<PAGE>
================================================================================
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, 1997
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, 1997, there were 5,466,293 shares of the Registrant's common stock,
$0.01, par value, outstanding.
================================================================================
<PAGE>
FLIR SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three Months Ended March
31, 1997 and 1996 .................................................. 3
Consolidated Balance Sheet -- March 31, 1997 and December 31, 1996.. 4
Consolidated Statement of Cash Flows -- Three Months Ended March
31, 1997 and 1996 .................................................. 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 2. Changes in Securities............................................... 11
Item 6. Exhibits and Current Reports on Form 8-K ........................... 11
Signatures ......................................................... 11
2
<PAGE>
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,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Government ..................... $ 8,403 $ 6,479
Commercial imaging systems ..... 7,418 4,757
-------- --------
15,821 11,236
Cost of goods sold ................. 7,529 5,244
Research and development ........... 2,776 2,117
Selling and other operating costs .. 5,087 3,736
-------- --------
15,392 11,097
Earnings from operations ... 429 139
Interest income .................... 6 29
Interest expense and other ......... (312) (96)
-------- --------
Earnings before income
taxes............................... 123 72
Provision for income taxes ......... 32 16
-------- --------
Net earnings ....................... $ 91 $ 56
======== ========
Net earnings per share ............. $ 0.02 $ 0.01
======== ========
Weighted average number of common
shares and equivalents outstanding. 5,748 5,515
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 266 $ 775
Accounts receivable ........................................... 32,948 28,311
Inventories ................................................... 33,982 33,513
Prepaid expenses .............................................. 1,456 1,551
------------------ -----------------
Total current assets ...................................... 68,652 64,150
Property and equipment ............................................ 7,884 7,137
Software development costs ........................................ 886 799
Deferred income taxes ............................................. 2,200 2,200
Other assets ...................................................... 825 818
------------------ -----------------
$ 80,447 $ 75,104
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ................................................. $ 11,355 $ 6,365
Accounts payable .............................................. 7,989 7,628
Accounts payable to related parties ........................... 592 128
Accrued payroll and other liabilities ......................... 1,458 1,907
Accrued warranty reserve ...................................... 627 936
Accrued commissions ........................................... 561 546
Accrued income taxes .......................................... 1,101 1,073
Current portion of long-term debt ............................. 1,384 1,377
------------------ -----------------
Total current liabilities ................................. 25,067 19,960
Long-term debt .................................................... 4,843 5,173
Commitments and contingencies ..................................... -- --
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued at March 31, 1997, and
December 31, 1996 ........................................... -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 5,466,293 and 5,387,483 shares issued at
March 31, 1997, and December 31, 1996, respectively ......... 55 54
Additional paid-in capital .................................... 42,312 41,833
Retained earnings.............................................. 8,348 8,257
Cumulative foreign translation adjustment ..................... (178) (173)
------------------ -----------------
Total shareholders' equity ................................ 50,537 49,971
------------------ -----------------
$ 80,447 $ 75,104
================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------
1997 1996
----------------- ------------------
<S> <C> <C>
Cash provided (used) by operations:
Net earnings ...................................................... $ 91 $ 56
Income charges not affecting cash:
Depreciation .................................................. 559 460
Amortization .................................................. 139 100
Disposals and write-offs of property and equipment ............ 35 22
Changes in certain working capital components:
(Increase) decrease in accounts receivable .................... (4,637) 5,346
Increase in inventories ....................................... (469) (2,473)
Decrease (increase) in prepaid expenses ....................... 95 (186)
Additions to other assets ..................................... (7) (71)
Increase (decrease) in accounts payable ....................... 361 (944)
Increase (decrease) in accounts payable to related parties .... 464 (123)
Decrease in accrued payroll and other liabilities ............. (449) (386)
Decrease in accrued warranty reserve........................... (309) (42)
Increase (decrease) in accrued commissions .................... 15 (700)
Increase (decrease) in accrued income taxes ................... 28 (371)
----------------- ------------------
Cash (used) provided by operating activities ...................... (4,084) 688
----------------- ------------------
Cash used by investing activities:
Additions to property and equipment ............................... (1,386) (1,078)
Software development costs ........................................ (181) (132)
----------------- ------------------
Cash used by investing activities ................................. (1,567) (1,210)
----------------- ------------------
Cash provided by financing activities:
Net increase in notes payable...................................... 4,990 195
Repayment of long-term debt including current portion ............. (323) (188)
Proceeds from exercise of stock options ........................... 480 184
----------------- ------------------
Cash provided by financing activities ............................. 5,147 191
----------------- ------------------
Effect of exchange rate changes on cash ............................... (5) --
----------------- ------------------
Net (decrease) in cash and cash equivalents ........................... (509) (331)
Cash and cash equivalents, beginning of period ........................ 775 1,154
----------------- ------------------
Cash and cash equivalents, end of period .............................. $ 266 $ 823
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
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, 1996.
