FLIR Systems, Inc.
FLIR SYSTEMS INC (Form: 10-Q, Received: 05/07/2010 17:10:07)
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 March 31, 2010

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 filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

At April 30, 2010, there were 153,341,348 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 Ended March 31, 2010 and 2009 (unaudited)    1
   Consolidated Balance Sheets – March 31, 2010 and December 31, 2009 (unaudited)    2
   Consolidated Statements of Cash Flows – Three Months Ended March 31, 2010 and 2009 (unaudited)    3
   Notes to the Consolidated Financial Statements (unaudited)    4
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    13
Item 3.    Quantitative and Qualitative Disclosures about Market Risk    16
Item 4.    Controls and Procedures    16
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings    17
Item 1A.    Risk Factors    17
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    17
Item 3.    Defaults Upon Senior Securities    17
Item 5.    Other Information    17
Item 6.    Exhibits    18
   Signature    19


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
March 31,
 
     2010     2009  

Revenue

   $ 287,298      $ 271,996   

Cost of goods sold

     121,944        114,281   
                

Gross profit

     165,354        157,715   

Operating expenses:

    

Research and development

     24,803        22,409   

Selling, general and administrative

     56,208        51,940   
                

Total operating expenses

     81,011        74,349   

Earnings from operations

     84,343        83,366   

Interest expense

     1,224        2,778   

Other income, net

     (307     (1,024
                

Earnings before income taxes

     83,426        81,612   

Income tax provision

     27,531        27,340   
                

Net earnings

   $ 55,895      $ 54,272   
                

Net earnings per share:

    

Basic

   $ 0.37      $ 0.38   
                

Diluted

   $ 0.35      $ 0.35   
                

Weighted average shares outstanding:

    

Basic

     152,899        143,819   
                

Diluted

     161,604        162,578   
                

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

 

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FLIR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

     March 31,
2010
    December 31,
2009

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 461,820      $ 422,047

Accounts receivable, net

     224,400        234,974

Inventories

     223,075        216,500

Prepaid expenses and other current assets

     71,215        93,276

Deferred income taxes, net

     13,107        13,231
              

Total current assets

     993,617        980,028

Property and equipment, net

     168,269        139,112

Deferred income taxes, net

     5,391        5,322

Goodwill

     272,855        262,331

Intangible assets, net

     59,228        59,180

Other assets

     30,947        48,571
              
   $ 1,530,307      $ 1,494,544
              

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 66,226      $ 53,319

Deferred revenue

     14,981        20,986

Accrued payroll and related liabilities

     34,810        39,809

Accrued product warranties

     9,196        9,438

Advance payments from customers

     12,183        8,616

Accrued expenses

     20,815        25,941

Accrued income taxes

     3,813        13,273

Other current liabilities

     10,352        15,504
              

Total current liabilities

     172,376        186,886

Long-term debt

     58,496        58,022

Deferred tax liability, net

     3,328        2,222

Accrued income taxes

     4,850        4,550

Pension and other long-term liabilities

     37,685        39,115

Commitments and contingencies

    

Shareholders’ equity:

    

Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at March 31, 2010, and December 31, 2009

     —          —  

Common stock, $0.01 par value, 500,000 shares authorized, 153,014 and 152,826 shares issued at March 31, 2010, and December 31, 2009, respectively, and additional paid-in capital

     396,892        389,316

Retained earnings

     863,198        807,303

Accumulated other comprehensive earnings (loss)

     (6,518     7,130
              

Total shareholders’ equity

     1,253,572        1,203,749
              
   $ 1,530,307      $ 1,494,544
              

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)

 

     Three Months Ended
March 31,
 
     2010     2009  

Cash flows from operating activities:

    

Net earnings

   $ 55,895      $ 54,272   

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

    

Depreciation and amortization

     11,766        9,925   

Disposal and write-offs of property and equipment

     —          282   

Deferred income taxes

     1,264        (525

Stock-based compensation arrangements

     6,134        5,178   

Cash inducement on exchange offer of convertible notes

     —          1,997   

Other non-cash items

     (118     (1,474

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

    

