-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OORiYhGbbx1PlfxKudD1GIkqAcAV5GCNt+B/9enVukZlEyXrhW6QhTF1ukdXU/Zw xNjlWF3uPij2+ejlEz412Q== /in/edgar/work/20000703/0001032210-00-001319/0001032210-00-001319.txt : 20000920 0001032210-00-001319.hdr.sgml : 20000920 ACCESSION NUMBER: 0001032210-00-001319 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLIR SYSTEMS INC CENTRAL INDEX KEY: 0000354908 STANDARD INDUSTRIAL CLASSIFICATION: [3812 ] IRS NUMBER: 930708501 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21918 FILM NUMBER: 667023 BUSINESS ADDRESS: STREET 1: 16505 SW 72ND AVE CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036843731 MAIL ADDRESS: STREET 1: 16505 SW 72ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97224 10-Q 1 0001.txt FORM 10-Q FOR PERIOD ENDED 03/31/2000 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _______________ to _________________ Commission file number 0-21918 FLIR Systems, Inc. (Exact name of Registrant as specified in its charter) Oregon 93-0708501 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16505 S.W. 72nd Avenue, Portland, Oregon 97224 (Address of principal executive offices) (Zip Code) (503) 684-3731 (Registrant's telephone number, including area code) __________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No _____. ----- At May 31, 2000, there were 14,478,346 shares of the Registrant's common stock, $0.01, par value, outstanding. 1 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Operations -- Three Months Ended March 31, 2000 and 1999......................................... 3 Consolidated Balance Sheet -- March 31, 2000 and December 31, 1999............................................................ 4 Consolidated Statement of Cash Flows -- Three Months Ended March 31, 2000 and 1999......................................... 5 Notes to the Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................... 15 Item 3. Default Upon Senior Securities.................................. 15 Item 5. Other Information............................................... 15 Item 6. Exhibits and Current Reports on Form 8-K........................ 15 Signatures...................................................... 17
2 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements FLIR SYSTEMS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, ---------------------- 2000 1999 -------- -------- Revenue: Commercial......................................... $ 25,478 $ 27,986 Government......................................... 10,350 10,835 -------- -------- 35,828 38,821 Cost of goods sold................................... 16,178 38,827 Research and development............................. 6,921 6,977 Selling and other operating costs.................... 16,845 15,057 Combination costs.................................... 1,217 3,654 -------- -------- 41,161 64,515 Loss from operations............................. (5,333) (25,694) Interest expense..................................... 2,092 1,226 Other income - net................................... (82) (18) -------- -------- Loss before income taxes......................... (7,343) (26,902) Income tax benefit................................... (1,836) -- -------- -------- Net loss............................................. $ (5,507) $(26,902) ======== ======== Net loss per share: Basic.............................................. $ (0.38) $ (1.90) ======== ======== Diluted............................................ $ (0.38) $ (1.90) ======== ========
The accompanying notes are an integral part of these financial statements 3 FLIR SYSTEMS, INC. CONSOLIDATED BALANCE SHEET (In thousands, except share amounts)
ASSETS March 31, December 31, 2000 1999 ------------- ------------ (Unaudited) Current assets: Cash and cash equivalents.................................. $ 8,430 $ 4,255 Accounts receivable, net................................... 46,429 57,777 Inventories................................................ 72,603 64,374 Prepaid expenses........................................... 4,921 6,040 Deferred income taxes...................................... 9,887 7,216 ------------- ------------ Total current assets................................... 142,270 139,662 Property and equipment, net.................................. 20,682 20,796 Deferred income taxes, net................................... 16,499 16,499 Intangible assets, net....................................... 17,592 17,932 Other assets................................................. 1,774 1,829 ------------- ------------ $ 198,817 $ 196,718 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable.............................................. $ 95,019 $ 81,247 Accounts payable........................................... 15,277 22,128 Accrued payroll and other liabilities...................... 22,204 21,474 Accrued income taxes....................................... 