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. The Company will
adopt Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
in 1997. The effect of the adoption of such pronouncement is expected to be
immaterial to the financial statements taken as a whole.
6
<PAGE>
NOTE 4 -- INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw material and subassemblies ............ $23,144 $23,855
Work-in-progress .......................... 9,879 8,171
Finished goods ............................ 1,470 1,494
------- -------
34,493 33,520
Less - progress payments received from
customers .......................... (511) (7)
------- -------
$33,982 $33,513
======= =======
</TABLE>
NOTE 5 -- CHANGES IN SHAREHOLDERS' EQUITY:
Changes in Shareholders' Equity consist of the following (in thousands):
<TABLE>
<CAPTION>
Cumulative
Additional Foreign
Preferred Common Paid-in Retained Translation
Stock Stock Capital Earnings Adjustment Total
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... $ $ 54 $ 41,833 $ 8,257 $ (173) $ 49,971
Common stock options exercised... -- 1 479 -- -- 480
Net earnings for three month
period ........................ -- -- -- 91 -- 91
Foreign translation
adjustment .................... -- -- -- -- (5) (5)
----------- ----------- ---------- ----------- ----------- ----------
Balance, March 31, 1997 ......... $ -- $ 55 $ 42,312 $ 8,348 $ (178) $ 50,537
=========== =========== ========== =========== =========== ==========
</TABLE>
7
<PAGE>
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, 1997
increased 62.5%, from $56,000, or $0.01 per share, in the first quarter of 1996
to $91,000, or $0.02 per share, in the first quarter of 1997. The increase in
net earnings is primarily due to the 40.8% increase in revenues for the quarter
compared to the first quarter of 1996.
Revenues. The Company's revenues for the three months ended March 31,
1997 increased 40.8%, from $11.2 million in the first quarter of 1996 to $15.8
million in the first quarter of 1997. Commercial imaging systems revenues
continue to show significant growth increasing 55.9% from $4.8 million in the
first quarter of 1996 to $7.4 million in the first quarter of 1997. The
improvement was primarily attributable to increased deliveries of the Prism DS
as a result of production improvements and to the continued strong sales of the
Company's aerial broadcast systems for the commercial broadcast market. Revenues
from the sale of systems to the government market, which was previously referred
to as the Night Vision Systems and Sensors division, increased 29.7%, from $6.5
million in the first quarter of 1996 to $8.4 million in the first quarter of
1997. This growth was primarily due to the increased sales of the SAFIRE thermal
imaging system to governmental customers, particularly the U.S. Navy and the
U.S. Marine Corps.
As a percentage of total revenue for the quarter ended March 31, 1997,
revenues from the sale of imaging systems to the government market constituted
53.1% and revenues from the sale of commercial imaging systems constituted
46.9%. This compares to 57.7% for the government market and 42.3% for commercial
imaging systems for the first quarter of 1996. These amounts indicate that sales
of the Company's commercial imaging products continue to account for an
increasing percentage of the Company's total revenue. While the revenue mix
between governmental and commercial markets will vary from quarter to quarter,
management expects that revenues from the sales of commercial imaging systems
will continue to grow.
Revenues from sales outside the United States decreased as a percentage
of total revenue from approximately 40.4% to approximately 34.2% for the
quarters ended March 31, 1996 and 1997, 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. While these percentages are slightly below historical norms,
management anticipates that revenues from international sales as a percentage of
total revenue will continue to comprise a significant percentage of revenue.
8
<PAGE>
Gross profit. As a percentage of revenue, gross profit decreased
slightly from 53.3% in the first quarter of 1996 to 52.4% in the first quarter
of 1997. The decrease in gross profit as a percentage of revenue was principally
attributable to the higher proportion of total revenue representing commercial
revenues, which typically have slightly lower margins than those of the
government market and increased shipments to agencies and instrumentalities of
the U.S. Government which typically have lower margins than those of other
customers in the government markets and aggregated $4.0 million in the first
quarter of 1997 compared to $2.5 million in the first quarter of 1996. Gross
profit percentages are affected by a variety of factors, including the mix of
domestic and international government sales, the more competitive nature of the
commercial imaging market, and the impact of competitive bids for significant
government contracts.
Research and development. Research and development expense as a
percentage of revenue decreased from 18.8% to 17.6% for the three months ended
March 31, 1996 and 1997, respectively. However, in absolute dollar terms,
research and development expense increased from $2.1 million in the first
quarter of 1996 to $2.8 million in the first quarter of 1997. The decrease as a
percentage of revenue and increase in absolute dollar terms reflects the fact
that a large percentage of research and development expense is fixed in nature.
