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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ending December 31, 1999.
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
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FLIR Systems, Inc.
(Exact name of Registrant as specified in its charter)
Oregon 93-0708501
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
16505 S.W. 72nd Avenue, Portland, Oregon 97224
(Address of principal executive offices)
(503) 684-3731
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class of Stock
Common Stock, $0.01 par value
Preferred Stock Purchase Rights
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or amendment to this Form 10-K. [_]
As of March 31, 2000, the aggregate market value of the shares of voting
stock of the Registrant held by non-affiliates was $132,566,943.
As of March 31, 2000, there were 14,429,055 shares of the Registrant's
common stock, $0.01, par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant has incorporated by reference into Part III of this Form 10-K
portions of its Proxy Statement for its 2000 Annual Meeting of Shareholders.
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FLIR SYSTEMS, INC.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS...................................................... 1
ITEM 2. PROPERTIES.................................................... 12
ITEM 3. LEGAL PROCEEDINGS............................................. 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS....................................................... 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.......................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 45
ITEM 11. EXECUTIVE COMPENSATION........................................ 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K............................................................. 45
SIGNATURES.............................................................. 48
FINANCIAL STATEMENT SCHEDULES........................................... 49
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PART I
ITEM 1. BUSINESS
General
We are a world leader in the design, manufacture and marketing of thermal
imaging and broadcast camera systems for a wide variety of applications in the
commercial and government markets. Our products come in a variety of
configurations such as handheld or ground-based systems, as well as systems
mounted on ships, helicopters and airplanes. Our thermal imaging systems use
advanced infrared technologies that detect infrared radiation, or heat,
enabling the operator to measure minute temperature differences and to see
objects in daylight or total darkness and through smoke, haze and most types of
fog. Our products can also incorporate visible light cameras, image analysis
software and gyrostabilized gimbal technology. An example of a gyrostabilized
gimbal is the capsule-like object attached to the nose of local television news
stations' helicopters that you may have seen. These capsules, or gimbals,
contain broadcast quality cameras and, sometimes, thermal imaging cameras,
which allow news stations to film breaking news stories.
Our products provide state-of-the-art imaging technology coupled with
competitive pricing. Our product configurations and image analysis software
tools increase our ability to provide products tailored to meet individual
customer requirements. In addition to our continuing line of products that
incorporate "cooled" detector technology, we have also developed and begun
selling innovative new products utilizing advanced "uncooled" thermal imaging
technology.
Industry Overview
Background
Infrared radiation is light that is not visible because its wavelength is
too long to be detected by the human eye. Unlike visible light, infrared
radiation is emitted directly by all objects and materials. Thermal imaging
systems are used to detect infrared radiation and convert it into an electronic
signal, which is then processed and formatted into a video signal and displayed
on a monitor. These systems are distinguished from one another by their
capability to detect and resolve infrared radiation, the clarity of the image
displayed, detection range, system reliability, price and adaptability to a
variety of customer requirements. Thermal imaging systems, unlike night vision
goggles, enable the operator to see objects in total darkness and through
obscurants such as smoke, haze and most types of fog. Advanced thermal imaging
systems can also detect and measure minute temperature differences, a critical
tool for a variety of commercial applications.
Early applications of thermal imaging technology primarily involved the use
of expensive high-resolution systems in military combat applications such as
weapons targeting, where performance factors were far more important than price
in purchasing decisions. A simpler form of the technology was also employed in
limited commercial applications such as detecting heat loss from buildings or
houses, where price was more important than sophisticated performance.
Consequently, a large group of potential users in both the commercial and
government markets did not use thermal imaging technology since available
systems either failed to meet performance requirements or were too expensive.
An infrared detector, which absorbs infrared radiation and converts it into
an electronic signal, is a primary component of thermal imaging systems. Until
recently, thermal imaging systems relied on infrared detectors that needed to
be cooled to near absolute zero in order to operate. This technology is
sometimes referred to as "cooled" detector technology. The cryogenic "coolers"
needed for such detectors are expensive components that consume a great amount
of power and add to the weight, size and overall complexity of the system.
Thermal imaging systems that use new "uncooled" detector technology do not
require these cooling components but instead operate at room temperature. This
feature allows for cheaper, smaller, lighter, more energy efficient, solid-
state systems. These factors are expected to increase the demand for such
systems in existing market segments and create demand in new market segments,
such as fire fighting and machine vision. Despite the advantages of uncooled
technology, cooled systems should continue to play a significant role in the
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government market due to those systems' longer-range performance capabilities.
As hardware prices decline, the sophistication of image analysis software and
the incremental functionality provided by such analysis tools are expected to
become a more critical component of customers' purchasing decisions.
Markets
Commercial Market. The commercial market is comprised of a broad range of
thermal imaging applications. This market has evolved from the use of simple
heat sensing devices to sophisticated radiometric (temperature measuring)
instruments that use a variety of accessories and extensive image analysis
software. The increasing emphasis on improving manufacturing efficiency and
product quality, underscored by the growing importance of quality assurance
programs such as International Standards Organization (ISO) 9000 and the
increasing complexity of manufacturing processes, has expanded the commercial
market. Uncooled thermal imaging technology has created opportunities to
further penetrate existing market segments as well as to create demand in new
markets that can benefit from the enhanced price and performance of such
technology. The growth of the commercial market has also been driven by
improvements in hardware functionality, enhanced image analysis software
performance and declining hardware prices.
The commercial market primarily consists of the following market segments:
Condition Monitoring Thermal imaging systems are used for monitoring
the condition of equipment. Such monitoring
allows for the detection of equipment faults so
they can be repaired. This increases the
equipment's productivity and avoids
catastrophic failures or major equipment
damage, which in turn significantly reduces
operating expenses by lowering repair costs and
reducing downtime. Improved functionality of
image analysis software, longer battery
operation and simplicity of system operation
are critical factors for this market segment.
Specific condition monitoring applications
include locating and repairing defective power
transmission components or electrical
connections, predicting the end of life of
bearings in rotating machinery, evaluating the
integrity or amount of insulation in a building
or container and locating roof leaks and
related damage.
Research and Development Because of its non-destructive analysis
capability, thermal imaging is a useful tool in
a wide variety of research and development
applications. Since many component and product
designs involve the use or control of heat,
thermal imaging can be effectively used in the
research and design of the component or
product. For example, thermal imaging is used
in laser design to determine the power
distribution of the beam, in the development of
diesel engines using ceramic-coated pistons to
determine proper adhesion of the ceramic to the
metal piston and in the design of rubber tires
to evaluate uniform heat distribution. Research
and development applications typically require
very high performance systems with extensive
software capabilities and tools to analyze the
thermal image.
Manufacturing Process Control The ability to determine whether a
manufacturing process will produce acceptable
results at the earliest point in the production
cycle is critical to quality assurance and cost
reduction. Thermal imaging and image analysis
allow for the monitoring and control of heat,
which is used in virtually all industrial
processes. Similarly, thermal imaging systems
can identify moisture and contaminants and help
identify the thickness of material as well as
the integrity of the bonding of composite
materials.
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Thermal imaging applications for manufacturing
process control are varied and extensive,
including monitoring the quality of metal,
plastic and glass cast parts, which are highly
dependent upon the temperature distribution in
the mold, monitoring the quality of paper,
which is dependent upon proper and even
moisture distribution during the drying
process, and monitoring the quality of products
such as rubber gloves, which can be thermally
examined to locate abnormally warm or cool
spots, indicating non-uniform thickness that
may result in a quality defect.
Airborne Observation and The use of airborne observation and broadcast
Broadcast systems is becoming a standard tool for
television stations and broadcast networks.
This technology is also used by law enforcement
agencies around the world for surveillance,
suspect search and apprehension and officer
support. This market segment typically requires
either very high performance daylight cameras
or dual imaging systems with both visible light
and thermal imaging capabilities, in addition
to state-of-the-art stabilization, the ability
to provide jitter-free images from great
distances, and the ability to downlink the
information from the aircraft to the production
studio or command center on a real-time basis.
Applications should increase as system size and
weight continue to decline, enabling the use of
systems on small and weight-restricted
helicopters. In addition, law enforcement
agencies have established thermal imaging as a
primary support tool and should continue to
take advantage of favorable prices.