3,179 3,207 Current portion of long-term debt.......................... 1,033 1,084 ------------- ------------ Total current liabilities.............................. 136,712 129,140 Long-term debt............................................... 1,296 1,497 Pension liability............................................ 3,849 3,879 Commitments and contingencies................................ -- -- Shareholders' equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued at March 31, 2000, and December 31, 1999........................................ -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 14,411,387 and 14,388,600 shares issued at March 31, 2000, and December 31, 1999, respectively...... 144 144 Additional paid-in capital................................. 143,474 143,318 Accumulated deficit........................................ (84,268) (78,761) Accumulated other comprehensive loss....................... (2,390) (2,499) ------------- ------------ Total shareholders' equity............................. 56,960 62,202 ------------- ------------ $ 198,817 $ 196,718 ============= ============
The accompanying notes are an integral part of these financial statements 4 FLIR SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ---------------------------------- 2000 1999 ------------ ------------ Cash used by operations: Net loss.................................................. $ (5,507) $ (26,902) Income charges not affecting cash: Depreciation.......................................... 2,245 1,427 Amortization.......................................... 399 464 Disposals and write-offs of property and equipment.... 502 25 Deferred income taxes................................. (2,671) (1,012) Changes in certain working capital components: Decrease in accounts receivable....................... 11,348 21,991 (Increase) decrease in inventories.................... (8,229) 7,349 Decrease (increase) in prepaid expenses............... 1,119 (801) Increase in other assets.............................. (4) (74) Decrease in accounts payable.......................... (6,851) (4,224) Increase (decrease) in accrued payroll and other liabilities.......................................... 730 (3,768) (Decrease) increase in accrued income taxes........... (28) 617 ------------ ------------ Cash used by operating activities......................... (6,947) (4,908) ------------ ------------ Cash used by investing activities: Additions to property and equipment....................... (2,633) (1,488) ------------ ------------ Cash used by investing activities......................... (2,633) (1,488) ------------ ------------ Cash provided by financing activities: Net increase in notes payable............................. 13,772 27,907 Repayment of long-term debt including current portion..... (252) (19,183) Reduction of pension liability............................ (30) (28) Proceeds from exercise of stock options................... 156 68 ------------ ------------ Cash provided by financing activities..................... 13,646 8,764 ------------ ------------ Effect of exchange rate changes on cash..................... 109 (224) ------------ ------------ Net increase in cash and cash equivalents................... 4,175 2,144 Cash and cash equivalents, beginning of period.............. 4,255 4,793 ------------ ------------ Cash and cash equivalents, end of period.................... $ 8,430 $ 6,937 ============ ============
The accompanying notes are an integral part of these financial statements 5 FLIR SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 -- BASIS OF PRESENTATION: The accompanying consolidated financial statements of FLIR Systems, Inc. (the "Company") are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 1999. The accompanying financial statements include the accounts of FLIR Systems, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of the interim period are not necessarily indicative of the results for the entire year. Certain reclassifications have been made to prior years' data to conform to the current year's presentation. These reclassifications had no impact on previously reported results of operations or shareholders' equity. NOTE 2 -- NET EARNINGS PER SHARE: Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods, computed using the treasury stock method for stock options. The following table sets forth the reconciliation of the denominator utilized in the computation of basic and diluted earnings per share (in thousands):
Three Months Ended March 31, ------------------------- 2000 1999 ---------- ----------- Weighted average number of common shares outstanding.................................... 14,395 14,136 Assumed exercise of stock options net of shares assumed reacquired under the treasury stock method................................... -- -- ---------- ----------- Diluted shares outstanding........................ 14,395 14,136 ========== ===========