The overall increase in absolute dollar terms for the quarter was primarily due
to increased engineering efforts related to the introduction of the Tracer(TM)
and the UltraMedia-RS(TM), as well as on-going new product development and
existing product enhancements. The overall level of research and development
expense, in absolute dollar terms, reflects the continued emphasis on product
development and new product introductions. While research and development
expense may increase in absolute dollar terms, management anticipates that
research and development expense, as a percentage of total revenue, will
decrease.
Selling and other operating costs. Selling and other operating costs
as a percentage of revenue decreased slightly from 33.3% in the first quarter of
1996 to 32.2% in the first quarter of 1997. In absolute dollar terms selling and
other operating costs increased from $3.7 million to $5.1 million for the
quarters ended March 31, 1996 and 1997, respectively. The increase in absolute
dollar terms was due to costs associated with increased revenues during the
quarter (primarily commissions) and costs related to increased personnel, as the
Company's total number of employees increased from 325 at March 31, 1996 to 390
throughout all the Company's operations at March 31, 1997. While selling and
other operating costs may increase in absolute dollar terms in 1997, management
believes that, as a percentage of total revenue, such costs will continue to
decline as revenues increase.
Income taxes. The provision for income taxes for the quarter ended
March 31, 1997 resulted in an effective tax rate of 26.0% compared to 22.2% for
the quarter ended March 31, 1996. The increase in the effective tax rate is
primarily due to the fact that the Company has utilized all of its internally
generated U.S. net operating loss carryforwards. The effective tax rate remains
substantially below statutory rates due to utilization of various tax credits,
and benefits from the favorable tax treatment of international revenues.
9
<PAGE>
Liquidity and Capital Resources
At March 31, 1997, the Company had short-term borrowings net of cash on hand of
$11.1 million compared with $5.6 million at December 31, 1996. The increase in
short-term borrowings during the three months ended March 31, 1997, was
principally caused by increased accounts receivable levels discussed below.
Accounts receivable increased from $28.3 million at December 31, 1996 to $32.9
million at March 31, 1997. The increase in receivables was primarily due to
delays in payment from governmental customers resulting from a large volume of
year-end shipments and extended terms granted to international customers.
For the quarter, inventories increased slightly from $33.5 million at December
31, 1996 to $34.0 million at March 31, 1997. The efforts to reduce inventory
levels for existing product lines were partially offset by the increase in
inventory needed to support deliveries of the Company's new product lines,
including the SeekIR(TM), the Tracer(TM), the UltraMedia(TM) and the UltraMedia-
RS(TM). 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 $13.0 million line of credit which bears interest at
the prime rate. At March 31, 1997, the Company had $11.4 million outstanding on
this line.
The increased use of cash by operating activities in the first quarter is
consistent with prior years and is primarily due to the increases in inventories
and receivables discussed above. While the use of the credit facility will vary
significantly and is heavily dependent upon the timing of collection of
significant receivables, the Company believes that its existing cash and
available credit facilities, together with the scheduled payments on existing
receivable balances, and continuing efforts to expedite the reduction of
accounts receivable and inventories will be sufficient to meet its cash
requirements for the foreseeable future.
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 "expect," "anticipates,"
"intends," "plans," "believes," "sees," "estimates" and variation 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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the quarter, the Company sold securities without registration under the
Securities Act of 1933, as amended (the "Securities Act") upon the exercise of
certain stock options granted under the Company's 1984 Stock Incentive Plan. An
aggregate of 51,867 shares of Common Stock were issued at exercise prices
ranging from $1.625 to $5.225. These transactions were effected in reliance upon
the exemption from registration under the Securities Act provided by Rule 701
promulgated by the Securities and Exchange Commission pursuant to authority
granted under Section 3(b) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.0 Computation of Net Earnings Per Share
27.0 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended
March 31, 1997.
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, 1997 /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>
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,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net earnings ................................ $ 91 $ 56
====== ======
Weighted average number of common shares
outstanding ................................ 5,424 5,299
Assumed exercise of stock options net of
share assumed reacquired under the treasury
stock method ............................... 324 216
------ ------
5,748 5,515
====== ======
Earnings per share .......................... $ 0.02 $ 0.01
====== ======
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 34,614
<ALLOWANCES> 1,666
<INVENTORY> 33,982
<CURRENT-ASSETS> 68,652
<PP&E> 15,123
<DEPRECIATION> 7,239
<TOTAL-ASSETS> 80,447
<CURRENT-LIABILITIES> 25,067
<BONDS> 4,843
0
0
<COMMON> 55
<OTHER-SE> 50,482
<TOTAL-LIABILITY-AND-EQUITY> 80,447
<SALES> 15,821
<TOTAL-REVENUES> 15,821
<CGS> 7,529
<TOTAL-COSTS> 7,529
<OTHER-EXPENSES> 7,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306
<INCOME-PRETAX> 123
<INCOME-TAX> 32
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
