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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2001
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)
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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 October 23, 2001, there were 15,281,399 shares of the Registrant's common
stock, $0.01, par value, outstanding.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations - Three Months And Nine Months Ended
September 30, 2001 and 2000 ............................................... 3
Consolidated Balance Sheet - September 30, 2001 and December 31, 2000 ......... 4
Consolidated Statement of Cash Flows - Nine Months Ended September 30, 2001
and 2000 .................................................................. 5
Notes to the Consolidated Financial Statements ................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................. 16
Item 4. Submission of Matters to a Vote of Shareholders ............................... 16
Item 6. Exhibits and Current Reports on Form 8-K ...................................... 16
Signature ..................................................................... 17
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------- ------------- -------------
Revenue ......................................... $ 47,499 $ 39,912 $ 149,366 $ 129,150
Cost of goods sold .............................. 21,537 29,214 67,418 76,595
------------ ------------- ------------- -------------
Gross profit ............................. 25,962 10,698 81,948 52,555
Operating expenses:
Research and development .................... 6,053 6,816 18,793 23,251
Selling and other operating costs ........... 11,005 15,995 37,857 48,811
------------ ------------- ------------- -------------
Total operating expenses ................. 17,058 22,811 56,650 72,062
Earnings (loss) from operations .......... 8,904 (12,113) 25,298 (19,507)
Interest expense ................................ 2,846 3,307 8,304 8,245
Other income - net .............................. (180) (242) (418) (257)
------------ ------------- ------------- -------------
Earnings (loss) before income taxes ...... 6,238 (15,178) 17,412 (27,495)
Income tax provision ............................ 65 2,971 1,741 1,135
------------ ------------- ------------- -------------
Net earnings (loss) ............................. $ 6,173 $ (18,149) $ 15,671 $ (28,630)
============ ============= ============= =============
Net earnings (loss) per share:
Basic ........................................ $ 0.41 $ (1.25) $ 1.06 $ (1.98)
============ ============= ============= =============
Diluted ...................................... $ 0.38 $ (1.25) $ 1.01 $ (1.98)
============ ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
September 30, December 31,
2001 2000
--------------- ----------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents ............................................ $ 13,083 $ 11,858
Accounts receivable, net ............................................. 41,166 39,663
Inventories .......................................................... 45,929 55,495
Prepaid expenses and other current assets ............................ 5,972 4,943
Deferred income taxes ................................................ 11,943 11,943
--------------- ----------------
Total current assets ............................................. 118,093 123,902
Property and equipment, net .............................................. 13,467 13,843
Deferred income taxes, net ............................................... 11,772 11,772
Intangible assets, net ................................................... 17,178 16,635
Other assets ............................................................. 1,486 839
--------------- ----------------
$ 161,996 $ 166,991
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable ........................................................ $ 65,834 $ 17,716
Accounts payable ..................................................... 10,993 16,247
Accrued payroll and other liabilities ................................ 25,055 19,186
Accrued income taxes ................................................. 1,156 2,217
Current portion of capital lease obligations ......................... 766 1,103
--------------- ----------------
Total current liabilities ........................................ 103,804 56,469
Long-term debt ........................................................... -- 75,485
Pension and other long-term liabilities .................................. 8,948 6,012
Commitments and contingencies ............................................
