<PAGE>
==========================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K/A
__________________
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 30, 1999
---------------
==========================================================
FLIR Systems, Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Oregon 0-21918 93-0708501
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
16505 S.W. 72nd Avenue, Portland, Oregon 97224
(Address of principal executive offices) (Zip Code)
</TABLE>
(503) 684-3731
(Registrant's telephone number, including area code)
==========================================================
1
<PAGE>
Item 7. Financial Statements and Exhibits.
On March 30, 1999, FLIR Systems, Inc. (the "Company") acquired all of the
outstanding capital stock of Inframetrics, Inc. ("Inframetrics") as a result of
the merger of a wholly-owned subsidiary of the Company with and into
Inframetrics (the "Merger"). The Company reported the Merger on a Form 8-K
dated March 30, 1999 and filed on April 14, 1999. At the time of the filing,
the Company determined that the inclusion of the financial statements and pro
forma financial information required by Item 7 of Form 8-K was impracticable.
This amendment to Form 8-K includes the financial statements and pro forma
financial information required by Item 7 of the Form 8-K.
a. Financial Statements of Business Acquired
-----------------------------------------
The following consolidated financial statements of Inframetrics, Inc. and
Subsidiaries, the business acquired, are attached hereto as Exhibit 99.1:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
b. Pro Forma Financial Statements
------------------------------
The following unaudited pro forma condensed combined financial statements are
attached hereto as Exhibit 99.2:
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
1998
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1998
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1997
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1996
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
c. Exhibits
--------
Exhibit No. Description
---------------- ----------------------------------------
2.1 Merger Agreement dated as of March 19, 1999 by and
among FLIR Systems, Inc., Inframetrics, Inc., Irabu
Acquisition Corporation and the Shareholders of
Inframetrics, Inc. (Incorporated by reference to
Current Report on Form 8-K filed on April 14, 1999)
10.1 Shareholders Agreement dated as of March 19, 1999 by
and among FLIR Systems, Inc., Inframetrics, Inc., and
the Shareholders of Inframetrics, Inc. (Incorporated
by reference to Current Report on Form 8-K filed on
April 14, 1999)
23.0 Consent of Ernst & Young LLP
99.1 Audited consolidated financial statements of
Inframetrics, Inc. and Subsidiaries, the acquired
business
99.2 Unaudited pro forma condensed combined financial
statements of the Company
2
<PAGE>
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 14, 1999 /s/ J. Mark Samper
--------------------- ----------------------------------
J. Mark Samper
Vice President of Finance and
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
3
<PAGE>
EXHIBIT 23.0
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-82676, 33-82194 and 33-95248) of FLIR Systems, Inc. of our
report dated February 19, 1999 with respect to the consolidated financial
statements of Inframetrics Inc. and Subsidiaries for the years ended December
31, 1998 and 1997, included in the Current Report on Form 8-K/A of FLIR Systems,
Inc. filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 10, 1999
<PAGE>
EXHIBIT 99.1
Report of Independent Auditors
Board of Directors
Inframetrics, Inc.
We have audited the accompanying consolidated balance sheets of Inframetrics,
Inc. and subsidiaries (the Company) as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Inframetrics, Inc.
and subsidiaries at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/S/ Ernst & Young LLP
Boston, Massachusetts
February 19, 1999
<PAGE>
Inframetrics, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
--------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,132,535 $ 1,661,312
Accounts receivable, less allowance of $309,937 in 1998
and $156,408 in 1997 9,864,457 11,141,855
Inventories 17,326,482 14,290,307
Prepaids and other current assets 512,125 487,947
--------------------------------------------
Total current assets 29,835,599 27,581,421
Property, plant and equipment, net 2,120,675 2,111,639
Deferred income taxes 2,109,463 1,599,227
Other assets 93,750 128,313
--------------------------------------------
4,323,888 3,839,179
--------------------------------------------
Total assets $ 34,159,487 $ 31,420,600
============================================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Notes payable to bank $ 2,598,037 $ --
Trade accounts payable and accrued expenses 6,314,976 6,813,108
Accrued compensation and related liabilities 1,850,861 2,400,895
Deferred income 494,193 534,327
Income taxes payable 1,183,417 1,076,574
Current portion of long-term debt 1,875,000 875,000
Current portion of capital lease obligations 199,037
--------------------------------------------
Total current liabilities 14,515,521 11,699,904
Long-term debt, net of current portion 18,049,508 18,955,100
Capital lease obligations, net of current portion 237,805
Class B Stock, $.01 par value, 69,360 shares authorized,
68,000 shares issued and outstanding, liquidation
preference of $12,418,848 12,031,895 10,956,887
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 400,000 shares
authorized, none issued
Common Stock, $.01 par value, 1,532,000 shares authorized,
218,250 and 200,000 shares issued and outstanding 2,182 2,000
Additional paid-in capital 10,768
Retained deficit (10,596,653) (10,043,958)
Accumulated other comprehensive loss (91,539) (149,333)
--------------------------------------------
(10,675,242) (10,191,291)
--------------------------------------------
Total liabilities, redeemable stock and stockholders' equity $ 34,159,487 $ 31,420,600
(deficit)
============================================
</TABLE>
1
See accompanying notes.