The treasury stock effect of stock options for the three months ended March 31, 2000 and 1999, which aggregated 149,000 and 597,000 shares, has been excluded for purposes of diluted earnings per share since the effect would have been anti-dilutive. 6 NOTE 3 -- INVENTORIES: Inventories consist of the following (in thousands):
March 31, December 31, 2000 1999 --------- ------------ Raw material and subassemblies.................... $ 38,040 $ 32,452 Work-in-progress.................................. 17,982 15,261 Finished goods.................................... 16,581 16,661 --------- ------------ $ 72,603 $ 64,374 ========= ============
NOTE 4 -- CHANGES IN SHAREHOLDERS' EQUITY: Changes in Shareholders' Equity consist of the following (in thousands):
Additional Accumulated Other Total Preferred Common Paid-in Accumulated Comprehensive Comprehensive Stock Stock Capital Deficit Income Total Loss --------- ------ ---------- ----------- ----------------- --------- ------------- Balance, December 31, 1999............. -- $ 144 $ 143,318 $ (78,761) $ (2,499) $ 62,202 Common stock options exercised......... -- -- 156 -- -- 156 Net loss for the three month period.... -- -- -- (5,507) -- (5,507) $ (5,507) Foreign translation adjustment......... -- -- -- -- 109 109 109 --------- ------ ---------- ----------- ----------------- --------- ------------- Balance, March 31, 2000................ $ -- $ 144 $ 143,474 $ (84,268) $ (2,390) $ 56,960 ========= ====== ========== =========== ================= ========= Comprehensive loss, three months ended March 31, 2000........................ $ (5,398) =============
Cumulative foreign translation adjustment represents the Company's only other comprehensive income item. Cumulative foreign translation adjustment represents unrealized gains/losses in the translation of the financial statements of the Company's subsidiaries in accordance with SFAS No. 52, "Foreign Currency Translation." The Company has no intention of liquidating the assets of the foreign subsidiaries in the foreseeable future. NOTE 5 - LITIGATION: Beginning on or about March 13, 2000, five complaints alleging violations of the federal securities laws have been filed against the Company and against J. Kenneth Stringer III and J. Mark Samper in the United States District Court for the District of Oregon; one of the complaints also names Robert P. Daltry as a defendant. Each complaint has been filed as a purported class action by individuals who allege that they purchased the Company's Common Stock during the purported class periods, which vary but extend from March 3, 1999 at the earliest to March 6, 2000 at the latest. The complaints allege that the defendants violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated hereunder by intentionally issuing false and/or misleading statements regarding the Company's financial results in the Company's SEC filings and in press releases and other public statements. The complaints do not specify the amount of damages that plaintiffs seek. On May 25, 2000, the U.S. District Court for the District of Oregon issued an order consolidating the complaints into one action for all purposes. 7 Plaintiffs were ordered to file a consolidated complaint within 60 days of the date of the Court's consolidation order. The Company intends to contest the litigation vigorously. The Company was involved in other litigation, investigations of a routine nature and various legal matters during the first quarter of 2000 that are being defended and handled in the ordinary course of business. While the ultimate results of the matters described above cannot presently be determined, management does not expect that they will have a material adverse effect on the Company's results of operations or financial position. Therefore, no adjustments have been made to the accompanying financial statements relative to these matters. NOTE 6 - INFRAMETRICS MERGER: In conjunction with the merger with Inframetrics, Inc., on March 31, 1999, the Company recognized a one-time charge of $23.8 million consisting of a reserve for duplicative inventories of $20.1 million, transaction related costs of $3.2 million and cost to exit activities of $0.5 million. During the course of 1999 the Company recorded additional costs related to the merger including an increase to the reserve for duplicative inventories of $5.2 million and an increase of costs to exit activities of $5.6 million. Additionally, during the quarter ended March 31, 2000, the Company recorded a charge of $1.2 million related to the write-off of certain assets related to the merger. The inventory reserve relates to duplicative product lines created by the merger and was included in cost of goods sold. As of March 31, 2000 the Company had written-off and disposed of inventories totaling $18.3 million. The transaction related costs consisted of