FLIR Systems, Inc.
FLIR SYSTEMS INC (Form: 10-Q, Received: 08/10/2009 12:10:39)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2009

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from             to             

Commission file number 0-21918

 

 

FLIR Systems, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Oregon   93-0708501

(State or other jurisdiction of

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)

 

Large accelerated filer   x    Accelerated file   ¨    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, 2009, there were 151,481,169 shares of the Registrant’s common stock, $0.01 par value, outstanding.

 

 

 


Table of Contents

INDEX

PART I. FINANCIAL INFORMATION

 

Item 1.

   Financial Statements   
   Consolidated Statements of Income – Three Months and Six Months Ended June 30, 2009 and 2008 (unaudited)    1
   Consolidated Balance Sheets – June 30, 2009 and December 31, 2008 (unaudited)    2
   Consolidated Statements of Cash Flows – Six Months Ended June 30, 2009 and 2008 (unaudited)    3
   Notes to the Consolidated Financial Statements (unaudited)    4

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    15

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    20

Item 4.

   Controls and Procedures    20
PART II. OTHER INFORMATION

Item 1.

   Legal Proceedings    21

Item 1A.

   Risk Factors    21

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    21

Item 3.

   Defaults Upon Senior Securities    21

Item 4.

   Submission of Matters to a Vote of Shareholders    21

Item 5.

   Other Information    22

Item 6.

   Exhibits    23
   Signature    24


Table of Contents

PART 1. FINANCIAL INFORMATION

 

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,
 
     2009    2008     2009    2008  
          (As Adjusted)          (As Adjusted)  

Revenue

   $ 277,978    $ 260,978      $ 549,974    $ 497,884   

Cost of goods sold

     116,030      114,364        230,311      220,475   
                              

Gross profit

     161,948      146,614        319,663      277,409   

Operating expenses:

          

Research and development

     23,232      23,547        45,641      46,657   

Selling, general and administrative

     54,055      58,394        105,995      110,973   
                              

Total operating expenses

     77,287      81,941        151,636      157,630   

Earnings from operations

     84,661      64,673        168,027      119,779   

Interest expense

     1,727      3,634        4,505      7,427   

Other expense (income), net

     1,092      (3,637     68      (3,655
                              

Earnings before income taxes

     81,842      64,676        163,454      116,007   

Income tax provision

     26,189      20,059        53,529      34,870   
                              

Net earnings

   $ 55,653    $ 44,617      $ 109,925    $ 81,137   
                              

Net earnings per share:

          

Basic

   $ 0.37    $ 0.32      $ 0.75    $ 0.59   
                              

Diluted

   $ 0.35    $ 0.29      $ 0.70    $ 0.52   
                              

Weighted average shares outstanding:

          

Basic

     149,948      138,054        146,901      137,523   
                              

Diluted

     161,354      162,344        162,041      161,899   
                              

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

FLIR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

     June 30,
2009
    December 31,
2008
 
           (As Adjusted)  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 346,402      $ 289,442   

Accounts receivable, net

     214,594        239,183   

Inventories

     219,682        207,487   

Prepaid expenses and other current assets

     66,284        59,824   

Deferred income taxes, net

     16,652        16,566   
                

Total current assets

     863,614        812,502   

Property and equipment, net

     137,984        122,304   

Deferred income taxes, net

     5,277        2,217   

Goodwill

     226,940        225,685   

Intangible assets, net

     50,838        56,174   

Other assets

     36,187        22,195   
                
   $ 1,320,840      $ 1,241,077   
                
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 59,136      $ 47,823   

Deferred revenue

     23,951        27,554   

Accrued payroll and related liabilities

     30,852        43,337   

Accrued product warranties

     8,095        7,826   

Advance payments from customers

     12,304        19,183   

Accrued expenses

     20,840        21,978   

Other current liabilities

     1,607        4,553   

Current portion of long-term debt

     21        21   
                

Total current liabilities

     156,806        172,275   

Long-term debt

     88,886        182,825   

Deferred tax liability, net

     4,966        5,983   

Accrued income taxes

     6,183        5,697   

Pension and other long-term liabilities

     34,879        29,572   

Commitments and contingencies

    

Shareholders’ equity:

    

Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at June 30, 2009, and December 31, 2008

     —          —     

Common stock, $0.01 par value, 500,000 shares authorized, 149,649 and 141,387 shares issued at June 30, 2009, and December 31, 2008, respectively, and additional paid-in capital

     350,179        282,849   

Retained earnings

     687,015        577,090   

Accumulated other comprehensive loss

     (8,074     (15,214
                

Total shareholders’ equity

     1,029,120        844,725   
                
   $ 1,320,840      $ 1,241,077   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2009     2008  
           (As Adjusted)  

Cash flows from operating activities:

    

Net earnings

   $ 109,925      $ 81,137   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     20,223        21,424   

Disposal and write-offs of property and equipment

     283        1   

Deferred income taxes

     (2,501     (1,080

Stock-based compensation plans

     11,517        9,790   

Cash inducement on exchange offer for convertible notes

     1,997        —     

Other non-cash items

     (1,536     —     

Changes in operating assets and liabilities (net of acquisitions):

    

Decrease (increase) in accounts receivable

     26,839        (14,814

Increase in inventories

     (10,166     (25,266

Increase in prepaid expenses and other current assets

     (5,607     (25,690

Increase in other assets

     (2,673     (573

Increase in accounts payable

     10,855        9,167   

(Decrease) increase in deferred revenue

     (3,683     4,065   

(Decrease) increase in accrued payroll and other liabilities

     (29,495     2,948   

Increase in accrued income taxes

     742        305   

Increase in pension and other long-term liabilities

     5,341        1,997   
                

Cash provided by operating activities

     132,061        63,411   
                

Cash flows from investing activities:

    

Additions to property and equipment

     (29,723     (16,124

Proceeds from sale of property and equipment

     2,884        —     

Business acquisitions, net of cash acquired

     (13,148     (79,192

Other investments

     (1,000     (7,319
                

Cash used by investing activities

     (40,987     (102,635
                

Cash flows from financing activities:

    

Repayments on credit agreement

     —          (19,000

Repayment of capital leases and other long-term debt

     (16     (1,223

Cash inducement on exchange offer for convertible notes

     (1,997     —     

Repurchase of common stock

     (49,205     (17,796

Proceeds from shares issued pursuant to stock-based compensation plans

     8,965        26,909   

Excess tax benefit from stock-based compensation plans

     4,395        15,080   

Capital contribution

     165        —     
                

Cash (used) provided by financing activities

     (37,693     3,970   
                

Effect of exchange rate changes on cash

     3,579        8,575   
                

Net increase (decrease) in cash and cash equivalents

     56,960        (26,679

Cash and cash equivalents, beginning of period

     289,442        203,681   
                

Cash and cash equivalents, end of period

   $ 346,402      $ 177,002   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the 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 year ended December 31, 2008.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the year ending December 31, 2009.

The Company has performed a review for subsequent events through the date of the filing of these financial statements with the Securities and Exchange Commission on August 10, 2009.

Note 2. Accounting for Convertible Debt

On January 1, 2009, the Company adopted the provisions of the Financial Accounting Standards Board Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires that issuers of convertible debt instruments that may be settled in cash should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 was effective for financial statements issued for fiscal years beginning after December 15, 2008 with retrospective application required.

In June 2003, the Company issued $210 million of 3.0 percent senior convertible notes due in 2023. The net proceeds from the issuance were approximately $203.9 million. The Company has determined that the expected life of the notes should be seven years since the notes are first redeemable in June 2010. The Company estimates that its nonconvertible borrowing rate for debt with a seven year maturity issued in June 2003 was 6.0 percent. Accordingly, the value of the liability component of the notes at the time of issuance was $174.4 million and value of the equity component was $35.6 million.

The Company has retrospectively applied the provisions of FSP ABP 14-1 to its financial statements beginning in 2003. The retrospective application includes the separation of the liability and equity components of the convertible notes, the reallocation of the $6.1 million of issuance costs between the liability and equity components, an increase in interest expense for periods subsequent to issuance to reflect the estimated nonconvertible borrowing rate, and the related tax effects.

FSP APB 14-1 also requires that when debt is extinguished, a gain or loss is recognized for the difference between the fair value of the liability component and its carrying value. The Company’s retrospective application, therefore, also includes the impact of conversions of notes with an aggregate principal amount of $18.6 million prior to January 1, 2009.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Accounting for Convertible Debt – (Continued)

The carrying amounts of the convertible notes are as follows (in thousands):

 

     June 30,
2009
    December 31,
2008
 

Liability component:

    

Principal amount

   $ 91,549      $ 191,419   

Unamortized discount

     (2,411     (7,682

Unamortized issuance costs

     (291     (942
                
   $ 88,847      $ 182,795   
                

Equity component

   $ (82,375   $ 222   
                

The unamortized discount and issuance costs will be amortized through June 2010. As of June 30, 2009, 8.3 million shares of the Company’s common stock were issuable upon conversion of the remaining notes, valued at $186.1 million as of the closing market price on that day. The $186.1 million is in excess of the principal amount by $94.6 million.