<PAGE>
Inframetrics, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
-------------------------------------------
<S> <C> <C>
Revenues:
Net sales $54,689,877 $53,163,488
Other income 338,863 317,731
-------------------------------------------
55,028,740 53,481,219
Costs and expenses:
Cost of sales 30,273,704 28,328,023
Selling, general and administrative expenses 17,239,346 14,674,319
Research and development 4,835,644 5,792,993
-------------------------------------------
52,348,694 48,795,335
-------------------------------------------
Income from operations 2,680,046 4,685,884
Other income (expense):
Interest income 24,662 40,424
Interest expense (1,721,893) (1,662,219)
Other expense (243,874) (328,541)
-------------------------------------------
(1,941,105) (1,950,336)
-------------------------------------------
Income before income taxes 738,941 2,735,548
Provision for income taxes 216,628 1,336,000
-------------------------------------------
Net income $ 522,313 $ 1,399,548
===========================================
</TABLE>
See accompanying notes.
2
<PAGE>
Inframetrics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other Total
Common Paid-in Earnings Comprehensive Stockholders'
Stock Capital (Deficit) Income* Equity (Deficit)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 200 $ - $(10,366,698) $ (30,062) $(10,396,560)
Comprehensive income:
Net income for 1997 1,399,548 1,399,548
Foreign currency translation
adjustment (119,271) (119,271)
------------------
Total comprehensive income 1,280,277
Dividends on Class B Stock (1,075,008) (1,075,008)
Common stock dividend 1,800 (1,800) -
---------------------------------------------------------------------------------------
Balances at December 31, 1997 2,000 - (10,043,958) (149,333) (10,191,291)
Comprehensive income:
Net income for 1998 522,313 522,313
Foreign currency translation
adjustment 57,794 57,794
------------------
Total comprehensive income 580,107
Dividends on Class B Stock (1,075,008) (1,075,008)
Proceeds from exercise of stock
options 182 10,768 10,950
---------------------------------------------------------------------------------------
Balances at December 31, 1998 $2,182 $10,768 $(10,596,653) $ (91,539) $(10,675,242)
=======================================================================================
</TABLE>
* Entire amount relates to equity adjustment from foreign currency translation.
See accompanying notes.
3
<PAGE>
Inframetrics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
---------------------------------
<S> <C> <C>
Operating activities
Net income $ 522,313 $ 1,399,548
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 955,509 795,853
Provision for losses on accounts receivable 252,000 220,000
Deferred income taxes (510,236) (277,000)
(Increase) decrease in assets and liabilities:
Accounts receivable 994,949 124,782
Inventories (3,048,495) (2,205,065)
Deferred income (40,134) (87,698)
Prepaids and other assets (23,735) (284,725)
Other assets 715,880
Accounts payable, accrued expenses and other
accrued liabilities (514,296) 219,277
Accrued compensation and related liabilities (550,034) 466,232
Accrued interest to related party 969,508 897,600
Income taxes payable 106,843 (270,450)
---------------------------------
Net cash (used) provided by operating activities (885,808) 1,714,234
Investing activities
Purchases of equipment (329,486) (1,038,118)
---------------------------------
Net cash used in investing activities (329,486) (1,038,118)
Financing activities
Proceeds from revolving credit agreement, net 2,598,037
Principal payments on debt (875,100) (787,500)
Principal payments on capital lease obligations (164,008)
Proceeds from issuance of common stock 10,950
---------------------------------
Net cash provided (used) by financing activities 1,569,879 (787,500)
Effect of foreign exchange rate changes on cash 116,638 (248,639)
---------------------------------
Net increase (decrease) in cash and cash equivalents 471,223 (360,023)
Cash and cash equivalents at beginning of year 1,661,312 2,021,335
---------------------------------
Cash and cash equivalents at end of year $ 2,132,535 $ 1,661,312
=================================
Supplemental disclosure of cash flow information:
Noncash financing transaction:
Interest on note payable to Elbit Ltd. $ 969,508 $ 897,600
=================================
</TABLE>
See accompanying notes.