investment advisor fees, legal and accounting fees and other direct transaction costs. Such costs were included in combination costs, a separate line item in operating expenses. The cost to exit activities amount relates to estimated shut down costs related to duplicative sales offices in the United Kingdom, Germany and France. As of March 31, 2000 the Company has remaining accruals of $0.4 million related to the transaction costs and cost to exit activities. Consolidated results of operations for the three months ended March 31, 1999 of the Company and Inframetrics on a stand-alone basis, excluding one time charges for duplicative inventories created as a result of overlapping product lines, reserve for shutdown of duplicate sales offices and other direct transaction costs are as follows (in thousands):
FLIR Inframetrics ---------- ------------ Revenue................................. $ 25,171 $ 13,650 ---------- ------------ Net (loss) earnings..................... $ (3,279) $ 177 ========= ============
NOTE 7 - SEGMENT INFORMATION: The Company has determined its operating segments to be the commercial and government market segments. The commercial segment comprises thermal imaging applications including condition monitoring, research and development, manufacturing process control and airborne 8 observation and broadcast. The government segment comprises thermal imaging applications including search and rescue, federal drug interdiction, surveillance and reconnaissance, navigation safety, border and maritime patrol, environment monitoring, and ground-based security. The accounting policies of each segment are the same. The Company evaluates performance based upon revenue and gross profit for each segment and does not evaluate segment performance on any other income measurement. Operating segment information including revenue and gross profit are as follows (in thousands):
Three Months Ended March 31, ---------------------------------------- 2000 1999 ------------------- ------------------- Gross Gross Revenue Profit Revenue Profit --------- -------- --------- -------- Commercial......... $ 25,478 $ 15,320 $ 27,986 $ 4,628 Government......... 10,350 4,330 10,835 (4,634) --------- -------- --------- -------- Total.............. $ 35,828 $ 19,650 $ 38,821 $ (6) ========= ======== ========= ========
All long-lived assets are generally located in the United States with the exception of property and equipment. Property and equipment is located in the following geographic areas (in thousands):
March 31, December 31, 2000 1999 --------- ------------ United States........................... $ 16,862 $ 16,968 Europe.................................. 3,820 3,828 --------- ------------ $ 20,682 $ 20,796 ========= ============
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations: Revenue. The Company's revenue for the three months ended March 31, 2000 declined 7.7%, from $38.8 million in the first quarter of 1999 to $35.8 million in the first quarter of 2000. Commercial revenue declined 9.0%, from $28.0 million in the first quarter of 1999 to $25.4 million in the first quarter of 2000. Revenue from the sale of systems to the government market declined 4.5%, from $10.8 million in the first quarter of 1999 to $10.4 million in the first quarter of 2000. The decline in revenues was primarily due to the timing of deliveries on orders received during the quarter. The Company's commercial products continued to account for the majority of the Company's total revenue. As a percentage of total revenue for the quarter ended March 31, 2000, revenue from the sale of imaging systems to the commercial market constituted 71.1% of total revenue compared to 72.1% for the first quarter of 1999. Revenue from sales outside the United States increased as a percentage of total revenue from 39.1% to 47.9% for the quarters ended March 31, 1999 and 2000, respectively. Gross profit. As a percentage of revenue, gross profit increased from approximately breakeven in the first quarter of 1999 to 54.8% in the first quarter of 2000. The primary reason for this significant increase was the inclusion in cost of goods sold for the three months ended March 31, 1999 of a one-time charge of $20.1 million related to duplicate inventories and products which were determined to have reached the end of life, both created by overlapping product lines as a result of the merger with Inframetrics. Without this charge, gross profit as a percentage of revenue would have been 52.0% for the quarter ended March 31, 1999. Research and development. Research and development expenses as a percentage of revenue increased from 18.0% to 19.3% for the three months ended March 31, 1999 and 2000, respectively. In absolute dollar terms, research and development expenses were approximately the same in both years. The overall level of research and development expense reflects the continued emphasis on