Planar Systems Inc. Reports Operating Results (10-K)
Planar Systems, Inc. is a leading provider of valued-added display hardware and software for a variety of specialty display markets worldwide. Hospitals, shopping centers, banks, businesses and other discriminating consumers depend on Planar to provide unique display-based solutions to exacting requirements, leveraging its operational excellence, technical innovation and go-to-market capabilities. Planar is headquartered in Oregon, with offices, manufacturing partners and customers worldwide. Planar Systems Inc. has a market cap of $45.7 million; its shares were traded at around $2.37 with and P/S ratio of 0.3. Highlight of Business Operations: Planar makes investments in research and product development activities. Research expenses are primarily related to the commercialization of display technologies, new system architectures, and fundamental process improvements. Product development expenses are directly related to the design, prototyping and development of new products and technologies. Expenses consist primarily of salaries, project materials, outside services, allocation of facility expenses and other costs associated with the Companys ongoing efforts to develop new products, processes and enhancements. The Company spent $10.6 million, $12.2 million, and $12.4 million on research, development and product engineering for the fiscal years 2009, 2008, and 2007, respectively. These expenses were partially offset by contract funding from both government agencies and private sector companies of $0.7 million, $0.8 million, and $0.7 million in fiscal years 2009, 2008, and 2007, respectively.
As of September 25, 2009 and September 26, 2008 the Companys backlog, which includes all accepted contracts and orders, was approximately $23.3 million and $28.3 million, respectively. Backlog at September 25, 2009 and September 26, 2008 includes orders of approximately $0.1 million and $0.9 million, respectively, for end-of-life products. Variations in the magnitude and duration of contracts and customer delivery requirements may result in substantial fluctuations in backlog from period to period.
As of September 25, 2009 the Company had no amounts outstanding under its credit agreement, which had a maximum $20 million borrowing capacity. On December 1, 2009 the Company entered into an amended and restated credit agreement which has a maximum borrowing capacity of $12 million and expires on December 1, 2010. If the Company incurred a significant amount of debt, the leverage would reduce the Companys ability to use cash flow to fund working capital, capital expenditures, development projects, acquisitions, and other general corporate purposes. High leverage would also limit flexibility in planning for, or reacting to, changes in business and increases vulnerability to a downturn in the business and general adverse economic and industry conditions. Substantially all of the assets of the Company are pledged as security under its credit agreement, which includes certain financial covenants, as discussed in Note 9Borrowings in the Notes to the Consolidated Financial Statements in this report. The Company may not generate sufficient profitability to meet these covenants. Failure by the Company to comply with applicable covenants, or to obtain waivers therefrom, would result in an event of default, and could result in the Company being unable to borrow amounts under the agreement, or could result in the acceleration of any amounts outstanding at that time, which, in turn could lead to the Companys inability to pay its debts and the loss of control of its assets. In addition, the current credit agreement expires on December 1, 2010. If the Company were unable to renew or extend this agreement, the Company would need to pursue other sources of financing. Other sources of credit may not be available at all and, even if such credit is available, it may only be available on terms (including the cost of borrowing) that are unattractive to the Company. If credit is not available to fully satisfy the Companys liquidity needs, the Company may need to dispose of additional assets.
The Companys common stock is listed on The NASDAQ Global Market. In order to maintain that listing, the Company must satisfy financial and other continued listing requirements. For example, NASDAQ rules require that the Company maintain a minimum bid price of $1.00 per share for its common stock. The Companys closing stock price was below the $1.00 minimum bid requirement from November 20, 2008 to April 22, 2009 and on April 30, 2009 and May 4, 2009. Ordinarily, if a companys closing bid price is below $1.00 for thirty consecutive trading days, it receives a notice from NASDAQ that it is subject to delisting if it fails to regain compliance within six months following the date of the notice letter. If the closing bid price for the Companys common stock is below $1.00 per share for 30 consecutive days, the Company would expect to receive a notice letter from NASDAQ stating that it will be delisted if it does not regain compliance. NASDAQ suspended the $1.00 minimum bid requirement on October 16, 2008 and reinstated the requirement on August 3, 2009. Accordingly, the Company did not receive such a notice from NASDAQ. If in the future, the Companys closing stock price were below $1.00 per share for 30 consecutive days it would expect to receive a notice from NASDAQ. In order to regain compliance, the Company would have to attain a
bid price of at least $1.00 per share for a minimum of 10 consecutive business days prior to the expiration of six months from the date of the notice letter from NASDAQ. In addition, to retain its listing on The NASDAQ Global Market the Company must maintain minimum shareholders equity of $10.0 million and an aggregate market value of the Companys common stock of $5.0 million. The Company may not continue to meet the minimum bid price requirement under NASDAQ rules or the other applicable continued listing requirements for The NASDAQ Global Market.
Revenue from Commercial products grew to $102.2 million in fiscal 2005, and decreased to $83.4 million in fiscal 2006 and $78.6 million, $78.2 million, and $47.4 million in fiscal 2007, 2008, and 2009, respectively. This revenue could continue to decrease due to reductions in demand, competition, alternative products, pricing changes in the marketplace and potential shortages of products which would adversely affect the Companys revenue levels and its results of operations. In addition, strategic changes made by the Companys management to invest greater resources in specialty display markets could result in reduced revenue for the Commercial segment. This segment absorbs a portion of the Companys fixed costs. If this segment was discontinued or substantially reduced in size, it may not be possible to eliminate all of the fixed overhead costs that are allocated to the segment. If that were the case, a portion of the allocated fixed costs would have to be absorbed by the other segments, potentially adversely affecting the Companys overall financial performance.
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