<PAGE> 1
================================================================================
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, 1996
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 March 31, 1996, there were 5,311,665 shares of the Registrant's common stock,
$0.01, par value, outstanding.
1
<PAGE> 2
FLIR SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Operations -- Three Months Ended March
31, 1996 and 1995 ................................................. 3
Consolidated Balance Sheet -- March 31, 1996 and December 31, 1995
4
Consolidated Statement of Cash Flows -- Three Months Ended March
31, 1996 and 1995 ................................................. 5
Notes to the Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Current Reports on Form 8-K .......................... 10
Signatures ........................................................ 11
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Revenues:
Night vision systems and sensors $ 6,479 $ 5,733
Industrial imaging systems ..... 4,757 3,473
-------- -------
11,236 9,206
Cost of goods sold ................. 5,244 3,971
Research and development ........... 2,117 1,881
Selling and other operating costs .. 3,736 2,938
-------- -------
11,097 8,790
Earnings from operations ... 139 416
Interest income .................... 29 98
Interest expense and other ......... (96) (41)
-------- -------
Earnings before income taxes 72 473
Provision for income taxes ......... 16 57
-------- -------
Net earnings ....................... $ 56 $ 416
======== =======
Net earnings per share ............. $ 0.01 $ 0.08
======== =======
Weighted average number of common
shares and equivalents outstanding 5,515 5,545
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 4
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------- -------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 823 $ 1,154
Accounts receivable .................................. 19,552 24,898
Inventories .......................................... 26,139 23,666
Prepaid expenses ..................................... 625 439
------- -------
Total current assets ............................. 47,139 50,157
Property and equipment ................................... 4,559 4,003
Software development costs ............................... 541 469
Deferred income taxes .................................... 1,800 1,800
Other assets ............................................. 560 489
======= =======
$54,599 $56,918
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ........................................ $ 2,251 $ 2,056
Accounts payable ..................................... 4,533 5,477
Accounts payable to related parties .................. 150 273
Accrued payroll and other liabilities ................ 1,245 1,631
Accrued warranty reserve ............................. 851 893
Accrued commissions .................................. 223 923
Accrued income taxes ................................. 214 585
Current portion of long-term debt .................... 373 435
------- -------
Total current liabilities ........................ 9,840 12,273
Long-term debt ........................................... 1,049 1,175
Commitments and contingencies ............................ -- --
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued at March 31, 1996, and
December 31, 1995 .................................. -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 5,311,665 and 5,282,988 shares issued at
March 31, 1996, and December 31, 1995, respectively 53 53
Additional paid-in capital ........................... 40,436 40,252
Retained earnings .................................... 3,221 3,165
------- -------
Total shareholders' equity ....................... 43,710 43,470
======= =======
$54,599 $56,918
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash provided (used) by operations:
Net earnings ......................................... $ 56 $ 416
Income charges not affecting cash:
Depreciation ..................................... 460 445
Amortization ..................................... 100 123
Disposals and write-offs of property and equipment 22 13
Deferred income taxes ............................ -- (150)
Changes in certain working capital components:
Decrease in accounts receivable .................. 5,346 2,590
Increase in inventories .......................... (2,473) (3,138)
(Increase) decrease in prepaid expenses .......... (186) 39
Additions to other assets ........................ (71) (8)
Decrease in accounts payable ..................... (944) (170)
Decrease in accounts payable to related parties .. (123) (143)
Decrease in accrued payroll and other liabilities (386) (887)
Decrease in accrued warranty reserve ............ (42) (92)
Decrease in accrued commissions .................. (700) (114)
Decrease in accrued income taxes ................. (371) (296)
------- -------
Cash provided (used) by operating activities ......... 688 (1,372)
------- -------
Cash used by investing activities:
Additions to property and equipment .................. (1,078) (679)
Software development costs ........................... (132) (145)
------- -------
Cash used by investing activities .................... (1,210) (824)
------- -------
Cash provided by financing activities:
Net increase in notes payable ........................ 195 --
Proceeds from long-term debt ......................... -- 94
Repayment of long-term debt including current portion (188) (86)
Common stock issued .................................. -- 7
Proceeds from exercise of stock options .............. 184 104
------- -------
Cash provided by financing activities ................ 191 119
------- -------
Net (decrease) in cash and cash equivalents .............. (331) (2,077)
Cash and cash equivalents, beginning of period ........... 1,154 6,183
------- -------
Cash and cash equivalents, end of period ................. $ 823 $ 4,106
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION:
The accompanying consolidated financial statements 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, 1995.
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 with
the current year's presentation. These reclassifications had no impact on
previously reported results of operations or shareholders' equity.
NOTE 2 -- REVENUE RECOGNITION:
Revenue is recognized when products are shipped or when services are performed,
except for certain long term contracts which are recorded on the
percentage-of-completion method. The percentage-of-completion method is used for
research and development contracts and for production contracts which require
significant amounts of initial engineering and development costs. The
percentage-of-completion is determined by relating the actual costs incurred to
date to total estimated costs to complete the respective contract.
NOTE 3 -- NET EARNINGS PER SHARE:
Net 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.