product development and new product introductions. Due to the timing of revenue during the year, research and development expense as a percentage of revenue is typically higher in the first quarter than on a full year basis. Selling and other operating costs. Selling and other operating costs as a percentage of revenue increased from 38.8% in the first quarter of 1999 to 47.0% in the first quarter of 2000. In absolute dollar terms, selling and other operating costs increased from $15.1 million to $16.8 million for the quarters ended March 31, 1999 and 2000, respectively. The increase in absolute dollar terms was due to higher audit and legal costs, increased depreciation related to the Company's enterprise resource planning system implemented in April, 1999, and various selling, marketing, and administrative overhead expenses. Inframetrics Merger. Effective March 30, 1999, the Company completed its merger with Inframetrics, Inc., a privately held infrared imaging company headquartered in Billerica, Massachusetts, by issuing approximately 2.3 million shares of the Company's common stock (including approximately 192,000 shares reserved for exercise of outstanding options) for all the 10 outstanding stock of Inframetrics. Additionally, the Company assumed and paid off approximately $24 million of Inframetrics, Inc.'s short- and long-term debt. In conjunction with the merger, during the quarter ended March 31, 1999, the Company recorded a one-time charge of $23.8 million. The charge consisted of a $20.1 million inventory reserve due to the creation of duplicative product lines, which is included in cost of goods sold, and $3.7 million of transaction related costs, which are included in combination costs, a separate line in operating costs. These charges and related reserves are more fully discussed in Note 6 to the consolidated financial statements. During the quarter ended March 31, 2000, the Company recorded a charge of $1.2 million for the write-off of certain assets related to the merger. This charge is reported on the combination costs line in the financial statements. Interest expense. Interest expense increased from $1.2 million in the first quarter of 1999 to $2.1 million for the quarter ended March 31, 2000, due to increased debt levels and increased interest rates. Income taxes. The income tax benefit for the quarter ended March 31, 2000 was $1.8 million, resulting in an effective tax rate of 25%. The effective tax rate is below statutory rates primarily due to a reduction in the valuation allowance related to deferred tax assets and foreign tax rates. Management's assessment of improved profitability has increased its assessment of the amount of the deferred tax asset that is more likely than not to be realized in the future. No tax benefit was provided in the first quarter of 1999 as the valuation allowance was increased due to lower profitability that reduced management's assessment of the amount of deferred tax asset that was likely to be realized in the future. While management currently anticipates the effective tax rate for the year 2000 to be approximately 25%, this rate is very sensitive to the geographic mix of sales and profits, and therefore could be higher or lower in the future depending on the actual profits realized. Liquidity and Capital Resources At March 31, 2000, the Company had short-term borrowings net of cash on hand of $86.6 million compared with $77.0 million at December 31, 1999. The increase in short-term borrowings during the three months ended March 31, 2000, was principally caused by increased working capital needs. Accounts receivable decreased from $57.8 million at December 31, 1999 to $46.4 million at March 31, 2000. The decline in receivables was attributable to the seasonal reduction in revenue in the first quarter of 2000 relative to the fourth quarter of 1999. Revenue in the fourth quarter of 1999 was $48.2 million compared to $35.8 million in the first quarter of 2000. Inventories increased from $64.4 million at December 31, 1999 to $72.6 million at March 31, 2000. The increase was the result of a buildup of materials in anticipation of increased shipments to government customers throughout the balance of the year. 11 The Company's investing activities have consisted primarily of expenditures for fixed assets, which totaled $2.6 million and $1.5 million for the quarters ended March 31, 2000 and 1999, respectively. The Company has a Credit Agreement with a number of banks that provides it with a $100 million revolving line of credit. Interest on borrowings under the agreement is at a fluctuating rate generally equal to the higher of the Federal Funds Rate plus 0.50% or the prime rate of the primary lender for domestic borrowings, and LIBOR for offshore borrowings. The interest rates on borrowings under the agreement increase as the Company's consolidated debt level increases. The weighted average