrial display markets that the Company serves are varied and numerous. Some of these markets are relatively mature, and others offer unique opportunities to grow based on new technology enhancements and other factors. The Company serves these markets with a wide range of solutions including standard as well as highly differentiated custom display products and systems.

• Rear-Projection Cube Displays: The market for control room video wall solutions is driven by the development, expansion, and upgrade of industrial infrastructure such as power plants, transportation systems, communication systems, and security monitoring. Planar provides premium quality rear-projection displays and video processing solutions that meet the customer's needs for virtually seamless video walls that support 24x7 operations.

• Touch Monitor Displays: Planar markets a wide variety of touch LCD products for use in kiosks and point of sale applications. As touch and interactive displays become more commonplace, particularly with the recent introduction of Microsoft® Windows® 8, the Company expects future opportunities for growth in this product category.

• Electroluminescent ("EL") Displays: Planar previously leveraged its proprietary intellectual property and historical core competency in EL technologies to provide customized, embedded and ruggedized displays to Original Equipment Manufacturers ("OEMs") and other system suppliers for use in instrumentation, medical equipment, vehicle dashboards and military applications. In the first quarter of 2013, the Company sold the assets and liabilities associated with its EL product line and no sales of EL products are expected in future periods.

• Custom Commercial and Industrial Displays: Planar designs and manufactures custom LCD products that are generally targeted toward the transportation, military and medical vertical markets. These displays are typically ruggedized to withstand extreme weather, direct sunlight, moisture, dust, vibration and other extreme conditions.


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• Desktop Monitor Displays: Planar capitalizes on its strong supply chain, logistics and distribution partnerships to sell a variety of primarily LCD based displays to principally the United States marketplace.

• High-End Home Displays: Planar offers a wide variety of high-performance home theater front-projection systems, video processing equipment, large-format thin displays, and accessories, largely aimed at the high-end home market and certain commercial installations. The Company has sold these products under the Runco brand since May 2007 when it acquired Runco International, an industry leader in high-end, luxury video products. Planar's Runco products are primarily sold to its established network of custom home installation dealers in the United States.

Overview

The Company recorded sales of $39.4 million in the three months ended March 29, 2013 (the "second quarter of 2013"), which was an increase of $1.8 million or 5.1% as compared to sales of $37.6 million in the three months ended March 30, 2012 (the "second quarter of 2012"). The increase in sales in the second quarter of 2013 as compared to the second quarter of 2012 was primarily a result of a $5.9 million or 79.6% increase in sales of digital signage products to $13.4 million from $7.5 million. The increase was partially offset by a $4.1 million or 13.5% decrease in sales of commercial and industrial products to $26.0 million in the second quarter of 2013 from $30.1 million in the second quarter of 2012. In the six months ended March 29, 2013 (the "first six months of 2013"), sales were $83.6 million, which was a decrease of $1.7 million or 1.9% as compared to sales of $85.3 million in the six months ended March 30, 2012 (the "first six months of 2012"). The decrease in sales in the six months ended March 29, 2013 as compared to the six months ended March 30, 2012 was due to a $13.6 million or 20.3% decrease in sales of commercial and industrial products to $53.3 million from $66.9 million. This decrease was partially offset by an $11.9 million or 65.1% increase in sales of digital signage products to $30.3 million in the first six months of 2013 from $18.4 million in the first six months of 2012.

Loss from operations in the second quarter of 2013 was $1.7 million as compared to $6.7 million in the second quarter of 2012. For the first six months of 2013 loss from operations was $3.1 million as compared to $10.1 million in the first six months of 2012. The improvement in loss from operations in the three and six months ended March 29, 2013 was due primarily to decreases in operating expenses of $4.1 million and $5.7 million, respectively, as well as increases in gross profit of $0.8 million and $1.3 million, respectively. The increase in gross profit in the second quarter of 2013 as compared to the second quarter of 2012 was due primarily to the increase in sales and also due to lower labor and overhead expenses. The increase in gross profit in the first six months of 2013 as compared to the first six months of 2012 was due primarily to changes in product mix, with a shift toward higher margin products. The decrease in operating expenses in the second quarter of 2013 as compared to the second quarter of 2012 was due primarily to decreases in each category of operating expenses as well as a $0.2 million gain on the sale of assets and liabilities related to the Company's EL product line as a result of a purchase price adjustment recorded in the second quarter of 2013. The decrease in operating expenses for the first six months of 2013 as compared to the first six months of 2012 was due primarily to decreases in each category of operating expenses, which were partially offset by a $1.3 million loss on the sale of assets and liabilities related to the Company's EL product line. The decreases in each category of operating expenses for the three and six months ended March 29, 2013 from the same periods in the prior year was due primarily to cost reduction measures implemented in fiscal 2012.