4
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements
1. The Company
Inframetrics, Inc. (the Company) designs and manufactures thermal imaging and
measurement systems primarily for Fortune 500 companies, electric utilities and
government agencies. These systems are being applied in such diverse fields as
predictive maintenance, nondestructive testing, process monitoring, research and
development, surveillance, law enforcement and the military.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
Inframetrics, Inc. and its wholly-owned subsidiaries in the United States,
United Kingdom, France, Germany, Belgium and Israel. All material intercompany
accounts and transactions have been eliminated in consolidation. The Company's
foreign subsidiaries represent approximately $4,479,000 and $3,893,000 of total
assets at December 31, 1998 and 1997, respectively.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include collectibility of accounts receivable,
recoverability of deferred tax assets and the carrying value of inventory.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers short-term investments which have a maturity of three
months or less at the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market.
Property, Plant and Equipment
These assets are stated at cost less accumulated depreciation and amortization,
and are depreciated using an accelerated depreciation method, over their
estimated useful lives as follows:
Asset Classification Estimated Useful Life
- -------------------------------------------------------------------------
Motor vehicles 5 years
Machinery and equipment 5-7 years
Furniture and fixtures 5-7 years
Computer equipment 5 years
Leasehold and building improvements Life of lease
5
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at the year-end exchange rates, and the income statement items are translated at
the average exchange rates for the year. Realized foreign currency exchange
gains and losses are included in operations and were not material in 1998 and
1997.
Revenue Recognition
Revenues from product sales are recognized at the time the product is shipped.
Service and other revenues are recognized ratably over the contractual period or
as the services are provided.
Income Taxes
The Company provides for deferred taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to be realized or settled.
Concentration of Credit Risk
The Company sells its products to customers in commercial industries and certain
governmental agencies. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses, and such losses have been within
management's expectations.
The Company invests its excess cash principally in deposits with major banks.
These securities typically mature within three months of their purchase date
and, therefore, are subject to minimal risk. The Company has not experienced
losses related to these investments.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations.
Reclassification
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and the foreign currency translation adjustments,
which, prior to adoption, were reported separately in stockholders' equity, to
be included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130.
Certain other 1997 amounts have been reclassified to permit comparison with the
1998 presentation.
6
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable and debt instruments approximate their fair
value.
3. Related-Party Transactions
The Company has an agreement with Elbit Ltd. (former parent company and present
holder of approximately 200,000 common shares of Inframetrics, Inc.) under which
the Company provides various consulting services for Elbit. These services
amounted to $230,000 and $215,000 in 1998 and 1997, respectively.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
--------------------------------------
<S> <C> <C>
Finished goods and demonstration equipment $ 6,018,009 $ 5,404,918
Work-in-process 5,149,909 4,915,619
Raw materials 10,024,062 7,103,807
--------------------------------------
21,191,980 17,424,344
Reserve for obsolescence 3,865,498 3,134,037
--------------------------------------
$17,326,482 $14,290,307
======================================
</TABLE>
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
-------------------------------------------
<S> <C> <C>
Motor vehicles $ 77,171 $ 95,624
Machinery and equipment 4,445,382 4,058,110
Furniture and fixtures 1,171,855 1,055,118
Computer equipment 3,167,867 2,785,525
Leasehold and building improvements 1,679,856 1,617,772
-------------------------------------------
10,542,131 9,612,149
Less allowance for depreciation and amortization (8,421,456) (7,500,510)
-------------------------------------------
$ 2,120,675 $ 2,111,639
===========================================
</TABLE>
As of December 31, 1998, computer equipment includes leased equipment totaling
$463,000 which has been capitalized under a lease obligation. Amortization of
$100,000 was recognized on the leased equipment in 1998 and is included in
depreciation and amortization expense.
7
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
6. Financing Arrangements
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
-------------------------------------------
<S> <C> <C>
Note payable to Elbit Ltd. $11,000,000 $11,000,000
Interest on note payable to Elbit Ltd. 2,087,008 1,117,500
Term loan 6,837,500 7,712,600
-------------------------------------------
19,924,508 19,830,100
Current portion of long-term debt (1,875,000) (875,000)
-------------------------------------------
$18,049,508 $18,955,100
===========================================
</TABLE>
Annual maturities of long-term debt are as follows: $1,875,000 in 1999;
$2,000,000 in 2000; $2,912,500 in 2001; $1,050,000 in 2002 and $12,087,008 in
2003.