interest rate on borrowings at March 31, 2000 was 8.8 %. The agreement allows the Company to elect any time prior to December 1, 2002, to convert the entire principal balance under the agreement into a term loan that would be payable in 24 subsequent equal monthly payments plus interest. The Company's obligations under the Credit Agreement are secured by substantially all the assets of the Company. The Credit Agreement includes negative covenants that, among other things, impose limitations on the Company's ability to incur additional indebtedness, engage in certain acquisition or disposition transactions, incur lease obligations and make investments, capital expenditures and certain other payments. The Credit Agreement also includes certain financial covenants, including consolidated tangible net worth, interest coverage ratio and leverage ratio. As of December 31, 1999 and for the year then ended, the Company was in violation of certain of these covenants. Pursuant to an amendment to the Credit Agreement dated as of April 13, 2000, the lenders waived their rights to declare a default based upon such covenant violations from December 16, 1999 and through December 30, 2000. The amendment to the Credit Agreement also modified the consolidated tangible net worth covenant, added covenants with respect to minimum levels of revenue and EBITDA and increased the interest rates applicable to offshore borrowings under the Credit Agreement. As of March 31, 2000 and for the quarter then ended, the Company was in violation of the minimum revenue, minimum EBITDA and consolidated tangible net worth covenants under the Credit Agreement. As a result of these covenant violations, the lenders have the right at any time to declare the full amount outstanding under the Credit Agreement immediately due and payable. The Company and the lenders are actively engaged in discussions regarding potential remedies for the Company's covenant violations. However, as of this date, the lenders have not waived their rights to declare a default based upon such covenant violations. Additionally, the Company, through one of its subsidiaries, has a 50,000,000 Swedish Kroner (approximately $5.8 million) line of credit at 4.5% at March 31, 2000. At March 31, 2000, the Company had $93.0 million outstanding under the Credit Agreement and $2.0 million outstanding under the Swedish Kroner line of credit. The use of cash by operating activities in the first quarter was $6.9 million, compared to $4.9 million for the first quarter of 1999. Use of cash increased as the result of increased working capital needs. The Company believes that its existing cash and available credit facilities, financing available from other sources, continuing efforts to control costs, improved collection of accounts receivable and management of inventory levels will be sufficient to meet its cash requirements for the foreseeable future. Impact of the Year 2000 The Company conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 issue. The Company identified that the internal manufacturing system acquired by the Company in connection with the acquisition of AGEMA was not Year 2000 compliant, and installed a new enterprise resource planning system, both hardware and software, to correct this deficiency. The Company's existing product line was tested and reviewed to ensure Year 2000 compliance, and the Company's products under development were designed to be Year 2000 compliant. Additionally, the Company evaluated Year 2000 compliance on products from its suppliers and partners. A contingency plan for dealing with the most reasonably likely worst-case scenario was developed. Both internal and external resources were employed to identify, correct or reprogram, and test the systems for Year 2000 compliance. The total cost of the project was approximately $7 million and was funded through existing cash resources. 12 To date, the Company has not encountered any material Year 2000 problems with respect to products, internal systems or any third party products or systems. Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the Company's business, management's beliefs, and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "sees," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as those discussed from time to time in the Company's Securities and Exchange Commission fillings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements 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 or correct one or more forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. 