<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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _________________
Commission file number 0-21918
FLIR Systems, Inc.
(Exact name of Registrant as specified in its charter)
Oregon 93-0708501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16505 S.W. 72nd Avenue, Portland, Oregon 97224
(Address of principal executive offices) (Zip Code)
(503) 684-3731
(Registrant's telephone number, including area code)
__________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No _____.
-----
At May 31, 2000, there were 14,478,346 shares of the Registrant's common stock,
$0.01, par value, outstanding.
1
<PAGE>
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three Months Ended
March 31, 2000 and 1999......................................... 3
Consolidated Balance Sheet -- March 31, 2000 and December 31,
1999............................................................ 4
Consolidated Statement of Cash Flows -- Three Months Ended
March 31, 2000 and 1999......................................... 5
Notes to the Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 3. Default Upon Senior Securities.................................. 15
Item 5. Other Information............................................... 15
Item 6. Exhibits and Current Reports on Form 8-K........................ 15
Signatures...................................................... 17
</TABLE>
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,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Commercial......................................... $ 25,478 $ 27,986
Government......................................... 10,350 10,835
-------- --------
35,828 38,821
Cost of goods sold................................... 16,178 38,827
Research and development............................. 6,921 6,977
Selling and other operating costs.................... 16,845 15,057
Combination costs.................................... 1,217 3,654
-------- --------
41,161 64,515
Loss from operations............................. (5,333) (25,694)
Interest expense..................................... 2,092 1,226
Other income - net................................... (82) (18)
-------- --------
Loss before income taxes......................... (7,343) (26,902)
Income tax benefit................................... (1,836) --
-------- --------
Net loss............................................. $ (5,507) $(26,902)
======== ========
Net loss per share:
Basic.............................................. $ (0.38) $ (1.90)
======== ========
Diluted............................................ $ (0.38) $ (1.90)
======== ========
</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)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 8,430 $ 4,255
Accounts receivable, net................................... 46,429 57,777
Inventories................................................ 72,603 64,374
Prepaid expenses........................................... 4,921 6,040
Deferred income taxes...................................... 9,887 7,216
------------- ------------
Total current assets................................... 142,270 139,662
Property and equipment, net.................................. 20,682 20,796
Deferred income taxes, net................................... 16,499 16,499
Intangible assets, net....................................... 17,592 17,932
Other assets................................................. 1,774 1,829
------------- ------------
$ 198,817 $ 196,718
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.............................................. $ 95,019 $ 81,247
Accounts payable........................................... 15,277 22,128
Accrued payroll and other liabilities...................... 22,204 21,474
Accrued income taxes....................................... 3,179 3,207
Current portion of long-term debt.......................... 1,033 1,084
------------- ------------
Total current liabilities.............................. 136,712 129,140
Long-term debt............................................... 1,296 1,497
Pension liability............................................ 3,849 3,879
Commitments and contingencies................................ -- --
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued at March 31, 2000, and
December 31, 1999........................................ -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 14,411,387 and 14,388,600 shares issued at
March 31, 2000, and December 31, 1999, respectively...... 144 144
Additional paid-in capital................................. 143,474 143,318
Accumulated deficit........................................ (84,268) (78,761)
Accumulated other comprehensive loss....................... (2,390) (2,499)
------------- ------------
Total shareholders' equity............................. 56,960 62,202
------------- ------------
$ 198,817 $ 196,718
============= ============
</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,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash used by operations:
Net loss.................................................. $ (5,507) $ (26,902)
Income charges not affecting cash:
Depreciation.......................................... 2,245 1,427
Amortization.......................................... 399 464
Disposals and write-offs of property and equipment.... 502 25
Deferred income taxes................................. (2,671) (1,012)
Changes in certain working capital components:
Decrease in accounts receivable....................... 11,348 21,991
(Increase) decrease in inventories.................... (8,229) 7,349
Decrease (increase) in prepaid expenses............... 1,119 (801)
Increase in other assets.............................. (4) (74)
Decrease in accounts payable.......................... (6,851) (4,224)
Increase (decrease) in accrued payroll and other
liabilities.......................................... 730 (3,768)
(Decrease) increase in accrued income taxes........... (28) 617
------------ ------------
Cash used by operating activities......................... (6,947) (4,908)
------------ ------------
Cash used by investing activities:
Additions to property and equipment....................... (2,633) (1,488)
------------ ------------
Cash used by investing activities......................... (2,633) (1,488)
------------ ------------
Cash provided by financing activities:
Net increase in notes payable............................. 13,772 27,907
Repayment of long-term debt including current portion..... (252) (19,183)
Reduction of pension liability............................ (30) (28)
Proceeds from exercise of stock options................... 156 68
------------ ------------
Cash provided by financing activities..................... 13,646 8,764
------------ ------------
Effect of exchange rate changes on cash..................... 109 (224)
------------ ------------
Net increase in cash and cash equivalents................... 4,175 2,144
Cash and cash equivalents, beginning of period.............. 4,255 4,793
------------ ------------
Cash and cash equivalents, end of period.................... $ 8,430 $ 6,937
============ ============
</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 of FLIR Systems, Inc. (the
"Company") are unaudited and have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, these statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the consolidated financial position and results of operations
for the interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and the
notes thereto for the year ended December 31, 1999.