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no
shares issued at September 30, 2001, and December 31, 2000 ......... -- --
Common stock, $0.01 par value, 30,000,000 shares authorized,
15,252,259 and 14,548,370 shares issued at September 30, 2001, and
December 31, 2000, respectively .................................... 152 145
Additional paid-in capital ........................................... 149,579 144,118
Accumulated deficit .................................................. (95,127) (110,798)
Accumulated other comprehensive loss ................................. (5,360) (4,440)
--------------- ----------------
Total shareholders' equity ....................................... 49,244 29,025
--------------- ----------------
$ 161,996 $ 166,991
=============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
4
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------
2001 2000
-------------- -------------
Cash provided (used) by operations:
Net earnings (loss) .................................................. $ 15,671 $ (28,630)
Income charges not affecting cash:
Depreciation ..................................................... 4,466 6,850
Amortization ..................................................... 1,322 1,201
Disposals and write-offs of property and equipment ............... 185 2,456
Fair value adjustment on interest swaps .......................... 1,516 535
Deferred income taxes ............................................ (4) (2,882)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ....................... (2,217) 18,711
Decrease in inventories .......................................... 9,105 3,653
(Increase) decrease in prepaid expenses .......................... (1,109) 2,736
(Increase) decrease in other assets .............................. (1,306) 943
Decrease in accounts payable ..................................... (5,038) (9,852)
Increase (decrease) in accrued payroll and other liabilities ..... 6,389 (2,106)
Decrease in accrued income taxes ................................. (1,255) (1,416)
Increase in pension and other long-term liabilities .............. 724 67
-------------- -------------
Cash provided (used) by operating activities ......................... 28,449 (7,734)
-------------- -------------
Cash used by investing activities:
Additions to property and equipment .................................. (4,352) (5,966)
-------------- -------------
Cash used by investing activities .................................... (4,352) (5,966)
-------------- -------------
Cash (used) provided by financing activities:
Repayment of credit agreement including current portion .............. (27,400) (7,000)
Proceeds from credit agreement ....................................... -- 21,500
Net increase in international credit line ............................ 618 1,198
Repayment of capital leases, including current portion ............... (1,500) (823)
Proceeds from exercise of stock options .............................. 4,961 241
Stock issued pursuant to employee stock purchase plan ................ 323 292
-------------- -------------
Cash (used) provided by financing activities ......................... (22,998) 15,408
-------------- -------------
Effect of exchange rate changes on cash .................................. 126 (315)
-------------- -------------
Net increase in cash and cash equivalents ................................ 1,225 1,393
Cash and cash equivalents, beginning of period ........................... 11,858 4,255
-------------- -------------
Cash and cash equivalents, end of period ................................. $ 13,083 $ 5,648
============== =============
Schedule of Non-cash Financial Activities:
Issuance of stock for the purchase of Optronics Division .............. $ 1,435
==============
The accompanying notes are an integral part of these
consolidated financial statements.
5
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 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 accounting
principles generally accepted in the United States 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 included in the Company's annual
report on Form 10-K for the year ended December 31, 2000.
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 operations for the interim periods presented are not
necessarily indicative of the operating results to be expected for any
subsequent interim period or for the year ending December 31, 2001.
Certain reclassifications have been made to prior year's 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 (Loss) Per Share
Basic net earnings (loss) per share is calculated by dividing net earnings
(loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted net earnings (loss) per share is
calculated by dividing net earnings (loss) by the average number of common
shares plus the potential shares issuable upon assumed exercise of outstanding
stock options based on the treasury stock method. Approximately 600 and
2,153,000 outstanding stock options for the three months ended September 30,
2001 and September 30, 2000, respectively, and approximately 396,000 and
2,153,000 for the nine months ended September 30, 2001 and September 30, 2000,
respectively, were excluded from the calculation of diluted earnings (loss) per
share because they were anti-dilutive. However, these options could be dilutive
in the future.