Decrease in accounts receivable

     8,019        64   

Increase in inventories

     (7,889     (6,325

Decrease in prepaid expenses and other current assets

     21,066        3,514   

Increase (decrease) in other assets

     (257     1,012   

Increase in accounts payable

     13,255        11,828   

Decrease in deferred revenue

     (7,444     (2,249

Decrease in accrued payroll and other current liabilities

     (6,634     (16,349

(Decrease) increase in accrued income taxes

     (11,505     11,994   

(Decrease) increase in pension and other long-term liabilities

     (1,341     1,184   
                

Cash provided by operating activities

     82,211        74,328   
                

Cash flows from investing activities:

    

Additions to property and equipment, net

     (36,850     (12,848

Proceeds from sale of property and equipment

     —          2,874   

Other investments

     (1,000     (1,000
                

Cash used by investing activities

     (37,850     (10,974
                

Cash flows from financing activities:

    

Proceeds from short term debt

     9        —     

Repayment of capital leases and other long-term debt

     (6     (5

Cash inducement on exchange offer for convertible notes

     —          (1,997

Repurchase of common stock

     —          (21,155

Capital contribution

     55        —     

Proceeds from exercise of stock options

     1,148        4,402   

Excess tax benefit from stock-based compensation arrangements

     410        2,623   
                

Cash provided (used) by financing activities

     1,616        (16,132
                

Effect of exchange rate changes on cash

     (6,204     (9,399
                

Net increase in cash and cash equivalents

     39,773        37,823   

Cash and cash equivalents, beginning of period

     422,047        289,442   
                

Cash and cash equivalents, end of period

   $ 461,820      $ 327,265   
                

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. (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, 2009.

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, 2010.

Reclassification

A reclassification of $9.3 million has been made from other current assets to other current liabilities on the December 31, 2009 balance sheet to properly classify the balance of value added taxes payable as a current liability. In addition, a reclassification of $0.7 million has been made from deferred revenue to accrued product warranties. These reclassifications had no impact on previously reported results of operations or shareholders’ equity.

Note 2. Accounting for Convertible Debt

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 the value of the equity component was $35.6 million.

The carrying amount of the convertible notes is as follows (in thousands):

 

     March 31,
2010
    December 31,
2009
 

Liability component:

    

Principal amount

   $ 58,782      $ 58,782   

Unamortized discount

     (278     (706

Unamortized issuance costs

     (34     (85
                
   $ 58,470      $ 57,991   
                

Equity component

   $ (119,724   $ (119,724
                

The unamortized discount and issuance costs will be amortized through June 2010. As of March 31, 2010, 5.3 million shares of the Company’s common stock were issuable upon conversion of the remaining notes, valued at $149.3 million as of the closing market price on that day. The $149.3 million is in excess of the principal amount by $90.5 million.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 2. Accounting for Convertible Debt – (Continued)

The effective interest rate of the convertible notes is 6%. Interest and amortization expense of the convertible notes recognized in the Consolidated Statements of Income are as follows (in thousands):

 

     Three Months
Ended March 31,
     2010    2009

Cash interest (3% coupon)

   $ 441    $ 1,261

Amortization of discount

     428      1,086

Amortization of issuance costs

     51      137
             
   $ 920    $ 2,484
             

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
March 31,
 
     2010     2009  

Cost of goods sold

   $ 889      $ 779   

Research and development

     1,284        1,170   

Selling, general and administrative

     3,961        3,229   
                

Stock-based compensation expense before income taxes

     6,134        5,178   

Income tax benefit

     (1,960     (1,475
                

Total stock-based compensation expense after income taxes

   $ 4,174      $ 3,703   
                

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

 

     March 31,
     2010    2009

Stock-based compensation costs capitalized in inventory

   $ 888    $ 850
             

As of March 31, 2010, the Company had $25.9 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of 1.7 years.

There were no stock option awards granted or employee stock purchase plan enrollments during the three months ended March 31, 2010 and 2009.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 3. Stock-based Compensation – (Continued)

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 March 31,
     2010    2009

Stock Option Awards:

     

Weighted average grant date fair value per share

   $ —      $ —  

Total fair value of awards granted

   $ —      $ —  

Total fair value of awards vested

   $ 4,165    $ 5,460

Total intrinsic value of options exercised

   $ 3,735    $ 8,035

Restricted Stock Unit Awards:

     

Weighted average grant date fair value per share

   $ 26.64    $ 23.60

Total fair value of awards granted

   $ 466    $ 297

Total fair value of awards vested

   $ 327    $ 4,866

The total amount of cash received from the exercise of stock options in the three months ended March 31, 2010 and 2009 was $1.1 million and $4.4 million, respectively, and the related tax benefit realized from the exercise of the stock options was $0.4 million and $2.9 million, respectively.