Interest and amortization expense of the convertible notes recognized in the Consolidated Statements of Income are as follows (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Cash interest (3% coupon)

   $ 687      $ 1,575      $ 1,948      $ 3,150   

Amortization of discount

     635        1,373        1,720        2,731   

Amortization of issuance costs

     79        182        217        365   
                                
   $ 1,401      $ 3,130      $ 3,885      $ 6,246   
                                

Effective interest rate

     6     6     6     6
                                

The following table presents the effect of the retrospective application of FSP APB 14-1 and related tax effects made to the Company’s previously reported Consolidated Statement of Income for the three month and six month period ended June 30, 2008 (in thousands):

 

     Three Months Ended
June 30, 2008
    Six Months Ended
June 30, 2008
 
     As Reported     As Adjusted     As Reported     As Adjusted  

Earnings from operations

   $ 64,673      $ 64,673      $ 119,779      $ 119,779   

Interest expense

     2,299        3,634        4,770        7,427   

Other income, net

     (3,637     (3,637     (3,655     (3,655
                                

Earnings before income taxes

     66,011        64,676        118,664        116,007   

Income tax provision

     20,568        20,059        35,887        34,870   
                                

Net earnings

   $ 45,443      $ 44,617      $ 82,777      $ 81,137   
                                

Net earnings per share:

        

Basic

   $ 0.33      $ 0.32      $ 0.60      $ 0.59   
                                

Diluted

   $ 0.29      $ 0.29      $ 0.52      $ 0.52   
                                

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Accounting for Convertible Debt – (Continued)

The following table presents the effect of the retrospective application of FSP APB 14-1 and related tax effects made to the Company’s previously reported Consolidated Balance Sheet as of December 31, 2008 (in thousands):

 

     December 31, 2008
     As Reported    As Adjusted

Deferred income taxes, net

   $ 5,047    $ 2,217

Total assets

     1,243,907      1,241,077

Long-term debt

     190,318      182,825

Common stock and additional paid-in capital

     262,509      282,849

Retained earnings

     592,766      577,090

Total shareholders’ equity

     840,062      844,725

Total liabilities and shareholders’ equity

     1,243,907      1,241,077

The following table presents the effect of the retrospective application of FSP APB 14-1 and related tax effects made to the Company’s previously reported Consolidated Statement of Cash Flows for the six months ended June 30, 2008 (in thousands):

 

     Six Months Ended
June 30, 2008
 
     As Reported     As Adjusted  

Net earnings

   $ 82,777      $ 81,137   

Depreciation and amortization

     18,767        21,424   

Deferred taxes

     (63     (1,080

Cash provided by operating activities

     63,411        63,411   

Note 3. Stock-based Compensation

Stock-based compensation expense and related tax benefit recognized in the Consolidated Statements of Income are as follows (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Cost of goods sold

   $ 822      $ 652      $ 1,602      $ 1,243   

Research and development

     1,172        1,204        2,342        2,206   

Selling, general and administrative

     4,344        3,829        7,573        6,341   
                                

Stock-based compensation expense before income taxes

     6,338        5,685        11,517        9,790   

Income tax benefit

     (1,946     (1,400     (3,421     (2,455
                                

Total stock-based compensation expense after income taxes

   $ 4,392      $ 4,285      $ 8,096      $ 7,335   
                                

Stock-based compensation costs capitalized in inventory are as follows (in thousands):

 

     June 30,
     2009    2008

Stock-based compensation costs capitalized in inventory

   $ 806    $ 705
             

As of June 30, 2009, the Company had $44.2 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of 2.2 years.

 

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Table of Contents

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Stock-based Compensation – (Continued)

The fair value of the stock-based awards, as determined under the Black-Scholes model, granted in the three months and six months ended June 30, 2009 and 2008 was estimated with the following weighted-average assumptions:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Stock Option Awards:

        

Risk-free interest rate

     1.5     2.8     1.5     2.8

Expected dividend yield

     0.0     0.0     0.0     0.0

Expected term

     4.3 years        4.1 years        4.3 years        4.1 years   

Expected volatility

     46.9     40.8     46.9     40.8

Employee Stock Purchase Plan:

        

Risk-free interest rate

     0.3     1.7     0.3     1.7

Expected dividend yield

     0.0     0.0     0.0     0.0

Expected term

     6 months        6 months        6 months        6 months   

Expected volatility

     60.9     50.1     60.9     50.1
The fair value of stock-based compensation awards granted and vested, and the intrinsic value of options exercised during the period were (in thousands, except per share amounts):    
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Stock Option Awards:

        

Weighted average grant date fair value per share

   $ 10.01      $ 12.25      $ 10.01      $ 12.25   

Total fair value of awards granted

   $ 10,395      $ 7,175      $ 10,395      $ 7,175   

Total fair value of awards vested

   $ 1,249      $ 854      $ 6,709      $ 8,066   

Total intrinsic value of options exercised

   $ 3,136      $ 49,212      $ 11,171      $ 64,669   

Restricted Stock Unit Awards:

        

Weighted average grant date fair value per share

   $ 25.64      $ 34.31      $ 25.60      $ 34.29   

Total fair value of awards granted

   $ 15,678      $ 18,473      $ 15,975      $ 18,898   

Total fair value of awards vested

   $ 11,944      $ 7,594      $ 16,810      $ 15,007   

Employee Stock Purchase Plan:

        

Weighted average grant date fair value per share

   $ 8.37      $ 10.32      $ 8.37      $ 10.32   

Total fair value of shares estimated to be issued

   $ 1,073      $ 1,039      $ 1,073      $ 1,039   

The total amount of cash received from the exercise of stock options in the three months ended June 30, 2009 and 2008 was $2.0 million and $18.7 million, respectively, and the related tax benefit realized from the exercise of the stock options was $1.3 million and $14.0 million, respectively. The total amount of cash received from the exercise of stock options in the six months ended June 30, 2009 and 2008 was $6.4 million and $24.3 million, respectively, and the related tax benefit realized from the exercise of the stock options was $4.3 million and $17.8 million, respectively.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Stock-based Compensation – (Continued)

Information with respect to stock option activity is as follows:

 

     Shares
(in thousands)
    Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value

(in thousands)

Outstanding at December 31, 2008

   9,218      $ 13.34    5.7   

Granted

   1,039        25.64      

Exercised

   (654     9.83      

Forfeited

   (4     11.02      
                  

Outstanding at June 30, 2009

   9,599      $ 14.92    5.8    $ 83,459
                        

Exercisable at June 30, 2009

   8,033      $ 12.64    5.2    $ 82,786
                        

Vested and expected to vest at June 30, 2009

   9,520      $ 14.82    5.8    $ 83,425
                        

Information with respect to restricted stock unit activity is as follows:

 

     Shares
(in thousands)
    Weighted
Average
Grant Date
Fair Value

Outstanding at December 31, 2008

   1,356      $ 23.98

Granted

   624      $ 25.60

Vested

   (744   $ 19.37

Forfeited

   (11   $ 24.97
            

Outstanding at June 30, 2009

   1,225      $ 27.60
            

There were approximately 135,000 shares issued under the 1999 Employee Stock Purchase Plan (the “1999 ESPP”) during the six months ended June 30, 2009. The 1999 ESPP expired for new offerings in January 2009. On May 1, 2009, the Company’s shareholders approved the FLIR Systems, Inc. 2009 Employee Stock Purchase Plan (the “2009 ESPP”). The first offering period under the 2009 ESPP commenced on May 4, 2009. The Company has reserved 5,000,000 shares of common stock for issuance under the 2009 ESPP.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 4. 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,
     2009    2008    2009    2008
          (As Adjusted)         (As Adjusted)

Numerator for earnings per share:

           

Net earnings, as reported

   $ 55,653    $ 44,617    $ 109,925    $ 81,137

Interest associated with convertible notes, net of tax

     786      1,930      2,795      3,852
                           

Net earnings available to common shareholders – diluted

   $ 56,439    $ 46,547    $ 112,720    $ 84,989
                           

Denominator for earnings per share:

           

Weighted average number of common shares outstanding

     149,948      138,054      146,901      137,523

Assumed exercises of stock options and vesting of restricted shares, net of shares assumed reacquired under the treasury stock method

     3,155      5,365      3,409      5,451

Assumed conversion of convertible notes

     8,251      18,925      11,731      18,925
                           

Diluted shares outstanding

     161,354      162,344      162,041      161,899
                           

The effect of stock options and restricted stock units for the three and six months ended June 30, 2009 that aggregated 704,000 shares and 834,000 shares, respectively, has been excluded for purposes of calculating diluted earnings per share since the effect would have been anti-dilutive. For the three and six months ended June 30, 2008, no shares of stock underlying outstanding stock options or restricted stock units were excluded from the calculations of diluted earnings per share.

Note 5. Fair Value of Financial Instruments

As of June 30, 2009, the Company had $236.3 million of cash equivalents. The Company has categorized its cash and cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets, in accordance with Statement of Financial Accounting Standards No. 157 “Fair Value Measurements.” The Company does not have any other financial assets or liabilities that are measured at fair value.

Note 6. Accounts Receivable

Accounts receivable are net of an allowance for doubtful accounts of $2.4 million and $1.3 million at June 30, 2009 and December 31, 2008, respectively.

Note 7. Inventories

Inventories consist of the following (in thousands):

 

     June 30,    December 31,
     2009    2008

Raw material and subassemblies

   $ 129,007    $ 129,108

Work-in-progress

     43,404      40,325

Finished goods

     47,271      38,054
             
   $ 219,682    $ 207,487
             

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 8. Property and Equipment

Property and equipment are net of accumulated depreciation of $98.9 million and $86.5 million at June 30, 2009 and December 31, 2008, respectively.

Note 9. Goodwill

The carrying value of goodwill by reporting segment and the activity for the six months ended June 30, 2009 is as follows (in thousands):

 

     Government
Systems
   Thermography     Commercial
Vision
Systems
    Total  

Balance, December 31, 2008

   $ 12,802    $ 102,313      $ 110,570      $ 225,685   

Business acquisitions

     —        1,323        —          1,323   

Other

     —        (516     (2     (518

Currency translation adjustments

     11      452        (13     450   
                               

Balance, June 30, 2009

   $ 12,813      103,572        110,555        226,940   
                               

Note 10. Intangible Assets

Intangible assets are net of accumulated amortization of $46.0 million and $43.5 million at June 30, 2009 and December 31, 2008, respectively.