In 1996, the Company entered into a Revolving Credit and Term Loan Agreement
with a commercial bank consisting of a revolving credit facility of $6.5 million
and an $8.5 million term loan. In connection therewith, the Company incurred
$175,500 of debt issuance costs. These costs are being amortized over the term
of the agreement. The interest rate was 7.0703% and 7.375% for the term loan at
December 31, 1998 and 1997, respectively.
At December 31, 1998, the revolving credit facility enabled the Company to
borrow up to $6.5 million. There were borrowings of $2,598,037 outstanding on
this line at December 31, 1998. There were no borrowings at December 31, 1997.
The interest rate on the revolving line of credit ranged from 7.0703% to 7.3067%
at December 31, 1998. A commitment fee ranging from 0.375% to 0.5% per annum is
due on the unused portion of the borrowing facility.
During 1998, the Company entered into an interest swap agreement which converted
its floating interest rate liability to a fixed rate without changing the
structure of its existing credit facility. The amount under the agreement is $8
million. The term is three years with a fixed interest rate of 5.39%, to which
a variable element is added based upon the Company's current financial position.
This variable element was 1.75% at December 31, 1998. Any borrowings above the
$8 million are charged at the prime rate of interest.
Under the term loan, principal is payable in regular quarterly installments
which are intended to fully repay the debt by September 30, 2002. Optional
prepayment is permitted.
The Company's obligations under this agreement are secured by all of its
tangible and intangible assets and the stock of its subsidiaries.
Both the term loan and the revolving credit facility contain certain provisions
and covenants which restrict the amount of future indebtedness, cash dividends
and capital expenditures, and require the Company to maintain specified levels
of debt service coverage, leverage ratios, senior interest coverage and
profitability. Additional interest rate charges could be incurred depending on
the Company's ability to achieve leverage ratios as specified under the
agreement.
8
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
6. Financing Arrangements (continued)
The Company has a subordinated promissory note for $11 million to Elbit.
Principal is payable in three installments consisting of $500,000 on September
30, 1999, $500,000 on September 30, 2001 and the balance, including all accrued
interest, on September 30, 2003. Optional prepayment is permitted. The note
bears interest at 8%, which is payable in full on September 30, 2003 or, if the
note is prepaid in full, at that earlier date. As such, at December 31, 1998
and 1997, accrued interest of $2,087,008 and $1,117,500, respectively, on this
note is included with long-term debt on the accompanying consolidated balance
sheets.
Interest paid was $581,037 and $764,619 for the years ended December 31, 1998
and 1997, respectively.
7. Lease Obligations
The Company leases certain equipment under a capital lease arrangement. Assets
under capital leases totaled $463,000 at December 31, 1998. Accumulated
amortization relating to assets under capital leases was $100,000 at December
31, 1998.
The Company has noncancelable lease agreements for office space which expire in
2000. Rent expense was $438,600 for the years ended December 31, 1998 and 1997.
Future minimum commitments under leases with noncancelable terms of one or more
years are as follows at December 31, 1998:
Capital Leases Operating
Leases
----------------------------------------
1999 $ 225,897 $438,600
2000 219,975 438,600
2001 29,313
----------------------------------------
Total minimum lease payments 475,185 $877,200
===================
Less amounts representing interest (38,343)
--------------
Present value minimum lease payments 436,842
Less amounts due within one year (199,037)
--------------
Long-term portion of capital lease
obligations $ 237,805
==============
The Company recorded $137,948 and $129,439 in sublease income from a
noncancelable sublease in 1998 and 1997, respectively. The future minimum
rentals to be received by the Company as of December 31, 1998 are $128,460 in
1999.
8. Class B Stock
The shares of Class B Stock are entitled to vote with the Common Stock on all
matters submitted to stockholders. Dividends are cumulative and accrue at an
annual rate of 10.75% per year. Dividends become payable in cash upon
redemption of the Redeemable Preferred Stock, liquidation of the Company or
other extraordinary transactions as defined. At December 31, 1998 and 1997, the
Company recorded a charge to retained deficit of $1,075,008 to reflect the
dividends accrued, but unpaid, for the Class B Stock. Class B Stock is
voluntarily convertible at any time upon request of 70% of the holders of the
Class B Stock and converts automatically upon a qualified initial public
offering, as defined. Under the conversion formula, one share of Class B Stock
converts into both one share of Common Stock and one share of Redeemable
Preferred Stock, as adjusted. Any accrued and unpaid dividends due on the Class
B Stock are transferred to the Redeemable Preferred Stock into which the Class B
Stock was converted and shall be paid in full by the Company upon redemption of
the Redeemable Preferred Stock.