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, 2009

   8,387      $ 15.81    5.6   

Granted

   —          —        

Exercised

   (175     6.57      

Forfeited

   (8     29.51      
                  

Outstanding at March 31, 2010

   8,204      $ 16.00    5.4    $ 103,471
                        

Exercisable at March 31, 2010

   7,182      $ 14.43    4.9    $ 101,254
                        

Vested and expected to vest at March 31, 2010

   8,152      $ 15.93    5.4    $ 103,360
                        

 

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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 restricted stock unit activity is as follows:

 

     Shares
(in
thousands)
    Weighted
Average
Grant Date
Fair Value

Outstanding at December 31, 2009

   1,226      $ 27.41

Granted

   18        26.64

Vested

   (11     23.84

Forfeited

   (9     29.51
            

Outstanding at March 31, 2010

   1,224      $ 27.06
            

There were no shares issued under the 2009 Employee Stock Purchase Plan during the three months ended March 31, 2010.

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
March 31,
     2010    2009

Numerator for earnings per share:

     

Net earnings, as reported

   $ 55,895    $ 54,272

Interest expense, extinguishment gain and other expenses associated with convertible notes, net of tax

     564      2,009
             

Net earnings available to common shareholders – diluted

   $ 56,459    $ 56,281
             

Denominator for earnings per share:

     

Weighted average number of common shares outstanding

     152,899      143,819

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

     3,407      3,508

Assumed conversion of convertible notes

     5,298      15,251
             

Diluted shares outstanding

     161,604      162,578
             

The effect of stock options and restricted stock units for the three months ended March 31, 2010 and March 31, 2009 that aggregated 321,000 shares and 376,000 shares, respectively, has been excluded for purposes of calculating diluted earnings per share since the effect would have been anti-dilutive.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 5. Fair Value of Financial Instruments

As of March 31, 2010, the Company had $328.1 million of cash equivalents. The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets, in accordance with Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures.” The Company does not have any other financial assets or liabilities that are measured at fair value.

As of March 31, 2010, the Company had $58.8 million of convertible notes included in long-term debt. The fair value of the convertible notes, estimated based on quoted market prices of the convertible notes, as of March 31, 2010 was $149.3 million.

Note 6. Accounts Receivable

Accounts receivable are net of an allowance for doubtful accounts of $2.0 million and $2.0 million at March 31, 2010 and December 31, 2009, respectively.

Note 7. Inventories

Inventories consist of the following (in thousands):

 

     March 31,
2010
   December 31,
2009

Raw material and subassemblies

   $ 158,993    $ 144,555

Work-in-progress

     47,439      37,732

Finished goods

     16,643      34,213
             
   $ 223,075    $ 216,500
             

Note 8. Property and Equipment

Property and equipment are net of accumulated depreciation of $109.4 million and $102.9 million at March 31, 2010 and December 31, 2009, respectively.

Note 9. Goodwill

The carrying value of goodwill by reporting segment and the activity for the three months ended March 31, 2010 is as follows (in thousands):

 

     Government
Systems
    Thermography     Commercial
Vision
Systems
    Total  

Balance, December 31, 2009

   $ 37,584      $ 105,501      $ 119,246      $ 262,331   

Acquisition

     —          —          13,714        13,714   

Currency translation adjustments

     (28     (2,784     (455     (3,267

Other

     —          77        —          77   
                                

Balance, March 31, 2010

   $ 37,556      $ 102,794      $ 132,505      $ 272,855   
                                

Note 10. Intangible Assets

Intangible assets are net of accumulated amortization of $56.7 million and $53.0 million at March 31, 2010 and December 31, 2009, respectively.

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 11. Accrued Product Warranties

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

 

     Three Months Ended
March 31,
 
     2010     2009  

Accrued product warranties, beginning of period

   $ 9,438      $ 7,826   

Amounts paid for warranty services

     (2,705     (3,134

Warranty provisions for products sold

     2,463        3,233   
                

Accrued product warranties, end of period

   $ 9,196      $ 7,925   
                

Note 12. Credit Agreements

At March 31, 2010, 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 $9.1 million of letters of credit outstanding, which reduces the total available credit.

