UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
(Mark one)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2015
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 0-21918
______________________________________
FLIR Systems, Inc.
(Exact name of Registrant as specified in its charter)
______________________________________
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| | |
Oregon | | 93-0708501 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
27700 SW Parkway Avenue, Wilsonville, Oregon | | 97070 |
(Address of principal executive offices) | | (Zip Code) |
(503) 498-3547
(Registrant’s telephone number, including area code)
______________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
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| | | | |
Large accelerated filer | x | | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At July 31, 2015, there were 140,248,397 shares of the Registrant’s common stock, $0.01 par value, outstanding.
INDEX
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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PART 1. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Revenue | $ | 392,975 |
| | $ | 369,380 |
| | $ | 737,492 |
| | $ | 720,923 |
|
Cost of goods sold | 203,360 |
| | 186,662 |
| | 371,980 |
| | 369,673 |
|
Gross profit | 189,615 |
| | 182,718 |
| | 365,512 |
| | 351,250 |
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Operating expenses: | | | | | | | |
Research and development | 35,154 |
| | 36,307 |
| | 69,848 |
| | 72,633 |
|
Selling, general and administrative | 83,476 |
| | 83,500 |
| | 158,611 |
| | 165,442 |
|
Restructuring expenses | 454 |
| | 3,547 |
| | 768 |
| | 11,361 |
|
Total operating expenses | 119,084 |
| | 123,354 |
| | 229,227 |
| | 249,436 |
|
| | | | | | | |
Earnings from operations | 70,531 |
| | 59,364 |
| | 136,285 |
| | 101,814 |
|
| | | | | | | |
Interest expense | 3,358 |
| | 3,629 |
| | 7,019 |
| | 7,337 |
|
Interest income | (295 | ) | | (272 | ) | | (542 | ) | | (536 | ) |
Other expense (income), net | 1,020 |
| | (1,070 | ) | | 320 |
| | (1,269 | ) |
Earnings before income taxes | 66,448 |
| | 57,077 |
| | 129,488 |
| | 96,282 |
|
Income tax provision | 15,948 |
| | 12,319 |
| | 31,078 |
| | 21,630 |
|
Net earnings | $ | 50,500 |
| | $ | 44,758 |
| | $ | 98,410 |
| | $ | 74,652 |
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| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 0.36 |
| | $ | 0.32 |
| | $ | 0.70 |
| | $ | 0.53 |
|
Diluted | $ | 0.36 |
| | $ | 0.31 |
| | $ | 0.70 |
| | $ | 0.52 |
|
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 140,063 |
| | 141,574 |
| | 139,916 |
| | 141,255 |
|
Diluted | 141,491 |
| | 144,120 |
| | 141,484 |
| | 143,964 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Net earnings | $ | 50,500 |
| | $ | 44,758 |
| | $ | 98,410 |
| | $ | 74,652 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Cash flow hedges | 194 |
| | (495 | ) | | (410 | ) | | (721 | ) |
Foreign currency translation adjustments | 30,499 |
| | (6,895 | ) | | (35,465 | ) | | (8,807 | ) |
Total other comprehensive income (loss) | 30,693 |
| | (7,390 | ) | | (35,875 | ) | | (9,528 | ) |
Comprehensive income | $ | 81,193 |
| | $ | 37,368 |
| | $ | 62,535 |
| | $ | 65,124 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
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| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 560,190 |
| | $ | 531,374 |
|
Accounts receivable, net | 327,653 |
| | 354,658 |
|
Inventories | 360,571 |
| | 320,605 |
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Prepaid expenses and other current assets | 86,000 |
| | 93,691 |
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Deferred income taxes, net | 38,509 |
| | 38,873 |
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Total current assets | 1,372,923 |
| | 1,339,201 |
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Property and equipment, net | 260,763 |
| | 247,094 |
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Deferred income taxes, net | 20,146 |
| | 19,941 |
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Goodwill | 544,501 |
| | 553,335 |
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Intangible assets, net | 122,344 |
| | 133,212 |
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Other assets | 59,039 |
| | 61,240 |
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Total assets | $ | 2,379,716 |
| | $ | 2,354,023 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 121,605 |
| | $ | 98,173 |
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Deferred revenue | 29,989 |
| | 27,878 |
|
Accrued payroll and related liabilities | 53,740 |
| | 62,065 |
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Accrued product warranties | 13,232 |
| | 13,538 |
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Advance payments from customers | 31,220 |
| | 28,276 |
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Accrued expenses | 35,348 |
| | 51,810 |
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Accrued income taxes | 3,991 |
| | 4,586 |
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Other current liabilities | 6,182 |
| | 8,231 |
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Current portion, long term debt | 15,000 |
| | 15,000 |
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Total current liabilities | 310,307 |
| | 309,557 |
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Long-term debt | 350,715 |
| | 357,986 |
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Deferred income taxes | 13,365 |
| | 13,905 |
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Accrued income taxes | 11,513 |
| | 11,096 |
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Other long-term liabilities | 55,341 |
| | 51,706 |
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Commitments and contingencies |
| |
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Shareholders’ equity: | | | |
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at June 30, 2015, and December 31, 2014 | — |
| | — |
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Common stock, $0.01 par value, 500,000 shares authorized, 140,218 and 139,579 shares issued at June 30, 2015, and December 31, 2014, respectively, and additional paid-in capital | 1,402 |
| | 1,396 |
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Retained earnings | 1,736,357 |
| | 1,671,786 |
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Accumulated other comprehensive loss | (99,284 | ) | | (63,409 | ) |
Total shareholders’ equity | 1,638,475 |
| | 1,609,773 |
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Total liabilities and shareholders' equity | $ | 2,379,716 |
| | $ | 2,354,023 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| | | | | | | |
| Six Months Ended June 30, |
| 2015 | | 2014 |
CASH PROVIDED BY OPERATING ACTIVITIES: | | | |
Net earnings | $ | 98,410 |
| | $ | 74,652 |
|
Income items not affecting cash: | | | |
Depreciation and amortization | 24,611 |
| | 30,706 |
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Deferred income taxes | 142 |
| | 915 |
|
Stock-based compensation arrangements | 12,938 |
| | 17,203 |
|
Other non-cash items | (823 | ) | | (3,599 | ) |
Changes in operating assets and liabilities: | | | |
Decrease in accounts receivable, net | 22,594 |
| | 15,929 |
|
Increase in inventories | (44,072 | ) | | (7,414 | ) |
Decrease in prepaid expenses and other current assets | 489 |
| | 233 |
|
Decrease (increase) in other assets | 1,610 |
| | (12,188 | ) |
Increase in accounts payable | 24,539 |
| | 14,764 |
|
Increase (decrease) in deferred revenue | 2,303 |
| | (3,761 | ) |
(Decrease) increase in accrued payroll and other current liabilities | (28,170 | ) | | 5,473 |
|
Increase (decrease) in accrued income taxes | 5,230 |
| | (3,937 | ) |
Increase in other long-term liabilities | 4,058 |
| | 1,437 |
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Cash provided by operating activities | 123,859 |
| | 130,413 |
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CASH USED BY INVESTING ACTIVITIES: | | | |
Additions to property and equipment, net | (30,753 | ) | | (25,828 | ) |
Cash used by investing activities | (30,753 | ) | | (25,828 | ) |
CASH USED BY FINANCING ACTIVITIES: | | | |
Repayments of long term debt, net | (7,500 | ) | | (7,500 | ) |
Repurchase of common stock | (31,426 | ) | | (43,003 | ) |
Dividends paid | (30,774 | ) | | (28,245 | ) |
Proceeds from shares issued pursuant to stock-based compensation plans | 19,636 |
| | 28,969 |
|
Excess tax benefit of stock options exercised | 4,041 |
| | 6,559 |
|
Other financing activities | (8 | ) | | (14 | ) |
Cash used by financing activities | (46,031 | ) | | (43,234 | ) |
Effect of exchange rate changes on cash | (18,259 | ) | | (1,754 | ) |
Net increase in cash and cash equivalents | 28,816 |
| | 59,597 |
|
Cash and cash equivalents, beginning of period | 531,374 |
| | 542,476 |
|
Cash and cash equivalents, end of period | $ | 560,190 |
| | $ | 602,073 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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Note 1. | Basis of Presentation |
The accompanying consolidated financial statements of FLIR Systems, Inc. and its consolidated subsidiaries (the “Company”) are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position and results of operations for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the year ending December 31, 2015.
| |
Note 2. | Stock-based Compensation |
Stock Incentive Plans
The Company has a stock-based compensation program that provides equity incentives for employees, consultants and directors. This program includes incentive and non-statutory stock options and nonvested stock awards (referred to as restricted stock unit awards) administered by the Compensation Committee of the Board of Directors.
Under the stock-based compensation program, the Company has granted time-based options, time-based restricted stock unit awards, and market-based restricted stock unit awards. Options generally expire ten years from their grant dates. Time-based options and restricted stock unit awards generally vest over a three year period. Shares issuable under market-based restricted stock unit awards are earned based upon the Company's total shareholder return compared to the total shareholder return over a three year period of the component company at the 60th percentile level in the Standard & Poor's 500 Index. Shares vested under the market-based restricted stock unit awards must be held by the participant for a period of one year from the vest date.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “ESPP”) which allows employees to purchase shares of the Company’s common stock at 85 percent of the lower of the fair market value at the date of enrollment or the fair market value at the purchase date. The ESPP provides for six-month offerings commencing on May 1 and November 1 of each year with purchases on April 30 and October 31 of each year. Shares purchased under the ESPP must be held by the purchasing plan participant for a period of at least 18 months after the date of purchase.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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Note 2. | Stock-based Compensation - (Continued) |
Stock-based Compensation Expense
Stock-based compensation expense recognized in the Consolidated Statements of Income are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Cost of goods sold | $ | 766 |
| | $ | 639 |
| | $ | 1,484 |
| | $ | 1,295 |
|
Research and development | 1,185 |
| | 1,380 |
| | 2,325 |
| | 2,579 |
|
Selling, general and administrative | 6,229 |
| | 6,428 |
| | 9,129 |
| | 10,734 |
|
Restructuring expenses | — |
| | — |
| | — |
| | 2,595 |
|
Stock-based compensation expense | $ | 8,180 |
| | $ | 8,447 |
| | $ | 12,938 |
| | $ | 17,203 |
|
Stock-based compensation costs capitalized in inventory are as follows (in thousands):
|
| | | | | | | |
| June 30, |
| 2015 | | 2014 |
Capitalized in inventory | $ | 703 |
| | $ | 694 |
|
As of June 30, 2015, the Company had $49.2 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of 2.2 years.