9
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
8. Class B Stock (continued:)
No shares of Class B Stock acquired by the Company by purchase, conversion or
otherwise will be reissued. All such shares will be canceled, retired and
eliminated from the shares of the Company.
Holders of Class B Stock have preference in liquidation and are entitled to
receive, before any distribution is made to preferred shareholders and common
shareholders, $147.06 per share in cash, as adjusted, plus any unpaid dividends.
Once holders of Class B Stock are paid in full, holders of Redeemable Preferred
Stock would be entitled to receive $147.06 per share in cash plus any unpaid
dividends, as adjusted, from any remaining assets of the Company.
9. Stockholders' Equity
The total number of shares of capital stock which the Company has the authority
to issue is set at 2,001,360 shares, of which 69,360 shares are designated as
Class B Stock, 400,000 shares are designated as Preferred Stock and 1,532,000
shares are designated as Common Stock. Of the 400,000 shares of Preferred Stock,
350,000 shares are designated as Redeemable Preferred Stock and 50,000 shares
are Undesignated Preferred Stock. The par value for all shares of capital stock
was set at $.01. In 1997, the Board of Directors authorized a 10-for-1 stock
split of the Common Stock effected through a stock dividend of nine shares of
Common Stock for each outstanding share of Common Stock.
The Redeemable Preferred Stock is nonvoting. Dividends are cumulative and accrue
at an annual rate of 10.75% per year. Dividends become payable in cash in the
event of the liquidation of the Company, or other extraordinary transactions, as
defined, or upon redemption. The Company is required to redeem the Redeemable
Preferred Stock at $147.06 per share in cash, as adjusted, plus any unpaid
dividends, upon the occurrence of a qualified initial public offering, or upon
request of 70% of the holders of the Redeemable Preferred Stock, upon the
occurrence of an extraordinary event, as defined, or at any time after September
30, 2003.
A total of 50,000 shares of the Preferred Stock is Undesignated Preferred Stock.
Shares are issuable in one or more classes or series, and the Board of Directors
has authority to fix the terms of each class or series.
The holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. No dividends shall be declared or
paid on the Common Stock as long as shares of Class B Stock and Preferred Stock
remain outstanding.
At December 31, 1998, the Company had reserved 805,010 (after giving effect to
the 10-for-1 stock split) shares of Common Stock and 68,000 shares of Redeemable
Preferred Stock for conversion of Class B Stock and options outstanding under
the Stock Option Plan.
10. Employee Benefit and Stock Option Plans
The Company has an employee savings plan which covers substantially all domestic
employees. The plan allows participants to make pretax or aftertax
contributions, and the Company matches certain percentages of employee
contributions. The Company's matching contributions were approximately $442,000
and $422,000 in 1998 and 1997, respectively.
10
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
10. Employee Benefit and Stock Option Plans (continued)
On September 30, 1996, the Company adopted the Inframetrics Inc. 1996 Stock
Option Plan (the Stock Option Plan) which provides for the issuance of up to
143,260 shares of Common Stock as either incentive stock options or nonqualified
stock options. Stock options may be granted to officers, directors, employees,
consultants and agents of the Company. Incentive stock options may not be
granted at a price less than fair market value of the Common Stock on the date
of the grant. Nonqualified stock options may be granted at an exercise price
established by the Board of Directors. The Board of Directors determines the
grant price and the vesting period at the time of grant, and options expire
within seven years after the date of the grant.
Stock option activity for the years ended December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Weighted-
Number of Option Price Average Price
Shares Per Share Per Share
-------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 -- -- --
Granted 138,784 $ 0.60 $0.60
Canceled (1,416) 0.60 0.60
-------------------------------------------------------------
Outstanding at December 31, 1997 137,368 0.60 0.60
Granted 11,625 0.60-5.00 4.13
Exercised (18,250) 0.60 0.60
Canceled (7,762) 0.60-5.00 0.71
-------------------------------------------------------------
Outstanding at December 31, 1998 122,981 $ 0.60-$5.00 $0.87
=============================================================
</TABLE>
At December 31, 1998 and 1997, options to purchase 2,029 and 5,892 shares,
respectively, were available for future grant.
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). This Statement establishes financial accounting and reporting standards
for stock-based compensation plans, including the Stock Option Plan. As allowed
under SFAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations in accounting for its stock-based compensation plans, and,
accordingly, no compensation expense related to stock-based compensation was
recorded in 1998 or 1997.
