Planar Reports Fiscal Second Quarter 2008 Financial Results

Planar Systems, Inc. (NASDAQ:PLNR), a worldwide leader in specialty display solutions, recorded sales of $69.8 million and a GAAP loss per share of $0.29 in the second quarter ended March 28, 2008. On a Non-GAAP basis (see reconciliation table), net loss per share was $0.06 in the second quarter of fiscal 2008. "While we saw strong performances in some of our segments, we are obviously disappointed with our overall second quarter financial results,” said Gerry Perkel, Planar’s President and Chief Executive Officer. "We are committed to taking the necessary actions to improve our financial performance.” SUMMARY FINANCIAL PERFORMANCE The following table presents a breakdown of the Company’s Non-GAAP financial performance by major business unit for the second quarter of fiscal 2008. Additional comparative segment financial information, along with reconciliations to GAAP and information regarding the use of Non-GAAP financial measures, are presented in supplementary tables and notes within this release. Business Segment MBU IBU CBU CSBU HTBU Total Net Sales 11,584 17,736 17,239 11,953 11,335 69,847 - Y/Y Growth % 12% 27% 0% -1% 1136% 28% - Qtr/Qtr Growth % 10% 4% -14% -33% -25% -13% Business Unit Operating Income (loss) 2,340 4,771 603 (639) (2,292) 4,783 Corporate Expense Allocation (1,033) (1,582) (703) (1,448) (1,297) (6,063) Non-GAAP Operating Income (loss) 1,307 3,189 (100) (2,087) (3,589) (1,280) Depreciation 218 600 45 277 289 1,429 Non-GAAP EBITDA 1,525 3,789 (55) (1,810) (3,300) 149 - EBITDA % of Sales 13% 21% 0% -15% -29% 0% Notes: Corporate Expense Allocation includes primarily G&A expense along with Corporate R&D and Sales and Marketing Expense Sales in the Company’s Industrial segment (IBU) grew 27 percent over last year to $17.7M for the quarter, which is the largest revenue quarter in almost two years in this segment. In addition, the Company’s Medical segment (MBU) experienced revenue growth of 12 percent compared with the second quarter a year ago. Sales in the Commercial Business Unit (CBU) were flat compared to the previous year. While the second quarter is historically softer for the Company’s Control Room & Signage (CSBU) and Home Theater (HTBU) segments, revenues from these segments were weaker than anticipated due to a combination of economic challenges and internal execution issues, causing the Company to not meet its overall revenue goal for the quarter. PROFITABILITY AND LIQUIDITY IMPROVEMENT PLANS The Company launched a new strategic direction almost two years ago, with the goal of transforming into a larger and more profitable specialty display provider. To achieve that goal the Company undertook a number of growth initiatives including investing in some of its legacy specialties businesses, launching new organic growth initiatives, and gaining entry into complementary specialty display markets as well as product expertise via two strategic acquisitions. The Company believes it has allowed sufficient time for these initiatives to show their merit and the result is that some have been successful and some have not. Therefore the Company is entering the next phase of its strategy to focus on those initiatives which are performing well and fix those which are underperforming. The overall goal of this next phase is to improve profitability at a faster rate, increase cash flow and improve liquidity, and ultimately enhance shareholder value. While there are many improvement activities under evaluation, the following priority areas have been, or are in the process of being implemented: Overall Workforce and Expense Adjustments: With the transition of the Runco business operations from California to Oregon complete as of the end of the second quarter, some overlap in employment required during the move has now been reduced. In addition, the Company has implemented a number of other cost reduction activities, including additional reductions in force to start the third quarter. The result of the various workforce adjustments is a reduction of approximately 80 full-time and temporary employees from a peak of 788 experienced in the second quarter. Specific Business Segment Actions: In the Industrial business, the Company will look to modestly increase some investments as it continues to see opportunities to both grow revenues and profits in this higher operating margin business. The Company expects that revenues in fiscal 2008 will grow over fiscal 2007 in this segment, based on the success of the new strategic direction previously initiated. In the Home Theater business, the Company has not achieved