The accompanying financial statements include the accounts of FLIR Systems, Inc.
and its subsidiaries. All intercompany accounts and transactions have been
eliminated. The results of the interim period are not necessarily indicative of
the results for the entire year.
Certain reclassifications have been made to prior years' data to conform to the
current year's presentation. These reclassifications had no impact on
previously reported results of operations or shareholders' equity.
NOTE 2 -- NET EARNINGS PER SHARE:
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the periods, computed
using the treasury stock method for stock options. The following table sets
forth the reconciliation of the denominator utilized in the computation of basic
and diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
Weighted average number of common shares
outstanding.................................... 14,395 14,136
Assumed exercise of stock options net of
shares assumed reacquired under the treasury
stock method................................... -- --
---------- -----------
Diluted shares outstanding........................ 14,395 14,136
========== ===========
</TABLE>
The treasury stock effect of stock options for the three months ended March 31,
2000 and 1999, which aggregated 149,000 and 597,000 shares, has been excluded
for purposes of diluted earnings per share since the effect would have been
anti-dilutive.
6
<PAGE>
NOTE 3 -- INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw material and subassemblies.................... $ 38,040 $ 32,452
Work-in-progress.................................. 17,982 15,261
Finished goods.................................... 16,581 16,661
--------- ------------
$ 72,603 $ 64,374
========= ============
</TABLE>
NOTE 4 -- CHANGES IN SHAREHOLDERS' EQUITY:
Changes in Shareholders' Equity consist of the following (in thousands):
<TABLE>
<CAPTION>
Additional Accumulated Other Total
Preferred Common Paid-in Accumulated Comprehensive Comprehensive
Stock Stock Capital Deficit Income Total Loss
--------- ------ ---------- ----------- ----------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999............. -- $ 144 $ 143,318 $ (78,761) $ (2,499) $ 62,202
Common stock options exercised......... -- -- 156 -- -- 156
Net loss for the three month period.... -- -- -- (5,507) -- (5,507) $ (5,507)
Foreign translation adjustment......... -- -- -- -- 109 109 109
--------- ------ ---------- ----------- ----------------- --------- -------------
Balance, March 31, 2000................ $ -- $ 144 $ 143,474 $ (84,268) $ (2,390) $ 56,960
========= ====== ========== =========== ================= =========
Comprehensive loss, three months ended
March 31, 2000........................ $ (5,398)
=============
</TABLE>
Cumulative foreign translation adjustment represents the Company's only other
comprehensive income item. Cumulative foreign translation adjustment represents
unrealized gains/losses in the translation of the financial statements of the
Company's subsidiaries in accordance with SFAS No. 52, "Foreign Currency
Translation." The Company has no intention of liquidating the assets of the
foreign subsidiaries in the foreseeable future.
NOTE 5 - LITIGATION:
Beginning on or about March 13, 2000, five complaints alleging violations of the
federal securities laws have been filed against the Company and against J.