Net loss was $1.3 million or $0.06 per basic and diluted share in the second quarter of 2013 as compared to a net loss of $6.7 million or $0.33 per basic and diluted share in the second quarter of 2012. For the first six months of 2013 net loss was $2.8 million or $0.13 per basic and diluted share as compared to a net loss of $9.9 million or $0.49 per basic and diluted share in the first six months of 2012. The improvement in net loss for the three and six months ended March 29, 2013 was due primarily to the improvement in loss from operations in both periods.

In the second quarter of 2013 the Company continued to experience strong demand for its digital signage products as the increase in sales of digital signage products more than offset the decrease in sales of commercial and industrial products, including EL product sales. The Company continues to believe there are opportunities to increase digital signage sales and, accordingly, continues to focus on driving revenue growth in this product area. These efforts are focused on accessing new customers, expanding relationships with existing customers, and by adding product offerings to broaden the Company's differentiated digital signage product portfolio. In the first six months of fiscal 2013 the Company has developed the UltraRes product line to further complement its product offerings for businesses which use digital signage to attract customers.

Sales

Sales for the Three Months Ended March 29, 2013

For the three months ended March 29, 2013, the Company's sales increased $1.8 million or 5.1% to $39.4 million from sales of $37.6 million for the three months ended March 30, 2012. The increase was due to an increase in sales of digital signage products, which was partially offset by a decrease in sales of commercial and industrial products. The increase in sales of digital signage products of $5.9 million or 79.6% was due primarily to increases in sales of tiled LCD video wall systems and LCD commercial flat


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panels. The decrease in sales of commercial and industrial products of $4.1 million or 13.5% was due primarily to decreases in sales of EL displays following the sale of the assets and liabilities related to this product line in the first quarter of 2013. The decrease was also due to decreases in sales of high-end home products, desktop monitors, and custom commercial and industrial products, which were partially offset by increases in sales of touch monitors and rear-projection cubes. A summary of the major components of sales for the second quarter of 2013, including changes in sales from the second quarter of 2012 due to changes in volumes and average selling price (ASP) is as follows:

                                                     Three months ended                                         %             % Change in         % Change  in
                                           Mar. 29, 2013             Mar. 30, 2012          $ Change          Change          Volumes (1)            ASP(1)
                                             (In millions, except percentages)
Commercial & Industrial Sales
High-end home                           $               2.5        $             3.2       $     (0.7 )         -23.5 %              -37.3 %               14.6 %
Custom commercial & industrial                          2.6                      2.7             (0.1 )          -3.2 %              -41.9 %               66.6 %
Desktop monitors                                        9.0                      9.3             (0.3 )          -3.0 %               13.0 %              -23.9 %
Rear-projection cubes                                   6.3                      5.4              0.9            16.7 %              -10.4 %               28.8 %
Touch monitors                                          5.3                      3.6              1.7            51.4 %               67.8 %              -10.2 %
Electroluminescent(2)                                    -                       5.2             (5.2 )        -100.0 %                -                    -
Other                                                   0.3                      0.7             (0.4 )         -67.5 %                -                    -

Total Commercial & Industrial sales                    26.0                     30.1             (4.1 )         -13.5 %                -                    -
Digital Signage Sales
Tiled LCD video wall systems                            9.8                      5.5              4.3            78.5 %               82.2 %               -2.0 %
LCD commercial flat panels                              3.5                      1.6              1.9           128.5 %               95.1 %               17.1 %
Customized digital signage                              0.1                      0.4             (0.3 )         -58.1 %              -64.7 %              -24.3 %

Total Digital Signage sales                            13.4                      7.5              5.9            79.6 %                -                    -

Total sales                             $              39.4        $            37.6       $      1.8             5.1 %                -                    -

(1) Due to the significant differences in volumes and ASP for each product category, changes in volumes and ASP have not been included for the "Other" categories or subtotals.

(2) In the first quarter of 2013, the Company sold the assets and liabilities related to its EL product line.

