<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 September 30, 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 September 30, 1996, there were 5,341,651 shares of the Registrant's common
stock, $0.01, par value, outstanding.
<PAGE> 2
FLIR SYSTEMS, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three Months and
Nine Months Ended September 30, 1996 and 1995............ 3
Consolidated Balance Sheet -- September 30, 1996 and
December 31, 1995........................................ 4
Consolidated Statement of Cash Flows -- Nine Months Ended
September 30, 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 Reports on Form 8-K......................... 12
Signatures............................................... 12
2
<PAGE> 3
PART I. 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Night vision systems and sensors.... $11,913 $ 7,787 $28,383 $23,500
Commercial imaging systems.......... 6,025 4,267 15,920 11,698
------- ------- ------- -------
17,938 12,054 44,303 35,198
Cost of goods sold.................... 8,312 5,600 20,942 16,159
Research and development.............. 2,272 1,984 6,555 6,093
Selling and other operating costs..... 4,390 3,530 12,165 10,316
------- ------- ------- -------
14,974 11,114 39,662 32,568
Earnings from operations.......... 2,964 940 4,641 2,630
Interest income....................... 8 64 37 193
Interest expense and other............ (259) (333) (484) (415)
------- ------- ------- -------
Earnings before income taxes...... 2,713 671 4,194 2,408
Provision for income taxes............ 592 106 911 303
------- ------- ------- -------
Net earnings.......................... $ 2,121 $ 565 $ 3,283 $ 2,105
======= ======= ======= =======
Net earnings per share................ $ 0.38 $ 0.10 $ 0.59 $ 0.38
======= ======= ======= =======
Weighted average number of common
shares and equivalents outstanding.... 5,620 5,513 5,579 5,529
======= ======= ======= =======
</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>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 182 $ 1,154
Accounts receivables....................... 33,014 24,898
Inventories................................ 29,807 23,666
Prepaid expenses........................... 678 439
------- -------
Total current assets..................... 63,681 50,157
Property and equipment....................... 5,493 4,003
Software development costs................... 761 469
Deferred income taxes........................ 1,800 1,800
Other assets................................. 643 489
------- -------
$72,378 $56,918
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable.............................. $ 7,285 $ 2,056
Accounts payable........................... 8,186 5,477
Accounts payable to related parties........ 92 273
Accrued payroll and other liabilities...... 812 1,631
Accrued warranty reserve................... 784 893
Accrued commissions........................ 258 923
Accrued income taxes....................... 908 585
Current portion of long-term debt.......... 1,368 435
------- -------
Total current liabilities................ 19,693 12,273
Long-term debt............................... 5,494 1,175
Shareholders' equity:
Preferred stock, $0.01 par value,
10,000,000 shares authorized; no shares
issued at September 30, 1996, and
December 31, 1995......................... -- --
Common stock, $0.01 par value,
30,000,000 shares authorized,
5,341,651 and 5,282,988 shares issued at
September 30, 1996, and December 31, 1995,
respectively.............................. 53 53
Additional paid-in capital................. 40,690 40,252
Retained earnings.......................... 6,448 3,165
------- -------
Total shareholders' equity............... 47,191 43,470
------- -------
$72,378 $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>
Nine Months Ended September 30,
-------------------------------
<S> <C> <C>
1996 1995
------- -------
Cash used by operations:
Net earnings.................................................. $ 3,283 $ 2,105
Income charges not affecting cash:
Depreciation................................................ 1,436 1,385
Amortization................................................ 306 392
Disposals and write-offs of property and equipment.......... 257 45
Deferred income taxes....................................... -- (700)
Changes in certain working capital components:
(Increase) decrease in accounts receivable.................. (8,116) 2,429
Increase in inventories..................................... (6,141) (4,707)
Increase in prepaid expenses................................ (239) (103)
(Additions to) reduction of other assets.................... (154) 107
Increase in accounts payable................................ 2,709 253
Decrease in accounts payable to related parties............. (181) (267)
Decrease in accrued payroll and other liabilities........... (819) (492)
Decrease in warranty reserve................................ (109) (29)
Decrease in accrued commissions............................. (665) (147)
Increase (decrease) in accrued income taxes................. 323 (337)
------- -------
Cash used by operating activities............................. (8,110) (66)
------- -------
Cash used by investing activities:
Additions to property and equipment......................... (3,313) (2,160)
Software development costs.................................. (468) (444)
------- -------
Cash used by investing activities........................... (3,781) (2,604)
------- -------
Cash provided by financing activities;
Net increase in notes payable............................... 5,229 --
Proceeds from long term debt................................ 5,816 478
Repayment of long term debt including current portion....... (564) (379)
Issuance of common stock.................................... -- 55
Proceeds from exercise of stock options..................... 438 269
------- -------
Cash provided by financing activities....................... 10,919 423
------- -------
Net decrease in cash and cash equivalents..................... (972) (2,247)
Cash and cash equivalents, beginning of period................ 1,154 6,183
------- -------
Cash and cash equivalents, end of period...................... $ 182 $ 3,936
======= =======
</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 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. The operations of these subsidiaries have been
immaterial to date and all intercompany accounts and transactions have been
eliminated. The results of the interim periods are not necessarily indicative
of the results for the entire year.