| |
Note 3. | Net Earnings Per Share |
The following table sets forth the reconciliation of the numerator and denominator utilized in the computation of basic and diluted earnings per share (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Numerator for earnings per share: | | | | | | | |
Net earnings for basic and diluted earnings per share | $ | 50,500 |
| | $ | 44,758 |
| | $ | 98,410 |
| | $ | 74,652 |
|
| | | | | | | |
Denominator for earnings per share: | | | | | | | |
Weighted average number of common shares outstanding | 140,063 |
| | 141,574 |
| | 139,916 |
| | 141,255 |
|
Assumed exercises of stock options and vesting of restricted stock awards, net of shares assumed reacquired under the treasury stock method | 1,428 |
| | 2,546 |
| | 1,568 |
| | 2,709 |
|
Weighted average diluted shares outstanding | 141,491 |
| | 144,120 |
| | 141,484 |
| | 143,964 |
|
The effect of stock-based compensation awards for the three and six months ended June 30, 2015, which in the aggregate consisted of 285,000 and 389,000 shares, respectively, and for the three and six months ended June 30, 2014, which in the aggregate consisted of 48,000 and 152,000 shares, respectively, have been excluded for purposes of calculating diluted earnings per share since their inclusion would have had an anti-dilutive effect.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 4. | Fair Value of Financial Instruments |
Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories in accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”:
|
|
Level 1 – quoted prices in active markets for identical securities as of the reporting date; |
Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and |
Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value. |
The factors and methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Company had $30.5 million and $29.8 million of cash equivalents at June 30, 2015 and December 31, 2014, respectively, which were primarily investments in money market funds. The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets. The fair values of the Company’s foreign currency forward contracts and interest rate swap contracts as of June 30, 2015 and December 31, 2014 are disclosed in Note 5, "Derivative Financial Instruments," of the Notes to the Consolidated Financial Statements below and are based on Level 2 inputs. The fair value of the Company’s senior unsecured notes as described in Note 13, "Long-Term Debt," of the Notes to the Consolidated Financial Statements is approximately $257.4 million based upon Level 2 inputs at June 30, 2015. The fair value of the Company's term loan, also described in Note 13, approximates the carrying value due to the variable market rate used to calculate interest payments. The Company does not have any other significant financial assets or liabilities that are measured at fair value.
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Note 5. | Derivative Financial Instruments |
Foreign Currency Exchange Rate Contracts
In general, the gains and losses related to the Company's foreign currency exchange rate contracts recorded in other expense (income), net are offset by the reciprocal gains and losses from the underlying assets or liabilities which originally gave rise to the exposure. The net gains for the three and six months ended June 30, 2015 were $5.8 million and $1.8 million, respectively. The net losses for the three and six months ended June 30, 2014 were $0.9 million and $2.9 million, respectively.
The following table provides volume information about the Company's foreign currency exchange rate contracts. The table below presents the net notional amounts of the Company's outstanding foreign currency forward contracts in United States dollar equivalent amounts (in thousands):
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Swedish kronor | $ | 67,537 |
| | $ | 67,809 |
|
Canadian dollar | 21,151 |
| | 17,446 |
|
British pound sterling | 26,113 |
| | 14,928 |
|
Euro | 8,041 |
| | 5,391 |
|
Brazilian real | 6,025 |
| | 2,449 |
|
Australian dollar | 3,705 |
| | 6,566 |
|
Japanese yen | 2,981 |
| | 3,718 |
|
Other | 786 |
| | 701 |
|
| $ | 136,339 |
| | $ | 119,008 |
|
At June 30, 2015, the Company’s foreign currency forward contracts, in general, had maturities of three months or less.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 5. | Derivative Financial Instruments - (Continued) |
Foreign Currency Exchange Rate Contracts - (Continued)
The carrying amount of the foreign currency forward contracts included in the Consolidated Balance Sheets are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| Other current assets | | Other current liabilities | | Other current assets | | Other current liabilities |
Foreign currency forward contracts | $ | 3,112 |
| | $ | 70 |
| | $ | 112 |
| | $ | 3,247 |
|
Interest Rate Swap Contracts
At June 30, 2015, the effective interest rate on the Company's term loan was 2.49 percent. As of June 30, 2015, the following interest rate swaps were outstanding:
|
| | | | | | | | | | | |
Contract Date | | Notional Amount (in millions) | | Fixed Rate | | Effective Date | | Maturity Date |
March 15, 2013 | | $ | 58.1 |
| | 1.02 | % | | April 5, 2013 | | March 31, 2019 |
March 29, 2013 | | $ | 58.1 |
| | 0.97 | % | | April 5, 2013 | | March 31, 2019 |
The net fair value carrying amount of the Company's interest rate swaps was $0.6 million, of which $1.3 million and $0.7 million have been recorded to other assets and other current liabilities, respectively, in the Consolidated Balance Sheet as of June 30, 2015.
| |
Note 6. | Accounts Receivable |
Accounts receivable are net of an allowance for doubtful accounts of $7.8 million at June 30, 2015 and $8.0 million at December 31, 2014.
Inventories consist of the following (in thousands):
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Raw material and subassemblies | $ | 187,665 |
| | $ | 181,618 |
|
Work-in-progress | 52,081 |
| | 37,139 |
|
Finished goods | 120,825 |
| | 101,848 |
|
| $ | 360,571 |
| | $ | 320,605 |
|
| |
Note 8. | Property and Equipment |
Property and equipment are net of accumulated depreciation of $254.5 million and $248.2 million at June 30, 2015 and December 31, 2014, respectively. Property and equipment, net, as of June 30, 2015, includes land and a building valued at approximately $2.1 million that are held for sale.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The carrying value of goodwill and the activity for the six months ended June 30, 2015 are as follows (in thousands):
|
| | | |
Balance, December 31, 2014 | $ | 553,335 |
|
Currency translation adjustments | (8,834 | ) |
Balance, June 30, 2015 | $ | 544,501 |
|
See Note 17, "Operating Segments and Related Information - Operating Segments," of the Notes to the Consolidated Financial Statements for additional information on the carrying value of goodwill by operating segment at June 30, 2015.
| |
Note 10. | Intangible Assets |
Intangible assets are net of accumulated amortization of $83.0 million and $75.1 million at June 30, 2015 and December 31, 2014, respectively.
At June 30, 2015, the Company had no borrowings outstanding under its revolving credit facility pursuant to the Credit Agreement, dated February 8, 2011, with Bank of America, N.A., U.S. Bank National Association, JPMorgan Chase Bank N.A. and other lenders, as amended on April 5, 2013, and had $38.4 million of letters of credit outstanding, which reduced the available credit under the revolving credit facility to $161.6 million.
| |
Note 12. | Accrued Product Warranties |
The following table summarizes the Company’s accrued product warranties and activity (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Accrued product warranties, beginning of period | $ | 15,840 |
| | $ | 16,712 |
| | $ | 16,175 |
| | $ | 17,732 |
|
Amounts paid for warranty services | (1,819 | ) | | (2,076 | ) | | (3,771 | ) | | (4,763 | ) |
Warranty provisions for products sold | 1,867 |
| | 1,322 |
| | 3,784 |
| | 3,292 |
|
Currency translation adjustments and other | 134 |
| | 31 |
| | (166 | ) | | (272 | ) |
Accrued product warranties, end of period | $ | 16,022 |
| | $ | 15,989 |
| | $ | 16,022 |
| | $ | 15,989 |
|
Current accrued product warranties, end of period | | | | | $ | 13,232 |
|
| $ | 13,222 |
|
Long-term accrued product warranties, end of period | | | | | $ | 2,790 |
|
| $ | 2,767 |
|
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Long-term debt consists of the following (in thousands):
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Unsecured notes | $ | 250,000 |
| | $ | 250,000 |
|
Term loan | 116,250 |
| | 123,750 |
|
Unamortized discounts and issuance costs of unsecured notes | (535 | ) | | (764 | ) |
| $ | 365,715 |
| | $ | 372,986 |
|
Current portion, long-term debt | $ | 15,000 |
| | $ | 15,000 |
|
Long-term debt | $ | 350,715 |
| | $ | 357,986 |
|
In August 2011, the Company issued $250 million aggregate principal amount of its 3.75 percent senior unsecured notes due September 1, 2016 (the “Notes”). The net proceeds from the issuance of the Notes were approximately $247.7 million, after deducting underwriting discounts and offering expenses, which are being amortized over a period of five years. Interest on the Notes is payable semiannually in arrears on March 1 and September 1. The proceeds from the Notes are being used for general corporate purposes, which may include working capital and capital expenditure needs, business acquisitions and repurchases of the Company’s common stock.
The Credit Agreement discussed in Note 11, "Credit Agreement," of the Notes to the Consolidated Financial Statements above, incorporates a $150 million term loan facility that matures on April 5, 2019. On April 5, 2013 the Company drew down $150 million under the term loan facility. Interest is accrued at the one-month LIBOR rate plus the scheduled spread and paid monthly. Quarterly principal payments of $3.75 million commenced on June 30, 2013 and will continue through December 31, 2018 with the final maturity payment including any accrued interest due on April 5, 2019. See Note 5, "Derivative Financial Instruments - Interest Rate Swap Contracts," of the Notes to the Consolidated Financial Statements for additional information on the effective interest rate on the term loan at June 30, 2015.
| |
Note 14. | Shareholders’ Equity |
The following table summarizes the common stock and additional paid-in capital activity during the six months ended June 30, 2015 (in thousands):
|
| | | |
Common stock and additional paid-in capital, December 31, 2014 | $ | 1,396 |
|
Income tax benefit of common stock options exercised | 3,490 |
|
Common stock issued pursuant to stock-based compensation plans, net | 11,991 |
|
Stock-based compensation arrangements | 12,886 |
|
Repurchase of common stock | (28,361 | ) |
Common stock and additional paid-in capital, June 30, 2015 | $ | 1,402 |
|
On February 5, 2015, the Company's Board of Directors authorized the repurchase of up to 15.0 million shares of the Company's outstanding common stock in the open market or through privately negotiated transactions. The authorization will expire on February 5, 2017. During the six months ended June 30, 2015, the Company repurchased 1.0 million shares through open market transactions.
On June 5, 2015, the Company paid a dividend of $0.11 per share on its outstanding common stock to the shareholders of record as of the close of business on May 22, 2015. The total cash payments for dividends in the six months ended June 30, 2015 were $30.8 million.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
FLIR Systems, Inc. and its subsidiary, Indigo Systems Corporation (now known as FLIR Commercial Systems, Inc.) (together, the “FLIR Parties”), were named in a lawsuit filed by Raytheon Company (“Raytheon”) on March 2, 2007 in the United States District Court for the Eastern District of Texas. Raytheon's complaint, as amended, asserted claims for tortious interference, patent infringement, trade secret misappropriation, unfair competition, breach of contract and fraudulent concealment. The FLIR Parties filed an answer to the complaint on September 2, 2008, in which they denied all material allegations. On October 27, 2010, the FLIR Parties and Raytheon entered into a settlement agreement that resolved the patent infringement claims (the "Patent Claims") pursuant to which the FLIR Parties paid $3 million to Raytheon and entitles the FLIR Parties to certain license rights in the patents that were the subject of the Patent Claims. On October 28, 2014, a four-week trial began with respect to Raytheon's remaining claims of misappropriations of trade secrets and claims related to 31 alleged trade secrets. On November 24, 2014, a jury in the United States District Court for the Eastern District of Texas rejected Raytheon’s claims and determined that 27 of the alleged trade secrets were not in fact trade secrets and that neither Indigo, prior to its acquisition by FLIR Systems, Inc., nor FLIR Systems, Inc. infringed any of the trade secrets claimed and awarded Raytheon no damages. The court has yet to rule on any post-trial motion seeking to modify the jury verdict or on the FLIR Parties' motion for an award of attorney’s fees in the amount of $28 million as a prevailing party under the Texas Theft Liability Act. The matter remains ongoing and is subject to appeal and the Company is unable to estimate the amount or range of potential loss or recovery, if any, which might result if the final determination of this matter is favorable or unfavorable, but an adverse ruling on the merits of the original claims against the FLIR Parties, while remote, could be material.