New Commercial Market New market segments for thermal imaging are
Opportunities developing due to the availability, cost
effectiveness and enhanced performance
characteristics of uncooled thermal imaging
technology. Machine vision and fire fighting
are near-term market opportunities, while
landing guidance, maritime navigation, security
and handheld law enforcement support represent
future growth opportunities. Machine vision is
a manufacturing process control that allows for
real-time, fully automated regulation and
guidance of the assembly or manufacturing
process. As system prices decline, uncooled
thermal imaging technology will provide cost
effective solutions for a wide variety of new
commercial applications.
Government Market. The government market is also comprised of a broad range
of thermal imaging applications. Although the majority of government
applications require the use of cooled technology, uncooled thermal imaging
systems can be used for ground-based security and handheld observation.
Customers in the government market demand affordable high performance systems
that can be mounted on a variety of helicopters, airplanes and ships, operate
in different climatic conditions and perform a variety of tasks requiring high
image resolution quality and substantial image stabilization.
The government market primarily consists of the following market segments:
Search and Rescue Thermal imaging systems are used in traditional
search and rescue missions to rescue
individuals in danger or distress on boats or
in vehicles, to provide offshore oil platform
safety and to provide emergency or disaster
response support for missing persons or
accident victims.
Federal Drug Interdiction Thermal imaging systems enable government
agencies to expand their drug interdiction and
support activities by allowing greater
surveillance and detection capabilities.
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Surveillance and Thermal imaging systems are used in
Reconnaissance surveillance and reconnaissance applications
for the precise positioning of objects from
substantial distances and for enhanced
situation awareness, particularly at night or
in conditions of reduced or obscured
visibility.
Navigation Safety Thermal imaging systems are used in navigation
safety applications to improve missions by
enabling crews piloting aircraft or ships to
see terrain and objects and to detect and avoid
obstacles at night and in conditions of limited
visibility due to smoke, haze or fog.
Border and Maritime Patrol Thermal imaging systems are used in airborne
operations for border and maritime
surveillance, particularly at night, to monitor
borders and coastal waters, to monitor national
fishing boundaries and to prevent smuggling.
Environmental Monitoring Thermal imaging systems are used in
environmental monitoring applications including
forest fire detection and suppression, oil
spill detection and monitoring and wildlife
management.
Ground-based Security Thermal imaging systems are used for ground-
based surveillance and perimeter security of
government and military installations,
particularly at night.
Technology
We use our expertise in diverse technologies and engineering capabilities to
develop and produce sophisticated thermal imaging systems. In order to produce
cost-effective products and shorten the product development cycle, we integrate
the following engineering disciplines and manufacturing processes:
System Design and Radiometry We believe that our extensive experience in
systems integration allows us to effectively
combine a wide variety of engineering
disciplines necessary to design and manufacture
thermal imaging systems. We also possess the
specialized system design knowledge required to
produce thermal imaging systems that can
accurately measure temperature--a critical tool
for many commercial applications.
Software Development We utilize both internal and external sources
to develop the software capabilities necessary
to simplify complex thermal imaging systems. We
have developed Windows-based image analysis
software applications that solve a variety of
manufacturing process and quality control
problems. We also have the necessary expertise
to develop embedded software control systems,
communications software and testing programs
for our thermal imaging systems.
Optical Design and Fabrication We design and manufacture many of the
sophisticated optics that are required to
gather and transmit detected thermal images
with minimum distortion, allowing us to
significantly shorten the product development
cycle and avoid costs and delays associated
with reliance on third-party optics sources.
Electronic Design We design signal processing circuits that
interface directly with the detector arrays to
convert detected infrared radiation into
electronic signals and design the electronic
image processing that is necessary to convert
the electronic signals into standard video
format. Advances in
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microprocessors, electric miniaturization and
image processing have made significant
contributions to the performance and utility of
our thermal imaging systems.
Mechanical Engineering Our design and production of thermal imaging
systems involves highly sophisticated
mechanical engineering techniques. Such
sophisticated techniques are critical for the
design and assembly of the supporting
structures for system components such as
detector arrays, coolers, scanners and optics,
which must meet high-precision mechanical
tolerances. Similarly, the gyrostabilized
gimbal assembly for the SAFIRE, Star SAFIRE,
Ultra 7000 and UltraMedia requires expertise in
electro-mechanical control, gyroscopes and
specialized stabilization controls.
Products
Commercial Products. In the commercial sector, we manufacture products that
are sold to Industrial, Broadcast and Law Enforcement customers. For Industrial
customers, we have developed infrared imaging systems that feature accurate
temperature measurement, storage and analysis. These systems comprise two
categories: handheld cameras and fixed installation cameras. All systems use a
common-core imaging system, of which the majority use proprietary uncooled
sensor technology. The handheld cameras look and function much like a standard
camcorder, utilizing off-the-shelf technology for battery power, data recording
and image display. The fixed installation cameras are housed in industrial
enclosures and have connectivity capability with common factory automation
systems. The products are evolved on an annual basis with new models being
introduced to the market featuring enhancements in functionality and
performance based on customer requests. This keeps the product line up to date,
competitive and continuing to generate follow-on upgrade revenues.
Our strong market share position is enhanced and maintained with the
offering of key post-processing software packages that are developed
internally. Approximately 100 different accessories are available to customize
the product to a wide range of imaging and measurement applications. Customers
are supported through our "Infrared Training Center" business unit, which
provides comprehensive training, certification and applications engineering
from several corporate locations or at the customer's site.
In the broadcast market, we manufacture highly stabilized turret platforms
(gimbals) that house broadcast quality TV cameras. The product is typically
mounted to an aircraft, usually a helicopter, and operated by the use of a hand
controller, which remotely directs the stabilized turret. The broadcast camera
inside the turret provides the video output that is then either recorded on a
video recorder or down-linked to a production studio for live broadcast. These
systems are widely used by television news stations and law enforcement
professionals.
In the Law Enforcement market, we manufacture a variety of stabilized gimbal
systems that typically contain both infrared and visual cameras. These systems
provide high-resolution imagery, day or night, for covert surveillance, public
safety and search and rescue applications. The systems are typically mounted to
a helicopter and greatly enhance the capabilities of the officers during night
operations.
ThermaCAM PM Series The AGEMA(R) 570, introduced in December 1997
and now known as the ThermaCAM(R) PM 595, 575,
545 and 525, was developed to meet the need for
a high performance lightweight cost-effective
portable thermal imager with precision
temperature measurement. This product was the
world's first commercially available handheld
radiometric thermal imaging system
incorporating uncooled IR FPA detector
technology. The product, now in its second
generation, is currently the only uncooled
radiometric imaging system in high volume
production.
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The system provides for accurate temperature
measurement of objects from -40(degrees)C to
+2000(degrees)C. The imager is packaged in a
camcorder-like aluminum housing weighing less
than five pounds. The systems features numerous
automated features, offering one-hand, point
and shoot operation.
The ThermaCAM 595 has applications across all
commercial thermography market segments,
including predictive and preventive maintenance
of electrical, mechanical and building HVAC
systems, locating and repairing defective power
transmission components or electrical
connections, predicting the end of life of
bearings in rotating machinery, evaluating the
integrity or amount of insulation in a building
and locating roof leaks and related damage.
ThermaCAM SC Series The ThermaCAM SC series cameras are similar to
the PM series cameras except they typically
incorporate high-definition cooled FPA sensors
that offer an increased level of sensitivity,
image quality and accuracy. The SC series
cameras are designed primarily for high-end
research and development applications. These
systems, originally introduced in the spring of
1996 now comprise three models: SC1000, SC2000
and SC3000. The SC1000 utilizes a cooled
Platinum Silicide detector and is well suited
for applications in the glass, plastics and
petroleum refining industries. The SC2000
utilizes an uncooled microbolometer detector
and is well suited for general R&D applications
such as product thermal testing or PC board
inspections. The SC3000 is the world's first
production Quantum Well Infrared Photodetecor
(QWIP) based camera and features extremely high
sensitivity (0.03(degrees)C) and longwave
operation. This camera is well suited for non-
destructive testing applications and certain
medical research applications.
ThermaCAM Tracer The ThermaCAM Tracer(R), introduced in the
first quarter of 1997 as "Tracer Plus", is the
first industrial imaging system capable of
recording and analyzing high-speed thermal
events on a conventional Windows-based PC. The
ThermaCAM Tracer combines a high-resolution
thermal imaging camera, such as the ThermaCAM
595, with a Pentium PC, digital recording
system and Windows-based image analysis
software for research and development
applications such as in laser design to
determine the power distribution of the beam or
in the development of diesel engines using
ceramic-coated pistons to determine proper
adhesion of the ceramic to the metal piston.