Note 11. Accrued Product Warranties

The following table summarizes the Company’s warranty liability and activity (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Accrued product warranties, beginning of period

   $ 7,925      $ 7,807      $ 7,826      $ 6,594   

Amounts paid for warranty services

     (1,418     (2,470     (4,552     (3,999

Warranty provisions for products sold

     1,437        2,624        4,670        5,366   

Other

     151        —          151        —     
                                

Accrued product warranties, end of period

   $ 8,095      $ 7,961      $ 8,095      $ 7,961   
                                

Note 12. Credit Agreements

At June 30, 2009, the Company had no borrowings outstanding under its Credit Agreement, dated October 6, 2006, with Bank of America, N.A., Union Bank of California, N.A., U.S. Bank National Association and other Lenders, and $12.5 million of letters of credit outstanding, which reduces the total available credit.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 13. Long-Term Debt

Long-term debt consists of the following (in thousands):

 

     June 30,
2009
    December 31,
2008
 
           (As Adjusted)  

Convertible notes

   $ 91,549      $ 191,419   

Issuance cost and discount of the convertible notes

     (2,702     (8,624

Other long-term debt

     39        30   
                
   $ 88,886      $ 182,825   
                

On February 5, 2009, the Company commenced an exchange offer for any and all of its outstanding convertible notes. Holders who elected to exchange their notes in this offer and whose notes were accepted for exchange by the Company received 90.1224 shares of the Company’s common stock and a cash payment of $20 per $1,000 principal amount of notes. The offer expired on March 9, 2009. Notes with an aggregate principal amount of $99.9 million were exchanged pursuant to the exchange offer and were converted into 9.0 million shares of the Company’s common stock. The Company recognized a gain of $2.2 million from the extinguishment of the notes; the gain and the $2.0 million expense associated with the cash inducement are reported in other expense (income), net.

Note 14. Shareholders’ Equity

The following table summarizes the common stock and additional paid-in capital activity during the six months ended June 30, 2009 (in thousands):

 

Common stock and additional paid-in capital, December 31, 2008 (As adjusted)

   $ 282,849   

Income tax benefit of common stock options exercised

     4,254   

Common stock issued pursuant to stock-based compensation plans, net

     4,322   

Stock-based compensation expense

     11,359   

Repurchase of common stock

     (49,205

Conversion of convertible debt

     96,435   

Capital contribution

     165   
        

Common stock and additional paid in capital, June 30, 2009

   $ 350,179   
        

During the six months ended June 30, 2009, the Company repurchased 2,111,700 shares of the Company’s common stock under the February 2009 repurchase authorization by the Company’s Board of Directors pursuant to which the Company is authorized to repurchase up to 20.0 million shares of the Company’s outstanding common stock through open market purchases, privately negotiated transactions including accelerated stock repurchase agreements, or in such other manner as will comply with the provisions of the Securities Exchange Act of 1934. The February 2009 repurchase authorization will expire in February 2011.

Note 15. Comprehensive Earnings

The following table sets forth the calculation of comprehensive earnings for the periods indicated (in thousands):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2009    2008    2009    2008
          (As Adjusted)         (As Adjusted)

Net earnings

   $ 55,653    $ 44,617    $ 109,925    $ 81,137

Translation adjustment

     27,997      1,249      7,140      26,210
                           

Total comprehensive earnings

   $ 83,650    $ 45,866    $ 117,065    $ 107,347
                           

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 16. Contingencies

In June 2007, the Company was named as a nominal defendant in a shareholder derivative action filed in the United States District Court for the District of Oregon: Kathleen Edith Sommers v. Earl R. Lewis, et al. The Sommers complaint alleged that certain stock options granted by the Company were improperly dated, purported to assert claims under various common law theories and under the federal securities laws and alleged the Company is entitled to damages from various individual defendants on a variety of legal theories. On June 16, 2008, the court dismissed the complaint, but granted plaintiff leave to amend. On July 31, 2008, plaintiff filed an amended complaint asserting materially the same claims. Defendants moved to dismiss the amended complaint on multiple bases. On February 12, 2009, the court granted defendants’ motion to dismiss and on February 19, 2009, entered a judgment dismissing the amended complaint with prejudice. This ruling is under review on appeal.

The Company and its subsidiary, Indigo Systems Corporation, (together, the “FLIR Parties”) were named in a lawsuit filed by Raytheon Company on March 2, 2007 in the United States District Court for the Eastern District of Texas. On August 11, 2008, Raytheon Company was granted leave to file a second amended complaint. The complaint, as amended, asserts 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 second amended complaint and counterclaims on September 2, 2008, in which they denied all material allegations. The Company intends to vigorously defend itself in this matter and is unable to estimate the amount or range of potential loss, if any, which might result if the outcome in this matter is unfavorable.

Note 17. Income Taxes

As of June 30, 2009, the Company had approximately $4.2 million of net unrecognized tax benefits of which all $4.2 million would affect the Company’s effective tax rate if recognized.

The Company classifies interest and penalties related to uncertain tax positions as income tax expense. As of June 30, 2009, the Company had approximately $0.4 million of accrued interest related to uncertain tax positions.

The Company currently has the following tax years open to examination by major taxing jurisdictions:

 

     Tax Years:

US Federal

   1998 – 2008

State of Oregon

   1998 – 2008

State of Massachusetts

   2004 – 2008

State of California

   2003 – 2008

Sweden

   2002 – 2008

United Kingdom

   2005 – 2008

Germany

   2002 – 2008

France

   2005 – 2008

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 18. Operating Segments and Related Information

Operating Segments

Operating segment information is as follows (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Revenue – External Customers:

        

Government Systems

   $ 160,359      $ 131,565      $ 322,566      $ 245,261   

Thermography

     66,777        80,602        130,708        160,138   

Commercial Vision Systems

     50,842        48,811        96,700        92,485   
                                
   $ 277,978      $ 260,978      $ 549,974      $ 497,884   
                                

Revenue – Intersegments:

        

Government Systems

   $ 4,729      $ 3,982      $ 11,168      $ 20,502   

Thermography

     3,061        608        5,357        3,680   

Commercial Vision Systems

     4,299        4,299        9,884        11,188   

Eliminations

     (12,089     (8,889     (26,409     (35,370
                                
   $ —        $ —        $ —        $ —     
                                

Earnings from operations:

        

Government Systems

   $ 72,412      $ 53,030      $ 145,796      $ 95,589   

Thermography

     15,374        15,246        31,324        31,098   

Commercial Vision Systems

     13,273        9,566        24,571        19,380   

Other

     (16,398     (13,169     (33,664     (26,288
                                
   $ 84,661      $ 64,673      $ 168,027      $ 119,779   
                                

 

     June 30,
2009
   December 31,
2008

Segment assets (accounts receivable, net and inventories):

     

Government Systems

   $ 267,156    $ 273,821

Thermography

     100,038      112,728

Commercial Vision Systems

     67,082      60,121
             
   $ 434,276    $ 446,670
             

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,
     2009    2008    2009    2008

United States

   $ 163,759    $ 155,310    $ 335,273    $ 304,903

Europe

     47,771      69,665      107,726      120,774

Other foreign

     66,448      36,003      106,975      72,207
                           
   $ 277,978    $ 260,978    $ 549,974    $ 497,884
                           

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 18. Operating Segments and Related Information – (Continued)

Long-lived assets by significant geographic locations are as follows (in thousands):

 

     June 30,
2009
   December 31,
2008

United States

   $ 335,665    $ 318,183

Europe

     112,064      105,813

Other foreign

     4,220      2,362
             
   $ 451,949    $ 426,358
             

Major Customers

Revenue derived from major customers is as follows (in thousands):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2009    2008    2009    2008

US Government

   $ 115,273    $ 102,107    $ 238,714    $ 190,363
                           

Note 19. Business Acquisitions

In April 2009, the Company acquired certain assets from Infrared Korea, Ltd. (“Korea”), a distributor of infrared camera systems, for $2.0 million in cash. The portion of the $2.0 million purchase price in excess of the assets acquired is reported in intangible assets and goodwill of $0.6 million and $1.3 million, respectively.

In June 2009, the Company acquired the outstanding stock of Salvador Imaging, Inc. (“Salvador”), a leading provider of high-performance visible and low light imaging systems, for approximately $13.1 million in cash. Allocation of the purchase price to goodwill and identifiable intangible assets is subject to the final determination of the purchase price and the valuation of the assets acquired and liabilities assumed. The excess purchase price of approximately $11.3 million has been reported in Other Assets as of June 30, 2009.

The operations of Korea and Salvador are not material to the Company’s consolidated financial statements.

Note 20. Subsequent Event

On July 2, 2009, senior convertible notes with an aggregate principal amount of $30.1 million were converted into 2.7 million shares of the Company’s common stock.

 

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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” in Part II, Item 1A, “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

Revenue. Revenue for the three months ended June 30, 2009 increased by 6.5 percent, from $261.0 million in the second quarter of 2008 to $278.0 million in the second quarter of 2009. Revenue for the six months ended June 30, 2009 increased 10.5 percent, from $497.9 million in the first six months of 2008 to $550.0 million in the first six months of 2009. The world-wide revenues for both the three and six month periods were impacted by currency translation as the US dollar was stronger in 2009 compared to the same periods of 2008. The effects of exchange rates decreased our consolidated revenue for the second quarter and first six months of 2009 by 5.3 percent and 6.6 percent, respectively, over the same periods of 2008.