expected financial performance in the business after the acquisition of Runco, partially due to integration challenges and partially due to the impact on the market of the U.S. economic slowdown. The Company is implementing changes to enhance the experience of its customers and improve the financial performance of the business. Gerry Perkel will be stepping in as General Manager as Scott Hix, Vice President and General Manager of the Home Theater Business Unit, is departing the Company. The Company continues to believe in this market and will be working to rapidly improve the performance of its Home Theater business. In the Control Room and Signage segment, the Company plans to refine its investment strategy to create improved profitability. The integration of Clarity is now virtually complete and the Company is experiencing gross margins between 35 and 40 percent in this segment. While the second quarter followed its usual pattern of seasonal softness, the Company believes it is improving the overall profitability of this segment as evidenced in the first quarter results, and plans to accelerate that improvement going forward through additional specific actions. Company Cash Flow and Liquidity Improvements: The Company was within the covenants of its existing line of credit in the second quarter. In addition, the Company is initiating a number of actions aimed at improving cash flow and liquidity. This effort will focus on two key areas: first, identifying if there is an opportunity to monetize some investments or underperforming assets and second, driving reduced inventory levels by the end of the fiscal year. These actions, along with others being considered, are focused at accelerating the profitability of the Company now that a new higher revenue base has been created. "We are very committed to improving the profitability and liquidity of the Company, and we believe we have opportunities to be successful,” continued Perkel. BUSINESS OUTLOOK Looking forward, the Company expects sequential improvement in both revenue and Non-GAAP EPS in the third quarter compared to the second quarter and to sequentially improve further in the fourth quarter. Also, based upon restructuring actions taken to date, the Company expects to record a $0.6M cash charge in the third quarter. In addition, the Company plans to continue to look for opportunities to improve future profitability. Some of these new opportunities may result in additional restructuring charges in the third and / or fourth quarters of this year. At this time, the Company believes it can incur the total of these potential restructuring charges, associated with the actions required to improve profitability, without violating the covenants included in its existing line of credit. The Company expects to achieve improved profitability and liquidity in fiscal 2009 compared to 2008. Results of operations and the business outlook will be discussed in a conference call today, April 29, 2008, beginning at 2:00 PM Pacific Time. The call can be heard via the Internet through a link on Planar’s Web site, www.planar.com, or through numerous other investor sites, and will be available for replay until May 29, 2008. The Company intends to post on its Web site a transcript of the prepared management commentary from the conference call shortly after the conclusion of the call. ABOUT PLANAR Planar Systems, Inc (NASDAQ:PLNR) is a global leader of specialty display technology providing hardware and software solutions for the world’s most demanding environments. Hospitals, space and military programs, utility and transportation hubs, shopping centers, banks, government agencies, businesses, and home theater enthusiasts all depend on Planar to provide superior performance when image experience is of the highest importance. Founded in 1983, Planar is headquartered in Oregon, USA, with offices, manufacturing partners, and customers worldwide. For more information, visit www.planar.com. "Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release contains "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 relating to Planar’s business operations and prospects, including statements relating to driving improved profitability, liquidity and shareholder value and the statements made under the heading "Business Outlook.” 