ThermoVision IRMV The ThermoVision IRMV(R), introduced in early
1998, is an uncooled thermal imaging camera for
manufacturing process control and machine
vision applications. "IRMV", or Infrared
Machine Vision, is being rapidly accepted as an
alternate means for factory automation in
applications where heat is a factor. Operating
as a remote controlled "smart" sensor in
supervised operation or integrated into a
complete control system, the ThermoVision IRMV
sensor transmits data on a continuous real-time
basis to factory automation equipment. Using
built-in intelligence, the ThermoVision can
process multiple areas of interest, trigger
alarms or transmit control data. A variety of
flexible, high-speed and reliable digital
cable, fiber-optic and wireless transmission
media
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allow for flexible system integration with
controllers, computers and vision systems.
Examples of ThermoVision applications include
monitoring and controlling the manufacture of
metal, plastic or glass parts, where thermal
properties are critical to the final product.
ThermoVision IRMV sensors are used to provide
the real-time feedback to assure consistent
product quality.
ThermaCAM Reporter Suite The ThermaCAM Reporter Suite (formerly AGEMA
Report software), the latest release of which
was introduced at the end of 1999, allows for
review, analysis and processing of captured
thermal images and measurement data. The
software is a Windows-based program that is
easy to use and affordable. The software suite
comprises three basic products: A wizard driven
report writer, an Explorer style image viewer
and a stand-alone report viewer. The software
is typically packaged with the ThermaCAM PM or
SC series cameras, though it is capable of
operating with data gathered from other imaging
products as well.
UltraMedia I & II The UltraMedia, introduced in the first quarter
of 1996, is a compact stabilized airborne
broadcast system that delivers high-quality TV
images from an aircraft platform. Featuring a
magnification capability of 72:1 and a
lightweight, 5-axis gyrostabilized package, the
UltraMedia products are ideally suited for
airborne broadcast teams. The products were
developed for television stations and
entertainment networks to cover live news and
sporting events. The UltraMedia is also used by
law enforcement agencies around the world for
surveillance, suspect search and apprehension,
and officer support.
UltraMedia-RS The UltraMedia-RS, introduced in the first
quarter of 1997, combines many of the features
of the larger UltraMedia systems in a compact
35-pound configuration. The UltraMedia-RS
allows small and weight restricted aircraft to
gather high quality video footage from long
distances, delivering a maximum magnification
capability of 40:1.
UltraMedia LE The UltraMedia LE, introduced in the fourth
quarter of 1998, is a compact digital lowlight
surveillance system that delivers similar
performance to the UltraMedia II systems, but
also adds extreme low-light imaging capability
and a 30% increase in magnification providing
covert surveillance capabilities at night. The
product was developed to meet the needs of
federal, state and local law enforcement
agencies desiring covert observation
capabilities at extreme standoff distances.
UltraVision The UltraVision, introduced in the fourth
quarter of 1998, is the newest member of the
Ultra family of broadcast camera products.
Designed to serve the low-end of the airborne
broadcast market, its small size and weight
allows it to be mounted on lower cost aircraft
platforms. The UltraVision is a turnkey
broadcast system, incorporating a high-
performance digital (DV) camera, recorder and
handheld controller. The product is designed to
suit the needs of tour operators, sightseeing
helicopters and regional broadcasters.
FireFLIR The FireFLIR, introduced in the first quarter
of 1999, is a lightweight, hands-free, helmet-
mounted thermal imaging system for fire
fighting applications. Weighing about 4 pounds,
the FireFLIR incorporates an
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uncooled microbolometer detector that delivers
crisp, high-resolution monochrome and color
images. The system's unique design allows it to
be used as a hands-free helmet mounted system
or as a hand held imaging system. The system
features automated capabilities for locating
hot spots in walls and determining the
temperature of objects in the scene. An
optional microwave transmitter sends the video
signal to a remote location for other
crewmembers to view.
Ultra 7000/Mark III Quantum The Ultra 7000, also known as the Mark III
Quantum, introduced in the third quarter of
1998, is an airborne gimbal-mounted, dual
imaging system incorporating a state-of-the-art
Indium Antimonide infrared imaging detector and
a color CCD TV camera. At 9" in diameter and 26
pounds, the Mark III Quantum is the smallest
and lightest high performance dual system
available. Industry-leading features include a
continuous zoom IR lens, built-in auto-tracking
capability, GPS annotation and ergonomic hand
controller. The system is designed primarily
for law enforcement applications where the
continuous zoom and auto-tracker aid in keeping
suspects in the field of view. The system's
small size and light weight make it attractive
for use on smaller, less-expensive helicopters.
The system is also available with a reduced
size electronics set for use in unmanned
aircraft applications.
UltraForce The UltraForce, introduced in the second
quarter of 1999, is a low cost dual sensor
gyrostabilized gimbal system. The system
incorporates an uncooled infrared imaging
sensor together with a CCD TV camera capable of
imaging in moderately low light conditions.
Features include dual IR fields of view,
instant-on capability and low operating costs.
Targeted at the law enforcement community, the
UltraForce is an entry-level product offering
good quality IR and Visual imaging, 4-axis
stabilization and video recording capabilities.
Government Products. In the government sector, we manufacture products that
are sold to airborne, ground and maritime applications. For airborne
applications, we have developed highly stabilized turrets (gimbals), which
typically contain one or more of the following: an infrared imaging system, a
visual camera, a laser range finder, a laser illuminator and a spotter scope.
The systems typically have sophisticated embedded software providing tracking,
GPS and aircraft information. For ground applications, we manufacture two types
of products: handheld products and platform mounted products. All ground
systems have a high performance infrared camera coupled with an IR lens system.
Some units have visual cameras on-board and an integrated pan and tilt
capability. Platform mounted units are typically housed in a weather-tight
enclosure and feature remote control capabilities. Handheld ground products
typically look like militarized camcorders and utilize commercial battery and
viewfinder components, but are highly ruggedized. For maritime applications, we
manufacture a mix of airborne and shipborne products. The products are similar
to inverted airborne gimbals, but have a high level of customization for the
marine environment. Enhancements include hermetic sealing, on-board heaters and
wipes and corrosion resistant coatings. Maritime units typically incorporate
infrared cameras, visual cameras and laser range finders.
Star SAFIRE First introduced in June 1998, is the Star
SAFIRE(R), a 3-axis gyrostabilized, 360 field
of view thermal imaging system incorporating
third generation focal plane array detector
technology. Manufactured to military standards
and using three fields of view, the system
provides extended detection range capability
and visually advanced imagery. The system
permits multiple optical payloads in addition
to the infrared detector, including a TV camera
with a zoom lens for daylight
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operations, laser rangefinder, laser
illuminator or laser designator. Examples of
Star SAFIRE applications include the detection
of vehicles, ships or planes transporting
illegal narcotics, and search and rescue for
individuals in danger or distress, maritime
patrol and reconnaissance missions.
Star SAFIRE II Introduced in April of 1999, the Star SAFIRE
II(R) is an enhanced evolution on the Star
SAFIRE I. The system features improved
performance through the use of a military
qualified 5-axis gyrostabilized, gimbal and a
micro-scanned Indium Antimonide third
generation focal plane array detector.
Featuring a 30% increase in IR magnification,
the system provides an extended detection range
capability offering greater mission safety and
effectiveness. The system also permits multiple
optical payloads in addition to the infrared
detector, including a TV camera with a zoom
lens for daylight operations, laser
rangefinder, laser illuminator or laser
designator. Examples of Star SAFIRE
applications include search and rescue,
maritime patrol, unmanned air vehicles (UAV),
reconnaissance missions, border and coastal
surveillance and target identification and
designation.
SAFIRE The SAFIRE(R) system, first introduced in the
second quarter of 1992, is a digital airborne
system with a high-performance scanned infrared
camera. The unit's 3-axis gyrostabilized gimbal
configuration has been certified to operate at
airspeeds in excess of 400 knots, ensuring that
the SAFIRE can operate and produce, a stable,
high-resolution image when mounted on most
aircraft designed for subsonic operations. The
SAFIRE has a digital microprocessor, which
permits optional features such as auto-
tracking, auto-scanning, laser illumination,
laser rangefinder, use of a TV camera,
navigation interfaces, digital image filters
and freeze frame. Examples of SAFIRE
applications include navigation assistance at
night and in adverse weather, search and rescue
operations and border patrol missions.