6
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Note 2. Net Earnings (Loss) Per Share--(Continued)
The following table sets forth the reconciliation of the denominator utilized in
the computation of basic and diluted earnings (loss) per share (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2001 2000 2001 2000
--------- --------- -------- --------
Weighted average number of common shares outstanding ...... 15,130 14,484 14,802 14,452
Dilutive effect of stock options .......................... 1,093 -- 785 --
--------- --------- -------- --------
Diluted shares outstanding ................................ 16,223 14,484 15,587 14,452
========= ========= ======== ========
Note 3. Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
2001 2000
------------- ------------
Raw material and subassemblies ............................ $ 23,610 $ 29,546
Work-in-progress .......................................... 11,143 14,139
Finished goods ............................................ 11,176 11,810
------------- ------------
$ 45,929 $ 55,495
============= ============
Note 4. Comprehensive Income
Comprehensive income includes foreign currency translation gains and losses that
are reflected in shareholders' equity instead of net income. The following table
sets forth the calculation of comprehensive income for the periods indicated (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2001 2000 2001 2000
------------ ----------- ------------ ------------
Net income (loss) .................................. $ 6,173 $(18,149) $ 15,671 $(28,630)
Foreign currency translation gain (loss) ........... 32 (2,456) (920) (2,604)
------------ ----------- ------------ ------------
Total comprehensive income (loss) .................. $ 6,205 $(20,605) $ 14,751 $(31,234)
==0========= =========== ============ ============
Foreign currency translation gains and losses 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.
7
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Note 5. Litigation
The Securities and Exchange Commission (the "SEC") is conducting an
investigation relating to the Company. The investigation is a non-public,
fact-finding inquiry to determine whether there have been any violations of the
federal securities laws. The Company is cooperating fully with the SEC
investigation.
The Company is involved in other litigation and various legal matters 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. Segment Information
The Company has determined its operating segments to be the Thermography and
Imaging market segments. The Thermography market is comprised of a broad range
of commercial and industrial applications utilizing infrared cameras to provide
precise temperature measurement. The Imaging market is comprised of a broad
range of applications that is focused on providing enhanced night vision
capabilities where temperature measurement is not required, although differences
in temperatures are used to create an image. The Imaging market also includes
high performance daylight camera applications.
The accounting policies of each segment are the same. The Company evaluates
performance based upon revenue for each segment and does not evaluate segment
performance on any other income measurement.
Previously, the Company reported its operating segments to be the commercial and
government market segments.
Operating segment information for net revenue is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Thermography .............................. $ 19,816 $ 16,099 $ 64,507 $ 57,654
Imaging ................................... 27,683 23,813 84,859 71,496
------------- ------------- ------------- -------------
$ 47,499 $ 39,912 $ 149,366 $129,150
============= ============= ============= =============
8
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Note 6. Segment Information--(Continued)
Long-lived assets by significant geographic location is as follows (in
thousands):
September 30, December 31,
2001 2000
---------------- ----------------
United States ............................................. $ 11,370 $ 11,488
Europe .................................................... 20,761 19,829
---------------- ----------------
$ 32,131 $ 31,317
================ ================
Note 7. Purchase of Optronics Division
On July 13, 2001, the Company completed its acquisition of certain net assets of
the Optronics Division of Saabtech Electronics AB, effective as of July 1, 2001.
The Company issued 100,000 shares of its common stock to complete the
acquisition. The value of the shares were determined based upon the closing
market price of the Company's shares on the date that the terms of the
acquisition were agreed to. The total purchase price, including certain
acquisition costs, was approximately $1.5 million.
9
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 September 30, 2001
increased 19.0 percent, from $39.9 million in the third quarter of 2000 to $47.5
million in the third quarter of 2001. The Company's revenue for the nine months
ended September 30, 2001 increased 15.7 percent, from $129.2 million in the
first nine months of 2000 to $149.4 million in the first nine months of 2001.
Thermography revenue increased 23.1 percent, from $16.1 million in the third
quarter of 2000 to $19.8 million in the third quarter of 2001. Thermography
revenue for the nine months ended September 30, 2001 increased 11.9 percent,
from $57.7 million in the first nine months of 2000 to $64.5 million in the
first nine months of 2001. Revenue comparisons between 2001 and 2000 for both
the three-month and nine-month periods were negatively impacted by foreign
currency translations as the US dollar has strengthened against European
currencies. These impacts were significant to Thermography revenue due to the
production and distribution of Thermography products that occur in Europe.