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 the acquisitions of Clarity Visual Systems and Runco International will not be effectively integrated with the Company’s other business operations or that other difficulties will arise in connection with the integration of the operations, employees, strategies, and technologies; changes or slower growth in the digital signage and/or command and control display markets; the potential inability to realize expected benefits and synergies of the Clarity and Runco acquisitions; 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; adverse impacts on the Company or its operations relating to or arising from the Company’s indebtedness including difficulties in obtaining financing for the companies growth initiatives, 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 listed from time to time in the Company’s Securities and Exchange Commission (SEC) filings. The forward-looking statements contained in this press release 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 press release. Planar Systems, Inc. Consolidated Statement of Operations (In thousands, except per share amounts) (unaudited)         Three months ended Six months ended March 28, 2008   March 30, 2007 March 28, 2008   March 30, 2007   Sales $ 69,847 $ 54,589 $ 150,411 $ 119,498 Cost of Sales   51,859       41,740     112,182       88,232   Gross Profit 17,988 12,849 38,229 31,266   Operating Expenses: Research and development, net 3,294 3,897 6,737 7,040 Sales and marketing 11,063 8,712 22,070 17,964 General and administrative 5,957 4,746 12,005 10,158 Amortization of intangible assets 1,888 1,650 3,889 3,300 Acquisition related costs 624 417 1,429 739 Impairment and restructuring   -       -     (637 )     1,625   Total Operating Expenses 22,826 19,422 45,493 40,826   Income (loss) from operations (4,838 ) (6,573 ) (7,264 ) (9,560 )   Non-operating income (expense): Interest, net (412 ) 368 (901 ) 967 Foreign exchange, net 42 (10 ) (75 ) 179 Other, net   3       (5 )   (108 )     (24 ) Net non-operating income (expense) (367 ) 353 (1,084 ) 1,122   Income (loss) before taxes (5,205 ) (6,220 ) (8,348 ) (8,438 ) Provision (benefit) for income taxes   33       (2,333 )   379       (3,165 ) Net income (loss) $ (5,238 )   $ (3,887 )   $ (8,727 )   $ (5,273 )     Basic net income (loss) per share ($0.29 ) ($0.22 ) ($0.49 ) ($0.31 ) Average shares outstanding - basic 17,768 17,336 17,716 17,234   Diluted net income (loss) per share ($0.29 ) ($0.22 ) ($0.49 ) ($0.31 ) Average shares outstanding - diluted 17,768 17,336 17,716 17,234 Planar Systems, Inc. Consolidated Balance Sheets (In thousands)     March 28, 2008 Sept. 28, 2007 ASSETS (unaudited) Cash and cash equivalents 9,763 $ 15,287 Accounts receivable, net 41,279 42,915 Inventories 62,036 59,028 Other current assets   17,095     13,480   Total current assets 130,173 130,710   Property, plant and equipment, net 14,378 14,918 Goodwill 63,332 67,429 Intangible assets 40,384 44,278 Other assets   5,642     5,809   $ 253,909   $ 263,144     LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable 27,216 $ 31,712 Note payable 26,000 - Current portion of capital leases 298 324 Deferred revenue 5,763 4,888 Other current liabilities   30,524     36,584   Total current liabilities 89,801 73,508   Note payable - 23,000 Capital leases, net of current portion 71 152 Other long-term liabilities   12,646     12,597   Total liabilities 102,518 109,257   Common stock 170,832 167,967 Retained earnings (22,383 ) (13,450 ) Accumulated other comprehensive income (loss)   2,942     (630 ) Total shareholders' equity   151,391     153,887   $ 253,909   $ 263,144   Planar Systems, Inc. Reconciliation of GAAP to Non-GAAP Results of Operations (In thousands, except per share amounts) (unaudited)     Three months ended March 28, 2008 Adjustments Clarity /Runco Share-based GAAP   Acquisitions Comp.   Other   Non-GAAP   Sales $ 69,847 $ 69,847 Cost of Sales   51,859       (96 )     51,763   Gross Profit 17,988 - 96 - 18,084   Operating Expenses: Research and development, net 3,294 (107 ) 3,187 Sales and marketing 11,063 (278 ) 10,785 General and administrative 5,957 (565 ) 5,392 Amortization of intangible assets 1,888 (1,741 ) (147 ) - Acquisition related cost 624 (624 ) - Impairment and restructuring   -           -   Total Operating Expenses 22,826 (2,365 ) (950 ) (147 ) 19,364   Income (loss) from operations (4,838 ) 2,365 1,046 147 (1,280 )   Non-operating income (expense): Interest, net (412 ) (412 ) Foreign exchange, net 42 42 Other, net   3           3   Net non-operating income (expense) (367 ) (367 )   Income (loss) before taxes (5,205 ) 2,365 1,046 147 (1,647 ) Provision (benefit) for income taxes   33     (15 )   (7 )   (629 ) (a)   (618 ) Net income (loss) $ (5,238 ) $ 2,380   $ 1,053   $ 776   $ (1,029 )   Basic net income (loss) per share ($0.29 ) ($0.06 )   Average shares outstanding - basic 17,768 17,768   Diluted net income (loss) per share ($0.29 ) ($0.06 )   Average shares outstanding - diluted 17,768 17,768   (a) Assumes a 37.5% tax rate when the Company is no longer required to provide a valuation allowance against deferred tax assets.   