6
<PAGE> 7
NOTE 4 -- INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- -------
<S> <C> <C>
Raw material and subassemblies ....... $ 18,537 $ 16,151
Work-in-progress ..................... 5,794 6,057
Finished goods ....................... 1,930 1,580
-------- --------
26,261 23,788
Less - progress payments received from
customers ................ (122) (122)
-------- --------
$ 26,139 $ 23,666
======== ========
</TABLE>
NOTE 5 -- CHANGES IN SHAREHOLDERS' EQUITY:
Changes in Shareholders' Equity consist of the following (in thousands):
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ... $ -- $ 53 $40,252 $3,165 $43,470
Common stock options exercised -- -- 184 -- 184
Net income for three month
period ..................... -- -- -- 56 56
--------- ------- ------- ------- -------
Balance, March 31, 1996 ...... $ -- $ 53 $40,436 $ 3,221 $43,710
========= ======= ======= ======= =======
</TABLE>
NOTE 6 -- OPTIMAS MERGER:
On January 19, 1996, the Company completed a merger with Optimas Corporation
whereby a wholly-owned subsidiary of the Company ("FLIR Merger Sub") was merged
with and into Optimas ("the Merger"). Upon the consummation of the Merger,
Optimas survived and became a wholly-owned subsidiary of the Company and FLIR
Merger Sub ceased to exist. Pursuant to the terms of the Merger, Optimas
Convertible Debentures, which had a fair market value at December 31, 1995
estimated to be $2,465,000, were converted into approximately 198,000 shares of
the Company's common stock and each outstanding share of Optimas common stock
was converted into 0.03122 of a share of the Company's common stock or
approximately 221,000 shares. In addition, outstanding employee stock options to
purchase Optimas common stock were converted into options to purchase
approximately 40,000 shares of FLIR common stock.
The transaction was accounted for as a pooling of interests and therefore, all
prior period financial statements presented have been restated as if the merger
took place at the beginning of such periods.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Overall. Net earnings for the three months ended March 31, 1996 decreased
86.6%, from $416,000, or $0.08 per share, in the first quarter of 1995 to
$56,000, or $0.01 per share, in the first quarter of 1996. The decrease in net
earnings despite the increase in overall revenues was principally due to
increases in both research and development expenses as a result of ongoing
product development and improvement activities, and selling and other operating
costs due to the expansion of sales and marketing personnel at both FSI and
Optimas.
Revenues. The Company's revenues for the three months ended March 31, 1996
increased 22.1%, from $9.2 million in the first quarter of 1995 to $11.2 million
in the first quarter of 1996. Industrial imaging systems revenues continue to
show significant growth increasing 37.0% from $3.5 million in the first quarter
of 1995 to $4.8 million in the first quarter of 1996. The improvement was
primarily attributable to the continued strong sales of the Prism family of
products, principally the Prism DS. Revenues from the sale of night vision
systems and sensors increased 13.0%, from $5.7 million in the first quarter of
1995 to $6.5 million in the first quarter of 1996. This growth was primarily due
to the increased sales of the SAFIRE thermal imaging system.
The Company is continuing to work through a variety of supplier-related
difficulties, as well as the complexities of dealing with a much more complex
and extensive manufacturing process for the industrial product line. While
overall output increased on a quarter-to-quarter basis, the rate of improvement
was less than expected. Some of the Company's suppliers also experienced yield
declines due to higher production rates, which further limited the Company's
ability to effectively increase production. The Company has addressed these
problems with each of the suppliers by working with them to improve output. In
addition, the Company has qualified additional suppliers to ensure there is
sufficient material to meet the Company's growing demand. This has been an
ongoing process and the Company is just now beginning to see improved yields.
The results for the quarter, however, reflect the lingering effects of both the
NVSS contract delays and the production issues in the Company's industrial
business.
As a percentage of total revenues for the quarter ended March 31, 1996, revenues
from the sale of night vision systems and sensors constituted 57.7% and revenues
from the sale of industrial imaging systems constituted 42.3%. This compares to
62.3% for night vision systems and sensors and 37.7% for industrial imaging
systems for the first quarter of 1995. These figures indicate that sales of the
Company's industrial imaging products continue to account for an increaseing
percentage of the Company's total revenue. Management expects this trend to
continue.
Revenues from sales outside the United States decreased significantly as a
percentage of total revenues from approximately 71.9% to approximately 40.4% for
the quarters ended March 31, 1995 and 1996, respectively. This decrease was
principally attributable to increased deliveries to U.S. Governmental customers
and slight reductions in deliveries under the terms of existing international
contracts. Management anticipates that revenues from international sales as a
percentage of total revenues will continue to comprise a significant percentage
of revenues.
8
<PAGE> 9
Gross profit. As a percentage of revenues, gross profit decreased slightly
from 56.9% in the first quarter of 1995 to 53.3% in the first quarter of 1996.