Note 13. Long-Term Debt

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

 

     March 31,
2010
    December 31,
2009
 

Convertible notes (see Note 2)

   $ 58,782      $ 58,782   

Issuance cost and discount of the convertible notes

     (312     (791

Other long-term debt

     26        31   
                
   $ 58,496      $ 58,022   
                

Note 14. Shareholders’ Equity

The following table summarizes the common stock and additional paid-in capital activity during the three months ended March 31, 2010 (in thousands):

 

Common stock and additional paid-in capital, December 31, 2009

   $  389,316

Income tax benefit of common stock options exercised

     430

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

     1,023

Stock-based compensation expense

     6,123
      

Common stock and additional paid-in capital, March 31, 2010

   $ 396,892
      

Note 15. Comprehensive Earnings

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

 

     Three Months Ended
March 31,
 
     2010     2009  

Net earnings

   $ 55,895      $ 54,272   

Translation adjustment

     (13,648     (20,856
                

Total comprehensive earnings

   $ 42,247      $ 33,416   
                

 

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FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 16. Contingencies

The Company and its subsidiary, Indigo Systems Corporation (now known as FLIR Commercial Systems, Inc.) (together, the “FLIR Parties”), were named in a lawsuit filed by Raytheon Company (“Raytheon”) on March 2, 2007, in the United States District Court for the Eastern District of Texas. On August 11, 2008, Raytheon Company was granted leave to file a second amended complaint. The complaint, as amended, asserted claims for tortious interference, patent infringement, trade secret misappropriation, unfair competition, breach of contract and fraudulent concealment. The FLIR Parties filed an answer to the second amended complaint and counterclaims on September 2, 2008, in which they denied all material allegations. On August 31, 2009, the court entered an order granting the FLIR Parties’ motion for summary judgment on Raytheon’s trade secret misappropriation claim based on the FLIR Parties’ statute of limitations defense. Raytheon has abandoned all of its other claims except its claims relating to four patents which are currently set for trial to commence on September 20, 2010. 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 March 31, 2010, the Company had approximately $5.1 million of net unrecognized tax benefits of which all $5.1 million would affect the Company’s effective tax rate if recognized. The Company anticipates a portion of its net unrecognized tax benefits will be recognized within 12 months as the result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of statute of limitations.

The Company classifies interest and penalties related to uncertain tax positions as income tax expense. As of March 31, 2010, the Company had approximately $576,000 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

   1999 –2009

State of Oregon

   1999 –2009

State of Massachusetts

   2005 –2009

State of California

   2004 –2009

Sweden

   2003 –2009

United Kingdom

   2007 –2009

Germany

   2004 –2009

France

   2006 –2009

 

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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
March 31,
 
     2010     2009  

Revenue – External Customers:

    

Government Systems

   $ 158,344      $ 162,208   

Thermography

     75,563        63,931   

Commercial Vision Systems

     53,391        45,857   
                
   $ 287,298      $ 271,996   
                

Revenue – Intersegments:

    

Government Systems

   $ 5,565      $ 6,432   

Thermography

     2,129        2,296   

Commercial Vision Systems

     7,596        5,566   

Eliminations

     (15,290     (14,294
                
   $ —        $ —     
                

Earnings from operations:

    

Government Systems

   $ 62,784      $ 73,385   

Thermography

     20,170        15,949   

Commercial Vision Systems

     13,811        11,299   

Other

     (12,422     (17,267
                
   $ 84,343      $ 83,366   
                
     March 31,
2010
    December 31,
2009
 

Segment assets (accounts receivable, net and inventories):

    

Government Systems

   $ 282,719      $ 283,683   

Thermography

     99,691        105,156   

Commercial Vision Systems

     65,065        62,635   
                
   $ 447,475      $ 451,474   
                

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
March 31,
     2010    2009

United States

   $ 165,510    $ 171,513

Europe

     64,580      59,955

Other foreign

     57,208      40,528
             
   $ 287,298    $ 271,996
             

 

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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):

 