Kenneth Stringer III and J. Mark Samper in the United States District Court for
the District of Oregon; one of the complaints also names Robert P. Daltry as a
defendant. Each complaint has been filed as a purported class action by
individuals who allege that they purchased the Company's Common Stock during the
purported class periods, which vary but extend from March 3, 1999 at the
earliest to March 6, 2000 at the latest. The complaints allege that the
defendants violated the Securities Exchange Act of 1934 and Rule 10b-5
promulgated hereunder by intentionally issuing false and/or misleading
statements regarding the Company's financial results in the Company's SEC
filings and in press releases and other public statements. The complaints do
not specify the amount of damages that plaintiffs seek. On May 25, 2000, the
U.S. District Court for the District of Oregon issued an order consolidating the
complaints into one action for all purposes.
7
<PAGE>
Plaintiffs were ordered to file a consolidated complaint within 60 days of the
date of the Court's consolidation order. The Company intends to contest the
litigation vigorously.
The Company was involved in other litigation, investigations of a routine nature
and various legal matters during the first quarter of 2000 that are being
defended and handled in the ordinary course of business.
While the ultimate results of the matters described above cannot presently be
determined, management does not expect that they will have a material adverse
effect on the Company's results of operations or financial position. Therefore,
no adjustments have been made to the accompanying financial statements relative
to these matters.
NOTE 6 - INFRAMETRICS MERGER:
In conjunction with the merger with Inframetrics, Inc., on March 31, 1999, the
Company recognized a one-time charge of $23.8 million consisting of a reserve
for duplicative inventories of $20.1 million, transaction related costs of $3.2
million and cost to exit activities of $0.5 million. During the course of 1999
the Company recorded additional costs related to the merger including an
increase to the reserve for duplicative inventories of $5.2 million and an
increase of costs to exit activities of $5.6 million. Additionally, during the
quarter ended March 31, 2000, the Company recorded a charge of $1.2 million
related to the write-off of certain assets related to the merger.
The inventory reserve relates to duplicative product lines created by the merger
and was included in cost of goods sold. As of March 31, 2000 the Company had
written-off and disposed of inventories totaling $18.3 million. The transaction
related costs consisted of investment advisor fees, legal and accounting fees
and other direct transaction costs. Such costs were included in combination
costs, a separate line item in operating expenses. The cost to exit activities
amount relates to estimated shut down costs related to duplicative sales offices
in the United Kingdom, Germany and France. As of March 31, 2000 the Company has
remaining accruals of $0.4 million related to the transaction costs and cost to
exit activities.
Consolidated results of operations for the three months ended March 31, 1999 of
the Company and Inframetrics on a stand-alone basis, excluding one time charges
for duplicative inventories created as a result of overlapping product lines,
reserve for shutdown of duplicate sales offices and other direct transaction
costs are as follows (in thousands):
<TABLE>
<CAPTION>
FLIR Inframetrics
---------- ------------
<S> <C> <C>
Revenue................................. $ 25,171 $ 13,650
---------- ------------
Net (loss) earnings..................... $ (3,279) $ 177
========= ============
</TABLE>
NOTE 7 - SEGMENT INFORMATION:
The Company has determined its operating segments to be the commercial and
government market segments. The commercial segment comprises thermal imaging
applications including condition monitoring, research and development,
manufacturing process control and airborne
8
<PAGE>
observation and broadcast. The government segment comprises thermal imaging
applications including search and rescue, federal drug interdiction,
surveillance and reconnaissance, navigation safety, border and maritime patrol,
environment monitoring, and ground-based security.
The accounting policies of each segment are the same. The Company evaluates
performance based upon revenue and gross profit for each segment and does not
evaluate segment performance on any other income measurement.
Operating segment information including revenue and gross profit are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
2000 1999
------------------- -------------------
Gross Gross
Revenue Profit Revenue Profit
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Commercial......... $ 25,478 $ 15,320 $ 27,986 $ 4,628
Government......... 10,350 4,330 10,835 (4,634)
--------- -------- --------- --------
Total.............. $ 35,828 $ 19,650 $ 38,821 $ (6)
========= ======== ========= ========
</TABLE>
All long-lived assets are generally located in the United States with the
exception of property and equipment. Property and equipment is located in the
following geographic areas (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
United States........................... $ 16,862 $ 16,968
Europe.................................. 3,820 3,828
--------- ------------
$ 20,682 $ 20,796
========= ============
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations:
Revenue. The Company's revenue for the three months ended March 31, 2000
declined 7.7%, from $38.8 million in the first quarter of 1999 to $35.8 million
in the first quarter of 2000. Commercial revenue declined 9.0%, from $28.0
million in the first quarter of 1999 to $25.4 million in the first quarter of
2000. Revenue from the sale of systems to the government market declined 4.5%,
from $10.8 million in the first quarter of 1999 to $10.4 million in the first
quarter of 2000. The decline in revenues was primarily due to the timing of
deliveries on orders received during the quarter.