13 Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company's exposure to market risk for changes in interest rates relates primarily to its short-term and long-term debt obligations. The Company believes that its net income or cash flow exposure relating to rate changes for short-term and long-term debt obligations are immaterial. Interest expense is affected by the general level of U.S. interest rates and/or LIBOR. The Company currently does not hedge any interest rate exposure. The foreign subsidiaries of the Company generally use their local currency as the functional currency. The Company does not currently enter into any foreign exchange forward contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. To date, such exposure has been immaterial. The Company does maintain cash balances denominated in currencies other than the U.S. Dollar. If foreign exchange rates were to weaken against the U.S. Dollar, the Company believes that the fair value of these foreign currency amounts would decline by an immaterial amount. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 5 to the notes to the consolidated financial statements. Item 3. Default Upon Senior Securities The Company is in violation of certain financial covenants under its Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Item 5. Other Information As a result of the Company's failure to file this Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (the "Form 10-Q") with the Securities and Exchange Commission (the "SEC") within the prescribed time, the Company was notified by the staff of the Nasdaq Stock Market that the Company's stock would be delisted from the Nasdaq Stock Market on June 1, 2000 if the Form 10-Q was not filed with the SEC before that date. The Company was not able to file the Form 10-Q before that date. The Company appealed the Nasdaq staff's delisting determination by requesting a hearing on the matter. A hearing on the Company's appeal before a Nasdaq Listing Qualification Panel has been scheduled for July 6, 2000. Although the Company has now filed the Form 10-Q, no assurance can be given that the Company will be successful in its appeal or that its common stock will continue to be listed on the Nasdaq Stock Market. If the Company's common stock were to be delisted from the Nasdaq Stock Market, the Company anticipates that its common stock would be quoted on the OTC Bulletin Board. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Number Description ------------ --------------------------------------------------------- 10.1 Amendment to Credit Agreement among FLIR Systems, Inc. and Bank of America N.A. and certain other financial institutions dated as of April 13, 2000 27.1 Financial Data Schedule for the three months ended March 31, 2000 (b) During the three months ended March 31, 2000, the Company filed the following reports on Form 8-K 15 1. The Company filed a current report on Form 8-K, dated February 8, 2000, reporting under Item 5 that the Company issued a press release announcing the Company's expectation as to revenue and earning for the quarter ended December 31, 1999. 2. The Company filed a current report on Form 8-K, dated March 6, 2000, reporting under Item 5 that the Company issued a press release regarding the Company's expectations as to revenue and net earnings for the quarter ended December 31, 1999. 16 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLIR SYSTEMS, INC. Date June 30, 2000 /s/ Stephen M. Bailey ----------------- ---------------------------- Stephen M. Bailey Sr. Vice President, Finance and Chief Financial Officer (Principal Accounting and Financial Officer and Duly Authorized Officer) 17 EX-10.1 2 0002.txt AMENDMENT TO CREDIT AGREEMENT Exhibit 10.1 AMENDMENT TO CREDIT AGREEMENT Recitals: -------- A. The parties to this Agreement are the parties to that certain Credit Agreement among FLIR Systems, Inc. and Bank of America, N.A. as Administrative Agent, Swing Line Lender and Letter of Credit Issuing Lender and The Other Financial Institutions Party Hereto, dated as of December 16, 1999, Banc of America Securities LLC, as Sole Arranger and Sole Book Manager (the "Credit Agreement"). B. All capitalized terms used shall have the meanings assigned to them in the Credit Agreement unless otherwise defined herein. C. Borrower has informed Lenders that it will not be in compliance with the financial covenants stated in section 7.14(b) and (c) of the Credit Agreement (the "Suspended Covenants") and the Consolidated Tangible Net Worth covenant contained in section 7.14(a), and has requested a waiver of compliance with those covenants through and including December 30, 2000. D. In consideration of the fees and of the agreements contained herein, Lenders and Borrower agree as follows. Agreements: ---------- 1. Borrower agrees to pay the following fees upon the effectiveness of this Amendment: (a.) $200,000 for the ratable benefit of all Lenders. (b.) Ten (10) basis points times such Lender's commitment for the benefit of each Lender who provides to Borrower such Lender's executed signature page to this Amendment before 2:00 p.m. Pacific Daylight Time, April 13, 2000. (c.) $75,000 for the benefit of the Bank of America, N.A., as Agent. 