Refer to the "Note Regarding the Use of Non-GAAP Financial Measures" Planar Systems, Inc. Reconciliation of GAAP to Non-GAAP Results of Operations (In thousands, except per share amounts) (unaudited)     Three months ended March 30, 2007 Adjustments Clarity Share-based GAAP   Acquisition Comp.   Other Non-GAAP   Sales $ 54,589 34 (a) $ 54,623 Cost of Sales   41,740       (93 )     41,647   Gross Profit 12,849 34 93 - 12,976   Operating Expenses: Research and development, net 3,897 (105 ) 3,792 Sales and marketing 8,712 (458 ) 8,254 General and administrative 4,746 (410 ) 4,336 Amortization of intangible assets 1,650 (1,503 ) (147 ) - Acquisition related cost 417 (417 ) - Impairment and restructuring   -           -   Total Operating Expenses 19,422 (1,920 ) (973 ) (147 ) 16,382   Income (loss) from operations (6,573 ) 1,954 1,066 147 (3,406 )   Non-operating income (expense): Interest, net 368 368 Foreign exchange, net (10 ) (10 ) Other, net   (5 )         (5 ) Net non-operating income (expense) 353 353   Income (loss) before taxes (6,220 ) 1,954 1,066 147 (3,053 ) Provision (benefit) for income taxes   (2,333 )   733     400     55       (1,145 ) Net income (loss) $ (3,887 )   $ 1,221   $ 666   $ 92   $ (1,908 )     Basic net income (loss) per share ($0.22 ) ($0.11 ) Average shares outstanding - basic 17,336 17,336     Diluted net income (loss) per share before ($0.22 ) ($0.11 ) Average shares outstanding - diluted 17,336 17,336   (a) Non-cash effect for mark down of Clarity deferred revenue to fair value   Refer to the "Note Regarding the Use of Non-GAAP Financial Measures" Planar Systems, Inc. Reconciliation of GAAP Operating Income (loss) to Non-GAAP EBITDA by Business Segment For the three months ended March 28, 2008 (in thousands, unaudited)             Business Segment MBU   IBU   CBU   CSBU   HTBU   Corporate   Total GAAP Operating Income (loss) 2,340 4,771 603 (639) (2,292) (9,621) (4,838) Corporate Expenses 6,063 6,063 Intangibles Amortization 1,888 1,888 Share-based Compensation 1,046 1,046 Integration Expenses                     624   624 Business Unit Operating Income (loss) 2,340 4,771 603 (639) (2,292) 0 4,783 Corporate Expense Allocation (1,033)   (1,582)   (703)   (1,448)   (1,297)   0   (6,063) Non-GAAP Operating Income (loss) 1,307 3,189 (100) (2,087) (3,589) 0 (1,280) Depreciation 218   600   45   277   289   0   1,429 Non-GAAP EBITDA 1,525   3,789   (55)   (1,810)   (3,300)   0   149 Planar Systems, Inc. Non-GAAP EBITDA by Business Segment For the three months ended March 30, 2007 (in thousands, unaudited)                         Business Segment MBU   IBU   CBU   CSBU   HTBU   Total Net Sales 10,360   14,011   17,217   12,118   917   54,623 - Y/Y Growth % -2% -37% -15% N/A N/A 3% - Qtr/Qtr Growth % 0%   -15%   -5%   -36%   -23%   -16% Business Unit Operating Income (loss) 599   3,509   151   (1,293)   (1,385)   1,581 Corporate Expense Allocation (1,034)   (1,400)   (822)   (1,475)   (256)   (4,987) Non-GAAP Operating Income (loss) (435)   2,109   (671)   (2,768)   (1,641)   (3,406) Depreciation 217   509   20   213   139   1,098 Non-GAAP EBITDA (218)   2,618   (651)   (2,555)   (1,502)   (2,308) - EBITDA % of Sales -2%   19%   -4%   -21%   -164%   -4% Refer to the "Note Regarding the Use of Non-GAAP Financial Measures" Planar Systems, Inc. Reconciliation of GAAP Operating Income (loss) to Non-GAAP EBITDA by Business Segment For the three months ended March 30, 2007 (in thousands, unaudited)             Business Segment MBU   IBU   CBU   CSBU   HTBU   Corporate   Total GAAP Operating Income (loss) 599 3,509 151 (1,327) (1,385) (8,120) (6,573) Corporate Expenses 4,987 4,987 Deferred revenue adjustment to fair value 34 34 Intangibles Amortization 1,650 1,650 Share-based Compensation 1,066 1,066 Integration Expenses                     417   417 Business Unit Operating Income (loss) 599 3,509 151 (1,293) (1,385) 0 1,581 Corporate Expense Allocation (1,034)   (1,400)   (822)   (1,475)   (256)   0   (4,987) Non-GAAP Operating Income (loss) (435) 2,109 (671) (2,768) (1,641) 0 (3,406) Depreciation 217   509   20   213   139   0   1,098 Non-GAAP EBITDA (218)   2,618   (651)   (2,555)   (1,502)   0   (2,308) Planar Systems, Inc. Non-GAAP EBITDA by Business Segment For the six months ended March 28, 2008 (in thousands, unaudited)                           Business Segment   MBU   IBU   CBU   CSBU   HTBU   Total Net Sales   22,119   34,832   37,255   29,802   26,403   