     March 31,
2010
   December 31,
2009

United States

   $ 409,068    $ 387,169

Europe

     113,745      116,850

Other foreign

     8,486      5,175
             
   $ 531,299    $ 509,194
             

Major Customers

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

 

     Three Months Ended
March 31,
     2010    2009

US Government

   $ 109,030    $ 123,442
             

Note 19. Business Acquisition

In December 2009, the Company acquired all of the outstanding stock of Directed Perception, Inc. for approximately $20.2 million in cash. During the three months ended March 31, 2010, the Company completed its allocation of the purchase price and has recorded identifiable intangible assets and goodwill of approximately $4.8 million and $13.7 million, respectively, in the Commercial Vision Systems business segment.

 

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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 March 31, 2010 increased by 5.6 percent, from $272.0 million in the first quarter of 2009 to $287.3 million in the first quarter of 2010.

Government Systems revenue decreased $3.9 million, or 2.4 percent, from $162.2 million in the first quarter of 2009 to $158.3 million in the first quarter of 2010. The decrease in Government Systems revenue in the first quarter of 2010 compared to the same period in 2009 was primarily due to a decrease in revenue from large stabilized gimbal products.

Thermography revenue increased $11.6 million, or 18.2 percent, from $63.9 million in the first quarter of 2009 to $75.6 million in the first quarter of 2010. The increase in Thermography revenue was primarily due to increased sales across most product lines in the United States and Asia and currency translation for worldwide revenues as the US dollar was weaker in the first quarter of 2010 compared to the same period of 2009.

Commercial Vision Systems revenue increased $7.5 million, or 16.4 percent, from $45.9 million in the first quarter of 2009 to $53.4 million in the first quarter of 2010. The increase in Commercial Vision Systems revenue in the first quarter of 2010 compared to the same period in 2009 was due to increased unit sales across most of our product lines.

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 2010 of approximately 9 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 42.4 percent and 36.9 percent for the quarters ended March 31, 2010 and 2009, 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 March 31, 2010, we had an order backlog of $543 million, a decrease of $20 million from backlog at December 31, 2009. Backlog in the Government Systems, Thermography and Commercial Vision Systems divisions was $418 million, $24 million and $101 million, respectively. The decrease in the backlog during the first quarter of 2010 was primarily due to slowing US Government order activity. 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.

 

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Gross profit. Gross profit for the quarter ended March 31, 2010 was $165.4 million compared to $157.7 million for the same quarter last year. As a percentage of revenue, gross profit decreased slightly from 58.0 percent in the first quarter of 2009 to 57.6 percent in the first quarter of 2010.

Research and development expenses. Research and development expenses for the first quarter of 2010 totaled $24.8 million, compared to $22.4 million in the first quarter of 2009. The increase in research and development expenses was primarily due to increased investment in new product development in all business segments. As a percentage of revenue, research and development expenses were 8.6 percent and 8.2 percent for the three months ended March 31, 2010 and 2009, respectively.

Selling, general and administrative expenses. Selling, general and administrative expenses were $56.2 million for the quarter ended March 31, 2010, compared to $51.9 million for the quarter ended March 31, 2009. The increase in selling, general and administrative expenses was primarily due to increased spending in each of our divisions to drive future growth, including our acquisitions in 2009, partially offset by reduced corporate legal expenses. Selling, general and administrative expenses as a percentage of revenue were 19.6 percent and 19.1 percent for the quarters ended March 31, 2010 and 2009, respectively.

Interest expense. Interest expense for the first quarter of 2010 was $1.2 million, compared to $2.8 million for the same period of 2009. 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 discount recorded on the notes and the costs related to the issuance of the notes. The decrease in interest expense for the first quarter of 2010 compared to the same period of 2009 is primarily due to the conversion and exchange of a portion of our outstanding convertible notes during 2009.

Other income/expense. For the quarter ended March 31, 2010, we recorded other income of $0.3 million, compared to other income of $1.0 million for the same period of 2009. Other income for the quarter ended March 31, 2010 includes interest income of $0.3 million and foreign currency losses of $0.2 million. Other income for the quarter ended March 31, 2009 includes interest income of $0.6 million and foreign currency gains of $0.9 million.