Had compensation expense for the Company's stock option plan been determined
based on the fair values at the grant dates for awards under the plan consistent
with the method of accounting prescribed by SFAS 123, the Company's net income
would have decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31
1998 1997
---------------------------------------
<S> <C> <C> <C>
Net income As reported $522,313 $1,399,548
Pro forma 520,267 1,397,186
</TABLE>
11
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
10. Employee Benefit and Stock Option Plans (continued)
In accordance with the guidance provided under SFAS 123, fair values are based
on minimum values. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for the grants for the years ended December
31, 1998 and 1997: Dividend yield of zero; expected volatility of zero; risk-
free interest rates ranging from 4.54% to 6.87%. The risk-free interest rate
used in the calculation is the yield on the grant date of a U.S. Treasury Strip
with a maturity equal to the expected term of the option.
11. Income Taxes
The (benefit) provision for income taxes for continuing operations at December
31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------
<S> <C> <C>
Current:
Federal $ 659,416 $1,263,000
State 67,448 350,000
-------------------------------------
726,864 1,613,000
Deferred:
Federal (433,700) (235,500)
State (76,536) (41,500)
-------------------------------------
(510,236) (277,000)
-------------------------------------
$ 216,628 $1,336,000
=====================================
</TABLE>
A reconciliation between the Company's effective tax rate and the federal
statutory rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------
<S> <C> <C>
Tax at statutory rate $ 251,240 $ 930,000
State income taxes, net (32,020) 209,000
Nondeductible foreign losses 152,106 390,000
Research and development credit (214,179) (193,000)
Other 59,481
-------------------------------------
$ 216,628 $1,336,000
=====================================
</TABLE>
Significant components of the Company's deferred tax asset as of December 31 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Valuation reserves $1,544,000 $1,126,000
Warranty reserve 200,000 200,000
Employee benefits 48,000 32,000
Depreciation and amortization 248,000 167,000
Other 69,463 74,227
------------------------------------
Total deferred tax asset $2,109,463 $1,599,227
====================================
</TABLE>
12
<PAGE>
Inframetrics, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements--(Continued)
11. Income Taxes (continued)
The Company has recorded a net deferred tax asset of $2,109,463 and $1,599,227
at December 31, 1998 and 1997, respectively. Although realization is not
assured, based on the Company's prior operating results and its expectations for
the future, management believes that it is more likely than not that the
deferred tax asset will be realized.
Total income taxes paid amounted to approximately $220,000 and $1,782,800 in
1998 and 1997, respectively.
12. Research and Development Contracts
In 1995, the Company entered into a two-year arrangement with three other
companies (collectively known as the Consortium) to perform research and
development activities on certain technologies for military and commercial
applications for an agency of the Department of Defense. The Consortium retains
all rights, title and interest in the developed technologies and may elect to
transfer these rights to the Consortium participants. During 1997, the Company
incurred approximately $2,322,000 of research and development expenses related
to these activities and received $387,405.
13. Contingencies
During 1995, the Company entered into a contract with the U.S. Immigration and
Naturalization Service (the INS) for thermal imaging systems. As a result of
increases in the cost of certain materials, a loss will be incurred if the
Company is required to deliver any further units under this contract. Although
the INS has only ordered 17 additional units, the contract provides for up to
350 additional units which, at an average loss of $10,000 per unit, represents a
$3.5 million potential liability. The Company has entered into discussions with
the INS to modify the contract in favor of a new generation of product. If the
INS found the Company in default and terminated the contract, the INS would have
the right to reprocure from an alternative supplier, with the Company bearing
any additional costs incurred.
Management believes that the contract with the INS will be successfully
renegotiated and that there will be no adverse effect on the financial position
of the Company.
14. Merger Announcement
In December 1998, the Company announced that it had reached a preliminary
agreement to be acquired by FLIR Systems, Inc. The proposed transaction is
subject to the execution of a definitive agreement, the receipt of all
applicable regulatory approvals under the Hart-Scott-Rodino Antitrust
Improvements Act, and other customary terms and conditions.
13
<PAGE>
EXHIBIT 99.2
Unaudited Pro Forma Condensed Combined Financial Statements
The following Unaudited Pro Forma Condensed Combined Statements of Operations
and Balance Sheet give effect to the merger on a pooling of interests basis of
accounting. These Unaudited Pro Forma Condensed Combined Financial Statements
have been prepared from the historical consolidated financial statements of FLIR
Systems, Inc. and Inframtrics, Inc. and should be read in conjunction therewith.
This pro forma condensed information is not necessarily indicative of actual or
future operating results or financial position that would have occurred or will
occur upon the consummation of the merger.
The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the
merger as if had occurred on January 1, 1996, combining the balance sheets of
FLIR and Inframetrics as of December 31, 1998. The Unaudited Pro Forma
Condensed Combined Statements of Operations give effect to the merger as if it
had occurred on January 1, 1996, combining the results of FLIR and Inframetrics
for each of the three years ended in the period ended December 31, 1998.