Government Systems revenue increased $28.8 million, or 21.9 percent, from $131.6 million in the second quarter of 2008 to $160.4 million in the second quarter of 2009. Government Systems revenue for the six months ended June 30, 2009 increased $77.3 million, or 31.5 percent, from $245.3 million in the first six months of 2008 to $322.6 million in the first six months of 2009. The increase in Government Systems revenue in the second quarter and the first six months of 2009 compared to the same periods in 2008 was primarily due to an increase in unit sales of our large-gimbaled systems.

Thermography revenue decreased $13.8 million, or 17.2 percent, from $80.6 million in the second quarter of 2008 to $66.8 million in the second quarter of 2009. Thermography revenue for the six months ended June 30, 2009 decreased $29.4 million, or 18.4 percent, from $160.1 million in the first six months of 2008 to $130.7 million in the first six months of 2009. The decrease in Thermography revenue in both the three and six month periods was primarily due to currency translation and lower demand for high-value products for the predictive maintenance market. The effects of exchange rates decreased Thermography revenue for the second quarter and first six months of 2009 by 8.5 percent and 9.1 percent, respectively, over the same periods of 2008.

Commercial Vision Systems revenue increased $2.0 million, or 4.2 percent, from $48.8 million in the second quarter of 2008 to $50.8 million in the second quarter of 2009. Commercial Vision Systems revenue for the six months ended June 30, 2009 increased $4.2 million, or 4.6 percent, from $92.5 million in the first six months of 2008 to $96.7 million in the first six months of 2009. The increase in Commercial Vision Systems revenue in the second quarter and first six months of 2009 compared to the same periods in 2008 was due to increased unit sales in our cores and components product lines. The effects of exchange rates decreased Commercial Vision Systems revenue for the second quarter and first six months of 2009 by 2.9 percent and 4.0 percent, respectively, over the same periods of 2008.

 

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Table of Contents

The timing of deliveries against large contracts, especially for our Government Systems and Commercial Vision Systems products, 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 an overall increase in total annual revenue for 2009 of between 2 percent and 7 percent, the mix of revenue between our three business segments and within certain product categories in our business segments will vary from quarter to quarter.

As a percentage of revenue, international sales were 41.1 percent and 40.5 percent for the quarters ended June 30, 2009 and 2008, respectively, and 39.0 percent and 38.8 percent for the six months ended June 30, 2009 and 2008, respectively. While the percentage of revenue from international sales will continue to fluctuate from quarter to quarter partially due to the timing of shipments under international and domestic government contracts, management anticipates that revenue from international sales as a percentage of total revenue will continue to comprise a significant percentage of revenue.

At June 30, 2009, we had an order backlog of $598 million. Backlog in the Government Systems, Thermography and Commercial Vision Systems divisions was $467 million, $23 million and $108 million, respectively. Backlog is defined as orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months.

Gross profit. Gross profit for the quarter ended June 30, 2009 was $161.9 million compared to $146.6 million for the same quarter last year. Gross profit for the six months ended June 30, 2009 was $319.7 million compared to $277.4 million for the same period of 2008. As a percentage of revenue, gross profit increased from 56.2 percent in the second quarter of 2008 to 58.3 percent in the second quarter of 2009, and from 55.7 percent in the first six months of 2008 to 58.1 percent in the first six months of 2009. The increase in gross profit as a percentage of revenue for both the three and six month periods in 2009 was primarily due to cost and production efficiencies related to increased volume, product mix and lower production costs in Sweden arising from currency conversions.

Research and development expenses. Research and development expenses for the second quarter of 2009 totaled $23.2 million, compared to $23.5 million in the second quarter of 2008. Research and development expenses for the first six months of 2009 and 2008 were $45.6 million and $46.7 million, respectively. The decrease in research and development expenses was due to cost containment efforts in response to current economic conditions. As a percentage of revenue, research and development expenses were 8.4 percent and 9.0 percent for the three months ended June 30, 2009 and 2008, respectively, and 8.3 percent and 9.4 percent for the six months ended June 30, 2009 and 2008, respectively.

Selling, general and administrative expenses. Selling, general and administrative expenses were $54.1 million for the quarter ended June 30, 2009, compared to $58.4 million for the quarter ended June 30, 2008. Selling, general and administrative expenses for the first six months of 2009 and 2008 were $106.0 million and $111.0 million, respectively. The decrease in selling, general and administrative expenses was due to cost containment efforts in response to current economic conditions. Selling, general and administrative expenses as a percentage of revenue were 19.4 percent and 22.4 percent for the quarters ended June 30, 2009 and 2008, respectively, and 19.3 percent and 22.3 percent for the six months ended June 30, 2009 and 2008, respectively.

Interest expense. Interest expense for the second quarter and first six months of 2009 was $1.7 million and $4.5 million, respectively, compared to $3.6 million and $7.4 million for the same periods of 2008. Interest expense is primarily attributable to the accrual of interest on the convertible notes that were issued in June 2003 and the amortization of the discounts recorded on the notes and the costs related to the issuance of the notes. The decrease in interest expense in 2009 compared to the same period of 2008 is primarily due to the conversion of some of our outstanding convertible notes in the fourth quarter of 2008 and in the first quarter of 2009.

 

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Table of Contents

Other income/expense. For the quarter and six months ended June 30, 2009, we recorded other expense of $1.1 million and $69,000, respectively, compared to other income of $3.6 million and $3.7 million for the same periods of 2008. Other expense in 2009 and other income in 2008 primarily consists of interest income earned on short-term investments and foreign currency gains and losses.

Income taxes. The income tax provision of $53.5 million for the six months ended June 30, 2009, represents an effective tax rate of 32.7 percent. We expect the annual effective tax rate for the full year of 2009 to be approximately 32 percent to 34 percent. The effective tax rate is lower than the US Federal tax rate of 35 percent because of foreign tax rates and the effect of federal, foreign and state tax credits.

Liquidity and Capital Resources

At June 30, 2009, we had cash and cash equivalents on hand of $346.4 million compared to $289.4 million at December 31, 2008. The increase in cash and cash equivalents was primarily due to cash provided from operations, offset by capital expenditures, business acquisitions and the purchase of shares of our outstanding common stock.

Accrued payroll and related liabilities decreased from $43.3 million at December 31, 2008 to $30.9 million at June 30, 2009. The decrease is primarily due to the timing of payroll payments, including the payments for commissions and incentives accrued at December 31, 2008.

Cash used in investing activities of $41.0 million for the six months ended June 30, 2009 primarily related to capital expenditures and the acquisition of Salvador. Cash used in investing activities of $102.6 million for the six months ended June 30, 2008 include the acquisitions of Cedip Infrared Systems and Ifara Tecnologias, S.L. for $79.2 million, capital expenditures and other investments.

Cash used in financing activities of $37.7 million for the six months ended June 30, 2009 primarily related to the repurchase of 2.1 million shares of our common stock, partially offset by cash provided from our stock-based compensation plans. Cash provided from financing activities of $4.0 million for the six months ended June 30, 2008 primarily related to cash provided from our stock-based compensation plans, offset by the repayment of borrowings under the Credit Agreement and the repurchase of 0.9 million shares of our common stock.

On October 6, 2006, we entered into the Credit Agreement, which provides for a $300 million, five-year revolving line of credit. 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 October 6, 2011. The Credit Agreement includes a $100 million sublimit multicurrency option, permitting us and certain of our designated subsidiaries to borrow in Euro, Kronor, Sterling and other agreed upon currencies.

Under the Credit Agreement, borrowings will bear interest based upon the prime lending rate of the Bank of America or Eurodollar rates with a provision for a spread over Eurodollar rates based upon the Company’s leverage ratio. The Eurodollar interest rate was 0.603 percent and the prime lending rate was 3.25 percent at June 30, 2009. These rates were 2.175 percent and 3.25 percent, respectively, at December 31, 2008. The Credit Agreement requires us to pay a commitment fee on the amount of unused credit at a rate, based on our leverage ratio, which ranges from 0.175 percent to 0.325 percent. At June 30, 2009 and December 31, 2008, the commitment fee rate was 0.175 percent. The Credit Agreement contains five financial covenants that require the maintenance of certain leverage ratios, in addition to minimum levels of EBITDA and consolidated net worth, a maximum level of capital expenditures and, commencing December 31, 2009, a minimum liquidity of cash and availability under the Credit Agreement. The Credit Agreement is collateralized by substantially all assets of the Company. At June 30, 2009 and December 31, 2008, we had no borrowings outstanding under the Credit Agreement and were in compliance with all of its financial covenants. We had $12.5 million of letters of credit outstanding under the Credit Agreement at June 30, 2009 and December 31, 2008, which reduces the total available credit thereunder.

Our Sweden subsidiary has a 30 million Swedish Kronor (approximately $3.9 million) line of credit with an interest rate at 1.27 percent at June 30, 2009. At June 30, 2009, the Company had no amounts outstanding on this line of credit. The 30 million Swedish Kronor line of credit is secured primarily by accounts receivable and inventories of the Sweden subsidiary and is subject to automatic renewal on an annual basis.

 

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Table of Contents

In June 2003, we issued $210 million of 3.0 percent senior convertible notes due in 2023 in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance were approximately $203.9 million. Issuance costs are being amortized over a period of seven years. Interest is payable semiannually on June 1 and December 1 of each year. The holders of the notes may convert all or some of their notes into shares of our common stock at a conversion rate of 90.1224 shares per $1,000 principal amount of notes prior to the maturity date in certain circumstances. We may redeem for cash all or part of the notes on or after June 8, 2010. The convertible notes are eligible for conversion at the option of the note holders.