On October 22, 2014, the Company initially contacted the United States Department of State Office of Defense Trade Controls Compliance (“DDTC”), pursuant to International Traffic in Arms Regulation (“ITAR”) § 127.12(c), regarding the unauthorized export of technical data and defense services to dual and third country nationals in at least four facilities of the Company. On April 27, 2015, the Company submitted its initial report to DDTC regarding the details of the issues raised in the October 22, 2014 submission. DDTC subsequently notified the Company that it was considering administrative proceedings under Part 128 of ITAR and requested a tolling agreement, which the Company executed on June 16, 2015. DDTC continues its review and the Company is unable to reasonably estimate the time it may take to resolve the matter or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with this matter. However, an unfavorable outcome could potentially be material to the results of operations in the period in which such an outcome becomes estimable or known.
As of June 30, 2015, the Company had approximately $11.5 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company anticipates an immaterial portion of its net unrecognized tax benefits will be recognized within 12 months as the result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of the applicable statute of limitations.
The Company classifies interest and penalties related to uncertain tax positions as income tax expense. As of June 30, 2015, the Company had approximately $1.3 million of net accrued interest and penalties related to uncertain tax positions.
The Company currently has the following tax years open to examination by major taxing jurisdictions:
|
| |
| Tax Years: |
US Federal | 2012 – 2014 |
State of Oregon | 2012 – 2014 |
State of Massachusetts | 2011 – 2014 |
State of California | 2012 – 2014 |
Sweden | 2011 – 2014 |
United Kingdom | 2011 – 2014 |
Belgium | 2011 – 2014 |
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 17. | Operating Segments and Related Information |
Operating Segments
The operating segments of the Company are as follows:
Surveillance
The Surveillance segment develops and manufactures enhanced imaging and recognition solutions for a wide variety of military, law enforcement, public safety, and other government customers around the world for the protection of borders, troops, and public welfare. Offerings include airborne, land, maritime, and man-portable multi-spectrum imaging systems, radars, lasers, imaging components, integrated multi-sensor system platforms, and services related to these systems. Effective January 1, 2015, the Personal Vision Systems product line was transferred from the OEM and Emerging Markets segment to the Surveillance segment. This product line includes hand-held and weapon-mounted thermal imaging systems for use by consumers. Accordingly, segment financial information in the tables below has been reclassified for the prior period for comparative purposes.
Instruments
The Instruments segment develops and manufactures devices that image, measure, and assess thermal energy, gases, and other environmental elements for industrial, commercial, and scientific applications. Products include thermal imaging cameras, gas detection cameras, firefighting cameras, process automation cameras, and environmental test and measurement devices.
OEM and Emerging Markets
The OEM and Emerging Markets segment develops and manufactures thermal imaging camera cores and components that are utilized by third parties to create thermal and other types of imaging systems. The segment also develops and manufactures intelligent traffic monitoring and signal control systems and imaging solutions for the smartphone and mobile devices market.
Maritime
The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market. The segment provides a full suite of networked electronic systems including multi-function helm displays, navigational instruments, autopilots, radars, sonar systems, thermal and visible imaging systems, and communications equipment for boats of all sizes.
Security
The Security segment develops and manufactures cameras and video recording systems for use in commercial, critical infrastructure, and home security applications. Products include thermal and visible-spectrum cameras, digital and networked video recorders, and related software and accessories that enable the efficient and effective safeguarding of assets at all hours of the day and through adverse weather conditions.
Detection
The Detection segment develops and manufactures sensor instruments and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives threats for military force protection, homeland security, and commercial applications.
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 17. Operating Segments and Related Information - (Continued)
Operating Segments - (Continued)
Operating segment information is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | (as reclassified) | | | | (as reclassified) |
Revenue – External Customers: | | | | | | | |
Surveillance | $ | 107,814 |
| | $ | 113,641 |
| | $ | 220,715 |
| | $ | 236,729 |
|
Instruments | 90,260 |
| | 83,968 |
| | 174,080 |
| | 168,023 |
|
OEM and Emerging Markets | 46,285 |
| | 51,124 |
| | 86,120 |
| | 99,039 |
|
Maritime | 52,030 |
| | 55,230 |
| | 103,002 |
| | 107,805 |
|
Security | 60,048 |
| | 44,735 |
| | 98,854 |
| | 74,045 |
|
Detection | 36,538 |
| | 20,682 |
| | 54,721 |
| | 35,282 |
|
| $ | 392,975 |
| | $ | 369,380 |
| | $ | 737,492 |
| | $ | 720,923 |
|
Revenue – Intersegments: | | | | | | | |
Surveillance | $ | 2,065 |
| | $ | 1,568 |
| | $ | 5,747 |
| | $ | 3,983 |
|
Instruments | 1,068 |
| | 173 |
| | 1,910 |
| | 474 |
|
OEM and Emerging Markets | 9,072 |
| | 5,390 |
| | 17,758 |
| | 10,556 |
|
Maritime | 925 |
| | 836 |
| | 1,582 |
| | 1,504 |
|
Security | 4,032 |
| | 2,735 |
| | 8,007 |
| | 4,390 |
|
Detection | — |
| | 39 |
| | — |
| | 59 |
|
Elimination | (17,162 | ) | | (10,741 | ) | | (35,004 | ) | | (20,966 | ) |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Earnings (loss) from operations: | | | | | | | |
Surveillance | $ | 26,378 |
| | $ | 22,634 |
| | $ | 56,546 |
| | $ | 45,900 |
|
Instruments | 28,341 |
| | 21,037 |
| | 56,404 |
| | 41,486 |
|
OEM and Emerging Markets | 10,495 |
| | 13,914 |
| | 19,274 |
| | 22,720 |
|
Maritime | 6,421 |
| | 9,714 |
| | 11,210 |
| | 18,544 |
|
Security | 7,874 |
| | 5,886 |
| | 11,689 |
| | 7,572 |
|
Detection | 9,380 |
| | 3,152 |
| | 12,059 |
| | 1,353 |
|
Other | (18,358 | ) | | (16,973 | ) | | (30,897 | ) | | (35,761 | ) |
| $ | 70,531 |
| | $ | 59,364 |
| | $ | 136,285 |
| | $ | 101,814 |
|
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 17. Operating Segments and Related Information - (Continued)
Operating Segments - (Continued)
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| | | (as reclassified) |
Segment assets (accounts receivable, net and inventories): | | | |
Surveillance | $ | 285,436 |
| | $ | 309,473 |
|
Instruments | 123,924 |
| | 119,629 |
|
OEM and Emerging Markets | 86,524 |
| | 79,053 |
|
Maritime | 74,532 |
| | 67,775 |
|
Security | 80,540 |
| | 59,182 |
|
Detection | 37,268 |
| | 40,151 |
|
| $ | 688,224 |
| | $ | 675,263 |
|
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
| | | (as reclassified) |
Segment goodwill: | | | |
Surveillance | $ | 120,489 |
| | $ | 121,268 |
|
Instruments | 151,061 |
| | 155,527 |
|
OEM and Emerging Markets | 70,622 |
| | 72,687 |
|
Maritime | 109,758 |
| | 109,980 |
|
Security | 44,398 |
| | 45,710 |
|
Detection | 48,173 |
| | 48,163 |
|
| $ | 544,501 |
| | $ | 553,335 |
|
Revenue and Long-Lived Assets by Geographic Area
Information related to revenue by significant geographical location, determined by the end customer, is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
United States | $ | 200,276 |
| | $ | 191,108 |
| | $ | 364,240 |
| | $ | 352,846 |
|
Europe | 95,851 |
| | 85,771 |
| | 188,593 |
| | 180,845 |
|
Other international | 96,848 |
| | 92,501 |
| | 184,659 |
| | 187,232 |
|
| $ | 392,975 |
| | $ | 369,380 |
| | $ | 737,492 |
| | $ | 720,923 |
|
Long-lived assets by significant geographic locations are as follows (in thousands):
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
United States | $ | 629,235 |
| | $ | 623,522 |
|
Europe | 344,667 |
| | 319,661 |
|
Other international | 12,745 |
| | 51,698 |
|
| $ | 986,647 |
| | $ | 994,881 |
|
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 17. Operating Segments and Related Information - (Continued)
Major Customers
Revenue derived from major customers is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
US Government | $ | 76,125 |
| | $ | 78,582 |
| | $ | 129,445 |
| | $ | 150,219 |
|
| |
Note 18. | Restructuring Costs |
In 2013, the Company initiated a realignment plan that includes closing six sites in the United States and Europe and transferring those operations to the Company's larger facilities. The Company also consolidated its optics and laser manufacturing businesses to better realize the benefits of vertical integration in these areas. As of June 30, 2015, most of the restructuring activities have been completed, with remaining costs and accrued expenses primarily related to the closure of a European facility. During the three and six months ended June 30, 2015, the Company recorded net pre-tax restructuring expenses totaling $0.5 million and $0.8 million, respectively. During the three and six months ended June 30, 2014, the Company recorded net pre-tax restructuring expenses totaling $3.5 million and $12.0 million, respectively. The Company recorded the restructuring expenses in the segments as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 |
| 2014 | | 2015 | | 2014 |
Surveillance | $ | (45 | ) | | $ | 606 |
| | $ | 78 |
| | $ | 4,725 |
|
Instruments | 497 |
| | 2,672 |
| | 684 |
| | 6,196 |
|
OEM and Emerging Markets | — |
| | 109 |
| | 2 |
| | 276 |
|
Maritime | — |
| | 16 |
| | — |
| | (125 | ) |
Detection | 1 |
| | 144 |
| | 3 |
| | 759 |
|
Other | — |
| | — |
| | — |
| | 120 |
|
| $ | 453 |
| | $ | 3,547 |
| | $ | 767 |
| | $ | 11,951 |
|
Restructuring expenses were recorded in the Consolidated Statements of Income as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Cost of goods sold | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | | $ | 590 |
|
Restructuring expenses | 454 |
| | 3,547 |
| | 768 |
| | 11,361 |
|
| $ | 453 |
| | $ | 3,547 |
| | $ | 767 |
| | $ | 11,951 |
|
The following table summarizes the activity by cost type (in thousands):
|
| | | | | | | | | | | |
| Severance and personnel costs | | Facilities Exit, Lease Terminations & Other | | Total |
Balance, December 31, 2014 | $ | 10,941 |
| | $ | 1,485 |
| | $ | 12,426 |
|
Additional costs | 277 |
| | 37 |
| | 314 |
|
Utilization | (3,524 | ) | | (1,040 | ) | | (4,564 | ) |
Balance, March 31, 2015 | $ | 7,694 |
| | $ | 482 |
| | $ | 8,176 |
|
Additional costs | 82 |
| | 371 |
| | 453 |
|
Utilization | (2,394 | ) | | (371 | ) | | (2,765 | ) |
Balance, June 30, 2015 | $ | 5,382 |
| | $ | 482 |
| | $ | 5,864 |
|
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| |
Note 19. | Subsequent Events |
On July 23, 2015, the Company’s Board of Directors declared a quarterly dividend of $0.11 per share on its common stock, payable on September 4, 2015, to shareholders of record as of the close of business on August 21, 2015. The total cash payment of this dividend will be approximately $15.4 million.