Certain reclassifications have been made to the prior year's 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 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>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Materials...................... $ 20,368 $ 16,151
Work-in-progress............... 7,048 6,057
Finished goods................. 2,398 1,580
------------ ------------
29,814 23,788
Less - progress payments
received from customers (7) (122)
------------ ------------
$ 29,807 $ 23,666
============ ============
</TABLE>
NOTES 5 - CHANGES IN SHAREHOLDERS' EQUITY:
Changes in Shareholders' Equity consist of the following (in thouands):
<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... -- -- 438 -- 438
Net income for nine month
period......................... -- -- -- 3,283 3,283
--------- ------ ---------- ----------- -------
Balance, September 30, 1996
(Unaudited).................... $ -- $ 53 $ 40,690 $ 6,448 $47,191
========= ====== ========== ========== =======
</TABLE>
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 September 30, 1996
increased 275.4%, from $565,000 (or $0.10 per share) in the third quarter of
1995 to $2.1 million (or $0.38 per share) in the third quarter of 1996. Net
earnings increased 56.0%, from $2.1 million (or $0.38 per share) for the nine
months ended September 30, 1995 to $3.3 million (or $0.59 per share) for the
nine months ended September 30, 1996. The increase in net earnings is
principally due to increased sales of the Company's two new aerial broadcast
systems and increased deliveries of SAFIRE night vision systems to the Federal
Government.
REVENUES. The Company's revenues for the three months ended September
30, 1996 increased 48.8%, from $12.1 million in the third quarter of 1995 to
$17.9 million in the third quarter of 1996. Revenues from the sale of night
vision systems and sensors increased 53.0%, from $7.8 million in the third
quarter of 1995 to $11.9 million in the third quarter of 1996. This increase is
primarily due to the increased deliveries of SAFIRE night vision systems to the
Federal Government which aggregated $10.4 million in the third quarter of 1996
compared to $2.3 million in the third quarter of 1995. The majority of this
increase was from deliveries to the U.S. Marine Corps. Commercial imaging
systems revenues continued to show strong revenue growth by increasing 41.2%,
from $4.3 million in the third quarter of 1995 to $6.0 million in the third
quarter of 1996. This improvement was principally attributable to the inclusion
of revenues from sales of the Company's two new commercial broadcast systems
for the broadcast and entertainment markets which were introduced in the second
quarter of 1996, and the continued strong sales of the Prism DS.
Revenues for the nine months ended September 30, 1996 increased 25.9%, from
$35.2 million in the first nine months of 1995 to $44.3 million for the first
nine months of 1996. Revenues from the sale of night vision systems and sensors
increased 20.8%, from $23.5 million in the first nine months of 1995 to $28.4
million for the first nine months of 1996 primarily due to increased deliveries
of SAFIRE night vision systems. Commercial imaging systems revenues increased
36.1%, from $11.7 million in the first nine months of 1995 to $15.9 million in
the first nine months of 1996. This improvement was principally attributable to
the inclusion of revenues from sales of the Company's two new commercial
broadcast systems for the broadcast and entertainment markets discussed above.
Revenues from sales outside the United States decreased as a percentage of
total revenue from approximately 49.7% to approximately 27.7% for the quarters
ended September 30, 1995 and 1996, respectively. For the first nine months of
1996 sales outside the United States accounted for approximately 31.7% of the
Company's revenue. This represents a decrease from the 47.1% experienced in the
first nine months of 1995 primarily due to increased deliveries to U.S.