The increase in volumes sold of tiled LCD video wall systems, including Matrix and Mosaic, were due primarily to increased demand for indoor video wall systems and the Company's efforts to drive customer transition toward digital signage products through expanded product offerings and sales and marketing efforts. The decrease in average selling prices of tiled LCD video wall systems was due to product mix and a decline in the selling prices of certain older products, which were partially offset by higher selling prices for new product offerings. The increase in volumes sold and average selling prices of LCD commercial flat panels was due primarily to increased product offerings available during the second quarter of 2013 as compared to the second quarter of 2012 as well as a change in product mix toward products with higher ASPs. The decrease in volumes sold and average selling prices of customized digital signage products was due primarily to lower demand from certain customers and a change in product mix. For the three months ended March 29, 2013, the decrease in volumes of EL displays sold was due to the sale of the Company's EL related assets and liabilities during the first quarter of 2013, resulting in no sales during the second quarter of 2013 as compared to the second quarter of 2012. The decrease in high-end home product volumes sold was due to a continued decline in demand for high-end projection home theater systems. The increase in high-end home average selling prices was due primarily to a change in product mix to include products with higher ASPs. The increase in volumes sold and decrease in average selling prices of desktop monitors was due to increased demand as well as efforts to reduce inventory levels which resulted in lower margin sales in the second quarter of 2013 as compared to the second quarter of 2012. The decrease in volumes sold of custom commercial and industrial products was due primarily to certain large customer orders that shipped in the second quarter of 2012 that were not repeated in the second quarter of 2013. The increase in average selling prices of custom commercial and industrial products was due primarily a change in product mix during the second quarter of 2013 as compared to the same period of 2012. The increase in touch monitor volumes sold was due primarily to increased demand for touch-based solutions as the number of touch applications in the market grows. The decrease in touch monitor average selling prices was due to a general decline in the selling prices of these products as certain product offerings mature. The decrease in rear-projection cube sales volumes was due primarily to continued customer transition from rear-projection cube format to LCD panels and reduced demand for this product offering. The increase in ASPs of rear-projection cubes was due primarily to a change in product mix from lamp-based cubes to LED-based cubes.


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Sales for the Six Months Ended March 29, 2013

For the six months ended March 29, 2013, the Company's sales decreased $1.7 million or 1.9% to $83.6 million from sales of $85.3 million for the six months ended March 30, 2012. The decrease was due to a decrease in sales commercial and industrial products, which was partially offset by an increase in sales of digital signage products. The decrease in sales of commercial and industrial products of $13.6 million or 20.3% was due primarily to decreases in sales of EL displays, high-end home products, rear-projection cubes, desktop monitors, and custom commercial and industrial products, which were partially offset by an increase in sales of touch monitors. The increase in sales of digital signage products of $11.9 million or 65.1% was primarily due to increases in sales of tiled LCD video wall systems and LCD commercial flat panels. A summary of the major components of sales for the first six months of 2013, including changes in sales from the first six months of 2012 due to changes in volumes and average selling price (ASP) is as follows:

                                                     Six months ended                                         %            % Change in         % Change  in
                                           Mar. 29, 2013            Mar. 30, 2012         $ Change         Change          Volumes (1)            ASP(1)
                                            (In millions, except percentages)
Commercial & Industrial Sales
High-end home                           $               5.5        $           8.5       $     (3.0 )        -35.5 %              -43.6 %                8.9 %
Custom commercial & industrial                          4.6                    5.7             (1.1 )        -19.1 %              -42.7 %               35.0 %
Desktop monitors                                       17.7                   18.9             (1.2 )         -6.2 %               10.7 %              -25.6 %
Rear-projection cubes                                  12.4                   14.4             (2.0 )        -14.1 %              -34.1 %               10.3 %
Touch monitors                                         10.2                    7.1              3.1           44.9 %               51.2 %               -1.8 %
Electroluminescent(2)                                   2.3                   10.9             (8.6 )        -78.9 %              -79.1 %                1.3 %
Other                                                   0.6                    1.4             (0.8 )        -59.3 %                -                    -

Total Commercial & Industrial sales                    53.3                   66.9            (13.6 )        -20.3 %                -                    -
Digital Signage Sales
Tiled LCD video wall systems                           23.2                   14.7              8.5           57.6 %               69.9 %               -7.3 %
LCD commercial flat panels                              6.7                    3.0              3.7          125.7 %               91.9 %               17.6 %
Customized digital signage                              0.4                    0.7             (0.3 )        -32.2 %              -72.0 %               95.2 %

Total Digital Signage sales                            30.3                   18.4             11.9           65.1 %                -                    -

Total sales                             $              83.6        $          85.3       $     (1.7 )         -1.9 %                -                    -

(1) Due to the significant differences in volumes and ASP for each product category, changes in volumes and ASP have not been included for the "Other" categories or subtotals.

(2) In the first quarter of 2013, the Company sold the assets and liabilities related to its EL product line.

For the six months ended March 29, 2013, the decrease in volumes of EL displays sold was due primarily to the sale of the Company's EL related assets and liabilities during the first quarter of 2013, resulting in lower shipments during the first six months of 2013 as compared to the first six months of 2012. The decrease in high-end home product volumes sold was due to continued declines in demand for high-end projection home theater systems. The increase in high-end home average selling prices was due primarily to a change in product mix toward higher priced products. The decrease in rear-projection cube volumes sold was a result of continued customer transition from rear-projection cube format to LCD . . .

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