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of FLIR Systems, Inc. and its consolidated subsidiaries (“FLIR” or the “Company”) that are based on management’s current expectations, estimates, projections, and assumptions about the Company’s business. 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 the “Risk Factors” section of the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2014, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, and elsewhere in this Report as well as those discussed from time to time in the Company’s 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 of this Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report, or for changes made to this document by wire services or Internet service providers. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.
Results of Operations
The following discussion of operating results provides an overview of our operations by addressing key elements in our Consolidated Statements of Income. The “Segment Operating Results” section that follows describes the contributions of each of our business segments to our consolidated revenue and earnings from operations. Our six operating segments are: Surveillance, Instruments, OEM and Emerging Markets, Maritime, Security and Detection. Given the nature of our business, we believe revenue and earnings from operations (including operating margin percentage) are most relevant to an understanding of our performance at a segment level as revenue levels are the most significant indicators of business conditions for each of the respective segments and earnings from operations reflect our ability to manage each of our segments as revenue levels change. Additionally, at the segment level we disclose backlog, which represents orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months. See Note 17, "Operating Segments and Related Information," of the Notes to the Consolidated Financial Statements for additional information on the six operating segments.
Revenue. Consolidated revenue for the three months ended June 30, 2015 increased by 6.4 percent year over year, from $369.4 million in the second quarter of 2014 to $393.0 million in the second quarter of 2015. Consolidated revenue for the six months ended June 30, 2015 increased by 2.3 percent year over year, from $720.9 million in the first six months of 2014 to $737.5 million in the first six months of 2015. Increases in revenues for both the three month and six month periods in our Instruments, Security and Detection segments were partially offset by declines in our Surveillance, OEM and Emerging Markets, and Maritime segments. The revenue increases were negatively impacted year over year by changes in currency exchange rates, particularly in our Instruments and Maritime segments.
The timing of orders, scheduling of backlog and fluctuations in demand in various regions of the world can give rise to quarter to quarter and year over year fluctuations in the mix of revenue. Consequently, year over year comparisons for any given quarter may not be indicative of comparisons using longer time periods. While we currently expect total annual revenue for 2015 to be slightly higher than 2014 revenue, unexpected changes in economic conditions from key customer markets or other major unanticipated events may cause total revenue, and the mix of revenue between our segments, to vary from quarter to quarter during the year.
International sales accounted for 49.0 percent and 48.3 percent of total revenue for the quarters ended June 30, 2015 and 2014, respectively, and 50.6 percent and 51.1 percent for the six months ended June 30, 2015 and 2014, respectively. The proportion of our international revenue compared to total revenue will fluctuate from quarter to quarter due to normal variation in order activity across various regions as well as specific factors that may affect one region and not another. Overall, we anticipate that revenue from international sales will continue to comprise a significant percentage of total revenue.
Cost of goods sold. Cost of goods sold for the three and six months ended June 30, 2015 was $203.4 million and $372.0 million, respectively, compared to cost of goods sold for the three and six months ended June 30, 2014 of $186.7 million and $369.7 million, respectively. The year over year increase in cost of goods sold primarily related to higher revenue for both the three month and six month periods.
Gross profit. Gross profit for the quarter ended June 30, 2015 was $189.6 million compared to $182.7 million for the same quarter last year. Gross profit for the six months ended June 30, 2015 was $365.5 million compared to $351.3 million for the same period last year. Gross margin, defined as gross profit divided by revenue, decreased from 49.5 percent in the second quarter of 2014 to 48.3 percent in the second quarter of 2015, and increased from 48.7 percent in the first six months of 2014 to 49.6 percent in the first six months of 2015. The decrease in gross margin for the three month period was primarily due to lower gross margin in our Maritime segment due to unfavorable exchange rate impacts on revenue and discounting due to promotional activities in certain markets, unfavorable product mix in our Security segment, and higher inventory scrap costs in our OEM and Emerging Markets segment. The increase in gross margin for the six month period was primarily due to improvements in our Surveillance and Instruments segments largely related to favorable product mix, which were partially offset by the negative impacts in our Maritime and Security segments that impacted the three month comparison.
Research and development expenses. Research and development expenses for the second quarter of 2015 totaled $35.2 million, compared to $36.3 million in the second quarter of 2014. Research and development expenses for the first six months of 2015 and 2014 were $69.8 million and $72.6 million, respectively. Research and development expenses as a percentage of revenue were 8.9 percent and 9.5 percent for the three and six months ended June 30, 2015, respectively. Research and development expenses as a percentage of revenue were 9.8 percent and 10.2 percent for the three and six months ended June 30, 2014, respectively. We have, and will continue to have, fluctuations in quarterly spending depending on product development needs and overall business spending priorities and believe that annual spending levels are more indicative of our commitment to research and development. Over the past five annual periods through December 31, 2014, our annual research and development expenses have varied between 8.4 percent and 9.9 percent of revenue, and we currently expect these expenses to remain within that range, on an annual basis, for the foreseeable future.
Selling, general and administrative expenses. Selling, general and administrative expenses were $83.5 million for each of the quarters ended June 30, 2015 and 2014. Selling, general and administrative expenses for the first six months of 2015 and 2014 were $158.6 million and $165.4 million, respectively. The decrease in selling, general and administrative expenses year over year for the six month period was primarily related to a decrease in selling and administrative expenses in connection with favorable foreign exchange rates on expenses and lower corporate legal expenses, partially offset by an increase in marketing expenses. Selling, general and administrative expenses as a percentage of revenue were 21.2 percent and 22.6 percent for the quarters ended June 30, 2015 and 2014, respectively, and 21.5 percent and 22.9 percent for the six months ended June 30, 2015 and 2014, respectively. Over the past five annual periods through December 31, 2014, our annual selling, general and administrative expenses have varied between 20.5 percent and 23.6 percent of revenue, and we currently expect these expenses to remain within that range, on an annual basis, for the foreseeable future.
Restructuring expenses. During the quarters ended June 30, 2015 and 2014, we incurred $0.5 million and $3.5 million, respectively, in pre-tax restructuring expenses, all of which were recorded in operating expenses in the Consolidated Statements of Income. During the first six months ended June 30, 2015 and 2014, we incurred $0.8 million and $12.0 million, respectively, in pre-tax restructuring expenses; in 2014, $0.6 million of the restructuring charges were included in cost of goods sold.
Interest expense. Interest expense for the second quarter of 2015 and 2014 was $3.4 million and $3.6 million, respectively. Interest expense for the first six months of 2015 was $7.0 million, compared to $7.3 million for the same period of 2014. Interest expense was primarily associated with the $250 million aggregate principal amount of our 3.75 percent senior unsecured notes and our term loan that was drawn upon under our credit agreement.
Income taxes. The income tax provision of $15.9 million for the three months ended June 30, 2015 represents 24.0 percent of pre-tax income in such period. We expect the annual effective tax rate for the full year of 2015 to be approximately 24.0 percent, excluding discrete items. The effective tax rate is expected to be lower than the US Federal tax rate of 35 percent because of the mix of lower foreign jurisdiction tax rates and the effect of federal, foreign and state tax credits.
Segment Operating Results
Effective January 1, 2015, the Personal Vision Systems product line was transferred from the OEM and Emerging Markets segment to the Surveillance segment. Certain of the following segment financial information has been reclassified for the three and six months ended June 30, 2014 for comparative purposes.
Surveillance
Surveillance operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | (as reclassified) | | | | (as reclassified) |
Revenue | $ | 107.8 |
| | $ | 113.6 |
| | $ | 220.7 |
| | $ | 236.7 |
|
Earnings from operations | 26.4 |
| | 22.6 |
| | 56.5 |
| | 45.9 |
|
Operating margin | 24.5 | % | | 19.9 | % | | 25.6 | % | | 19.4 | % |
Backlog, end of period | | | | | 286 |
| | 308 |
|
Revenue for the three and six months ended June 30, 2015 decreased by 5.1 percent and 6.8 percent, respectively, compared to the same periods of 2014. The declines in revenue for both the three month and six month periods were primarily due to reduced deliveries to US Government customers and in the airborne product line. Earnings from operations improved year over year primarily due to reductions in operating expenses, improved product margins, favorable product mix and lower restructuring expenses for both the three month and six month periods. During the three months ended June 30, 2015, the segment did not incur any restructuring costs, compared to $0.6 million of restructuring expenses recorded during the three months ended June 30, 2014. During the six months ended June 30, 2015 and 2014, the segment recorded $0.1 million and $4.7 million restructuring expenses, respectively.
Instruments
Instruments operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Revenue | $ | 90.3 |
| | $ | 84.0 |
| | $ | 174.1 |
| | $ | 168.0 |
|
Earnings from operations | 28.3 |
| | 21.0 |
| | 56.4 |
| | 41.5 |
|
Operating margin | 31.4 | % | | 25.1 | % | | 32.4 | % | | 24.7 | % |
Backlog, end of period | | | | | 25 |
| | 32 |
|
Revenue for the three and six months ended June 30, 2015 increased by 7.5 percent and 3.6 percent, respectively, compared to the same period of 2014. The year over year increase in revenue for the three month period was due to growth in most product lines and in the Europe and Asia Pacific regions. For the six month period, the revenue increase is due to growth in the Asia Pacific region, partially offset by a year over year revenue decline in the Americas; on a product basis, growth in our science, test and measurement, and fire product lines were offset by declines in our predictive and building product line. The revenue increases were partially offset by the negative impact of year over year changes in currency exchange rates.
The increases in earnings from operations for the three and six months ended June 30, 2015, compared to the same period of 2014, were primarily due to the increases in revenue, higher gross margins, lower restructuring expenses, and cost savings associated with restructuring activities. As a large portion of segment expenses are incurred in Europe, the segment experienced a favorable impact on its operating expenses from the changes in foreign currency rates which largely offset the associated decline in revenues in that region. Restructuring expenses for the three months ended June 30, 2015 and 2014 were $0.5 million and $2.7 million, respectively. Restructuring expenses for the six months ended June 30, 2015 and 2014 were $0.7 million and $6.2 million, respectively.