ThermoVision 1000 The ground-based ThermoVision(R) 1000 (formerly
AGEMA 1000), first introduced in 1992, is a
fixed or tripod mounted thermal imaging system
that can detect small objects up to several
kilometers away under extreme environmental
conditions, day or night. The system features
mission specific optical configurations and a
highly ruggedized enclosure. Capable of remote
operation, the system has on-board image
processing capabilities, which enhance target
detection and identification. The ThermoVision
1000 can also be integrated into a gimbal for
airborne applications. Examples of ThermoVision
1000 applications include perimeter security of
military bases and sensitive government
installations or buildings. The system is
currently deployed worldwide under the US
Government TASS program.
ThermoVision Sentry The ground-based ThermoVision Sentry, first
introduced in the fourth quarter of 1998, is
the first fixed or tripod mounted thermal
imaging system featuring uncooled detector
technology. Using this technology, this system
can operate unattended for very long periods of
time without maintenance. The system
incorporates a sophisticated pan and tilt
mechanism that has highly accurate, high speed
pointing capability and
9
automated scanning functions. Designed for
automated perimeter or facility surveillance,
the system has on-board image alarm functions
and bi-directional remote communication
capabilities. Examples of ThermoVision Sentry
applications include perimeter security of high
value or high security environments, shipboard
navigation and coastal surveillance
applications.
Sea FLIR The Sea FLIR, developed under the US Navy
"MarFLIR" contract and introduced in the second
quarter of 1999, is an inverted stabilized 9"
gimbal infrared imaging system designed
specifically for the marine environment. Able
to withstand significant shock, vibration, and
sea-spray, the Maritime FLIR is hermetically
sealed and contains an on-board de-icing
system. The system incorporates a high
performance Indium Antimonide IR FPA sensor
with a 10x continuous zoom lens, a laser range
finder and an auto-tracker. This system is
designed to be mounted on a mast, wheelhouse or
a weapons platform. Examples of Maritime FLIR
applications include, foul weather navigation,
anti-piracy, search and rescue, mine detection
and collision avoidance.
MilCAM The MilCAM, introduced in the first quarter of
1997, is a high performance hand held infrared
imaging system designed for tactical use by
military, paramilitary and law enforcement
agencies engaged in long range surveillance,
target observation, artillery observation/fire
correction, perimeter security an border
surveillance. The system offers high-resolution
imaging in total darkness, through smoke, haze
and other obscurants. Small and lightweight,
the system uses off-the-shelf batteries and
weighs less than 5 pounds. Currently available
in three models: MilCAM LE, XP and Ranger
versions, the MilCAM leads the market in small
size, low power and long range capabilities.
The MilCAM LE features a cooled Platinum
Silicide detector and is designed for law
enforcement applications. The MilCAM XP
features a high performance Indium Antimonide
detector offering detection beyond 5
kilometers. The MilCAM Ranger is a fixed
installation or tripod mounted product that
offers very long-range performance and remote
control capabilities. Examples of MilCAM
applications include: Perimeter security,
coastal surveillance, special operations,
police surveillance and search and rescue.
Customers
The primary customers for our products include domestic and foreign
government agencies, including military, paramilitary and police forces,
original equipment manufacturers, commercial manufacturers, research and
development facilities, universities, utility companies, news-gathering
agencies and various commercial enterprises.
A substantial portion of our revenue is derived from sales to agencies and
instrumentalities of the U.S. Government, which aggregated more than 17.1% of
our revenues in each of the last three years. For the year ended December 31,
1999, such sales represented 17.8% of our total revenue. With the exception of
the continuing sales to agencies and instrumentalities of the U.S. Government,
we do not typically have continuing customers whose purchases constitute more
than 10% of revenues on a year-to-year basis. At any given time, however, we
may have purchase commitments from customers that, if completed, would
constitute more than 10% of revenues in any given year. The failure of any such
customer to complete such purchases or the loss of the agencies and
instrumentalities of the U.S. Government as a customer could have a material
adverse effect on our business, financial position and results of operations.
10
Sales, Distribution and Customer Service
We believe that our sales and marketing organization is the largest in the
industry and effectively covers the world with a combination of direct sales,
independent representatives and distributors, application engineers and service
centers. The process of selling and marketing our products involves extensive
product promotion, technical selling and after-sales support. Our commercial
and government products are highly technical and have distinct characteristics
and functionality. Our sales and service personnel undergo a comprehensive
training program to educate them as to the technical aspects of the products as
well as familiarize them with individual customer requirements. We also
continuously update our training programs to incorporate technological and
competitive shifts and changes.
We have distinct sales channels for commercial, airborne observation and
broadcast and government customers. We sell our commercial thermal imaging
products worldwide through a direct sales staff of more than 120 people and a
network of 75 distributors (many with multiple offices) and representatives,
each with an exclusive right to sell our products in a defined geographic area.
We sell our airborne observation and broadcast products through a seven person
direct sales staff. We sell our government products through a 53 person direct
sales staff and 50 independent representatives and distributors covering all
major markets worldwide. Included in this total are technical and customer
support staff in the United States and Europe who provide application
development, technical training, operational assistance, installation design
and support, and software assistance to direct and indirect sales personnel as
well as to customers. Additionally, we maintain service facilities at our
factories in Portland, Oregon; Stockholm, Sweden; and West Malling, U.K. and at
our subsidiary locations in Brussels, Belgium; Frankfurt, Germany; Toronto,
Canada; Paris, France; and Milan, Italy. Each of our service facilities has the
capability to perform the complex calibrations required to service commercial
thermal imaging systems. We employ more than 30 people worldwide in our service
organizations. We also maintain limited service capability in three additional
foreign locations under the direction of our independent representatives or
distributors. Our product marketing involves Internet promotion, advertising,
direct mail, press tours, technical articles for publications and participation
in approximately 100 trade shows per year.
Backlog
At December 31, 1999 we had an order backlog of $55 million. Backlog may not
be indicative of revenue for any future periods because our sales to commercial
customers are generally made pursuant to purchase orders rather than long term
contracts and, accordingly, the backlog at any given time is for immediate
shipments. In addition, the backlog for the government business is heavily
dependent upon the timing of receipt of government contracts that may have
multiple year delivery schedules. Furthermore, delivery schedules are
frequently revised to accommodate changes in customer needs. Although orders
received by us are generally subject to cancellation, in the case of most
orders included in backlog, the customer is obligated to pay certain costs
and/or penalties for cancellation. We do not include future options under
contracts in backlog until funded delivery orders are issued against those
options.
Manufacturing
We manufacture many of the critical components for our products, including
gimbals, optics, certain detectors and high speed motors, which minimizes lead
times, facilitates prompt delivery of our products, controls costs and ensures
that these components satisfy our quality standards. We purchase other parts
pre-assembled, including detectors, coolers, circuit boards, cables and wiring
harnesses. We purchase certain key components from sole or limited source
suppliers. Accordingly, we could experience occasional late deliveries or a
scarcity in the supply of some of these components.
Our manufacturing operations are, from time to time, audited by certain of
our OEM customers, which include several major aircraft manufacturers, and have
been certified as meeting their quality standards. Our
11
facilities in Stockholm, Sweden and West Malling, U.K. are ISO 9000 certified.
We are in the process of obtaining ISO 9000 certification in Portland and will
proceed with the certification process with our Boston facility.
Competition
Competition in the market for thermal imaging equipment is significant. We
believe that the principal competitive factors in our market are performance,
cost, customer service, product reputation and effective marketing and sales
efforts. Our competitors are different in each market segment. In the
commercial market, principal competitors include Raytheon Company, Cincinnati
Electronics Corp., Nippon Avionics Co., Ltd.; and Wescam Ltd.. In the
government market, we compete with British Aerospace, Wescam Ltd., Lockheed
Martin Corp., The Boeing Company, Daimler-Benz Aerospace AG and Thompson-CSF.
Many of these competitors have substantially greater financial, technical and
marketing resources than we do.
Proprietary Rights
Our ability to compete successfully and achieve future revenue growth will
depend in part on our ability to protect our proprietary technology and operate
without infringing the rights of others. We rely on a combination of patent,
trademark and trade secret laws, confidentiality agreements and contractual
provisions to protect our proprietary rights. But we believe that our
historical success has been primarily a function of other competitive
advantages such as the skill and experience of our employees, our worldwide,
multi-channel sales, distribution and servicing network and our name
recognition and quality products. Because intellectual property protection does
not necessarily represent a barrier to entry into the thermal imaging industry,
we cannot be certain or give any assurance that we can maintain this
competitive advantage or that competitors will not develop similar or superior
capabilities.