1
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------- -------------------------------
FLIR Inframetrics Adjustments Combined
---------- ---------------------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................ $ 2,660 $ 2,133 -- $ 4,793
Accounts receivable, net (Note 1)........ 80,984 9,865 353 91,202
Inventories.............................. 52,986 17,326 -- 70,312
Prepaid expenses (Note 1)............... 5,902 512 (353) 6,061
Deferred income taxes (Note 5)........... 4,915 -- 1,861 6,776
-------- -------- -------- --------
Total current assets................... 147,447 29,836 1,861 179,144
Property and equipment, net................ 24,654 2,121 -- 26,775
Software development costs, net............ 488 -- -- 488
Deferred income taxes (Note 5)............. 9,501 2,109 (1,861) 9,749
Intangible assets, net..................... 15,936 -- -- 15,936
Other assets............................... 3,803 94 -- 3,897
-------- -------- -------- --------
$201,829 $ 34,160 $ -- 235,989
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable............................ $ 37,360 $ 2,598 $ -- $ 39,958
Accounts payable (Note 1)................ 18,942 6,315 (1,226) 24,031
Accrued payroll and other liabilities
(Note 1).............................. 12,618 2,345 1,226 16,189
Accrued income taxes..................... 2,709 1,184 -- 3,893
Current portion of long-term debt........ 606 2,074 -- 2,680
-------- -------- -------- --------
Total current liabilities.............. 72,235 14,516 -- 86,751
Long-term debt............................. 1,009 18,287 -- 19,296
Pension liability.......................... 3,960 -- -- 3,960
Class B Stock (Note 2)..................... -- 12,032 (12,032) --
Shareholders' equity:
Preferred stock.......................... -- -- -- --
Common stock (Note 2).................... 120 2 19 141
Additional paid-in capital (Note 2)...... 132,564 11 9,594 142,169
Accumulated deficit (Note 2)............. (6,077) (10,597) 2,419 (14,255)
Accumulated other comprehensive
loss................................... (1,982) (91) -- (2,073)
-------- -------- -------- --------
Total shareholders' equity (deficit)... 124,625 (10,675) 12,032 125,982
-------- -------- -------- --------
$201,829 $ 34,160 $ -- $235,989
======== ======== ======== ========
</TABLE>
2
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------- -------------------------------
FLIR Inframetrics Adjustments Combined
---------- ---------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Commercial (Note 3)................. $ 93,172 $ 54,690 $ (9,465) $ 138,397
Government (Note 3)................. 60,760 -- 9,465 70,225
Other (Note 3)...................... -- 339 (339) --
--------- --------- --------- ---------
Total revenue..................... 153,932 55,029 (339) 208,622
Cost of goods sold.................... 65,055 30,274 -- 95,329
--------- --------- --------- ---------
Gross profit...................... 88,877 24,755 (339) 113,293
Operating expenses:
Research and development............ 22,122 4,836 -- 26,958
Selling and other operating costs... 41,694 17,239 -- 58,933
--------- --------- --------- ---------
Total operating costs............. 63,816 22,075 -- 85,891
Earnings from operations........ 25,061 2,680 (339) 27,402
Interest and other income (Note 3).... 364 25 339 728
Interest and other expense............ (3,233) (1,966) -- (5,199)
--------- --------- --------- ---------
Earnings before income taxes.... 22,192 739 -- 22,931
Provision for income taxes............ 5,938 217 -- 6,155
--------- --------- --------- ---------
Net earnings.......................... $ 16,254 $ 522 $ -- $ 16,776
========= ========= ========= =========
Net earnings per share:
Basic.............................. $ 1.49 $ 1.29
========= =========
Diluted............................ $ 1.45 1.24
========= =========
Weighted average number of
common shares and equivalents
Basic.............................. 10,875 12,983
=========
Diluted............................ 11,210 13,510
========= ========
</TABLE>
3
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------------------------------- --------------------------------
FLIR Inframetrics Adjustments Combined
------------------------ ----------------------- -------------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Commercial (Note 3)................. $ 43,288 $53,163 $(9,795) $ 86,656
Government (Note 3)................. 48,483 -- 9,795 58,278
Other (Note 3)...................... -- 318 (318) --
------------------------ ----------------------- ------------------ ----------
Total revenue..................... 91,771 53,481 (318) 144,934
Cost of goods sold.................... 58,507 28,328 -- 86,835
------------------------ ----------------------- ------------------ -----------
Gross profit...................... 33,264 25,153 (318) 58,099
Operating expenses:
Research and development............ 11,814 5,793 -- 17,607
Selling and other operating costs... 26,551 14,674 -- 41,225
Combination costs................... 36,450 -- -- 36,450
------------------------ ----------------------- -------------------------------
Total operating costs............. 74,815 20,467 -- 95,282