The decrease in gross profit as a percentage of revenues in the first quarter of
1996 compared to the first quarter of 1995 was principally attributable to the
decrease in the proportion of higher margin international sales and increased
shipments to agencies and instrumentalities of the U.S. Government which
aggregated $2.5 million in the first quarter of 1996 compared to $1.5 million in
the first quarter of 1995, and to increased production costs of the industrial
product lines. Gross profit percentages are affected by a variety of factors,
including the mix of domestic and international night vision sales, the more
competitive nature of the industrial imaging market, and the impact of
competitive bids for significant government contracts.
Research and development. Research and development expense for the quarter
as a percentage of revenues decreased from 20.4% to 18.8% for the three months
ended March 31, 1995 and 1996, respectively. However, in absolute dollar terms,
research and development expense increased from $1.9 million in the first
quarter of 1995 to $2.1 million in the first quarter of 1996. The decrease as a
percentage of sales and increase in absolute dollar terms reflects the fact that
a large percentage of research and development expense is fixed in nature. The
overall level of research and development expense, in absolute dollar terms,
reflects the continued emphasis on product development and new product
introductions.
Selling and other operating costs. Selling and other operating costs as a
percentage of revenues increased slightly from 31.9% in the first quarter of
1995 to 33.3% in the first quarter of 1996. In absolute dollar terms selling and
other operating costs increased from $2.9 million to $3.7 million for the
quarter ended March 31, 1995 and 1996, respectively. These increases were due to
costs associated with increased revenues during the quarter (primarily
commissions), expenses related to the operations of the Company's two
subsidiaries, BSS and Optimas, and to increased sales and marketing personnel as
the Company continues to expand and strengthen the direct sales and marketing
staff at both FSI and Optimas.
Income taxes. The provision for income taxes for the quarter ended March
31, 1996 resulted in an effective tax rate of 22.2% compared to 12.1% for the
quarter ended March 31, 1995. The increase in the effective tax rate is
primarily due to the fact that the Company has utilized all of its internally
generated net operating loss carryforwards. The effective tax rate remains
substantially below statutory rates due to utilization of a portion of the
Company's acquired net operating loss carryforwards, utilization of various tax
credits, and benefits from the favorable tax treatment of international
revenues.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had short term borrowings net of cash on hand of
$1.4 million compared with $902,000 at December 31, 1995. The increase in the
short term borrowings during the three months ended March 31, 1996, was
principally attributable to increased inventory levels and reduction of current
liabilities. These activities were funded, in part, by the significant reduction
in accounts receivable during the quarter.
9
<PAGE> 10
Much of the increase in the inventory balance, from $23.7 million at December
31, 1995 to $26.1 million at March 31, 1996, was due to the build up of
components due to production constraints related to the Prism DS camera and an
increase in components in anticipation of SAFIRE deliveries to the U.S.
Government in the second and third quarters of this year. Because of the
extremely long lead times for many of the most expensive components, it is
necessary to have inventory on hand to meet the required delivery schedules.
The Company has available a $6.0 million line of credit which bears interest at
the prime rate. At March 31, 1996, the Company had $2.3 million outstanding on
this line.
The Company believes that its existing cash, cash generated from operations, and
available credit facilities will be sufficient to meet its cash requirements for
the foreseeable future.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.0 Computation of Net Earnings Per Share
(a) Current Reports filed on Form 8-K.
On February 2, 1996, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission related to completion
on January 19, 1996 of a transaction with Optimas Corporation
pursuant to which a wholly-owned subsidiary of the Company ("FLIR
Merger Sub") was merged with and into Optimas (the "Merger"). Upon
consummation of the Merger, Optimas survived and became a
wholly-owned subsidiary of the Company and FLIR Merger Sub ceased
to exist. The merger was recorded as a pooling of interests for
accounting purposes.
On March 19, 1996, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting the required
financial information on combined revenues and net loss of the
Company and Optimas for 30 days of post-acquisition combined
operations from January 20, 1996 through February 18, 1996.
10
<PAGE> 11
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 May 15, 1996 /s/ J. Mark Samper
--------------------------- ---------------------------
J. Mark Samper
Vice President of Finance and
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
11
<PAGE> 1
Exhibit 11.0
FLIR SYSTEMS, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Net Earnings ..................... $ 56 $ 416
====== ======
Weighted average number of
common shares outstanding ...... 5,299 5,214
Assumed exercise of stock options
net of shares assumed reacquired
under the treasury stock method 216 332
------ ------
5,515 5,546
====== ======
Earnings Per Share ............... $ 0.01 $ 0.08
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000354908
<NAME> FLIR SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 823
<SECURITIES> 0
<RECEIVABLES> 20,276
<ALLOWANCES> 724
<INVENTORY> 26,139
<CURRENT-ASSETS> 47,139
<PP&E> 10,523
<DEPRECIATION> 5,964
<TOTAL-ASSETS> 54,599
<CURRENT-LIABILITIES> 9,840
<BONDS> 1,049
0
0
<COMMON> 53
<OTHER-SE> 43,657
<TOTAL-LIABILITY-AND-EQUITY> 54,599
<SALES> 11,236
<TOTAL-REVENUES> 11,236
<CGS> 5,244
<TOTAL-COSTS> 5,244
<OTHER-EXPENSES> 5,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 72
<INCOME-TAX> 16
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