Government customers, principally the U.S. Marine Corps. The Company
anticipates that the revenues from international sales as a percentage of total
revenue will continue to comprise a significant percentage of revenues but may
vary modestly from year to year.
8
<PAGE> 9
GROSS PROFIT. As a percentage of revenues, gross profit increased
slightly from 53.5% in the third quarter of 1995 to 53.7% in the third quarter
of 1996 and decreased slightly from 54.1% for the first nine months of 1995 to
52.7% for the first nine months of 1996. The relatively consistent gross margin
in the third quarter of 1996 and the slight decrease for the nine months ended
September 30, 1996 was primarily due to the increased sales to U.S.
Governmental customers which typically have lower gross margins than non-
governmental customers, offset somewhat by the gross profit on the Company's
commercial broadcast products, which typically have a slightly higher margin
than other commercial products. Gross profit percentages are affected by a
variety of factors, including the mix of domestic and international night
vision and commercial imaging 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 increased
14.5% from $2.0 million for the third quarter of 1995 to $2.3 million for the
third quarter of 1996 and increased 7.6%, from $6.1 million for the first nine
months of 1995 to $6.6 million for the first nine months of 1996. As a
percentage of revenue, research and development expense decreased from 16.5% to
12.7% for the three months ended September 30, 1995 and 1996, respectively, and
decreased from 17.3% for the first nine months of 1995 to 14.8% for the first
nine months of 1996. The increases in research and development expense, in
absolute dollar terms, were attributable to increased research and development
activities related to existing product enhancements and new product
development, as well as the on-going development of the Company's commercial
broadcast products. The overall decrease as a percentage of revenues reflects
the fact that a relatively large percentage of research and development expense
is fixed in nature. While the Company expects the absolute dollar amount of
research and development to continue to increase, research and development
expense as a percentage of total revenue should continue to decline as revenues
increase.
SELLING AND OTHER OPERATING COSTS. Selling and other operating costs
for the quarter increased 24.4%, from $3.5 million for the third quarter of
1995 to $4.4 million for the third quarter of 1996 and increased 17.9%, from
$10.3 million for the first nine months of 1995 to $12.2 million for the first
nine months of 1996. Selling and other operating costs decreased as a
percentage of revenues from 29.3% for the third quarter of 1995 to 24.5% for
the third quarter of 1996 and decreased from 29.3% for the first nine months of
1995 to 27.5% for the first nine months of 1996. The increases, in absolute
dollar terms, are primarily due to costs associated with increased revenues,
expenses related to the expanded operations of the Company's two subsidiaries,
Broadcast & Surveillance Systems, Ltd. ("BSS") and Optimas Corporation
("Optimas") and additional sales related personnel at FLIR, Optimas and BSS as
the Company continues to expand its direct sales and marketing staffs.
INTEREST INCOME. Interest income consists of amounts earned on cash
balances and short term investments. Interest income decreased from $64,000 in
the third quarter of 1995 to $8,000 in the third quarter of 1996 and decreased
from $193,000 during the first nine months of 1995 to $37,000 during the first
nine months of 1996. These decreases reflect the reduced cash balances due to
cash demands created by increased working capital needs, primarily inventories
and receivables.
9
<PAGE> 10
INTEREST EXPENSE AND OTHER. Interest expense and other includes
interest on short term and long term borrowings, costs related to capital lease
obligations, and miscellaneous charges. Interest expense and other for the
quarter decreased 22.2%, from $333,000 in the third quarter of 1995 to $259,000
in the third quarter of 1996 and increased 16.6%, from $415,000 in the first
nine months of 1995 to $484,000 for the first nine months of 1996. However,
included in the 1995 amount is a charge related to the Optimas Merger
aggregating $276,000. Without this charge interest expense and other increased
from $57,000 to $259,000 for the three months ended September 30, 1995 and
1996, respectively and increased from $139,000 to $484,000 for the nine months
ended September 30, 1995 and 1996, respectively. This increase is due to
increased usage of the Company's line of credit as well as the $5.0 million in
long term financing obtained in second quarter of 1996.