OEM and Emerging Markets
OEM and Emerging Markets operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | (as reclassified) | | | | (as reclassified) |
Revenue | $ | 46.3 |
| | $ | 51.1 |
| | $ | 86.1 |
| | $ | 99.0 |
|
Earnings from operations | 10.5 |
| | 13.9 |
| | 19.3 |
| | 22.7 |
|
Operating margin | 22.7 | % | | 27.2 | % | | 22.4 | % | | 22.9 | % |
Backlog, end of period | | | | | 109 |
| | 125 |
|
Revenue for the three and six months ended June 30, 2015 decreased by 9.5 percent and 13.0 percent, respectively, compared to the same periods of the prior year. The decrease in the three month period was primarily due to the loss of approximately $3.3 million of revenue from our optical components group which was sold in August 2014 and lower deliveries from our cores and components and traffic product lines; on a geographic basis, declines in Europe and the Americas were partially offset by an increase in the Asia Pacific region. For the six month period, the revenue decrease was primarily due to the same factors experienced in the three month period, including the loss of first half 2014 revenue from the optical components group of approximately $6.8 million. Segment earnings from operations and operating margin declined for the three month period primarily due to lower revenue and increased inventory scrap costs, partially offset by lower operating expenses. For the six month period, the decline in earnings from operations and operating margin were primarily due to the decrease in revenue, partially offset by lower operating expenses.
Maritime
Maritime operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Revenue | $ | 52.0 |
| | $ | 55.2 |
| | $ | 103.0 |
| | $ | 107.8 |
|
Earnings from operations | 6.4 |
| | 9.7 |
| | 11.2 |
| | 18.5 |
|
Operating margin | 12.3 | % | | 17.6 | % | | 10.9 | % | | 17.2 | % |
Backlog, end of period | | | | | 21 |
| | 15 |
|
Revenue for the three and six months ended June 30, 2015 decreased by 5.8 percent and 4.5 percent, respectively, compared to the same periods of 2014, primarily due to the negative impact of changes in currency exchange rates on revenues in Europe. Since the majority of the segment's costs of goods sold are incurred in US dollars, those costs did not receive the favorable impact of changes in currency exchange rates. Consequently, the decrease in earnings from operations and operating margin for both the three month and six month periods were primarily due to the declines in year over year revenue, including discounting due to promotional activities.
Security
Security operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Revenue | $ | 60.0 |
| | $ | 44.7 |
| | $ | 98.9 |
| | $ | 74.0 |
|
Earnings from operations | 7.9 |
| | 5.9 |
| | 11.7 |
| | 7.6 |
|
Operating margin | 13.1 | % | | 13.2 | % | | 11.8 | % | | 10.2 | % |
Backlog, end of period | | | | | 13 |
| | 25 |
|
Revenue for the three and six months ended June 30, 2015 increased by 34.2 percent and 33.5 percent, respectively, compared to the same periods of the prior year. The increase in revenue for the three month period was primarily due to increased deliveries for all segment product families, particularly the retail and thermal product families, and across all geographic regions with the exception of the Middle East/Africa region. The increases in earnings from operations year over year for the three and six month periods were primarily due to the increases in revenues, partially offset by increases in sales and marketing support expenses.
Detection
Detection operating results are as follows (in millions, except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | |
Revenue | $ | 36.5 |
| | $ | 20.7 |
| | $ | 54.7 |
| | $ | 35.3 |
|
Earnings from operations | 9.4 |
| | 3.2 |
| | 12.1 |
| | 1.4 |
|
Operating margin | 25.7 | % | | 15.2 | % | | 22.0 | % | | 3.8 | % |
Backlog, end of period | | | | | 83 |
| | 45 |
|
Revenue for the three and six months ended June 30, 2015 increased by 76.7 percent and 55.1 percent, respectively, compared to the same periods of 2014 which was primarily related to increased deliveries of our CBRNE threat response systems and related spare parts and services against orders received in the second half of 2014 on a large program with the United States government. The increase in earnings from operations and operating margins for the three and six months ended June 30, 2015 compared to the same periods during the prior year were primarily due to the increases in revenue. Backlog at June 30, 2015 increased compared to the same date during the prior year primarily due to the receipt of a $51.1 million order for our CBRNE threat response systems and related spare parts and services during the first quarter of 2015, against which no shipments had been made as of June 30, 2015.
Liquidity and Capital Resources
At June 30, 2015, we had a total of $560.2 million in cash and cash equivalents, of which $145.9 million was in the United States and $414.3 million was at our foreign subsidiaries, compared to cash and cash equivalents at December 31, 2014 of $531.4 million, of which $164.1 million was in the United States and $367.3 million was at our foreign subsidiaries. The increase in cash and cash equivalents during the six months ended June 30, 2015 was primarily due to increased cash from operations, partially offset by capital expenditures of $30.8 million, dividend payments of $30.8 million, repurchase of common stock of $31.4 million and the negative impact on cash from currency translation adjustments of $18.3 million.
Cash provided by operating activities totaled $123.9 million for the six months ended June 30, 2015, which primarily consisted of net earnings, adjusted for non-cash charges for depreciation and amortization, and stock-based compensation.
Cash used by investing activities totaled $30.8 million for the six months ended June 30, 2015, consisting of capital expenditures in the ordinary course of business.
Cash used by financing activities totaled $46.0 million for the six months ended June 30, 2015, which primarily consisted of the payment of dividends, repurchases of our common stock and the quarterly term loan principal payment, partially offset by amounts provided by our stock compensation plans.
On February 8, 2011, we signed a Credit Agreement (“Credit Agreement”) with Bank of America, N.A., U.S. Bank National Association, JPMorgan Chase Bank N.A. and other lenders. The Credit Agreement provides for a $200 million, five-year revolving line of credit. On April 5, 2013, the Credit Agreement was amended to extend the maturity of the revolving credit facility from February 8, 2016 to April 5, 2018 in addition to incorporating a $150 million term loan facility maturing April 5, 2019. We have the right, subject to certain conditions including approval of additional commitments by qualified lenders, to increase the line of credit by an additional $150 million until April 5, 2018. The Credit Agreement allows us and certain designated subsidiaries to borrow in US dollars, euros, Swedish Kronor, pound sterling and other agreed upon currencies. The Credit Agreement requires us to pay a commitment fee on the amount of unused credit at a rate, based on the Company’s leverage ratio, which ranges from 0.25 percent to 0.40 percent. The Credit Agreement contains two financial covenants that require the maintenance of certain leverage ratios with which we were in compliance at June 30, 2015. The five-year revolving line of credit available under the Credit Agreement and the term loan facility are not secured by any of our assets.
As noted above, the Credit Agreement amendment of April 5, 2013 incorporates a $150 million term loan facility that matures on April 5, 2019. On April 5, 2013 we drew down $150 million under the term loan facility. Interest is accrued at the one-month LIBOR rate plus the scheduled spread and paid monthly. By entering into interest rate swap agreements, we have effectively fixed the basis for calculating the interest rate on the term loan. The effective interest rate paid is equal to the fixed rate in the swap agreements plus the credit spread then in effect. At June 30, 2015, the effective interest rate on the term loan was 2.49 percent. Principal payments of $3.75 million are made in quarterly installments which commenced on June 30, 2013 and will continue through December 31, 2018 with the final maturity payment including any accrued interest due on April 5, 2019.
At June 30, 2015, we had no amounts outstanding under our revolving credit facility pursuant to the Credit Agreement and the commitment fee on the amount of unused credit was 0.3 percent. We had $38.4 million of letters of credit outstanding at June 30, 2015, which reduced the total available credit under the revolving credit facility.
On August 19, 2011, we issued $250 million aggregate principal amount of our 3.75 percent senior unsecured notes due September 1, 2016 (the "Notes"). The interest on the Notes is payable semiannually in arrears on March 1 and September 1. The proceeds from the Notes are being used for general corporate purposes, which may include working capital and capital expenditure needs, business acquisitions and repurchases of our common stock.
On February 5, 2015, our Board of Directors authorized the repurchase of up to 15.0 million shares of our outstanding common stock. As of June 30, 2015, 1.0 million shares had been repurchased under this authorization, which expires on February 5, 2017.
United States income taxes have not been provided for on accumulated earnings of certain subsidiaries outside of the United States as we intend to reinvest the earnings in operations outside the United States indefinitely. Should we subsequently elect to repatriate such foreign earnings, we would need to accrue and pay United States income taxes, thereby reducing the amount of our cash.
We believe that our existing cash combined with the cash we expect to generate from operating activities and our available credit facilities and financing available from other sources will be sufficient to meet our cash requirements for the foreseeable future. Except for approximately $17.0 million in building improvements to a facility we own, we do not have any significant capital commitments for the next twelve months nor are we aware of any significant events or conditions that are likely to have a material impact on our liquidity.
Off-Balance Sheets Arrangements
Through June 30, 2015, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09") which establishes new guidance under which companies will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also provides for additional disclosure requirements. While ASU 2014-09 was to be effective for annual periods and interim periods beginning after December 15, 2016, on July 9, 2015, the FASB approved the deferral of the effective date to periods beginning on or after December 15, 2017. Accordingly, the Company currently intends to adopt ASU 2014-09 on January 1, 2018, and is currently evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements.
In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period" ("ASU 2014-12") which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods beginning after December 15, 2015. Accordingly, the Company currently intends to adopt ASU 2014-12 on January 1, 2016, and does not expect the adoption of ASU 2014-12 to have a material impact on its consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" ("ASU 2014-15"). Under the new guidance, management will be required to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016. Accordingly, the Company currently intends to adopt ASU 2014-15 on January 1, 2017, and does not expect the adoption of ASU 2014-15 to have any impact on its consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30)" ("ASU 2015-03") which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted and should be applied retrospectively. The Company has adopted ASU 2015-03 on January 1, 2015 and the adoption of ASU 2015-03 did not have a material impact on its consolidated financial statements.
Critical Accounting Policies and Estimates
The Company reaffirms the critical accounting policies and our use of estimates as reported in our Form 10-K for the fiscal year ended December 31, 2014, as described in Note 1, "Nature of Business and Significant Accounting Policies," of the Notes to the Consolidated Financial Statements included in the Form 10-K for the fiscal year ended December 31, 2014.
Contractual Obligations
There were no material changes to our contractual obligations outside the ordinary course of our business during the quarter ended June 30, 2015.
Contingencies
See Note 15, "Contingencies," of the Notes to the Consolidated Financial Statements for a description of an ongoing lawsuit filed by Raytheon Company against FLIR Systems, Inc. and its subsidiary, FLIR Commercial Systems, Inc. and the unauthorized export of technical data disclosed by the Company to the United States Department of State Office of Defense Trade Controls Compliance.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
As of June 30, 2015, the Company has not experienced any changes in market risk exposure that would materially affect the quantitative and qualitative disclosures about market risk presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of June 30, 2015, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e). Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective such that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
PART II. OTHER INFORMATION
The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of its business. See Note 15, “Contingencies,” of the Notes to the Consolidated Financial Statements for additional information on the Company’s legal proceedings.