On February 5, 2009, we commenced an exchange offer for any and all of the outstanding convertible notes. The offer was made pursuant to an Offer to Exchange and related documents, each dated February 5, 2009, and the completion of the offer was subject to conditions described in the offer documents. Holders who elected to exchange their notes in this offer and whose notes were accepted for exchange by us received 90.1224 shares of our common stock and a cash payment of $20 per $1,000 principal amount of notes. The offer expired on March 9, 2009. Notes with an aggregate principal amount of $99.9 million were exchanged pursuant to the exchange offer and were converted into 9.0 million shares of the Company’s common stock.

As of June 30, 2009, notes with an aggregate principal value of $118.5 million have been converted into 10.7 million shares of the Company’s common stock. On July 2, 2009, notes with an aggregate principal amount of $30.1 million were converted into 2.7 million shares of the Company’s common stock.

On January 1, 2009, we adopted the provisions of the Financial Accounting Standards Board Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires that issuers of convertible debt instruments that may be settled in cash should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 was effective for financial statements issued for fiscal years beginning after December 15, 2008 with retrospective application.

Accordingly, we have retrospectively applied the provisions of FSP ABP 14-1 to our financial statements beginning in 2003. The retrospective application includes the separation of the liability and equity components of the convertible notes, the reallocation of the $6.1 million of issuance costs between the liability and equity components, an increase in interest expense for periods subsequent to issuance to reflect the estimated nonconvertible borrowing rate, and the related tax effects.

We believe that our existing cash combined with the cash we anticipate 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. We do not have any significant capital commitments for the current year nor are we aware of any significant events or conditions that are likely to have a material impact on our liquidity.

New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 141 (Revised 2007), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. The Company has adopted SFAS 141(R).

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“SFAS 165”), which introduces the concept of “financial statements being available to be issued,” and requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is applicable to interim and annual financial statements for periods ending after June 15, 2009. Accordingly, the Company has adopted SFAS 165.

 

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In June 2009, the FASB issued Statement of Financial Accounting Standards No, 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a Replacement of FASB Statement No. 162,” which establishes the FASB Accounting Standards Codification TM (the “Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

 

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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 year ended December 31, 2008. As described in Note 1 to the Consolidated Financial Statements included in the Form 10K, the determination of fair value for stock-based compensation awards requires the use of management’s estimates and judgments.

Contractual Obligations

As of June 30, there have been no material changes to our contractual obligations outside the ordinary course of our business since March 31, 2009.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2009, 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, 2008.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2009, 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 to ensure 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 has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of its business. See Note 16, “Contingencies,” of the Notes to the Consolidated Financial Statements for additional information on the Company’s legal proceedings.

 

Item 1A. Risk Factors

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, 2008, which was filed with the Securities and Exchange Commission on February 27, 2009.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2009, 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

May 1 to May 31, 2009

   1,000,000    $ 25.55    1,000,000   

June 1 to June 30, 2009

   111,700      22.41    111,700   
                   

Total

   1,111,700    $ 25.23    1,111,700    17,888,300
                     

 

(1) All shares were purchased in open market transactions.

All share repurchases are subject to applicable securities law, and are at times and in amounts as management deems appropriate. On February 4, 2009, our Board of Directors authorized the repurchase of up to 20.0 million shares of our outstanding common stock through open market purchases, privately negotiated transactions including accelerated stock repurchase agreements, or in such other manner as will comply with the provisions of the Securities Exchange Act of 1934. This authorization will expire on February 4, 2011.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Submission of Matters to a Vote of Shareholders

The Company’s annual meeting of shareholders was held on May 1, 2009, at which the following persons were elected to the Board of Directors by a vote of shareholders, by the votes and for the terms indicated:

 

     Vote     

Director

   For    Withheld
Authority
   Term
Ending

Earl R. Lewis

   115,653,113    11,074,205    2012

Steven E. Wynne

   125,073,965    1,653,353    2012

The proposal to approve the adoption of the 2009 Employee Stock Purchase Plan was approved by a vote of shareholders by the following votes:

 

For

 

Against

 

Abstain

 

Broker

Non-votes

97,179,788

  18,886,506   1,043,666   9,617,358

 

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In addition, the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008 was approved by the following votes:

 

For

 

Against

 

Abstain

125,224,952

  1,444,075   58,291

 

Item 5. Other Information

On August 6, 2009, the Company’s Board of Directors adopted an amendment to the Second Restated Bylaws of the Company (the “Bylaws”). A copy of the amendment is attached hereto and incorporated by reference herein. The amendment expands the scope of the advanced notice requirements for shareholders to bring business before an annual or special meeting or to nominate directors for election other than in accordance with the requirements of Section 14 of the Securities Exchange Act governing director nominations submitted by shareholders for inclusion in the Company’s proxy materials (the “Proxy Rules”) (as to which the Proxy Rules shall govern). Specifically, the amendment:

 

 

expands the notice requirements for shareholder proposed business at annual meetings to include special meetings as well;

 

 

requires that any shareholder proposing business or a nomination must be a shareholder of record on the date notice is given and on the record date for voting on such business or nomination;

 

 

increases the required advanced notice period to not less than 90 nor more than 120 days in advance of the applicable meeting, or, in certain circumstances, no later than 10 days following public announcement of the meeting;

 

 

expands the disclosures already required to be included in the notice with respect to the holder of record submitting the notice to include any beneficial owner on whose behalf the notice is being submitted; and

 

 

adds the following additional disclosures to what is required to be included in the advance notice that must be submitted by the shareholder proposing business or a director nominee: (i) a description of all agreements between the record holder or any beneficial owner and any other person with respect to the proposed business and any material interest of such shareholder or beneficial owner in such business; (ii) a description of any agreement related to the hedging, voting or derivative ownership of Company shares entered into by the record and/or any beneficial owner; (iii) a representation as to whether the record holder is entitled to vote at the meeting and intends to appear at the meeting in person or by proxy to submit the proposed business or nomination; (iv) a representation as to whether the record or beneficial holder intends to solicit proxies in support of the proposed business or nomination; and (v) the name in which all shares of stock held of record or beneficially by the shareholder delivering notice and any beneficial owner are registered on the Company’s books.

The foregoing description of the amendments to the Bylaws is qualified in its entirety by reference to the Bylaws, a copy of which reflecting the amendments described above is attached as an exhibit hereto and incorporated by reference herein.

 

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Table of Contents
Item 6. Exhibits

 

Number

  

Description

3.1

   Second Amendment to the Second Restated Bylaws of FLIR Systems, Inc.

3.2

   Second Restated Bylaws of FLIR Systems, Inc., as amended through August 6, 2009.

10.1

   FLIR Systems, Inc. 2009 Employee Stock Purchase Plan (incorporated by reference to Exhibit C to the Proxy Statement filed on March 20, 2009). (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.LAB

   XBRL Taxonomy Extension Label Linkbase Document

101.PRE

   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) This exhibit constitutes a compensatory plan.

 

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Table of Contents

SIGNATURES

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.

 

   FLIR SYSTEMS, INC.
Date August 10, 2009   

/s/    S TEPHEN M. B AILEY

   Stephen M. Bailey
   Sr. Vice President, Finance and Chief Financial Officer
  

(Principal Accounting and Financial Officer

    and Duly Authorized Officer)

 

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Exhibit 3.1

FLIR SYSTEMS, INC.

SECOND AMENDMENT TO

SECOND RESTATED BYLAWS

The following sets forth an amendment to the Second Restated Bylaws of FLIR Systems, Inc., an Oregon corporation, which amendment was adopted by Unanimous Written Consent of the Board of Directors and became effective as of August 6, 2009.

Article II, Section 2.2; Article II, Section 2.12; and Article III, Section 3.16 of the Company’s Second Restated Bylaws are hereby amended and restated in their entirety to read as follows:

ARTICLE II

2.2 Special Meeting . Special meetings of the shareholders may be called by the President or by the Board of Directors and shall be called by the President (or in the event of absence, incapacity, or refusal of the President, by the Secretary or any other officer) at the request of the holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting. The requesting shareholders shall sign, date, and deliver to the Secretary a written demand describing the purpose or purposes for holding the special meeting in accordance with Sections 2.4 and 2.12.

2.12 Notice of Business to be Conducted at Meeting . At an annual or special meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before a meeting by a shareholder who (i) is a shareholder of record on the date of the giving of the notice provided for in this Section 2.12 and on the record date for determination of shareholders entitled to vote at such meeting of shareholders and (ii) complies with the notice procedures set forth in this Section 2.12.

In addition to any other applicable requirements, for business to be properly brought before an annual or special meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the corporation. In the case of an annual meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever occurs first. In the case of a special meeting, to be timely, a shareholder’s notice must be delivered to or


mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first.

To be in proper written form, a shareholder’s notice to the Secretary shall set forth as to each matter such shareholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation’s books, of the shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (c) the class or series and number of shares of stock of the corporation which are owned beneficially or of record by such shareholder or such beneficial owner, (d) a description of all agreements, arrangements or understandings between such shareholder or such beneficial owner and any other person or persons (including their names) with respect to the proposal of such business by the shareholder and any material interest of such shareholder or such beneficial owner in such business, (e) a description of all agreements, arrangements or understandings (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such shareholder or such beneficial owner, with respect to shares of stock of the corporation (which information shall be updated by such shareholder and beneficial owner, if any, as of the record date of the meeting not later than 10 days after such record date), (f) the name in which all such shares of stock are registered on the stock transfer books of the corporation, (g) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (h) a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the proposal (B) otherwise to solicit proxies from shareholders in support of such proposal, and (i) all other information relating to such shareholder, such beneficial owner, if any, or the proposed business which may be required to be disclosed under applicable law. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 2.12.