Excluding the negative impact of the changing currency translation rates,
Thermography revenue would have shown an increase of 31.1 percent and 19.7
percent, for the three-month and nine-month periods ended September 30, 2001,
respectively. The increase in Thermography revenue in the three-month and
nine-month periods of 2001 was mainly due to increased unit orders, primarily to
international customers, in comparison to the third quarter of 2000.
Imaging revenue increased $3.9 million, or 16.3 percent, from $23.8 million in
the third quarter of 2000 to $27.7 million in the third quarter of 2001. Revenue
from the sale of systems to Imaging customers for the nine months ended
September 30, 2001 increased $13.4 million, or 18.7 percent, from $71.5 million
in the first nine months of 2000 to $84.9 million in the first nine months of
2001. The increase in Imaging revenue in the third quarter of 2001 was mainly
due to an increase in orders for the maritime, law enforcement, and ground-based
surveillance product lines. The increase in Imaging revenue for the nine month
period of 2001, compared to the comparable period in 2000 was due to price
increases and increase in unit volume, particularly in the Company's maritime,
law enforcement, and search and rescue product markets.
As a percentage of revenue, international sales were 50.1 percent and 48.3
percent for the quarters ended September 30, 2001 and 2000, respectively. For
the first nine months of 2001, revenue from sales outside the United States
constituted 42.9 percent of total revenue, as compared to 47.1 percent for the
first nine months of 2000. While the percentage of revenue from international
sales will continue to fluctuate from quarter to quarter due to the timing of
shipments under international and domestic government contracts, management
anticipates that revenue from international sales as a percentage of total
revenue will continue to comprise a significant percentage of revenue.
10
Gross profit. Gross profit for the quarter ended September 30, 2001 was $26.0
million compared to $10.7 million for the same quarter last year. As a
percentage of revenue, gross profit increased to 54.7 percent in the third
quarter of 2001 compared to 26.8 percent in the third quarter of 2000. The gross
profit for the quarter ended September 30, 2000, includes one-time charges of
$9.2 million. Excluding these one-time charges, gross profit as a percentage of
revenue would have been 49.8 percent in 2000.
Gross profit for the nine months ended September 30, 2001 was $81.9 million
compared to $52.6 million for the nine months ended September 30, 2000. As a
percentage of revenue, gross profit increased to 54.9 percent in the first nine
months of 2001 compared to 40.7 percent in the first nine months of 2000.
Excluding the one-time charges of $13.3 million taken in the nine months ended
September 30, 2000, gross profit as a percentage of revenue would have been 51.0
percent. The increases for both the three-month and nine-month periods are
primarily due to higher shipments, price increases in 2001 and decreases in
manufacturing costs resulting from actions taken during 2000 to streamline
operations and eliminate lower margin products.
Research and development. Research and development expense for the third
quarter of 2001 totaled $6.1 million, compared to $6.8 million in the third
quarter of 2000. The expense in 2000 includes certain one-time charges of $0.9
million. Excluding the one-time charges, research and development expense, as a
percentage of revenue decreased from 14.9 percent to 12.7 percent for the three
months ended September 30, 2000 and 2001, respectively.
Research and development expense for the first nine months of 2001 totaled $18.8
million, a decrease from $23.3 million in the first nine months of 2000.
Excluding the one-time charges taken in 2000 of $3.1 million, research and
development expense as a percentage of revenue decreased from 15.6 percent to
12.6 percent for the nine months ended September 30, 2000 and 2001,
respectively.
The Company anticipates annual spending for research and development as a
percentage of revenue to be comparable to the level experienced in the first
nine months of 2001. The overall level of research and development expense
reflects the continued emphasis on product development and new product
introductions.
Selling and other operating costs. Selling and other operating costs
decreased from $16.0 million for the quarter ended September 30, 2000, to $11.0
million for the quarter ended September 30, 2001. Included in the 2000 expenses
are certain one-time charges of $2.4 million. Excluding the one-time charges,
selling and other operating costs as a percentage of revenue decreased from 34.0
percent to 23.2 percent for the quarter ended September 30, 2000 and 2001,
respectively.