2. Lenders agree that measurement of the Suspended Covenants is hereby suspended through December 30, 2000, and waive lenders' right to declare a default based upon any noncompliance with those covenants during the Suspension Period which is the period beginning December 16, 1999, and ending December 30, 2000. 3. During the Suspension Period, Borrower shall not permit noncompliance with the following Suspension Period Covenants: (a.) Borrower's Consolidated EBITDA shall be not less than $4,000,000 for the quarter ending March 31, 2000, $12,000,000 for the two quarters ending June 30, 2000, and $27,000,000 for the three quarters ending September 30, 2000; and (b.) Borrower's revenues shall be not less than $37,000,000 for the quarter ending March 31, 2000, $83,000,000 for the two quarters ending June 30, 2000, and $144,000,000 for the three quarters ending September 30, 2000. 4. The definition of Applicable Amount stated in Section 1.01 of the Credit Agreement is amended to increase each offshore rate stated therein by 35 basis points. Borrower acknowledges and agrees that the Applicable Amount shall be determined by pricing level 1 (235 basis points, as amended) until the first day of the month following the receipt by the Administrative Agent of an accurate Compliance Certificate setting forth a Leverage Ratio less than 3:1. 5. Effective December 31, 1999, Section 7.14(a) Consolidated Tangible Net Worth is amended as follows: (a.) Substitute $43,500,000 for $89,056,000 in the second line thereof. (b.) Substitute 75% for 50% in the second line thereof. (c.) Substitute December 31, 1999 for September 30, 1999, in the third line thereof. 6. The Credit Agreement and all loan documents remain in full force and effect, and unmodified except to the extent specifically amended herein. 7. Borrower acknowledges and agrees that (a) the principal balance due under the Credit Agreement is $93,000,000 as of April 12, 2000, and there is $917,249.39 in standby letters of credit outstanding, (b) that Lenders and each of them have performed all their obligations under, arising out of or relating to the Credit Agreement, and are not otherwise in breach, (c) Borrower has no defenses to performance of its obligations under the Credit Agreement and the Loan Documents, nor any claims arising thereunder, and (d) there are no defaults under the Credit Agreement other than those waived above. 8. Certain Agreements Not Enforceable. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. Amendment to Credit Agreement Page 2 of 4 9. This Agreement shall be effective upon the execution by Borrower and requisite lenders. Execution by telecopy is permitted and sufficient to bind the party transmitting its signature by facsimile. The signature line for FLIR Systems, Inc., and each of the banks listed on Schedule 2.01 which are Bank of America, N.A., Bank One, N.A., KeyBank National Association, ABN AMRO Bank, N.V., and Svenska Handelsbanken AB (publ). FLIR SYSTEMS, INC., an Oregon corporation By: /s/ J. Kenneth Stringer III -------------------------------------------- Name: J. Kenneth Stringer III ----------------------------------------- Title: President and CEO ----------------------------------------- BANK OF AMERICA, N.A., as Administrative Agent By: /s/ Dora A. Brown -------------------------------------------- Name: Dora A. Brown ----------------------------------------- Title: Vice President ----------------------------------------- BANK OF AMERICA, N.A., as Issuing Lender, a Lender and Swing Line Lender By: /s/ R. E. Evans -------------------------------------------- Name: R. E. Evans ----------------------------------------- Title: SVP ----------------------------------------- BANK ONE, N.A., as a Lender By: /s/ Stephanie Mack for ------------------------------------------- Name: Joseph R. Perdenzo ----------------------------------------- Title: Assistant Vice President ----------------------------------------- [Signature blocks continued on next page.] Amendment to Credit Agreement Page 3 of 4 ABN AMRO BANK, N.V., as a Lender By: ------------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- By: ------------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- KEYBANK, N.A., a Lender By: /s/ Scott Bruun -------------------------------------------- Name: Scott Bruun ----------------------------------------- Title: Vice President ----------------------------------------- SVENSKA HANDELSBANKEN AB (publ), a Lender By: -------------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- Amendment to Credit Agreement Page 4 of 4 EX-27.1 3 0003.txt FINANCIAL DATA SCHEDULE
5 0000354908 FLIR SYSTEMS, INC. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 8,430 0 51,014 (4,585) 72,603 142,270 59,528 (38,846) 198,817 136,712 1,296 0 0 144 56,816 198,817 35,828 35,828 16,178 16,178 24,983 200 2,092 (7,343) (1,836) (5,507) 0 0 0 (5,507) (0.38) (0.38)
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