The Chairman of the annual or special meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.12, and if the Chairman should so determine, the Chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.

 

2


ARTICLE III

3.16 Nominations for Election to Board of Directors . Only persons who are nominated in accordance with the procedures set forth in this Section 3.16 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the corporation who (i) is a shareholder of record on the date of the giving of the notice provided for in this Section 3.16 and on the record date for determination of shareholders entitled to vote on the election of directors at such meeting and (ii) complies with the notice procedures set forth in this Section 3.16.

In addition to any other applicable requirements, such nominations, other than (i) nominations made by or at the direction of the Board of Directors and (ii) nominations submitted by one or more shareholders in accordance with the requirements under Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Proxy Rules”) governing director nominations submitted by shareholders for inclusion in the corporation’s proxy materials (as to which the requisite timing and form of notice thereof shall be governed by the Proxy Rules and not the provisions of this Section 3.16), shall be made pursuant to timely notice in proper written form to the Secretary of the corporation. In the case of an annual meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever occurs first. In the case of a special meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first.

To be in proper written form, such shareholder’s notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the corporation which are owned beneficially or of record by such person, and (iv) any other information relating to such person that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving the notice, (i) the name and address, as they appear on the corporation’s books, of such shareholder and the beneficial owner, if any,

 

3


on whose behalf the nomination is made, (ii) the class or series and number of shares of stock of the corporation which are owned beneficially or of record by such shareholder or such beneficial owner, (iii) a description of all agreements, arrangements or understandings between such shareholder or such beneficial owner and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a description of all agreements, arrangements or understandings (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such shareholder or such beneficial owner, with respect to shares of stock of the corporation (which information shall be updated by such shareholder and beneficial owner, if any, as of the record date of the meeting not later than 10 days after such record date), (v) the name in which all such shares of stock are registered on the stock transfer books of the corporation, (vi) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear at the meeting in person or by proxy to submit the nomination specified in such notice, (vii) a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to elect the nominee and/or (B) otherwise to solicit proxies from shareholders in support of such nomination, and (viii) all other information relating to such shareholder, such beneficial owner, if any, or the proposed nomination which may be required to be disclosed under applicable law. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 3.16.

A shareholder seeking to submit such nomination at a shareholder meeting shall promptly provide any other information reasonably requested by the corporation. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee. In addition, the Board of Directors may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation.

The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the provisions of this Section 3.16, and if the Chairman should so determine, the Chairman shall so declare to the meeting, and the defective nomination shall be disregarded.

 

4

Exhibit 3.2

Reflecting all amendments through August 6, 2009

SECOND RESTATED BYLAWS

OF

FLIR SYSTEMS, INC.

ARTICLE I

OFFICES

1.1 Principal Office . The principal office of the corporation shall be located at 16505 SW 72nd Ave., Portland, Oregon 97224. The corporation may have such other offices as the Board of Directors may designate or as the business of the corporation may from time to time require.

1.2 Registered Office . The registered office of the corporation required by the Oregon Business Corporation Act to be maintained in the State of Oregon may be, but need not be, identical with the principal office in the State of Oregon, and the address of the registered office may be changed from time to time by the Board of Directors.

ARTICLE II

SHAREHOLDERS

2.1 Annual Meeting . The annual meeting of the shareholders shall be held during the month of May each year, unless a different date and time are fixed by the Board of Directors and stated in the notice of the meeting, beginning with the year 1994. The failure to hold an annual meeting at the time stated herein shall not affect the validity of any corporate action.

2.2 Special Meeting . Special meetings of the shareholders may be called by the President or by the Board of Directors and shall be called by the President (or in the event of absence, incapacity, or refusal of the President, by the Secretary or any other officer) at the request of the holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting. The requesting shareholders shall sign, date, and deliver to the Secretary a written demand describing the purpose or purposes for holding the special meeting in accordance with Sections 2.4 and 2.12.

2.3 Place of Meetings . Meetings of the shareholders shall be held at the principal business office of the corporation or at such other place, within or without the State of Oregon, as may be determined by the Board of Directors.

2.4 Notice of Meetings . Written notice stating the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be mailed to each shareholder entitled to vote at the meeting at the shareholder’s address shown in the corporation’s current record of shareholders, with postage thereon prepaid, not less than 10 nor more than 60 days before the date of the meeting.


2.5 Waiver of Notice . A shareholder may at any time waive any notice required by law, the Articles of Incorporation, or these First Restated Bylaws. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes for filing with the corporate records. A shareholder’s attendance at a meeting waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. The shareholder’s attendance also waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

2.6 Record Date

(a) For the purpose of determining shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, or to vote or to take any other action, the Board of Directors may fix a future date as the record date for any such determination of shareholders, such date in any case to be not more than 70 days before the meeting or action requiring a determination of shareholders. The record date shall be the same for all voting groups.

(b) A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

(c) If a court orders a meeting adjourned to a date more than 120 days after the date fixed for the original meeting, it may provide that the original record date continue in effect or it may fix a new record date.

2.7 Shareholders’ List for Meeting . After the record date for a shareholders’ meeting is fixed by the Board of Directors, the Secretary of the corporation shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the shareholders’ meeting. The list must be arranged by voting group and within each voting group by class or series of shares and show the address of and number of shares held by each shareholder. The shareholders’ list must be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation’s principal office or at a place identified in the meeting notice in the city where the meeting will be held. The corporation shall make the shareholders’ list available at the meeting, and any shareholder or the shareholder’s agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. Refusal or failure to prepare or make available the shareholders’ list does not affect the validity of action taken at the meeting.

 

2


2.8 Quorum; Adjournment . Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action in that matter. A majority of shares represented at the meeting, although less than a quorum, may adjourn the meeting from time to time to a different time and place without further notice to any shareholder of any adjournment. At such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting originally held. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is set for the adjourned meeting.

2.9 Voting Requirements; Action Without Meeting . Unless otherwise provided in the Articles of Incorporation, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast by the shares entitled to vote favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or the Articles of Incorporation. If a quorum exists, directors are elected by a plurality of the votes cast by the shares entitled to vote unless otherwise provided in the Articles of Incorporation. No cumulative voting for directors shall be permitted unless the Articles of Incorporation so provide. Action required or permitted by law to be taken at a shareholders’ meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action and delivered to the corporation for inclusion in the minutes for filing with the corporate records. Action taken under this section is effective when the last shareholder signs the consent, unless the consent specifies an earlier or later effective date. If the law requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by unanimous consent of the voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least 10 days before the action is taken. The notice must contain or be accompanied by the same material that, under the Oregon Business Corporation Act, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.

2.10 Proxies .

(a) A shareholder may vote shares in person or by proxy by signing an appointment, either personally or by the shareholder’s attorney-in-fact. An appointment of a proxy shall be effective when received by the Secretary or other officer of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is provided in the appointment form. An appointment is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest that has not been extinguished.

(b) The death or incapacity of a shareholder appointing a proxy shall not affect the right of the corporation to accept the proxy’s authority unless notice of the death or incapacity is received by the Secretary or other officer authorized to tabulate votes before the proxy exercises the proxy’s authority under the appointment.

 

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2.11 Corporation’s Acceptance of Votes .

(a) If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.

(b) If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:

(i) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;

(ii) The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;

(iii) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;

(iv) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or

(v) Two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners.

(c) The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory’s authority to sign for the shareholder.

(d) The shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided, however, a corporation may vote any shares, including its own shares, held by it in a fiduciary capacity.

(e) The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this provision shall not be liable in damages to the shareholder for the consequences of the acceptance or rejection. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this provision is valid unless a court of competent jurisdiction determines otherwise.

 

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2.12 Notice of Business to be Conducted at Meeting . At an annual or special meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before a meeting by a shareholder who (i) is a shareholder of record on the date of the giving of the notice provided for in this Section 2.12 and on the record date for determination of shareholders entitled to vote at such meeting of shareholders and (ii) complies with the notice procedures set forth in this Section 2.12.

In addition to any other applicable requirements, for business to be properly brought before an annual or special meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the corporation. In the case of an annual meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever occurs first. In the case of a special meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first.

To be in proper written form, a shareholder’s notice to the Secretary shall set forth as to each matter such shareholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation’s books, of the shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (c) the class or series and number of shares of stock of the corporation which are owned beneficially or of record by such shareholder or such beneficial owner, (d) a description of all agreements, arrangements or understandings between such shareholder or such beneficial owner and any other person or persons (including their names) with respect to the proposal of such business by the shareholder and any material interest of such shareholder or such beneficial owner in such business, (e) a description of all agreements, arrangements or understandings (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such

 

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shareholder or such beneficial owner, with respect to shares of stock of the corporation (which information shall be updated by such shareholder and beneficial owner, if any, as of the record date of the meeting not later than 10 days after such record date), (f) the name in which all such shares of stock are registered on the stock transfer books of the corporation, (g) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (h) a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the proposal (B) otherwise to solicit proxies from shareholders in support of such proposal, and (i) all other information relating to such shareholder, such beneficial owner, if any, or the proposed business which may be required to be disclosed under applicable law. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 2.12.

The Chairman of the annual or special meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.12, and if the Chairman should so determine, the Chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.

ARTICLE III

BOARD OF DIRECTORS

3.1 Duties . All corporate powers shall be exercised by or under the authority of the Board of Directors and the business and affairs of the corporation shall be managed by or under the direction of the Board of Directors.