Employees
As of December 31, 1999, we had 640 employees in the United States and 250
employees outside of the United States. We have been generally successful in
attracting highly skilled technical, marketing and management personnel to
date. None of our employees in the United States are represented by a union or
other bargaining group. Employees in Sweden and Italy are represented by
unions. We believe our relationships with our employees and unions are good.
ITEM 2. PROPERTIES
We lease facilities under various operating leases that expire in 2000
through 2006. The leases calls for fixed monthly payments over their term. The
following summarized our primary leased facilities:
Lease Expiration
Location Date Square Feet
-------- ---------------- -----------
FLIR Systems, Inc.--Portland, Oregon........ 2005 96,000
FLIR Systems AB--Danderyd, Sweden........... 2004 63,000
FLIR Systems--Boston, Inc.--N. Billerica,
Massachusetts.............................. 2005 102,000
FSI Automation, Inc.--Bothell, Washington... 2000 9,600
FLIR Systems International Ltd.--West
Malling, United Kingdom.................... 2006 14,300
FLIR Systems Ltd.--Toronto, Canada.......... 2000 4,200
FLIR Systems S.A.R.L.--Paris, France........ 2000 2,900
FLIR Systems GmbH--Frankfurt, Germany....... 2003 2,200
FLIR Systems s.r.l.--Milan, Italy........... 2004 2,200
12
ITEM 3. LEGAL PROCEEDINGS
Beginning on or about March 13, 2000, four 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. 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 April 22, 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 thereunder 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. The Company currently
expects that the lawsuits described above will be consolidated into one action
within the next several months. 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 1999 that are being defended and
handled in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required to be reported pursuant to this item.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The common stock of FLIR Systems, Inc. has been traded on the Nasdaq
National Market System since June 22, 1993, under the symbol "FLIR". The
following table sets forth, for the quarters indicated, the high and low sales
price for Common Stock reported on the Nasdaq National Market System.
1999 1998
----------- -----------
High Low High Low
----- ----- ----- -----
First Quarter...................................... 23.53 17.13 20.63 16.75
Second Quarter..................................... 18.81 11.75 21.63 17.25
Third Quarter...................................... 18.00 12.63 18.13 10.50
Fourth Quarter..................................... 17.00 11.00 23.75 10.50
At December 31, 1999, there were approximately 400 holders of record of our
common stock and 14,388,600 shares outstanding. We have never paid cash
dividends on our Common Stock. We intend to retain earnings for use in our
business and, therefore, do not anticipate paying cash dividends in the
foreseeable future.
During the quarter ended December 31, 1999, we sold securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act") upon the exercise of certain stock options granted under our 1984 Stock
Incentive Plan. An aggregate of 2,400 shares of Common Stock were issued at
exercise prices ranging from $1.625 to $5.225. These transactions were effected
in reliance upon the exemption from registration under the Securities Act
provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3(b) of the Securities Act.
13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The financial data in the table below as of and for fiscal 1998 and working
capital and total shareholders' equity for 1997 has been restated. See Note 17
to the Consolidated Financial Statements and Quarterly Financial Data for
information concerning the Company's restatement of its financial statements.
In addition, all financial data in the table for the years 1995 through 1998
has been restated for the merger with Inframetrics, Inc., which was accounted
for as a pooling of interests. See Note 15 to the Consolidated Financial
Statements.
Year Ended December 31,
-----------------------------------------------------
1999(1) 1998 1997(2) 1996 1995
-------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
(Restated) (Restated) (Restated) (Restated)
Statement of Operations
Data
Revenue:
Commercial.............. $120,555 $137,977 $ 86,656 $ 54,447 $40,262
Government.............. 65,893 58,888 58,278 57,338 40,397
-------- -------- -------- -------- -------
Total revenue.......... 186,448 196,865 144,934 111,785 80,659
Cost of goods sold....... 123,666 92,260 86,835 57,864 40,233
-------- -------- -------- -------- -------
Gross profit........... 62,782 104,605 58,099 53,921 40,426
Operating expenses:
Research and
development............ 29,006 26,958 17,607 13,574 11,212
Selling and other
operating costs........ 71,046 61,541 41,225 29,989 23,008
Combination costs....... 9,301 -- 36,450 -- --
-------- -------- -------- -------- -------
Total operating costs.. 109,353 88,499 95,282 43,563 34,220
Earnings (loss) from
operations........... (46,571) 16,106 (37,183) 10,358 6,206
Interest income.......... 480 728 540 1,258 700
Interest expense and
other................... (6,251) (5,199) (4,093) (1,470) (2,402)
-------- -------- -------- -------- -------
Earnings (loss) before
income taxes......... (52,342) 11,635 (40,736) 10,146 4,504
Income tax provision
(benefit)............... 2,295 1,806 (11,548) 2,723 549
-------- -------- -------- -------- -------
Net earnings (loss)
from continuing
operations........... (54,637) 9,829 (29,188) 7,423 3,955
Discontinued operations,
net of taxes............ -- -- -- (830) --
-------- -------- -------- -------- -------
Net earnings (loss)... $(54,637) $ 9,829 $(29,188) $ 6,593 $ 3,955
======== ======== ======== ======== =======
Net earnings (loss) per
share:
Basic................... $ (3.83) $ 0.76 $ (3.69) $ 0.89 $ 0.54
======== ======== ======== ======== =======
Diluted................. $ (3.83) $ 0.73 $ (3.69) $ 0.86 $ 0.52
======== ======== ======== ======== =======
Balance Sheet Data:
Working capital.......... $ 11,105 $ 76,346 $ 47,852 $ 58,596 $50,829
Total assets............. 195,060 236,511 185,278 104,860 82,202
Short-term debt.......... 82,331 42,638 32,706 8,529 2,491
Long-term debt, excluding
current portion......... 1,497 19,296 20,634 24,106 13,482
Total shareholders'
equity.................. $ 62,202 $116,113 $ 73,033 $ 49,456 $47,150
- --------
(1) In connection with the merger with Inframetrics, Inc., which was effective
on March 30, 1999, we recorded one-time charges of $34.6 million. The
charges consisted of $25.3 million of inventories, which is included in
cost of goods sold, due to the elimination of duplicative product lines,
and $9.3 million of transaction related costs, which are included in
combination costs, a separate line in operating expenses.
(2) In connection with the acquisition of AGEMA Infrared Systems AB, which was
effective on December 1, 1997, we recorded a one-time charge of $52.5
million. The charge consisted of $36.4 million of in-process research and
development and merger-related costs, which are included as a separate
line in operating expenses, and $16.1 million of inventories due to the
creation of duplicative product lines, which is included in cost of goods
sold.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 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 and elsewhere in this Annual
Report as well as those discussed from time to time in our other Securities and
Exchange Commission filings and reports. In addition, such statements could be
affected by general industry and market conditions. Such forward-looking
statements speak only as of the date on which they were made and we do not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this Annual Report. If we update or
correct one or more forward-looking statement, investors and others should not
conclude that we will make additional updates or corrections with respect to
other forward-looking statements.
Overview
FLIR Systems was founded in 1978 and has become a world leader in the
design, manufacture and marketing of thermal imaging and broadcast camera
systems for a wide variety of commercial and government applications. Our
business is organized around two principal markets, commercial and government.
Historically, a majority of our revenue was derived from government sales.
However, we have shifted our product mix in favor of commercial applications,
which accounted for 64.7% and 70.1%, respectively, of our revenue for the years
ended December 31, 1999 and 1998. We continue to enhance our state-of-the-art
products within existing commercial and government markets, as well as develop
products for new market applications that use advanced thermal imaging
technology such as new "uncooled" detector technology that operates at room
temperature, allowing for systems that are cheaper, smaller, lighter, and more
energy efficient. Additionally, we have developed higher-margin image analysis
software tools that enhance the capability and customization of our commercial
hand-held products. As hardware prices decline, the sophistication of image
analysis software and the incremental functionality provided by such analysis
tools are expected to become a more critical component of the commercial
segment.