There has been no material change in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended June 30, 2015, the Company repurchased the following shares:
|
| | | | | | | | | | | | |
Period | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) |
May 1 to May 31, 2015 | 1,000,000 |
| | $ | 31.43 |
| | 1,000,000 |
| | |
Total | 1,000,000 |
| | $ | 31.43 |
| | 1,000,000 |
| | 14,000,000 |
|
(1) The share repurchases were through open market transactions.
(2) All share repurchases are subject to applicable securities laws, and are at times and in amounts as management deems appropriate. On February 6, 2015, we announced that our Board of Directors authorized the repurchase of up to 15.0 million shares of our outstanding common stock. This repurchase was authorized on February 5, 2015 and will expire on February 5, 2017.
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Item 3. | Defaults Upon Senior Securities |
None.
| |
Item 4. | Mine Safety Disclosures |
Not applicable.
None.
|
| | |
Number | | Description |
10.1 | | Form of Restricted Stock Unit Agreement (Time-Based Vesting) under the FLIR Systems, Inc. 2011 Stock Incentive Plan, amended May 11, 2015.(1) |
10.2 | | Form of Restricted Stock Unit Agreement (Market-Based Vesting) under the FLIR Systems, Inc. 2011 Stock Incentive Plan, amended May 11, 2015.(1) |
10.3 | | Form of Stock Option Agreement (Time-Based Vesting) under the FLIR Systems, Inc. 2011 Stock Incentive Plan, amended May 11, 2015.(1) |
10.4 | | Form of Stock Option Agreement (Time-Based Vesting - Outside Directors) under the FLIR Systems, Inc. 2011 Stock Incentive Plan, amended May 11, 2015.(1) |
31.1 | | Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302. |
31.2 | | Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302. |
32.1 | | Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906. |
32.2 | | Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906. |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) This exhibit constitutes a management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | |
| | FLIR SYSTEMS, INC. |
| | |
Date August 5, 2015 | | /s/ DAVID A. MUESSLE |
| | David A. Muessle |
| | Vice President, Corporate Controller and Interim Chief Financial Officer |
| | (Duly Authorized and Principal Chief Financial Officer) |
Exhibit 10.1
RESTRICTED STOCK UNIT AGREEMENT
For Grantees Located Inside the United States
Awarded to: participant name
Grant Date: grant date
Number of Shares: shares
This Restricted Stock Unit Agreement (the “Agreement”) is made between FLIR Systems, Inc., an Oregon corporation (“the Company”) and you, an employee or consultant of the Company or one of its Subsidiaries (the “Grantee”).
The Company sponsors the FLIR Systems, Inc. 2011 Stock Incentive Plan (the “Plan”). The Plan governs the terms of the award referenced in this Agreement and controls in the event of any ambiguity between the Plan and this Agreement. A copy of the Plan as amended can be found on the Company intranet or may be obtained by contacting the Company’s Human Resources Department. The terms and provisions of the Plan are incorporated herein by reference. By signing this Agreement, you acknowledge that you have obtained and reviewed a copy of the Plan. When used herein, the capitalized terms that are defined in the Plan shall have the meanings given to them in the Plan, including the term “Committee,” which means the Compensation Committee of the Company’s Board of Directors.
Your failure to execute this Agreement within 180 days of the Grant Date may result in its cancellation.
In recognition of the value of your contribution to the Company, you and the Company mutually covenant and agree as follows:
1.Grant. Subject to the terms and conditions of the Plan and this Agreement, the Company grants to you, the Grantee, the right to receive on the vesting dates described herein the above stated number of shares of the Company’s common stock (the “Shares”).
2.No Rights as Shareholder Prior to Issuance and Delivery of Shares. Grantee shall not be deemed for any purpose to be a shareholder of the Company as to any Shares subject to this Agreement, including the right to any dividends or dividend equivalents issued over the vesting period, until the Shares have been issued and delivered to Grantee in accordance with the Plan and this Agreement.
3.Vesting. The Shares subject to this Agreement shall vest as follows: one-third on April 29, 2016, one-third on April 29, 2017, and one-third on April 29, 2018. Once the Shares vest, or, if later, the date on which the Shares are distributed pursuant to the terms of the Company’s Stock Deferral Plan, the Company shall issue and deliver a stock certificate (or other evidence of ownership) for a corresponding number of Shares to Grantee.
4.Rights of Grantee with Respect to Shares Delivered. Grantee shall enjoy all shareholder rights with respect to Shares that have been issued and delivered and such Shares shall no longer be subject to the terms of the Plan or this Agreement.
5.Termination of Service. In the event that Grantee's continuous service as an employee or consultant with the Company and its Subsidiaries terminates for any reason other than death or a Qualifying Disability, as defined in Section 6, including a termination due to retirement, the Shares subject to this Agreement shall immediately expire and no additional Shares shall be issued and delivered to Grantee pursuant to this Agreement. The date that Grantee's continuous service as an employee or consultant terminates for purposes of the Plan shall be determined by the Committee, in its exclusive discretion, which determination shall be final.
6.Death or Qualifying Disability. In the event of Grantee’s death or in the event that Grantee’s continuous service as an employee or consultant with the Company and its Subsidiaries terminates as a result of Grantee’s Qualifying Disability, the Shares subject to this Agreement shall immediately vest. For purposes of this Agreement, a “Qualifying Disability” shall mean a Disability, as defined below, which the Committee determines is expected to prevent Grantee from thereafter engaging in any gainful employment. For purposes of this Agreement, a “Disability” shall mean a total and permanent disability as defined in section 22(e)(3) of the Code. The determination of whether Grantee’s Disability is a Qualifying Disability shall be made by the Committee in its sole discretion, and such determination shall be final.
7.Nontransferability of this Agreement. This Agreement may not be sold, transferred, assigned, pledged, or encumbered and any such attempted action shall be void.
8.Withholding Taxes. The vesting and issuance of Shares to Grantee is a taxable event for which the Company is obligated to withhold taxes. Grantee agrees to pay to the Company an amount sufficient to provide for any federal, state, and local withholding taxes, including FICA taxes, in connection with the issuance and delivery of any Shares by the Company to Grantee. Grantee may satisfy this withholding obligation by electing in writing (i) to transfer from Grantee’s Fidelity cash account an amount sufficient to satisfy the withholding obligation, or (ii) have Company withhold from the Shares otherwise to be delivered to Grantee that number of Shares that would satisfy the withholding obligation. In the absence of a timely election by Grantee, the Committee will use option (ii).
If the Committee withholds Shares to satisfy the withholding obligation, the following rules apply:
(a)The value of the Shares withheld or transferred must equal (or exceed by at most a fractional Share) the minimum withholding obligation.
(b)The value of the Shares withheld or transferred shall be the Fair Market Value determined as of the vesting date.
(c)The election is subject to the consent or disapproval of the Committee.
9.Exclusion of Shares from Compensation. Shares issued and delivered to Grantee pursuant to the Plan will not constitute compensation to Grantee for purposes of any retirement, life insurance or other employee benefit plan of the Company.
10.Termination of Agreement. This Agreement shall terminate when no further Shares may be delivered to Grantee pursuant to this Agreement.
11.Governing Law. This Agreement is governed by, and subject to, the laws of the State of Oregon, as provided in the Plan.
For purposes of litigating any dispute that arises under this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Oregon, and agree that such litigation shall be conducted in the appropriate state or federal courts of Oregon.
12.Electronic Delivery and Participation. The Company may, in its sole discretion, deliver any documents related to the award referenced in this Agreement or to participation in the Plan or to future awards that may be granted under the Plan by electronic means or to request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
13.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
14.Insider Trading Restrictions. Grantee acknowledges that Grantee may be subject to insider trading restrictions, which may affect his or her ability to acquire or dispose of Shares or rights to Shares (e.g., restricted stock units) acquired under the Plan during such times as Grantee is considered to have “inside information” regarding the Company. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Grantee is responsible for ensuring compliance with any applicable restrictions and is advised to consult his or her personal legal advisor on this matter.
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FLIR SYSTEMS, INC. | GRANTEE |
|
| |
Andrew C. Teich | Name |
President and Chief Executive Officer | Signed Electronically |
Exhibit 10.2
RESTRICTED STOCK UNIT AGREEMENT
For Grantees Located Inside the United States
Awarded to: participant name
Grant Date: grant date
Number of Target Shares: shares
This Restricted Stock Unit Agreement (the “Agreement”) is made between FLIR Systems, Inc., an Oregon corporation (“the Company”) and you, an employee or consultant of the Company or one of its Subsidiaries (the “Grantee”).
The Company sponsors the FLIR Systems, Inc. 2011 Stock Incentive Plan (the “Plan”). The Plan governs the terms of the award referenced in this Agreement and controls in the event of any ambiguity between the Plan and this Agreement. A copy of the Plan as amended can be found on the Company intranet or may be obtained by contacting the Company’s Human Resources Department. The terms and provisions of the Plan are incorporated herein by reference. By signing this Agreement, you acknowledge that you have obtained and reviewed a copy of the Plan. When used herein, the capitalized terms that are defined in the Plan shall have the meanings given to them in the Plan, including the term “Committee,” which means the Compensation Committee of the Company’s Board of Directors.
Your failure to execute this Agreement within 180 days of the Grant Date may result in its cancellation.
In recognition of the value of your contribution to the Company, you and the Company mutually covenant and agree as follows:
1.Grant. Subject to the terms and conditions of the Plan and this Agreement, the Company grants to you, the Grantee, the right to receive on the vesting date described herein the above stated number of shares of the Company’s common stock (the “Shares”).
2. No Rights as Shareholder Prior to Issuance and Delivery of Shares. Grantee shall not be deemed for any purpose to be a shareholder of the Company as to any Shares subject to this Agreement, including the right to any dividends or dividend equivalents issued over the vesting period, until the Shares have been issued and delivered to Grantee in accordance with the Plan and this Agreement.
3. Vesting. The Shares subject to this Agreement will vest as stated in this Section 3.
(a) Performance Period. For purposes of this Agreement, the “Performance Period” shall be the period beginning May 1, 2015 and ending April 30, 2018.
(b) Performance Vesting. Subject to (i) Grantee’s continuous service as an employee or consultant with the Company or its Subsidiaries through May 1, 2018 (the “Vesting Date”) or Grantee’s termination of employment and consultancy with the Company and its
Subsidiaries prior to the Vesting Date pursuant to Section 6 of the Agreement and (ii) except as provided in Section 7, the certification by the Committee of the performance level achieved, Grantee shall become vested in the number of Shares that are earned pursuant to this Section 3(b). The number of Shares that are earned under this Agreement shall be a percentage of the number of Target Shares specified at the beginning of this Agreement (the “Target Shares”), determined as follows, based on the TSR of the Company for the Performance Period (the “Company TSR”) as compared to the Target TSR, as defined below:
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(i) | When Company TSR is less than Target TSR, for each 1.0% that Company TSR is less than Target TSR, the percentage of the Target Shares earned decreases by 10%; |
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(ii) | When Company TSR is equal to Target TSR, 100% of the Target Shares are earned; |
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(iii) | When Company TSR is from 1% to 20% greater than Target TSR, for each 1% that Company TSR is greater than Target TSR, the percentage of the Target Shares earned increases by 2.5%; |
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(iv) | When Company TSR is from 21% to 30% greater than Target TSR, for each 1% that Company TSR is greater than Target TSR, the percentage of the Target Shares earned increases by 5.0%; and |
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(v) | When Company TSR is 30% or more greater than Target TSR, the maximum number of Target Shares are earned. |
No Shares shall be earned pursuant to this Agreement if the Company TSR is 10 percentage points or more below the Target TSR. The maximum number of Shares earned pursuant to this Agreement shall be 200% of the Target Shares. In the event the Company TSR is negative, the maximum number of Shares that can be earned is capped at an amount equal to the Target Shares.