3.2 Number and Qualification . As set forth in the Second Restated Articles of Incorporation, the number of directors of the corporation shall be not less than five nor more than twelve, and within such limits, the exact number shall be fixed and increased or decreased from time to time by resolution of the Board of Directors. The directors shall be divided into three classes designated Class I, Class II and Class III, each class to be as nearly equal in number as possible. At the 1993 annual meeting of shareholders (“First Meeting”), directors of all three classes shall be elected. The term of office of Class III directors shall expire at the 1994 annual meeting of shareholders, that of Class II directors shall expire at the 1995 annual meeting of shareholders, and that of Class I directors shall expire at the 1996 annual meeting of shareholders. At each annual meeting of shareholders after the First Meeting, directors elected to succeed those directors whose terms expire shall be elected to serve for three-year terms and until their successors are elected and qualified, so that the term of one class of directors will expire each year. When the number of directors is changed within the limits provided herein, any newly created directorships, or any decrease in directorships, shall be so apportioned among the classes as to make all classes as nearly equal as possible, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent directors. Directors need not be residents of the State of Oregon or shareholders of the corporation.

 

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3.3 Chairman of the Board of Directors . The directors may elect a director to serve as Chairman of the Board of Directors to preside at all meetings of the Board of Directors and to fulfill any other responsibilities delegated by the Board of Directors.

3.4 Regular Meetings . A regular meeting of the Board of Directors shall be held without other notice than this Section 3.4 immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Oregon, for the holding of additional regular meetings without other notice than the resolution.

3.5 Special Meetings . Special meetings of the Board of Directors may be called by or at the request of the President or any director. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the Board of Directors called by them.

3.6 Notice . Notice of the date, time, and place of any special meeting of the Board of Directors shall be given at least three days prior to the meeting by any means provided by law. If mailed, notice shall be deemed to be given upon deposit in the United States mail addressed to the director at the director’s business address, with postage thereon prepaid. If by telegram, notice shall be deemed to be given when the telegram is delivered to the telegraph company. Notice by all other means shall be deemed to be given when received by the director or a person at the director’s business or residential address whom the person giving notice reasonably believes will deliver or report the notice to the director within 24 hours. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

3.7 Waiver of Notice . A director may at any time waive any notice required by law, the Articles of Incorporation, or these First Restated Bylaws. Unless a director attends or participates in a meeting, a waiver must be in writing, must be signed by the director entitled to notice, must specify the meeting for which notice is waived, and must be filed with the minutes or corporate records.

3.8 Quorum . A majority of the number of directors fixed by Section 3.2 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors.

3.9 Manner of Acting .

(a) The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a different number is provided by law, the Articles of Incorporation, or these First Restated Bylaws.

(b) Members of the Board of Directors may hold a board meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting.

 

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(c) Any action that is required or permitted to be taken by the directors at a meeting may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors entitled to vote on the matter. The action shall be effective on the date when the last signature is placed on the consent or at such earlier or later time as is set forth therein. Such consent, which shall have the same effect as a unanimous vote of the directors, shall be filed with the minutes of the corporation.

3.10 Vacancies . Any vacancy, including a vacancy resulting from an increase in the number of directors, occurring on the Board of Directors may be filled by the shareholders, the Board of Directors, or the affirmative vote of a majority of the remaining directors if less than a quorum of the Board of Directors, or by a sole remaining director. If the vacant office is filled by the shareholders and was held by a director elected by a voting group of shareholders, then only the holders of shares of that voting group are entitled to vote to fill the vacancy. Any directorship not so filled by the directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of shareholders and until a successor shall be duly elected and qualified. A vacancy that will occur at a specific later date, by reason of a resignation or otherwise, may be filled before the vacancy occurs, and the new director shall take office when the vacancy occurs.

3.11 Compensation . By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

3.12 Presumption of Assent . A director of the corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors shall be presumed to have assented to the action taken (a) unless the director’s dissent to the action is entered in the minutes of the meeting, (b) unless a written dissent to the action is filed with the person acting as the secretary of the meeting before the adjournment thereof or forwarded by certified or registered mail to the Secretary of the corporation immediately after the adjournment of the meeting or (c) unless the director objects at the meeting to the holding of the meeting or transacting business at the meeting. The right to dissent shall not apply to a director who voted in favor of the action.

3.13 Director Conflict of Interest .

(a) A transaction in which a director of the corporation has a direct or indirect interest shall be valid notwithstanding the director’s interest in the transaction if the material facts of the transaction and the director’s interest are disclosed or known to the Board of Directors or a committee thereof and it authorizes, approves, or ratifies the transaction by a vote or consent sufficient for the purpose without counting the votes or consents of directors with a direct or indirect interest in the transaction; or the material facts of the transaction and the director’s interest are disclosed or known to shareholders entitled to vote and they, voting as a single group, authorize, approve, or ratify the transaction by a majority vote; or the transaction is fair to the corporation.

 

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(b) A conflict of interest transaction may be authorized, approved, or ratified if it receives the affirmative vote of a majority of directors on the Board of Directors or a committee thereof who have no direct or indirect interest in the transaction. If a majority of such directors vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action.

(c) A conflict of interest transaction may be authorized, approved, or ratified by a majority vote of shareholders entitled to vote thereon. Shares owned by or voted under the control of a director or an entity controlled by a director who has a direct or indirect interest in the transaction are entitled to vote with respect to a conflict of interest transaction. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction constitutes a quorum for the purpose of authorizing, approving, or ratifying the transactions.

(d) A director has an indirect interest in a transaction if (i) another entity in which the director has a material financial interest or in which the director is a general partner is a party to the transaction or (ii) another entity of which the director is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the Board of Directors.

3.14 Removal . All or any number of the directors of the corporation may be removed only for cause and at a meeting of shareholders called expressly for that purpose, by the vote of 75 percent of the votes then entitled to be cast for the election of directors. At any meeting of shareholders at which one or more directors are removed, a majority of votes then entitled to be cast for the election of directors may fill any vacancy created by such removal. If any vacancy created by removal of a director is not filled by the shareholders at the meeting at which the removal is effected, such vacancy may be filled by a majority vote of the remaining directors.

3.15 Resignation . Any director may resign by delivering written notice to the Board of Directors, its chairperson, or the corporation. Such resignation shall be effective at the earliest of the following, unless the notice specifies a later effective date, (a) on receipt, (b) five days after its deposit in the United States mails, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by addressee. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors.

3.16 Nominations for Election to Board of Directors . Only persons who are nominated in accordance with the procedures set forth in this Section 3.16 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the corporation who (i) is a shareholder of record on the date of the giving of the notice provided for in this Section 3.16 and on the record date for determination of shareholders entitled to vote on the election of directors at such meeting and (ii) complies with the notice procedures set forth in this Section 3.16.

 

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In addition to any other applicable requirements, such nominations, other than (i) nominations made by or at the direction of the Board of Directors and (ii) nominations submitted by one or more shareholders in accordance with the requirements under Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Proxy Rules”) governing director nominations submitted by shareholders for inclusion in the corporation’s proxy materials (as to which the requisite timing and form of notice thereof shall be governed by the Proxy Rules and not the provisions of this Section 3.16), shall be made pursuant to timely notice in proper written form to the Secretary of the corporation. In the case of an annual meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever occurs first. In the case of a special meeting, to be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10 th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first.

To be in proper written form, such shareholder’s notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the corporation which are owned beneficially or of record by such person, and (iv) any other information relating to such person that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving the notice, (i) the name and address, as they appear on the corporation’s books, of such shareholder and the beneficial owner, if any, on whose behalf the nomination is made, (ii) the class or series and number of shares of stock of the corporation which are owned beneficially or of record by such shareholder or such beneficial owner, (iii) a description of all agreements, arrangements or understandings between such shareholder or such beneficial owner and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a description of all agreements, arrangements or understandings (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that have been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such shareholder or such beneficial owner, with respect to shares of stock of the corporation (which information shall be updated by such shareholder and beneficial owner, if any, as of the record date of the meeting not later than 10 days after such record date), (v) the name in which all such shares of stock are registered on the

 

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stock transfer books of the corporation, (vi) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear at the meeting in person or by proxy to submit the nomination specified in such notice, (vii) a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to elect the nominee and/or (B) otherwise to solicit proxies from shareholders in support of such nomination, and (viii) all other information relating to such shareholder, such beneficial owner, if any, or the proposed nomination which may be required to be disclosed under applicable law. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 3.16.

A shareholder seeking to submit such nomination at a shareholder meeting shall promptly provide any other information reasonably requested by the corporation. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee. In addition, the Board of Directors may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation.

The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the provisions of this Section 3.16, and if the Chairman should so determine, the Chairman shall so declare to the meeting, and the defective nomination shall be disregarded.

ARTICLE IV

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

4.1 Designation of Executive Committee . The Board of Directors may designate two or more directors to constitute an executive committee. The designation of an executive committee, and the delegation of authority to it, shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. No member of the executive committee shall continue to be a member thereof after ceasing to be a director of the corporation. The Board of Directors shall have the power at any time to increase or decrease the number of members of the executive committee, to fill vacancies thereon, to change any member thereof, and to change the functions or terminate the existence thereof. The creation of the executive committee and the appointment of members to it shall be approved by a majority of the directors in office when the action is taken, unless a greater number is required by the Articles of Incorporation or these First Restated Bylaws.