On March 30, 1999, we completed our merger with Inframetrics, Inc., a
privately held thermal imaging company headquartered in Billerica,
Massachusetts, by issuing approximately 2.3 million shares of our Common Stock
in exchange for all the outstanding stock of Inframetrics. As a result of the
merger with Inframetrics, which was accounted for as a pooling of interests
(see Note 15 to the Consolidated Financial Statements), the Consolidated
Financial Statements and all amounts included in this Management's Discussion
and Analysis of Financial Condition and Results of Operations for all periods
presented have been restated to reflect the combined operations and financial
position for all such periods.
Effective December 1, 1997, we acquired AGEMA Infrared Systems AB,
headquartered in Stockholm, Sweden. AGEMA was the world leader in the design,
manufacture and marketing of handheld infrared cameras for detecting and
measuring temperature differences for a wide variety of commercial and research
applications. Because the acquisition was accounted for as a purchase, our
Consolidated Statement of Operations for the year ended December 31, 1997
includes AGEMA's results only for the month of December 1997.
International revenue accounted for approximately 52.7%, 45.9% and 39.6% of
our revenue in 1999, 1998 and 1997, respectively. We anticipate that
international sales will continue to account for a significant portion
15
of revenue. With the acquisition of AGEMA contributing a significant volume of
sales denominated in foreign currencies, we have increased exposure to foreign
exchange fluctuations and changing dynamics of foreign competitiveness based on
variations in the value of the U.S. dollar relative to other currencies.
The Company typically experiences longer payment cycles on its international
sales, which can have an adverse impact upon the Company's liquidity. In
addition, substantial portions of the Company's operations are conducted
outside the United States, particularly in Sweden. International sales and
operations may be subject to risks such as the imposition of governmental
controls, export license requirements, restrictions on the export of critical
technology, political and economic instability, trade restrictions, labor union
activities, changes in tariffs and taxes, difficulties in staffing and managing
international operations, and general economic conditions.
The Company experiences fluctuations in orders and sales due to seasonal
fluctuations and customer sales cycles. With the exception of 1998 and 1999,
revenue in the fourth quarter of each year generally has been significantly
higher than any other quarter in that year and the first and, in some cases,
the second quarter of the following year, due to the seasonal pattern of
contracting by the U.S. and certain foreign governments, the frequent
requirement by international customers to take delivery of equipment prior to
the end of December due to funding considerations, and the tendency of
commercial enterprises to fully utilize yearly capital budgets prior to
expiration. In addition, a significant portion of the Company's quarterly sales
have historically occurred in the last month of each quarter, with sales
frequently concentrated in the last week or days of the quarter. Such events
are likely to continue to result in substantial fluctuations in quarterly
results in the future. As a result of such quarterly fluctuations in operating
results, the Company believes that quarter-to-quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indicators of future performance.
Restatement of Financial Statements
In March 2000 the Company determined that it was necessary to revise its
1998 financial statements and its interim 1999 financial statements. The
restatement was required because of incorrect consolidation of the Company's
subsidiary information, inaccurate inventory valuation, insufficient accruals
of commission expense and the inadequate accumulation and misclassification of
certain subsidiary costs. As a result of these matters, certain costs and
allowances were either not accrued or not recorded correctly during the
appropriate periods.
In addition, in December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), which among other guidance clarifies certain conditions to be met in
order to recognize revenue. In April 2000, in connection with the audit of the
Company's financial statements and in light of the focus on revenue recognition
issues resulting from the issuance of SAB 101, the Company re-examined its
historical application of generally accepted accounting principles relating to
revenue recognition and the terms underlying certain transactions in which
title and the risks of ownership had transferred to the buyer, but physical
delivery to the buyer had not occurred (bill and hold transactions). As a
result of this review, the Company modified its historical revenue recognition
policy with respect to those bill and hold transactions.
In view of the cumulative effect of the unrecorded adjustments for costs and
allowances, and the bill and hold revenue matters, the Company restated its
beginning retained earnings for 1997 as a result of the revenue recognition
matters, its annual and fourth quarter consolidated financial statements for
1998 and its quarterly consolidated financial statements for the first three
quarters of 1999. The financial statements and related notes set forth in this
Annual Report reflect all such restatements, including changes to the tax
provision for all periods presented.
As a result of the restatement, total revenues for the year ended December
31, 1998 were reduced by $11.7 million from $208.6 million as originally
reported to $196.9 million. Earnings were reduced by $7.0 million from $16.8
million as originally reported to $9.8 million for the same period. As a result
of prior period adjustments for revenue recognition from bill and hold
transactions, beginning retained earnings for 1997 was reduced by $2.9 million.
16
The Company's quarterly financial results for the first three quarters of
1999 and the fourth quarter of 1998 have also been restated. As a result of the
restatement, total revenues for the first three quarters of 1999 were increased
from amounts previously reported by $7.0 million from $131.3 million as
originally reported to $138.3 million. Earnings were reduced by $12.1 million
from the net loss of $7.7 million originally reported to a net loss of $19.8
million for the same period. For the fourth quarter of 1998, revenues were
reduced by $11.7 million from $63.1 million originally reported to $51.4
million. Earnings were reduced by $6.9 million from $7.8 million originally
reported to $0.9 million for the same period.
Results of Operations (1)
The following table sets forth for the indicated periods certain items as a
percentage of revenue:
Year Ended December
31,
------------------------
1999(2) 1998 1997(3)
------- ----- -------
Revenue:
Commercial..................................... 64.7 % 70.1 % 59.8 %
Government..................................... 35.3 29.9 40.2
----- ----- -----
Total revenue................................ 100.0 100.0 100.0
Cost of goods sold............................... 66.3 46.9 59.9
----- ----- -----
Gross profit................................... 33.7 53.1 40.1
Operating expenses:
Research and development....................... 15.6 13.7 12.1
Selling and other operating costs.............. 38.1 31.3 28.5
Combination costs.............................. 5.0 -- 25.1
----- ----- -----
Total operating expenses..................... 58.7 45.0 65.8
Earnings (loss) from operations............ (25.0) 8.1 (25.7)
Interest income.................................. 0.3 0.4 0.4
Interest expense and other....................... (3.4) (2.6) (2.8)
----- ----- -----
Earnings (loss) before income taxes........ (28.1) 5.9 (28.1)
Income tax provision (benefit)................... 1.2 0.9 (8.0)
----- ----- -----
Net earnings (loss).............................. (29.3)% 5.0% (20.1)%
===== ===== =====
- --------
(1) Financial data presented in the table above for fiscal 1998 and 1997 has
been restated. See Notes 1, 15 and 17 to the Consolidated Financial
Statements for information concerning the Company's restatement of its
financial statements.
(2) Excluding the one-time charges of $34.6 million in connection with the
acquisition of Inframetrics, cost of goods sold, gross profit, earnings
from operations and net earnings in 1999 would have been 52.8%, 47.2%,
(6.4)% and (6.4)%, respectively.
(3) Excluding the one-time charge of $52.5 million in connection with the
acquisition of AGEMA, costs of goods sold, gross profit, earnings from
operations and net earnings in 1997 would have been 48.8%, 51.2%, 10.6%
and 5.7% , respectively.
Years ended December 31, 1999, 1998 and 1997
Revenue. Revenue decreased 5.3%, from $196.9 million in 1998 to $186.4
million in 1999. Commercial revenue decreased 12.6%, from $138.0 in 1998 to
$120.6 million in 1999. The decrease was attributable to a reduction in sales
of commercial airborne systems and certain commercial products sold to
industrial customers. Revenue from the sale of government products rose 11.9%,
from $58.9 million in 1998 to $65.9 million in 1999. The increase was
attributable to higher deliveries of the SAFIRE family of airborne products,
particularly the Star SAFIRE system that began significant shipments in 1999.
Higher deliveries of the MilCAM, a hand held surveillance product, also added
to the increase of government sales compared to 1998 .
17
Revenue increased 35.8%, from $144.9 million in 1997 to $196.9 million in
1998. Commercial revenue increased 59.2%, from $86.7 million in 1997 to $138.0
million in 1998. The increase was primarily attributable to the inclusion of a
full year of AGEMA's operations compared to one month of operations in 1997.
Revenue from the sale of government products rose 1.0%, to $58.9 million in
1998 from $58.3 million in 1997. The increase was primarily attributable to the
inclusion of a full year of AGEMA's ground based products compared to one month
of operations in 1997.
International sales contribute a significant portion of overall revenue with
Europe and Japan the most consistent source of sales. International revenue in
1999 was $98.3 million, representing 52.7% of overall revenue. This compared to
1998 international revenue of $90.4 million, or 45.9% of total revenue, and
1997 international revenue of $57.3 million, or 39.6% of total revenue.