(Loss) earnings from operations. (41,551) 4,686 (318) (37,183)
Interest and other income (Note 3).... 182 40 318 540
Interest and other expense............ (2,103) (1,990) -- (4,093)
------------------------ ----------------------- --------------------------------
(Loss) earnings before income
taxes........................ (43,472) 2,736 -- (40,736)
Income taxes (benefit) provision...... (12,884) 1,336 -- (11,548)
------------------------ ----------------------- -------------------------------
Net (loss) earnings................... $(30,588) $ 1,400 -- $(29,188)
======================== ======================= ===============================
Net (loss) earnings per share:
Basic.............................. $ (5.23) $ (3.67)
======================== =========
Diluted............................ $ (5.23) $ (3.67)
======================== =========
Weighted average number of
common shares and equivalents
outstanding: (Note 4)
Basic.............................. 5,843 7,951
======================== =========
Diluted............................ 5,843 7,951
======================== =========
</TABLE>
4
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- ---------------------------------------
FLIR Inframetrics Adjustments Combined
----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Commercial (Note 3)................. $ 23,059 $ 45,768 $ (14,380) $ 54,447
Government (Note 3)................. 42,958 -- 14,380 57,338
Other (Note 3)...................... -- 332 (332) --
----------------- --------------- ----------------- -----------------
Total revenue..................... 66,017 46,100 (332) 111,785
Cost of goods sold.................... 30,415 27,449 -- 57,864
----------------- --------------- ----------------- -----------------
Gross profit...................... 35,602 18,651 (332) 53,921
Operating expenses:
Research and development............ 9,485 4,089 -- 13,574
Selling and other operating costs... 18,999 10,990 -- 29,989
----------------- --------------- ----------------- -----------------
Total operating costs............. 28,484 15,079 -- 43,563
Earnings from operations........ 7,118 3,572 (332) 10,358
Interest and other income (Note 3).... 44 882 332 1,258
Interest and other expense............ (819) (651) -- (1,470)
----------------- --------------- ----------------- -----------------
Earnings before income taxes.... 6,343 3,803 -- 10,146
Provision for income taxes............ 1,251 1,472 -- 2,723
----------------- --------------- ----------------- -----------------
Net earnings from continuing
operations......................... 5,092 2,331 -- 7,423
Discontinued operations, net of taxes:
Loss from operations of
discontinued business (less
applicable income tax benefit of
$540)............................. -- (830) -- (830)
---------------- --------------- ----------------- -----------------
Net earnings.......................... $ 5,092 $ 1,501 $ -- $ 6,593
================ =============== ================= =================
Net earnings per share:
Basic.............................. $ 0.95 $ 0.88
================ =================
Diluted............................ $ 0.91 $ 0.83
================ =================
Weighted average number of
common shares and equivalents
outstanding (Note 4):
Basic.............................. 5,361 7,469
======================== =================
Diluted............................ 5,624 7,924
======================== =================
</TABLE>
5
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Note 1: The pro forma condensed Balance Sheet information reflects the results
of combining the December 31, 1998 balance sheet for FLIR and
Inframetrics giving effect to the Merger as if it had occurred on
January 1, 1996.
Certain pro forma reclassifications between accounts receivables and
prepaids and between accounts payable and accrued expenses were made in
order to conform accounting policies.
Note 2: A pro forma adjustment was made to eliminate the Redeemable Class B
Stock and Inframetrics common stock as such Class B stock and
Inframetrics common stock was exchanged for FLIR Common stock per the
terms of the merger agreement. The pro forma adjustment to accumulated
deficit represents accrued unpaid dividends on the Class B stock.
Note 3: The pro forma condensed Statement of Income for the years ended December
31, 1998, 1997 and 1996, reflect the results of combining the historical
results of operations of FLIR and Inframetrics giving effect to the
Merger as if it had occurred on January 1, 1996.
Certain pro forma reclassifications between Commercial and Government
revenue and between other revenue and Interest and other expense were
made in order to conform accounting policies.
Note 4: Per share calculations are determined on the number of common and common
stock equivalents outstanding. The pro forma combined shares include the
FLIR common stock expected to be issued to effect the Merger as if they
had been outstanding at the beginning of the respective periods.
Note 5: A pro forma adjustment was made between long-term and current deferred
income taxes in order to conform accounting policies.
6