4.2 Powers of Executive Committee . During the interval between meetings of the Board of Directors, and subject to such limitations as may be imposed by resolution of the Board of Directors, the executive committee may have and may exercise all the authority of the Board of Directors in the management of the corporation, provided that the committee shall not have the authority of the Board of Directors with respect to the following matters: authorizing

 

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distributions; approving or proposing to the shareholders actions that are required to be approved by the shareholders under the Articles of Incorporation or these First Restated Bylaws or by law; filling vacancies on the Board of Directors or any committee thereof; amending the Articles of Incorporation; adopting, amending, or repealing bylaws; approving a plan of merger not requiring shareholder approval; authorizing or approving a reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; authorizing or approving the issuance or sale or contract for sale of shares or determining the designation and relative rights, preferences, and limitations of a class or series of shares except within limits specifically prescribed by the Board of Director.

4.3 Procedures; Meetings; Quorum .

(a) The Board of Directors shall appoint a chairperson from among the members of the executive committee and shall appoint a secretary who may, but need not, be a member of the executive committee. The chairperson shall preside at all meetings of the executive committee and the secretary of the executive committee shall keep a record of its acts and proceedings, which shall be filed with the minutes of the corporation.

(b) Regular meetings of the executive committee, of which no notice shall be necessary, shall be held on such days and at such places as shall be fixed by resolution adopted by the executive committee. Special meetings of the executive committee shall be called at the request of the President or of any member of the executive committee, and shall be held upon such notice as is required by these First Restated Bylaws for special meetings of the Board of Directors.

(c) Attendance of any member of the executive committee at a meeting shall constitute a waiver of notice of the meeting. A majority of the executive committee, from time to time, shall be necessary to constitute a quorum for the transaction of any business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the executive committee. Members of the executive committee may hold a meeting of such committee by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute presence in person at the meeting.

(d) Any action that is required or permitted to be taken at a meeting of in the executive committee may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all members of the executive committee entitled to vote on the matter. The action shall be effective on the date when the last signature is placed on the consent or at such earlier or later time as is set forth therein. Such consent, which shall have the same effect as a unanimous vote of the members of the executive committee, shall be filed with the minutes of the corporation.

(e) The Board of Directors may approve a reasonable fee for the members of the executive committee as compensation for attendance at meetings of the executive committee.

 

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4.4 Other Committees . By the approval of a majority of the directors when the action is taken (unless a greater number is required by the Articles of Incorporation), the Board of Directors, by resolution, may create one or more additional committees, appoint directors to serve on them, and define the duties of such committee or committees. Each such committee shall have two or more members, who shall serve at the pleasure of the Board of Directors. Such additional committee or committees, shall not have the powers proscribed in Section 4.2.

ARTICLE V

OFFICERS

5.1 Number . The officers of the corporation shall be a President and a Secretary. Such other officers and assistant officers as are deemed necessary or desirable may be appointed by the Board of Directors and shall have such powers and duties prescribed by the Board of Directors or the officer authorized by the Board of Directors to prescribe the duties of other officers. A duly appointed officer may appoint one or more officers or assistant officers if such appointment is authorized by the Board of Directors. Any two or more offices may be held by the same person.

5.2 Appointment and Term of Office . The officers of the corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directors held after the annual meeting of the shareholders. If the officers shall not be appointed at the meeting, a meeting shall be held as soon thereafter as is convenient for such appointment of officers. Each officer shall hold office until a successor shall have been duly appointed and qualified or until the officer’s death, resignation, or removal.

5.3 Qualification . An officer need not be a director, shareholder, or a resident of the State of Oregon.

5.4 Resignation and Removal . An officer may resign at any time by delivering notice of such resignation to the corporation. A resignation is effective on receipt unless the notice specifies a later effective date. If the corporation accepts a specified later effective date, the Board of Directors may fill the pending vacancy before the effective date, but the successor may not take office until the effective date. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors. Any officer appointed by the Board of Directors may be removed at any time with or without cause. Appointment of an officer shall not of itself create contract rights. Removal or resignation of an officer shall not affect the contract rights, if any, of the corporation or the officer.

5.5 Vacancies . A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the Board of Directors for the unexpired portion of the term.

5.6 President . The President shall be the chief executive officer of the corporation and shall be in general charge of its business and affairs, subject to the control of the Board of Directors. The President shall preside at all meetings of shareholders and at all meetings of directors (unless there is an acting Chairman of the Board presiding at the meeting). The President may execute on behalf of the corporation all contracts, agreements, stock certificates, and other instruments. The President shall from time to time report to the Board of Directors all

 

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matters within the President’s knowledge affecting the corporation that should be brought to the attention of the Board of Directors. The President shall vote all shares of stock in other corporations owned by the corporation and is empowered to execute proxies, waivers of notice, consents, and other instruments in the name of the corporation with respect to such stock. The President shall perform other duties assigned by the Board of Directors.

5.7 Vice Presidents . In the absence of the President or in the event of the President’s death or inability or refusal to act, the Vice President (or, in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election), if any, shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President shall perform other duties assigned by the President or by the Board of Directors.

5.8 Secretary . The Secretary shall prepare the minutes of all meetings of the directors and shareholders, shall have custody of the minute books and other records pertaining to the corporate business, and shall be responsible for authenticating the records of the corporation. The Secretary shall countersign all instruments requiring the seal of the corporation and shall perform other duties assigned by the Board of Directors. In the event no Vice President exists to succeed to the President under the circumstances set forth in Section 5.7 above, the Secretary shall make such succession.

5.9 Assistant Secretaries . The Assistant Secretaries, when authorized by the Board of Directors or these First Restated Bylaws, may sign, with the President or Vice President, certificates for shares of the corporation the issuance of which shall have been authorized by resolution of the Board of Directors. The Assistant Secretaries shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries shall, in general, perform such duties as shall be specifically assigned to them in writing by the President or the Board of Directors.

5.10 Salaries . The salaries of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary because the officer is also a director of the corporation.

ARTICLE VI

ISSUANCE OF SHARES

6.1 Certificates for Shares .

(a) Certificates representing shares of the corporation shall be in any form determined by the Board of Directors consistent with the Oregon Business Corporation Act and these Bylaws; provided that any shares of the corporation may be uncertificated, whether upon original issuance, reissuance or subsequent transfer. Shares represented by certificates shall be signed, either manually or in facsimile, by two officers of the corporation, at least one of whom shall be the President or a Vice President, and may be sealed with the seal of the corporation, if

 

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any, or a facsimile thereof. The signatures of officers upon a certificate may be facsimiles if the certificate is countersigned on behalf of a transfer agent or by a registrar other than the corporation itself or an employee of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name and mailing address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. Each shareholder shall have the duty to notify the corporation of his or her mailing address. Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of certificated shares shall be identical.

(b) Every certificate for shares of stock that are subject to any restriction on transfer pursuant to the Articles of Incorporation, these Bylaws, applicable securities laws, agreements among or between shareholders, or any agreement to which the corporation is a party shall have conspicuously noted on the face or back of the certificate either (i) the full text of the restriction or (ii) a statement of the existence of such restriction and that the corporation retains a copy of the restriction. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either (i) the full text of the designations, relative rights, preferences, and limitations of the shares of each class and series authorized to be issued and the authority of the Board of Directors to determine variations for future series or (ii) a statement of the existence of such designations, relative rights, preferences, and limitations and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

6.2 Transfer of Shares . A transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by the holder’s legal representative, who shall furnish proper evidence of authority to transfer, or by the holder’s attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, or with its transfer agent, if any, and on surrender for cancellation of the certificate for such shares or upon proper instruction from the holder of uncertificated shares. All certificates surrendered to the corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors prescribes. Upon receipt of proper transfer instructions from the holder of uncertificated shares, the corporation shall cancel such uncertificated shares and issue new equivalent uncertificated shares, or, upon such holder’s request, certificated shares, to the person entitled thereto, and record the transaction upon its books. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

6.3 Transfer Agent and Registrar . The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the corporation, with such powers and duties as the Board of Directors determines by resolution. The signatures of officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or by a registrar other than the corporation itself or an employee of the corporation.

 

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6.4 Officer Ceasing to Act . If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid.

ARTICLE VII

CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS

7.1 Contracts . The Board of Directors may authorize any officer or officers and agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

7.2 Loans . No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

7.3 Checks; Drafts . All checks, drafts, or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers and agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

7.4 Deposits . All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors may select.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1 Seal . The Board of Directors from time to time may provide for a seal of the corporation, which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation and the words “Corporate Seal.”

8.2 Severability . Any determination that any provision of these First Restated Bylaws is for any reason inapplicable, invalid, illegal, or otherwise ineffective shall not affect or invalidate any other provision of these First Restated Bylaws.

8.3 Oregon Control Share Act Not Applicable . ORS 60.801 to 60.816 do not apply to acquisitions of voting shares of the corporation.

ARTICLE IX

AMENDMENTS

These Second Restated Bylaws may be altered, amended, or repealed and new bylaws may be adopted by the Board of Directors at any regular or special meeting, subject to repeal or change by action of the shareholders of the corporation.

 

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Exhibit 31.1

I, Earl R. Lewis, certify that:

 

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 evaluations; 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 of financial reporting, to the registrant’s auditors and the audit committee of 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.

 

Date August 10, 2009   

/s/    E ARL R. L EWIS

   Earl R. Lewis
   President and Chief Executive Officer

Exhibit 31.2

I, Stephen M. Bailey, certify that:

 

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 evaluations; 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 of financial reporting, to the registrant’s auditors and the audit committee of 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.

 

Date August 10, 2009   

/s/    S TEPHEN M. B AILEY

   Stephen M. Bailey
   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, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Earl R. Lewis, 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:

(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.

 

Date August 10, 2009   

/s/    E ARL R. L EWIS

   Earl R. Lewis
   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, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen M. Bailey, 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:

(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.

 

Date August 10, 2009   

/s/    S TEPHEN M. B AILEY

   Stephen M. Bailey
   Chief Financial Officer