As a percentage of revenue, selling and other operating costs for the first nine
months of 2001 was 25.3 percent, as compared to 35.2 percent, excluding the
one-time charges taken in 2000 of $3.4 million, for the first nine months of
2000. The decrease in selling and other operating costs for both the three-month
and nine-month periods were due to cost savings in 2001 as a result of actions
taken in 2000 to streamline operations and to lower audit and legal expenses in
2001 compared to 2000.
11
Interest expense. Interest expense decreased from $3.3 million in the third
quarter of 2000 to $2.8 million for the quarter ended September 30, 2001.
Interest expense for the first nine months of 2001 was $8.3 million, as compared
to $8.2 million for the first nine months of 2000. The decrease in the third
quarter of 2001, as compared to the same quarter last year was primarily due to
the continued reduction of the outstanding debt and lower interest rates. The
lower cash interest expenses were partially offset by increases in
mark-to-market adjustments related to the interest rate swap agreements in both
the three month and nine month periods of 2001, compared to the comparable
periods in 2000.
Income taxes. The income tax provision of $0.1 million and $1.7 million for
the three months and nine months ended September 30, 2001, represents an
effective tax rate of 10 percent, which reflects the Company's estimate of
expected year-end earnings and losses and resultant taxes in its various tax
jurisdictions. Management will continue to assess the extent and timing of
future profitability and will adjust the effective tax rate as necessary to
reflect the impact of actual results.
Liquidity and Capital Resources
At September 30, 2001, the Company had short-term borrowings, net of cash on
hand, of $53.5 million compared to cash on hand, net of short-term borrowings of
$47,000 at June 30, 2001 and short-term borrowings, net of cash on hand of $7.0
million at December 31, 2000. The increase in short-term borrowings as of
September 30, 2001, was due to the reclassification of borrowings under the
Company's Credit Agreement as current partially offset by repayments made on the
debt in the first nine months of 2001. The Company intends to refinance the
borrowings under the Credit Agreement before its term expiration.
Cash provided by operating activities in the first nine months of 2001 was $28.4
million, compared to cash used by operating activities of $7.7 million for the
first nine months of 2000. Cash provided from operating activities was
principally due to net earnings for the period, a reduction in inventories and
an increase in accrued liabilities offset by the reduction in accounts payable.
Accounts receivable increased slightly from $39.7 million at December 31, 2000
to $41.2 million at September 30, 2001, primarily as a result of the slightly
higher volume of shipments that occurred in the last month of the quarter. Days
sales outstanding decreased from 78 at December 31, 2000 to 75 at September 30,
2001. The Company has increased its collection efforts and tightened its credit
policies. The timing of sales, particularly the recording of large system sales,
can significantly impact the calculation of days sales outstanding at any point
in time.
At September 30, 2001, the Company had inventories on hand of $45.9 million
compared to $55.5 million at December 31, 2000. The decrease was primarily the
result of inventory reduction initiatives in process in the Company's
manufacturing facilities, partially offset by inventories acquired in the
purchase of the Optronics Division of the Saab Group during the third quarter of
2001.
The Company had accounts payable of $11.0 million at September 30, 2001,
compared to $16.2 million at December 31, 2000. The decrease is primarily due to
lower inventories and continued improvements in the availability of cash to
settle trade accounts payable.
12
Accrued payroll and other liabilities increased from $19.2 million at December
31, 2000 to $25.1 million at September 30, 2001. The increase was primarily due
to certain obligations acquired in the Optronics Division acquisition.
The Company's investing activities have consisted primarily of expenditures for
fixed assets, which totaled $4.4 million and $6.0 million for nine months ended
September 30, 2001 and 2000, respectively.