(c) Definitions. For purposes of this Agreement:
“Comparison Group” means each company that is included in the S&P 500 as of the date on which the Performance Period begins, excluding any such company that incurs a Specified Corporate Change during the Performance Period.
“Specified Corporate Change” means that company in the Comparison Group will be deemed to have undergone a “Specified Corporate Change” if it:
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(i) | ceases to be a domestically domiciled publicly traded company on the New York Stock Exchange or Nasdaq stock exchange; or |
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(ii) | has been acquired by or merged with another company and the company is not the surviving entity (whether by a peer company or otherwise, but not including internal reorganizations), or has sold all or substantially all of its assets; or |
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(iii) | has reincorporated in a foreign (e.g., non-U.S.) jurisdiction, regardless of whether it is a reporting company in that or another jurisdiction. |
The Company shall rely on press releases, public filings, website postings, and other reasonably reliable information available regarding a company in making a determination that a Specified Corporate Change has occurred.
“Target TSR” means the TSR of the company in the Comparison Group that ranks at the 60th percentile among all companies in the Comparison Group.
“TSR” means total shareholder return as applied to the Company and each company in the Comparison Group, which shall reflect the stock price appreciation from the beginning to the end of the Performance Period, plus dividends and distributions made or declared (assuming such dividends or distributions are reinvested in the common stock of the Company or the applicable company in the Comparison Group as of the ex-dividend date) during the Performance Period, expressed as a percentage return. For purposes of computing TSR, the stock price at the beginning of the Performance Period will be the average price of a share of common stock over the 20 trading days prior to the first day of the Performance Period, and the stock price at the end of the Performance Period will be the average price of a share of common stock over the 20 trading days ending on the last day of the Performance Period, adjusted for changes in capital structure as well as dividends paid over the performance period.
4. Payment of Shares. Subject to Sections 6 and 7 of this Agreement, the number of Shares earned and vested pursuant to Section 3(b) and Section 6 shall be issued to Grantee within 2½ months after the Vesting Date or, if later, the date on which the Shares are distributable pursuant to the terms of the Company’s Stock Deferral Plan.
5. Rights of Grantee with Respect to Shares Delivered. Grantee shall enjoy all shareholder rights with respect to Shares that have been issued and delivered and such Shares shall no longer be subject to the terms of the Plan or this Agreement; provided, however, that Grantee shall not sell or otherwise dispose of any such Shares until the earliest to occur of (i) the first anniversary of the date on which the Shares have become vested, (ii) a Corporate Transaction, (iii) Grantee’s death or (iv) a termination of Grantee’s employment due to a Qualifying Disability; provided further that this restriction shall not apply to the withholding of Shares by the Company to satisfy any withholding taxes in accordance with Section 10 of this Agreement.
6. Termination of Service. In the event that Grantee's employment and consultancy with the Company and its Subsidiaries terminates for any reason other than death, a Qualifying Disability or Qualifying Retirement, as such terms are defined in Section 6, the Shares subject to this Agreement shall immediately expire and no additional Shares or payments shall be issued and delivered or paid to Grantee pursuant to this Agreement. The date of termination of Grantee’s employment or consultancy for purposes of the Plan shall be determined by the Committee, in its exclusive discretion, which determination shall be final.
7. Death, Qualifying Disability or Retirement. In the event of Grantee’s death or termination of employment and consultancy with the Company and its Subsidiaries as a result of Grantee’s Qualifying Disability, the Shares subject to this Agreement shall become vested and the Company shall issue to Grantee or his or her designated beneficiary, within 2½ months after the Vesting Date, a number of Shares equal to the Shares that are earned pursuant to Section 3(b). Upon such payment the Agreement shall expire and no additional Shares or payments shall be issued and delivered or paid to Grantee pursuant to this Agreement. For purposes of this Agreement, a “Qualifying Disability” shall mean a Disability, as defined below, which the Committee determines is expected to prevent the Grantee from thereafter engaging in any gainful employment. For purposes of this Agreement, a “Disability” shall mean a total and permanent disability as defined in section 22(e)(3) of the Code. The determination of whether Grantee’s Disability is a Qualifying Disability shall be made by the Committee in its sole discretion, and such determination shall be final.
In the event Grantee’s employment and consultancy with the Company and its Subsidiaries terminates as a result of Grantee’s Qualifying Retirement, the Shares subject to this Agreement shall become vested and the Company shall issue to Grantee or his or her designated beneficiary, within 2½ months after the Vesting Date, a number of Shares equal to the Shares that are earned pursuant to Section 3(b), prorated to reflect the number of days in the Performance Period during which Grantee was employed by the Company or its Subsidiaries. Upon such payment the Agreement shall expire and no additional Shares or payments shall be issued and delivered or paid to Grantee pursuant to this Agreement. For purposes of this Agreement, “Qualifying Retirement” shall mean a voluntary termination of employment and consultancy by Grantee if Grantee is, on the effective date of such termination, at least 60 years of age and has worked for the Company or one of its Subsidiaries for the preceding five (5) years.
8. Corporate Transaction. In the event a Corporate Transaction, as defined in the Plan, occurs during the Performance Period, and Grantee remains employed by the Company or its Subsidiaries until the date of such Corporate Transaction, the Company shall issue to Grantee the greater of (i) the number of Target Shares, without regard to the performance conditions described in Section 3(b), or (ii) the number of Shares that would be earned pursuant to Section 3(b) if the Performance Period ended on the date of the Corporate Transaction; provided that in lieu of issuing such Shares, the Company may, in the sole discretion of the Committee, make a cash payment to Grantee in an amount equal to the Fair Market Value of such number of Shares, determined as of the date of the Corporate Transaction. The Company shall issue such Shares or make such payment not later than one calendar month after the date of the Corporate Transaction. Upon such issuance or payment the Agreement shall expire and no additional Shares or payments shall be issued and delivered or paid to Grantee pursuant to this Agreement. For purposes of clause (ii) above, the value of a share of Company common stock at the end of the Performance Period that is used to determine the Company TSR shall be equal to the Fair Market Value of the consideration payable with respect to a share of Common Stock in the applicable Corporate Transaction.
9. Nontransferability of this Agreement. This Agreement may not be sold, transferred, assigned, pledged, or encumbered and any such attempted action shall be void.
10. Withholding Taxes. The vesting and issuance of Shares and the payment of cash to Grantee is a taxable event for which the Company is obligated to withhold taxes. Grantee agrees to pay to the Company an amount sufficient to provide for any federal, state, and local withholding taxes, including FICA taxes, in connection with the issuance and delivery of any Shares by the Company to Grantee. Grantee may satisfy this withholding obligation by electing in writing (i) to transfer from Grantee’s Fidelity cash account an amount sufficient to satisfy the withholding obligation, or (ii) have Company withhold from the Shares otherwise to be delivered to Grantee that number of Shares that would satisfy the withholding obligation. In the absence of a timely election by Grantee, the Committee will use option (ii).
If the Committee withholds Shares to satisfy the withholding obligation, the following rules apply:
(a) The value of the Shares withheld or transferred must equal (or exceed by at most a fractional Share) the minimum withholding obligation.
(b) The value of the Shares withheld or transferred shall be the Fair Market Value determined as of the vesting date.
(c) The election is subject to the consent or disapproval of the Committee.
11. Exclusion of Shares from Compensation. Shares issued and delivered to Grantee pursuant to the Plan will not constitute compensation to Grantee for purposes of any retirement, life insurance or other employee benefit plan of the Company.
12. Termination of Agreement. This Agreement shall terminate when no further Shares may be delivered to Grantee pursuant to this Agreement.
13. Governing Law. This Agreement is governed by, and subject to, the laws of the State of Oregon, as provided in the Plan.
For purposes of litigating any dispute that arises under this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Oregon, and agree that such litigation shall be conducted in the appropriate state or federal courts of Oregon.
14. Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to the award referenced in this Agreement or to participation in the Plan or to future awards that may be granted under the Plan by electronic means or to request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
15. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
16. Insider Trading Restrictions. Grantee acknowledges that Grantee may be subject to insider trading restrictions, which may affect his or her ability to acquire or dispose of Shares or rights to Shares (e.g., restricted stock units) acquired under the Plan during such times as Grantee is considered to have “inside information” regarding the Company. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Grantee is responsible for ensuring compliance with any applicable restrictions and is advised to consult his or her personal legal advisor on this matter.
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FLIR SYSTEMS, INC. | GRANTEE |
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Andrew C. Teich | Name |
President and Chief Executive Officer | Signed Electronically |
Exhibit 10.3
STOCK OPTION AGREEMENT
For Optionees Located Inside the United States
Granted to: participant name
Grant Date: grant date
Expiration Date: expiration date
Number of Shares: shares
Option Price per Share: grant price
This Stock Option Agreement (the “Agreement”) is made between FLIR Systems, Inc., an Oregon corporation (“the Company”) and you, an employee or consultant of the Company or one of its Subsidiaries (the “Optionee”).
The Company sponsors the FLIR Systems, Inc. 2011 Stock Incentive Plan (the “Plan”). The Plan governs the terms of the option referenced in this Agreement and controls in the event of any ambiguity between the Plan and this Agreement. A copy of the Plan as amended can be found on the Company intranet or may be obtained by contacting the Company’s Human Resources Department. The terms and provisions of the Plan are incorporated herein by reference. By signing this Agreement, you acknowledge that you have obtained and reviewed a copy of the Plan. When used herein, the capitalized terms that are defined in the Plan shall have the meanings given to them in the Plan, including the term “Committee,” which means the Compensation Committee of the Company’s Board of Directors.
Your failure to execute this Agreement within 180 days of the Grant Date may result in its cancellation.
In recognition of the value of your contribution to the Company, you and the Company mutually covenant and agree as follows:
1. Grant of Option. Subject to the terms and conditions of the Plan and this Agreement, the Company grants to you the option to purchase from the Company (the “Option”) the above-stated number of shares of the Company’s common stock (the “Shares”) at the Option Price per Share stated above (the “Option Price”). This Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
2.Vesting of Shares. The Shares subject to this Agreement shall vest as follows: one-third on April 29, 2016, one-third on April 29, 2017, and one-third on April 29, 2018. Once the Shares vest, you may exercise the Option by purchasing some or all of the vested Shares. When you exercise the Option and pay the Option Price and applicable withholding taxes, the Company shall issue and deliver a stock certificate (or other evidence of ownership) for a corresponding number of Shares to you.