The Company's commercial products continued to account for the majority of the
Company's total revenue. As a percentage of total revenue for the quarter ended
March 31, 2000, revenue from the sale of imaging systems to the commercial
market constituted 71.1% of total revenue compared to 72.1% for the first
quarter of 1999.
Revenue from sales outside the United States increased as a percentage of total
revenue from 39.1% to 47.9% for the quarters ended March 31, 1999 and 2000,
respectively.
Gross profit. As a percentage of revenue, gross profit increased from
approximately breakeven in the first quarter of 1999 to 54.8% in the first
quarter of 2000. The primary reason for this significant increase was the
inclusion in cost of goods sold for the three months ended March 31, 1999 of a
one-time charge of $20.1 million related to duplicate inventories and products
which were determined to have reached the end of life, both created by
overlapping product lines as a result of the merger with Inframetrics. Without
this charge, gross profit as a percentage of revenue would have been 52.0% for
the quarter ended March 31, 1999.
Research and development. Research and development expenses as a
percentage of revenue increased from 18.0% to 19.3% for the three months ended
March 31, 1999 and 2000, respectively. In absolute dollar terms, research and
development expenses were approximately the same in both years. The overall
level of research and development expense reflects the continued emphasis on
product development and new product introductions. Due to the timing of revenue
during the year, research and development expense as a percentage of revenue is
typically higher in the first quarter than on a full year basis.
Selling and other operating costs. Selling and other operating costs as a
percentage of revenue increased from 38.8% in the first quarter of 1999 to 47.0%
in the first quarter of 2000. In absolute dollar terms, selling and other
operating costs increased from $15.1 million to $16.8 million for the quarters
ended March 31, 1999 and 2000, respectively. The increase in absolute dollar
terms was due to higher audit and legal costs, increased depreciation related to
the Company's enterprise resource planning system implemented in April, 1999,
and various selling, marketing, and administrative overhead expenses.
Inframetrics Merger. Effective March 30, 1999, the Company completed its
merger with Inframetrics, Inc., a privately held infrared imaging company
headquartered in Billerica, Massachusetts, by issuing approximately 2.3 million
shares of the Company's common stock (including approximately 192,000 shares
reserved for exercise of outstanding options) for all the
10
<PAGE>
outstanding stock of Inframetrics. Additionally, the Company assumed and paid
off approximately $24 million of Inframetrics, Inc.'s short- and long-term debt.
In conjunction with the merger, during the quarter ended March 31, 1999, the
Company recorded a one-time charge of $23.8 million. The charge consisted of a
$20.1 million inventory reserve due to the creation of duplicative product
lines, which is included in cost of goods sold, and $3.7 million of transaction
related costs, which are included in combination costs, a separate line in
operating costs. These charges and related reserves are more fully discussed in
Note 6 to the consolidated financial statements.
During the quarter ended March 31, 2000, the Company recorded a charge of $1.2
million for the write-off of certain assets related to the merger. This charge
is reported on the combination costs line in the financial statements.
Interest expense. Interest expense increased from $1.2 million in the
first quarter of 1999 to $2.1 million for the quarter ended March 31, 2000, due
to increased debt levels and increased interest rates.
Income taxes. The income tax benefit for the quarter ended March 31, 2000
was $1.8 million, resulting in an effective tax rate of 25%. The effective tax
rate is below statutory rates primarily due to a reduction in the valuation
allowance related to deferred tax assets and foreign tax rates. Management's
assessment of improved profitability has increased its assessment of the amount
of the deferred tax asset that is more likely than not to be realized in the
future.
No tax benefit was provided in the first quarter of 1999 as the valuation
allowance was increased due to lower profitability that reduced management's
assessment of the amount of deferred tax asset that was likely to be realized in
the future.