Gross profit. As a percentage of revenue, gross profit declined to 33.7% in
1999 compared to 53.1% in 1998. The decline was primarily a result of the
write-off of $25.3 million of duplicative inventory and products that were
determined to have reached the end of life, both created by overlapping product
lines as a result of the merger with Inframetrics. The write-off was included
in cost of goods sold. Exclusive of this write-off, 1999 gross profit was
47.2%. Gross profit for 1999 was negatively affected by lower than expected
production and delivery volumes resulting in excess manufacturing costs that
were not fully absorbed into the products. These excess manufacturing costs
were expensed in 1999.
As a percentage of revenue, gross profit increased from 40.1% in 1997 to
53.1% in 1998, primarily due to the $16.1 million write-off of duplicative
inventories related to the AGEMA acquisition that was included in cost of goods
sold in 1997. Exclusive of this write-off, gross margin increased from 51.2%
for 1997 to 53.1% for 1998. The improvement in 1998 was primarily attributable
to a higher percentage of sales using uncooled technology, which has a more
favorable cost structure compared to older technology.
Research and development. Research and development expense increased 7.6%,
from $27.0 million in 1998 to $29.0 million in 1999. Research and development
expense increased in 1999 to facilitate the introduction of new products
including the ThermaCAM 595, SC3000, MarFLIR, FireFLIR, Ultra7000, UltraMedia
III, Star SAFIRE and Star SAFIRE II. Research and development expense increased
53.1%, from $17.6 million in 1997 to $27.0 million in 1998. The increase was
primarily attributable to the inclusion of a full year of AGEMA's research and
development expense compared to one month of expense in 1997.
Selling and other operating costs. Selling and other operating costs
increased 15.4%, from $61.5 million in 1998 to $71.0 million in 1999, and
increased 49.3% in 1998 from $41.2 million in 1997. As a percentage of revenue,
selling and other operating costs were 38.1%, 31.3%, and 28.5% in 1999, 1998,
and 1997, respectively. The increase in selling and other operating costs in
1999 reflect a variety of factors including expense increases due to
anticipated higher volumes of business that were not fully realized,
implementation costs for an Enterprise Resource Planning System, higher
commission expense, increased bad debt expense, higher costs from our UK
operations and certain year-end audit adjustments.
The increase in selling and other operating costs in 1998 in absolute dollar
terms was primarily due to the inclusion of a full year of AGEMA's operations
in 1998 compared to only one month in 1997, costs associated with increased
revenue, particularly the increase in international sales, expenses related to
the expanded operations of our international operations and to increased
personnel.
Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations,
miscellaneous bank charges and expenses and foreign currency transaction gains
and losses. Interest expense and other was $6.3, $5.2, and $4.1 million for the
years ended 1999, 1998, and 1997, respectively. The increase in expense was
primarily due to the increased short-term debt as a result of the loss incurred
in 1999 and increased working capital needs during each year.
Income taxes. The Company's effective tax rate for 1999, 1998 and 1997 was
4.4%, 15.5% and (28.3)%, respectively. The Company's effective tax rate has
been substantially below the US statutory rate for a number
18
of reasons, including recognition of a greater or lesser valuation allowance on
its deferred tax asset, utilization of research and development tax credits,
and benefits obtained from utilization of a foreign sales corporation and state
income taxes. Statement of Financial Accounting Standards No. 109 allows the
recognition of deferred tax assets when it is more likely than not that such
assets will be utilized. Historically the Company has recorded some valuation
allowance for its gross deferred tax assets. In 1998, the valuation allowance
was reduced because of the impact of the Company's enhanced profitability at
its international subsidiaries. The valuation allowance was then increased in
1999 due to the reduced profitability in that year. The Company recognized a
net tax provision in 1999, despite a consolidated pre-tax loss, because it did
generate pre-tax profits in certain jurisdictions.
At December 31, 1999, the Company had net operating loss carryforwards
aggregating approximately $63.2 million, which expire in the years 2005 through
2014. Utilization of the Company's acquired net operating loss carryforwards
from FSI Automation (formerly known as "Optimas Corporation") is limited to
future earnings of FSI Automation and further limited to approximately $350,000
per year, as FSI Automation experienced a cumulative change in ownership of
more than 50% within a three-year period. Additionally, the Company has various
tax credits available aggregating $3.4 million which expire in the years 2007
through 2013. Finally, the Company has a $11.8 million deferred tax asset
related to acquired in-process research and development. The realization of
this deferred tax asset is dependent upon the ability of foreign subsidiaries
to remit earnings to the US parent and is further limited to realization over a
15-year period.
Liquidity and Capital Resources
At December 31, 1999, the Company had short-term borrowings net of cash on
hand of $77.0 million compared to $35.2 million at December 31, 1998. The
increase in short-term borrowings during the year was principally caused by the
requirement to finance operations during the year, capital expenditures during
the year and due to the repayment of Inframetrics' existing long-term debt,
which aggregated $18.3 million at December 31, 1998.
At December 31, 1999, the Company had inventories on hand of $63.3 million
compared to $71.4 million at December 31, 1998. The decrease is primarily
attributable to the write-off of $25.3 of duplicative inventory and products as
a result of the merger with Inframetrics. Excluding the write-off, inventories
rose $17.2 million during the year. The rise is the result of lower than
anticipated delivery of products during the year, particularly at year-end.
Based on year-end values the Company experienced 1.5 turns of inventory during
the year, exclusive of the write-off of duplicative inventory.
At December 31, 1999, the Company had accounts receivable in the amount of
$57.8 million compared to $84.4 million at December 31, 1998. The decrease in
the level of accounts receivable was primarily due to the lower volume of sales
experienced in the last quarter of 1999 compared to the same period in 1998.
The reduction also reflects a much shorter collection cycle at the end of 1999.
Days sales outstanding decreased from 162 at December 31, 1998 to 112 at
December 31, 1999. The Company has improved its collection process and reduced
the extension of terms beyond 30 days.
The Company's investing activities have consisted primarily of expenditures
for fixed assets, which totaled $7.5 million and $13.2 million for the years
ended December 31, 1999 and 1998, respectively. The majority of expenditures in
1998 and a significant amount expended in 1999 relate to the Company's
investment in new productivity tools. The two primary investments of this
nature were for an Enterprise Resource Planning (ERP) system and for a sales
force automation system. The investment in ERP was also necessary to be
compliant for year 2000 software issues. The Company expects to spend
approximately $1 million to expand the ERP system in 2000 to make its Boston
operations compatible with the rest of the organization. The sales force
automation system will assist management in assessing future business prospects
and planning production.
The Company entered into a Credit Agreement with a number of banks as of
December 16, 1999. The Credit Agreement provides the Company with a $100
million revolving line of credit with interest at a
19
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 December 31, 1999 was 7.86%.
The Credit Agreement allows the Company to elect, any time prior to December 1,
2002, to convert the entire principal balance under the Credit Agreement into a
term loan that would be payable in 24 subsequent equal monthly payments plus
interest.
The Credit Agreement includes several negative covenants that, among other
things, restrict the Company's ability to incur new indebtedness. The Credit
Agreement is collateralized by substantially all the assets of the Company and
includes certain financial covenants such as Consolidated Tangible Net Worth,
Interest Coverage Ratio, Leverage Ratio and Maximum Accounts Payable Days. As
of December 31, 1999 and for the year then ended, the Company was in violation
of certain of the covenants. The lenders have waived all such covenant
violations as of December 31, 1999 and into 2000 and have modified the
covenants for 2000, including the addition of covenants with respect to minimum
levels of revenue and EBITDA. The lenders have also increased the interest
rates applicable to offshore borrowings under the agreement by 0.35%.
Additionally, the Company, through one of its subsidiaries, has a 50,000,000
Swedish Kronar (approximately $5.9 million) line of credit at 3.65% at December
31, 1999. At December 31, 1999, the Company had $81.3 million outstanding on
these lines.
The Company believes that its existing cash and available credit facilities,
financing available from other sources, continuing efforts to control costs,
improved the 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.
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.
In Process Research and Development
In connection with the acquisition of AGEMA in December 1997, the Company
expensed $33.6 million representing purchased in process research and
development ("IPR&D") that had not yet reached technological feasibility and
had no alternative future use. These expenditures were recognized as a period
expense in accordance with Statement of Financial Accounting Standards No. 2
and Financial Accounting Standards Board Interpretation No. 4. See Note 16 of
the notes to the financial statements for a further discussion of the AGEMA
acquisition.