INCOME TAXES. The Company's effective income tax rates for the
quarters ended September 30, 1996 and 1995 were 21.8% and 15.8%, respectively,
and for the nine month periods ended September 30, 1996 and 1995 were 21.7% and
12.6%, respectively. 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 rates remain substantially
below the statutory rate 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 revenue.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had inventories on hand of $29.8 million
compared to $23.7 at December 31, 1995 and $26.5 million at June 30, 1996. This
increase was primarily due to the continued build up of components due to
production constraints related to the Prism DS camera, an increase in components
in anticipation of the Company's future SAFIRE deliveries to the U.S.
Government, and an increase in inventory levels to support the production of the
new aerial broadcast products. Because of the extremely long lead times for many
of the most expensive components, it is necessary to have inventories on hand to
meet the required delivery schedules. The Company maintains levels of
inventories sufficient to satisfy backlog which the Company considers to be
firm and to respond to short term delivery requirements for a majority of its
products. Management believes its ability to provide prompt deliveries gives
it a competitive advantage for certain sales. It is expected that current
inventory levels will be maintained or increased as new products are introduced.
At September 30, 1996, the Company had accounts receivable in the amount of
$33.0 million compared to $24.9 million at December 31, 1995 and $25.7 million
at June 30, 1996. The increase is due to delayed payments from the sale of
SAFIRE systems to the U.S. Marine Corps, which represent 39.0% of the
outstanding receivables as of September 30, 1996. Since the end of the quarter,
the Company has collected $7.3 million from the U.S. Marine Corps and the entire
remaining balance owing from the Marine Corps is expected to be collected by the
end of 1996. The Company generally experiences long collection cycles due to a
variety of factors, including payment terms required by U.S. and foreign
governmental customers as well as payment terms for companies that integrate the
Company's products into aircraft for sale to ultimate users.
10
<PAGE> 11
At September 30, 1996, the Company had short-term borrowings net of cash on
hand of $7.1 million compared with $902,000 at December 31, 1995 and $2.6
million at June 30, 1996. Additionally during the quarter, the Company
temporarily increased its available line of credit from $7.5 million to $9.5
million to cover its short-term cash needs. The increased use of cash during
the third quarter is consistent with the prior year and is primarily due to the
build up of inventories and accounts receivable discussed above.
The Company has available a $9.5 million line of credit until November 30,
1996, when the line of credit decreases to $7.5 million. The line of credit
bears interest at the prime rate, is collateralized by all receivables and
inventories and requires the Company to maintain working capital in excess of
$30.0 million and net tangible worth of $40.0 million. At September 30, 1996,
the Company had a $7.3 million balance outstanding on this line.
While the use of the credit facility will vary significantly and is heavily
dependent upon the timing of collection of significant receivables from the
U.S. Government, the Company believes that its existing cash, available credit
facilities together with the scheduled payments from the U.S. Government will
be sufficient to meet its cash requirements for the foreseeable future.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.0 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1996.
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 November 14, 1996 /s/ J. Mark Samper
------------------------- ----------------------------
J. Mark Samper
Vice President of Finance and
Chief Financial Officer and Secretary
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
12
<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 Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings................. $2,121 $ 565 $3,283 $2,105
====== ====== ====== ======
Weighted average number of
common shares outstanding.... 5,336 5,249 5,320 5,236
Assumed exercise of stock
options net of shares assumed
reacquired under the treasury
stock method................. 284 264 259 293
------ ------ ------ ------
5,620 5,513 5,579 5,529
====== ====== ====== ======
Earnings per share.......... $0.38 $0.10 $0.59 $0.38
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000354908
<NAME> FLIR SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 182
<SECURITIES> 0
<RECEIVABLES> 33,884
<ALLOWANCES> 830
<INVENTORY> 29,807
<CURRENT-ASSETS> 63,681
<PP&E> 11,696
<DEPRECIATION> 6,203
<TOTAL-ASSETS> 72,378
<CURRENT-LIABILITIES> 19,693
<BONDS> 5,494
0
0
<COMMON> 53
<OTHER-SE> 47,138
<TOTAL-LIABILITY-AND-EQUITY> 72,378
<SALES> 44,303
<TOTAL-REVENUES> 44,303
<CGS> 20,942
<TOTAL-COSTS> 20,942
<OTHER-EXPENSES> 18,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> 4,194
<INCOME-TAX> 911
<INCOME-CONTINUING> 3,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,283
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