3.Method of Exercise. The manner of exercising this Option to purchase vested Shares and the method for paying the applicable Option Price shall be as set forth in Section 2.1(c) of the Plan and as allowed by the Committee. Any applicable withholding taxes must also be paid by you in accordance with Section 5.5 of the Plan. Shares issued upon exercise of the Option shall be issued solely in your name. The right to purchase Shares pursuant to this Agreement shall be cumulative so that when the right to purchase an additional installment of Shares has vested pursuant to the above-stated vesting schedule, such Shares or any part thereof may be purchased thereafter until the expiration of the Option. Due to administrative restrictions, paying the Option Price or withholding taxes with Shares of the Company’s common stock that you already own or by requesting the Company to withhold shares otherwise issuable upon your exercise of the Option is not an available method of exercise.
4.Termination of Service. Upon your death or the termination of your continuous service from the Company and its Subsidiaries as an employee or a consultant due to a Qualifying Disability, any unvested portion of this Option shall immediately vest. Upon termination of your continuous service from the Company and its Subsidiaries as an employee or a consultant for any reason other than death or a Qualifying Disability, and subject to the provisions of this Section 4, no additional Shares will vest. For purposes of this Agreement, a “Qualifying Disability” shall mean a Disability, as defined below, which the Committee determines is expected to prevent you from thereafter engaging in any gainful employment. For purposes of this Agreement, a “Disability” shall mean a total and permanent disability as defined in Section 22(e)(3) of the Code. The determination of whether a Disability is a Qualifying Disability shall be made by the Committee in its sole discretion, and such determination shall be final. Upon termination of your continuous service for any reason, the vested portion of this Option shall expire on the earlier of the Expiration Date as stated above or the following cancellation date, depending on the reason for termination:
Reason for Termination Cancellation Date
Death or Disability 12 months from termination date
Qualified Retirement 36 months from termination date
All other terminations 3 months from termination date
For the purpose of this Agreement, a Qualified Retirement is a voluntary termination of service by an employee or consultant who, on the effective date of the termination, is at least 60 years of age and has worked for the Company or one of its Subsidiaries for the preceding five (5) years.
The date that your continuous service as an employee or consultant terminates for purposes of the Plan shall be determined by the Committee, in its exclusive discretion, which determination shall be final.
5.Rights as a Shareholder. You shall have no rights as a shareholder with respect to any Shares covered by this Agreement until the date on which a stock certificate (or other evidence of ownership) is issued or you acquire such Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date of issuance.
6.Nontransferability of the Agreement. You shall have no right to assign or transfer rights under this Agreement except by will or the laws of descent and distribution. During your lifetime, this Option may be exercised only by you or, in the event of incompetence, by your legally appointed guardian.
7.Reservation of Company Rights. The existence of this Agreement shall not affect in any way the right or power of the Company or its shareholders to authorize any adjustments, recapitalizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any corporate act or proceeding, whether of similar nature or character.
8.Limitations on Exercisability. In accordance with the terms of the Plan, the Company may limit or suspend the exercisability of this Option or the purchase or issuance of Shares thereunder. Any delay caused thereby shall in no way affect the termination of the Agreement.
9.Amendment or Termination of Plan. The Board of Directors may at any time amend, suspend or terminate the Plan; provided, however, that no amendment, suspension or termination of the Plan or the Agreement shall adversely affect the Agreement in any material way without your written consent.
10.No Effect on Employment Status. Nothing contained in this Agreement shall be construed to alter the at will nature of your employment, or to limit or restrict the right of the Company or any subsidiary to or to increase or decrease your compensation from the rate of compensation in existence at the time this Agreement is executed.
11.Notices. Notices hereunder shall be in writing. Notice to the Company may be delivered personally to the Company’s Human Resources Department or such other party as designated by the Company or mailed to its headquarters office. Notice to you may be delivered personally or mailed to you at the address on record with the Company.
12.Governing Law. This Agreement is governed by, and subject to, the laws of the State of Oregon, as provided in the Plan. For purposes of litigating any dispute that arises under this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Oregon, and agree that such litigation shall be conducted in the appropriate state or federal courts of Oregon.
13.Electronic Delivery and Participation. The Company may, in its sole discretion, deliver any documents related to the Option referenced in this Agreement or to participation in the Plan or to future options that may be granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
14.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
15.Insider Trading Restrictions. Grantee acknowledges that Grantee may be subject to insider trading restrictions, which may affect his or her ability to acquire or dispose of Shares or rights to Shares (e.g., restricted stock units) acquired under the Plan during such times as Grantee is considered to have “inside information” regarding the Company. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Grantee is responsible for ensuring compliance with any applicable restrictions and is advised to consult his or her personal legal advisor on this matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the Grant Date stated above.
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FLIR SYSTEMS, INC. | GRANTEE |
|
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Andrew C. Teich | Name |
President and Chief Executive Officer | Signed Electronically |
Exhibit 10.4
STOCK OPTION AGREEMENT
For Outside Director Optionees
Granted to: participant name
Grant Date: grant date
Expiration Date: expiration date
Number of Shares: shares
Option Price per Share: grant price
This Stock Option Agreement (the “Agreement”) is made between FLIR Systems, Inc., an Oregon corporation (“the Company”) and you, an Outside Director of the Company (the “Optionee”).
The Company sponsors the FLIR Systems, Inc. 2011 Stock Incentive Plan (the “Plan”). The Plan governs the terms of the option referenced in this Agreement and controls in the event of any ambiguity between the Plan and this Agreement. A copy of the Plan as amended can be found on the Company intranet or may be obtained by contacting the Company’s Human Resources Department. The terms and provisions of the Plan are incorporated herein by reference. By signing this Agreement, you acknowledge that you have obtained and reviewed a copy of the Plan. When used herein, the capitalized terms that are defined in the Plan shall have the meanings given to them in the Plan, including the term “Committee,” which means the Compensation Committee of the Company’s Board of Directors.
Your failure to execute this Agreement within 180 days of the Grant Date may result in its cancellation.
In recognition of the value of your contribution to the Company, you and the Company mutually covenant and agree as follows:
1. Grant of Option. Subject to the terms and conditions of the Plan and this Agreement, the Company grants to you the option to purchase from the Company (the “Option”) the above-stated number of shares of the Company’s common stock (the “Shares”) at the Option Price per Share stated above (the “Option Price”). This Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
2.Vesting of Shares. The Shares subject to this Agreement will be immediately vested and exercisable on the Grant Date. Once the Shares vest, you may exercise the Option by purchasing some or all of the vested Shares. When you exercise the Option and pay the Option Price, the Company shall issue and deliver a stock certificate (or other evidence of ownership) for a corresponding number of Shares to you.
3.Method of Exercise. The manner of exercising this Option to purchase vested Shares and the method for paying the applicable Option Price shall be as set forth in Section 2.1(c) of the Plan and as allowed by the Committee. Shares issued upon exercise of the Option shall be issued
solely in your name. The right to purchase Shares pursuant to this Agreement shall be cumulative so that when the right to purchase an additional installment of Shares has vested pursuant to the above-stated vesting schedule, such Shares or any part thereof may be purchased thereafter until the expiration of the Option. Due to administrative restrictions, paying the Option Price with Shares of the Company’s common stock that you already own or by requesting the Company to withhold shares otherwise issuable upon your exercise of the Option is not an available method of exercise.
4.Termination of Service. Upon termination of your service as an Outside Director of the Company, the vested portion of this Option shall expire on the earlier of the Expiration Date as stated above or 36 months from your termination date. The date that your continuous service as an Outside Director terminates for purposes of the Plan shall be determined by the Committee, in its exclusive discretion, which determination shall be final.
5.Rights as a Shareholder. You shall have no rights as a shareholder with respect to any Shares covered by this Agreement until the date on which a stock certificate (or other evidence of ownership) is issued or you acquire such Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date of issuance.
6.Nontransferability of the Agreement. You shall have no right to assign or transfer rights under this Agreement except by will or the laws of descent and distribution. During your lifetime, this Option may be exercised only by you or, in the event of incompetence, by your legally appointed guardian.
7.Reservation of Company Rights. The existence of this Agreement shall not affect in any way the right or power of the Company or its shareholders to authorize any adjustments, recapitalizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any corporate act or proceeding, whether of similar nature or character.
8.Limitations on Exercisability. In accordance with the terms of the Plan, the Company may limit or suspend the exercisability of this Option or the purchase or issuance of Shares thereunder. Any delay caused thereby shall in no way affect the termination of the Agreement.
9.Amendment or Termination of Plan. The Board of Directors may at any time amend, suspend or terminate the Plan; provided, however, that no amendment, suspension or termination of the Plan or the Agreement shall adversely affect the Agreement in any material way without your written consent.
10.Notices. Notices hereunder shall be in writing. Notice to the Company may be delivered personally to the Company’s Human Resources Department or such other party as designated by the Company or mailed to its headquarters office. Notice to you may be delivered personally or mailed to you at the address on record with the Company.
11.Governing Law. This Agreement is governed by, and subject to, the laws of the State of Oregon, as provided in the Plan. For purposes of litigating any dispute that arises under this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Oregon, and agree that such litigation shall be conducted in the appropriate state or federal courts of Oregon.
13.Electronic Delivery and Participation. The Company may, in its sole discretion, deliver any documents related to the Option referenced in this Agreement or to participation in the Plan or to future options that may be granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
14.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
15.Insider Trading Restrictions. Grantee acknowledges that Grantee may be subject to insider trading restrictions, which may affect his or her ability to acquire or dispose of Shares or rights to Shares (e.g., restricted stock units) acquired under the Plan during such times as Grantee is considered to have “inside information” regarding the Company. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Grantee is responsible for ensuring compliance with any applicable restrictions and is advised to consult his or her personal legal advisor on this matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the Grant Date stated above.
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FLIR SYSTEMS, INC. | GRANTEE |
|
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Andrew C. Teich | Name |
President and Chief Executive Officer | Signed Electronically |
Exhibit 31.1
I, Andrew C. Teich, certify that:
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| | |
1. | I have reviewed this quarterly report on Form 10-Q of FLIR Systems, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date August 5, 2015 | | /s/ ANDREW C. TEICH |
| | Andrew C. Teich |
| | President and Chief Executive Officer |
Exhibit 31.2
I, David A. Muessle, certify that:
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1. | I have reviewed this quarterly report on Form 10-Q of FLIR Systems, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date August 5, 2015 | | /s/ David A. Muessle |
| | David A. Muessle |
| | Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FLIR Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew C. Teich, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date August 5, 2015 | | /s/ ANDREW C. TEICH |
| | Andrew C. Teich |
| | President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FLIR Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Muessle, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date August 5, 2015 | | /s/ David A. Muessle |
| | David A. Muessle |
| | Interim Chief Financial Officer |
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