While management currently anticipates the effective tax rate for the year 2000
to be approximately 25%, this rate is very sensitive to the geographic mix of
sales and profits, and therefore could be higher or lower in the future
depending on the actual profits realized.
Liquidity and Capital Resources
At March 31, 2000, the Company had short-term borrowings net of cash on hand of
$86.6 million compared with $77.0 million at December 31, 1999. The increase in
short-term borrowings during the three months ended March 31, 2000, was
principally caused by increased working capital needs.
Accounts receivable decreased from $57.8 million at December 31, 1999 to $46.4
million at March 31, 2000. The decline in receivables was attributable to the
seasonal reduction in revenue in the first quarter of 2000 relative to the
fourth quarter of 1999. Revenue in the fourth quarter of 1999 was $48.2 million
compared to $35.8 million in the first quarter of 2000.
Inventories increased from $64.4 million at December 31, 1999 to $72.6 million
at March 31, 2000. The increase was the result of a buildup of materials in
anticipation of increased shipments to government customers throughout the
balance of the year.
11
<PAGE>
The Company's investing activities have consisted primarily of expenditures for
fixed assets, which totaled $2.6 million and $1.5 million for the quarters ended
March 31, 2000 and 1999, respectively.
The Company has a Credit Agreement with a number of banks that provides it with
a $100 million revolving line of credit. Interest on borrowings under the
agreement is at a fluctuating rate generally equal to the higher of the Federal
Funds Rate plus 0.50% or the prime rate of the primary lender for domestic
borrowings, and LIBOR for offshore borrowings. The interest rates on borrowings
under the agreement increase as the Company's consolidated debt level increases.
The weighted average interest rate on borrowings at March 31, 2000 was 8.8 %.
The agreement allows the Company to elect any time prior to December 1, 2002, to
convert the entire principal balance under the agreement into a term loan that
would be payable in 24 subsequent equal monthly payments plus interest.
The Company's obligations under the Credit Agreement are secured by
substantially all the assets of the Company. The Credit Agreement includes
negative covenants that, among other things, impose limitations on the Company's
ability to incur additional indebtedness, engage in certain acquisition or
disposition transactions, incur lease obligations and make investments, capital
expenditures and certain other payments. The Credit Agreement also includes
certain financial covenants, including consolidated tangible net worth, interest
coverage ratio and leverage ratio. As of December 31, 1999 and for the year then
ended, the Company was in violation of certain of these covenants. Pursuant to
an amendment to the Credit Agreement dated as of April 13, 2000, the lenders
waived their rights to declare a default based upon such covenant violations
from December 16, 1999 and through December 30, 2000. The amendment to the
Credit Agreement also modified the consolidated tangible net worth covenant,
added covenants with respect to minimum levels of revenue and EBITDA and
increased the interest rates applicable to offshore borrowings under the Credit
Agreement. As of March 31, 2000 and for the quarter then ended, the Company was
in violation of the minimum revenue, minimum EBITDA and consolidated tangible
net worth covenants under the Credit Agreement. As a result of these covenant
violations, the lenders have the right at any time to declare the full amount
outstanding under the Credit Agreement immediately due and payable. The Company
and the lenders are actively engaged in discussions regarding potential remedies
for the Company's covenant violations. However, as of this date, the lenders
have not waived their rights to declare a default based upon such covenant
violations.
Additionally, the Company, through one of its subsidiaries, has a 50,000,000
Swedish Kroner (approximately $5.8 million) line of credit at 4.5% at March 31,
2000.
At March 31, 2000, the Company had $93.0 million outstanding under the Credit
Agreement and $2.0 million outstanding under the Swedish Kroner line of credit.
The use of cash by operating activities in the first quarter was $6.9 million,
compared to $4.9 million for the first quarter of 1999. Use of cash increased
as the result of increased working capital needs. The Company believes that its
existing cash and available credit facilities, financing available from other
sources, continuing efforts to control costs, improved collection of accounts
receivable and management of inventory levels will be sufficient to meet its
cash requirements for the foreseeable future.