The Company entered into a Credit Agreement with a number of banks as of
December 16, 1999. This Credit Agreement was amended as of January 23, 2001. The
Amended Credit Agreement provides the Company with a borrowing facility to a
maximum of $93.4 million. The Company made principal payments totaling $6.9
million during the quarter ended September 30, 2001, for a total of $27.4
million of principal payments made during the nine months then ended. As of
September 30, 2001, the Company had $62.5 million of borrowings in addition to
$1.2 million of standby letters of credit, with $4.8 million of financing
available to the Company on its line of credit.
The interest rate on the borrowings under the Amended Credit Agreement as of
September 30, 2001 was 7.25 percent, which was the prime rate of the primary
lender for domestic borrowings plus 1.75 percent. In addition, the Company is
required to make certain payments under its interest rate swap agreements, which
increase the Company's overall effective interest rate on its borrowings.
The Amended Credit Agreement requires periodic minimum cumulative principal
payments totaling not less than $25.0 million on or before June 30, 2002. As of
September 30, 2001, the Company has met and prepaid its principal payment
requirements through June 30, 2002. The Amended Credit Agreement expires on July
15, 2002.
The Amended Credit Agreement includes one financial covenant related to the
Company achieving certain levels of profitability beginning with the quarter
ending March 31, 2001. The Company was in compliance with the financial covenant
as of September 30, 2001. The Amended Credit Agreement is collateralized by
substantially all of the assets of the Company.
Additionally, the Company, through one of its subsidiaries, has a 40,000,000
Swedish Kronar (approximately $3.7 million) line of credit at 4.3 percent at
September 30, 2001. At September 30, 2001, the Company had $3.3 million
outstanding on this line. This credit line is secured primarily by accounts
receivable and inventories of the subsidiary and is subject to automatic renewal
on an annual basis.
We believe that our existing cash, cash generated by operating activities,
available credit facilities and financing available from other sources will be
sufficient to meet our cash requirements for the foreseeable future. We believe
that there are adequate financing options available to refinance the Credit
Agreement before its expiration. At the present, we do not have any significant
capital commitments for the coming year.
13
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141,"Business Combinations" (SFAS 141), and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after September 30,
2001. Use of the pooling-of-interest method will be prohibited on a prospective
basis only. SFAS 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Thus, amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
that Statement, which will be adopted by the Company beginning in fiscal year
2002.
The Company does not expect that the adoption of SFAS No. 141 to have a
significant impact on the financial condition or results of operations of the
Company. The Company expects that the adoption of SFAS No. 142 will result in a
pre-tax increase to net income of approximately $1.1 million for the fiscal year
2002 from the cessation of amortization of previously recorded goodwill and does
not expect to recognize any impairments.
In September 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities-an amendment of FASB Statement No. 133" ("SFAS 138"). In September
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 137").
SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 137 and 138
establish accounting and reporting standards for all derivative instruments.
SFAS 137 and 138 are effective for fiscal years beginning after September 15,
2000. The Company adopted the pronouncements in the first quarter of 2001 and
the adoption did not have a material impact on its financial position or results
of operations.
14
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.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 to the notes to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Shareholders
The Company's annual shareholders' meeting was held on Tuesday, July 24, 2001,
at which the following persons were elected to the Board of Directors by a vote
of the shareholders, by the votes and for the terms indicated:
Vote
-------------------------------
Withhold Term
Director For Authority Ending
- --------------------------------- ------------- -------------- --------------
W. Allen Reed ................. 14,108,041 20,420 2004
Angus L. Macdonald ............ 14,109,683 18,887 2002
In addition, the proposal to ratify the appointment of Arthur Anderson LLP as
independent auditors of the Company received the following votes:
Other
For Against Abstain Unvoted
- ----------------- -------------- -------------- ------------------
14,104,314 18,136 6,011 679,199
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Number Description
------------------- ---------------------------------------------
none
(b) During the three months ended September 30, 2001, the Company did not file
any reports on Form 8-K.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLIR SYSTEMS, INC.
Date November 9, 2001 /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