The $33.6 million value assigned to IPR&D was assigned to three separate
technological projects: 570 series uncooled products ($13.7 million), uncooled
technology ($12.1 million) and QWIP technology ($7.8 million). The nature of
the efforts required to develop these projects into commercially viable
products
20
includes the completion of all planning, designing, prototyping, verification
and testing activities that are necessary to establish that the product can be
produced to meet its design specifications, including functions, features and
technical performance requirements. At the date of acquisition, the estimated
total cost to be incurred to develop the IPR&D into commercially variable
products was approximately $25.5 million in the aggregate through the year
2002.
The value assigned to the IPR&D was determined by an independent appraiser
using a discounted cash flow method. This involved estimating the costs to
develop the purchased in process technology into commercially viable products,
estimating the resulting net cash flow from such projects and discounting the
net cash flows back to their present values. The discount rate used was 25%,
which included a factor that is intended to take into account the uncertainty
surrounding the successful development of the purchased in process technology.
The resulting net cash flows were based on management's estimates of revenue
over a five-year period, cost of sales, research and development expenses,
selling, general and administrative expense and income taxes from such
projects, which were consistent with historical rates.
There can be no assurance that the Company will be able to complete the
required work in order to develop these projects into commercially viable
products. If the IPR&D projects discussed above are not successfully developed,
the revenue and profitability of the Company may be adversely affected in
future periods.
ITEM 7A. 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
currently hedges interest rate exposure through the use of long-term interest
rate swaps. 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 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
inter-company balances against future movements in foreign exchange rates. To
date, such exposure has been immaterial. The Company does maintain small 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item includes the following financial information:
Statement Page
--------- ----
Report of PricewaterhouseCoopers LLP, Independent Accountants............ 22
Consolidated Statement of Operations for the Years Ended December 31,
1999, 1998 and 1997..................................................... 23
Consolidated Balance Sheet as of December 31, 1999 and 1998.............. 24
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997........................................ 25
Consolidated Statement of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997..................................................... 26
Notes to the Consolidated Financial Statements........................... 27
Quarterly Financial Data (Unaudited)..................................... 44
21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of FLIR Systems, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of FLIR Systems, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. 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 did not audit the financial
statements of Inframetrics Inc., a wholly-owned subsidiary, which statements
reflect total assets of $34,160,000 as of December 31, 1998, and total revenues
of $54,690,000 and $53,163,000 for each of the two years in the period ended
December 31, 1998. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Inframetrics, Inc., is based solely on
the report of the other auditors. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion expressed above.
As described in Note 17, the financial statements as of and for the year
ended December 31, 1998 have been restated.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
April 14, 2000
22
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
-------------------------------
1999 1998 1997
-------- ---------- ----------
(in thousands, except
per share amounts)
(Restated) (Restated)
Revenue:
Commercial................................... $120,555 $137,977 $ 86,656
Government................................... 65,893 58,888 58,278
-------- -------- --------
Total revenue.............................. 186,448 196,865 144,934
Cost of goods sold............................. 123,666 92,260 86,835
Research and development....................... 29,006 26,958 17,607
Selling and other operating costs.............. 71,046 61,541 41,225
Combination costs.............................. 9,301 -- 36,450
-------- -------- --------
233,019 180,759 182,117
Earnings (loss) from operations............ (46,571) 16,106 (37,183)
Interest income................................ 480 728 540
Interest expense and other..................... (6,251) (5,199) (4,093)
-------- -------- --------
Earnings (loss) before income taxes........ (52,342) 11,635 (40,736)
Income tax provision (benefit)................. 2,295 1,806 (11,548)
-------- -------- --------
Net earnings (loss)............................ $(54,637) $ 9,829 $(29,188)
======== ======== ========
Net earnings (loss) per share:
======== ======== ========
Basic........................................ $ (3.83) $ 0.76 $ (3.69)
======== ======== ========
Diluted...................................... $ (3.83) $ 0.73 $ (3.69)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
23
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except for share data)
December 31,
--------------------
1999 1998
-------- ----------
(Restated)
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 4,255 $ 4,793
Accounts receivable, net................................. 57,777 84,442
Inventories.............................................. 63,299 71,416
Prepaid expenses......................................... 6,040 6,061
Deferred income taxes.................................... 7,216 6,776
-------- --------
Total current assets.................................... 138,587 173,488
Property and equipment, net............................... 20,213 26,775
Deferred income taxes..................................... 16,499 15,927
Intangible assets, net.................................... 14,791 15,936
Other assets.............................................. 4,970 4,385
-------- --------
$195,060 $236,511
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable............................................ $ 81,247 $ 39,958
Accounts payable......................................... 22,128 24,031
Accrued payroll and other liabilities.................... 19,816 26,580
Accrued income taxes..................................... 3,207 3,893
Current portion of long-term debt........................ 1,084 2,680
-------- --------
Total current liabilities............................... 127,482 97,142
Long-term debt............................................ 1,497 19,296
Pension liability......................................... 3,879 3,960
Commitments and contingencies............................. -- --
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued at December 31, 1999 or
1998.................................................... -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 14,388,600 and 14,133,403 shares issued at
December 31, 1999 and 1998, respectively................ 144 141
Additional paid-in capital............................... 143,318 142,169
Accumulated deficit...................................... (78,761) (24,124)
Accumulated other comprehensive income................... (2,499) (2,073)
-------- --------
Total shareholders' equity.............................. 62,202 116,113
-------- --------
$195,060 $236,511
======== ========
The accompanying notes are an integral part of these financial statements.
24
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
Accumulated
Preferred Stock Common Stock Additional Other Annual
----------------- ----------------- Paid-in Accumulated Comprehensive Comprehensive
Shares Amount Shares Amount Capital Deficit Income Total Income
---------- ------ ---------- ------ ---------- ----------- ------------- -------- -------------
Authorized............ 10,000,000 $0.01* 30,000,000 $0.01*
========== ===== ========== =====
Balance, December 31,
1996.................. -- $ -- 7,466,290 $ 75 $ 51,427 $ (4,765) $ (203) $ 46,534 $ --
Net (loss) for the
year................. -- -- -- -- -- (29,188) -- (29,188) (29,188)
Common stock options
exercised............ -- -- 206,975 2 1,460 -- -- 1,462 --
Common stock for
acquisition.......... -- -- 4,162,000 42 54,064 -- -- 54,106 --
Income tax benefit
from stock options
exercised............ -- -- -- -- 327 -- -- 327 --
Translation
adjustment........... -- -- -- -- -- -- (208) (208) (208)
---------- ----- ---------- ----- -------- -------- ------- -------- --------
Balance, December 31,
1997.................. -- -- 11,835,265 119 107,278 (33,953) (411) 73,033
Comprehensive loss,
year ended December
31, 1997.............. $(29,396)
========
Net income for the
year................. -- -- -- -- -- 9,829 -- 9,829 9,829
Common stock options
exercised............ -- -- 188,508 1 1,681 -- -- 1,682 --
Common stock issued
pursuant to stock
option plans......... -- -- 111,130 1 1,181 -- -- 1,182 --
Common stock issued.. -- -- 1,998,500 20 32,656 -- -- 32,676 --
Cost of stock
issuance............. -- -- -- -- (627) -- -- (627) --
Translation
adjustment........... -- -- -- -- -- -- (1,662) (1,662) (1,662)
---------- ----- ---------- ----- -------- -------- ------- -------- --------
Balance, December 31,
1998.................. -- -- 14,133,403 141 142,169 (24,124) (2,073) 116,113
Comprehensive income,
year ended
December 31, 1998..... $ 8,167
========
Net loss for the
year................. -- -- -- -- -- (54,637) -- (54,637) (54,637)
Common stock options
exercised............ -- -- 237,528 3 950 -- -- 953 --
Common stock issued
pursuant to stock
compensation plans... -- -- 17,669 -- 199 -- -- 199 --
Translation
adjustment........... -- -- -- -- -- -- (426) (426) (426)
---------- ----- ---------- ----- -------- -------- ------- -------- --------
Balance, December 31,
1999.................. -- $ -- 14,388,600 $ 144 $143,318 $(78,761) $(2,499) $ 62,202
========== ===== ========== ===== ======== ======== ======= ========
Comprehensive loss,
year ended December
31, 1999..............