Impact of the Year 2000
The Company conducted a comprehensive review of its computer systems to identify
the systems that could be affected by the Year 2000 issue. The Company
identified that the internal manufacturing system acquired by the Company in
connection with the acquisition of AGEMA was not Year 2000 compliant, and
installed a new enterprise resource planning system, both hardware and software,
to correct this deficiency. The Company's existing product line was tested and
reviewed to ensure Year 2000 compliance, and the Company's products under
development were designed to be Year 2000 compliant. Additionally, the Company
evaluated Year 2000 compliance on products from its suppliers and partners. A
contingency plan for dealing with the most reasonably likely worst-case scenario
was developed.
Both internal and external resources were employed to identify, correct or
reprogram, and test the systems for Year 2000 compliance. The total cost of the
project was approximately $7 million and was funded through existing cash
resources.
12
<PAGE>
To date, the Company has not encountered any material Year 2000 problems with
respect to products, internal systems or any third party products or systems.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements within the meaning of the
Securities Litigation Reform Act of 1995 that are based on current expectations,
estimates and projections about the Company's business, management's beliefs,
and assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "sees," "estimates" and variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements due to numerous
factors, including, but not limited to, those discussed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as those discussed from time to time in the Company's Securities and
Exchange Commission fillings and reports. In addition, such statements could
be affected by general industry and market conditions and growth rates, and
general domestic and international economic conditions. Such forward-looking
statements speak only as of the date on which they are made and the Company does
not undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this report. If the Company does
update or correct one or more forward-looking statement, investors and others
should not conclude that the Company will make additional updates or corrections
with respect thereto or with respect to other forward-looking statements.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to its short-term and long-term debt obligations. The Company
believes that its net income or cash flow exposure relating to rate changes for
short-term and long-term debt obligations are immaterial. Interest expense is
affected by the general level of U.S. interest rates and/or LIBOR. The Company
currently does not hedge any interest rate exposure.
The foreign subsidiaries of the Company generally use their local currency as
the functional currency. The Company does not currently enter into any foreign
exchange forward contracts to hedge certain balance sheet exposures and
intercompany balances against future movements in foreign exchange rates. To
date, such exposure has been immaterial. The Company does maintain cash
balances denominated in currencies other than the U.S. Dollar. If foreign
exchange rates were to weaken against the U.S. Dollar, the Company believes that
the fair value of these foreign currency amounts would decline by an immaterial
amount.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the notes to the consolidated financial statements.
Item 3. Default Upon Senior Securities
The Company is in violation of certain financial covenants under its Credit
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Item 5. Other Information
As a result of the Company's failure to file this Quarterly Report on Form
10-Q for the quarter ended March 31, 2000 (the "Form 10-Q") with the Securities
and Exchange Commission (the "SEC") within the prescribed time, the Company was
notified by the staff of the Nasdaq Stock Market that the Company's stock would
be delisted from the Nasdaq Stock Market on June 1, 2000 if the Form 10-Q was
not filed with the SEC before that date. The Company was not able to file the
Form 10-Q before that date. The Company appealed the Nasdaq staff's delisting
determination by requesting a hearing on the matter. A hearing on the Company's
appeal before a Nasdaq Listing Qualification Panel has been scheduled for July
6, 2000. Although the Company has now filed the Form 10-Q, no assurance can be
given that the Company will be successful in its appeal or that its common stock
will continue to be listed on the Nasdaq Stock Market. If the Company's common
stock were to be delisted from the Nasdaq Stock Market, the Company anticipates
that its common stock would be quoted on the OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Number Description
------------ ---------------------------------------------------------
10.1 Amendment to Credit Agreement among FLIR Systems, Inc.
and Bank of America N.A. and certain other financial
institutions dated as of April 13, 2000
27.1 Financial Data Schedule for the three months ended March
31, 2000
(b) During the three months ended March 31, 2000, the Company filed the
following reports on Form 8-K
15
<PAGE>
1. The Company filed a current report on Form 8-K, dated February 8,
2000, reporting under Item 5 that the Company issued a press release
announcing the Company's expectation as to revenue and earning for the
quarter ended December 31, 1999.
2. The Company filed a current report on Form 8-K, dated March 6, 2000,
reporting under Item 5 that the Company issued a press release
regarding the Company's expectations as to revenue and net earnings
for the quarter ended December 31, 1999.
16
<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 30, 2000 /s/ Stephen M. Bailey
----------------- ----------------------------
Stephen M. Bailey
Sr. Vice President, Finance and Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
17