150,411 - Y/Y Growth %   7%   14%   6%   -4%   1157%   26% Business Unit Operating Income (loss)   2,621   7,992   1,612   2,200   (2,899)   11,526 Corporate Expense Allocation   (1,818)   (2,851)   (1,221)   (3,126)   (2,746)   (11,762) Non-GAAP Operating Income (loss)   803   5,141   391   (926)   (5,645)   (236) Depreciation   443   1,195   92   574   632   2,936 Non-GAAP EBITDA   1,246   6,336   483   (352)   (5,013)   2,700 - EBITDA % of Sales   6%   18%   1%   -1%   -19%   2% Refer to the "Note Regarding the Use of Non-GAAP Financial Measures" Planar Systems, Inc. Reconciliation of GAAP Operating Income (loss) to Non-GAAP EBITDA by Business Segment For the six months ended March 28, 2008 (in thousands, unaudited)           Business Segment MBU   IBU   CBU   CSBU   HTBU Corporate   Total GAAP Operating Income (loss) 2,621 7,992 1,612 2,200 (2,899) (18,790) (7,264) Corporate Expenses 11,762 11,762 Restructuring (637) (637) Intangibles Amortization 3,889 3,889 Share-based Compensation 2,347 2,347 Integration Expenses                   1,429   1,429 Business Unit Operating Income (loss) 2,621 7,992 1,612 2,200 (2,899) 0 11,526 Corporate Expense Allocation (1,818)   (2,851)   (1,221)   (3,126)   (2,746) 0   (11,762) Non-GAAP Operating Income (loss) 803 5,141 391 (926) (5,645) 0 (236) Depreciation 443   1,195   92   574   632 0   2,936 Non-GAAP EBITDA 1,246   6,336   483   (352)   (5,013) 0   2,700 Planar Systems, Inc. Non-GAAP EBITDA by Business Segment For the six months ended March 30, 2007 (in thousands, unaudited)                         Business Segment MBU   IBU   CBU   CSBU   HTBU   Total Net Sales 20,692   30,521   35,263   30,989   2,101   119,566 - Y/Y Growth % -6%   -28%   -23%   N/A   N/A   9% Business Unit Operating Income (loss) 2,109   8,133   922   30   (2,294)   8,900 Corporate Expense Allocation (1,928)   (2,851)   (1,582)   (3,501)   (452)   (10,314) Non-GAAP Operating Income (loss) 181   5,282   (660)   (3,471)   (2,746)   (1,414) Depreciation 467   1,062   51   551   334   2,465 Non-GAAP EBITDA 648   6,344   (609)   (2,920)   (2,412)   1,051 - EBITDA % of Sales 3%   21%   -2%   -9%   -115%   1% Refer to the "Note Regarding the Use of Non-GAAP Financial Measures" Planar Systems, Inc. Reconciliation of GAAP Operating Income (loss) to Non-GAAP EBITDA by Business Segment For the six months ended March 30, 2007 (in thousands, unaudited)           Business Segment MBU   IBU   CBU   CSBU   HTBU   Corporate Total GAAP Operating Income (loss) 2,109 8,133 922 (272) (2,294) (18,159) (9,561) Corporate Expenses 10,314 10,314 Deferred revenue adjustment to fair value 68 68 Inventory step-up adjustment to fair value 234 234 Restructuring 1,625 1,625 Intangibles Amortization 3,300 3,300 Share-based Compensation 2,181 2,181 Integration Expenses                     739 739 Business Unit Operating Income (loss) 2,109 8,133 922 30 (2,294) 0 8,900 Corporate Expense Allocation (1,928)   (2,851)   (1,582)   (3,501)   (452)   0 (10,314) Non-GAAP Operating Income (loss) 181 5,282 (660) (3,471) (2,746) 0 (1,414) Depreciation 467   1,062   51   551   334   0 2,465 Non-GAAP EBITDA 648   6,344   (609)   (2,920)   (2,412)   0 1,051 Note Regarding the Use of Non-GAAP Financial Measures: In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles (GAAP), the Company's earnings release contains Non-GAAP financial measures that exclude the income statement effects of the acquisitions of Clarity Visual Systems and Runco International, share-based compensation and the requirements of SFAS No. 123R, "Share-based Payment" ("123R"). The Non-GAAP financial measures also exclude impairment and restructuring charges, the amortization of intangible assets related to previous acquisitions, and various tax charges including the valuation allowance against deferred tax assets. The earnings release also contains a calculation of Non-GAAP earnings before interest, taxes, depreciation, and amortization (Non-GAAP EBITDA), which, in addition to excluding the effects of the Clarity and Runco acquisitions, share based compensation, and other adjustments, includes an allocation of Corporate expenses to the Company’s business segments in order to calculate Non-GAAP EBITDA by business segment. Such corporate expenses include Corporate General and Administrative (primarily), Research and Development, and Sales and Marketing which are not specifically identified as related to each business segment in the information provided to the Chief Operating Decision Maker, rather are estimated for the purpose of presenting fully burdened lines of business. The Non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.