Income taxes. The income tax provision of $27.5 million for the three months ended March 31, 2010, represents an effective tax rate of 33.0 percent. We expect the annual effective tax rate for the full year of 2010 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 March 31, 2010, we had cash and cash equivalents on hand of $461.8 million compared to $422.0 million at December 31, 2009. The increase in cash and cash equivalents was primarily due to cash provided from operations, offset by capital expenditures.

Cash used in investing activities of $37.9 million for the three months ended March 31, 2010 primarily related to capital expenditures, including the purchase of a building in Goleta, California to support the needs of our Commercial Vision Systems operations. Cash used in investing activities of $11.0 million for the three months ended March 31, 2009 was primarily related to capital expenditures.

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, Swedish 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 1.042 percent and the prime lending rate was 3.25 percent at March 31, 2010. These rates were 1.001 percent and 3.25 percent, respectively, at December 31, 2009. 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

 

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ranges from 0.175 percent to 0.325 percent. At March 31, 2010 and December 31, 2009, the commitment fee rate was 0.175 percent. The Credit Agreement contains six 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 a minimum liquidity of cash and availability under the Credit Agreement. The Credit Agreement is collateralized by substantially all assets of the Company. At March 31, 2010 and December 31, 2009, we had no borrowings outstanding under the Credit Agreement and were in compliance with all of its financial covenants. We had $9.1 million and $7.8 million of letters of credit outstanding under the Credit Agreement at March 31, 2010 and December 31, 2009, respectively, which reduces the total available credit thereunder.

Our Sweden subsidiary has a 30 million Swedish Kronor (approximately $4.1 million) line of credit with an interest rate at 0.95 percent at March 31, 2010. At March 31, 2010, 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.

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 have provided notice of both our intent to redeem for cash all or part of the notes on June 8, 2010 and the right of note holders to require us to repurchase the notes on June 1, 2010. The convertible notes are eligible for conversion at the option of the note holders and we anticipate note holders will elect to convert after June 1, 2010 but before June 8, 2010.

Cash provided from financing activities of $1.6 million for the three months ended March 31, 2010 primarily related to stock compensation programs. Cash used in financing activities of $16.1 million for the three months ended March 31, 2009 primarily related to repurchasing shares of our common stock and cash paid as an inducement for the exchange of our convertible debt, partially offset by cash generated by our stock compensation programs.

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.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), which provides amendments to the criteria in Subtopic 605-25, “Revenue Recognition – Multiple-Element Arrangements,” for separating consideration in multiple-deliverable arrangements and expands the disclosures related to multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted ASU 2009-13 on January 1, 2010. The Company’s adoption of ASU 2009-13 is not expected to have a material impact on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”), which changes the accounting model for revenue arrangements that include both tangible products and software elements. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted ASU 2009-14 on January 1, 2010. The Company’s adoption of ASU 2009-14 is not expected to have a material impact on its consolidated financial statements.

 

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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, 2009. As described in Note 1 to the Consolidated Financial Statements included in the Form 10-K, the determination of fair value for stock-based compensation awards requires the use of management’s estimates and judgments.

Contractual Obligations

There have been no material changes to our contractual obligations outside the ordinary course of our business since December 31, 2009.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of March 31, 2010, 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, 2009.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, 2010, 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 March 31, 2010 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

 

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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, 2009, which was filed with the Securities and Exchange Commission on February 27, 2010.

 

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

None.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 5. Other Information

E MPLOYMENT A GREEMENTS .

Earl R. Lewis . On May 5, 2010, the Company entered into an Employment Agreement with Earl R. Lewis pursuant to which Mr. Lewis is employed by the Company as President and Chief Executive Officer. The Agreement constitutes an amendment and restatement of the Employment Agreement between Mr. Lewis and the Company dated as of May 6, 2009. The Agreement is for a term ending January 1, 2012, and provides for a minimum annual base salary of $825,000 for 2010 and 2011. Pursuant to the Agreement, Mr. Lewis will also be eligible for bonuses, incentive payments, and grants of stock options as determined by the Compensation Committee of the Company’s Board of Directors. If Mr. Lewis terminates the Agreement or the Company terminates the Agreement for “Cause” (as defined in the Agreement), Mr. Lewis would be paid through the date of termination. In the event that the Agreement terminates as a result of the death of Mr. Lewis, the Company would be required to pay an amount equal to one year’s base salary to Mr. Lewis’ estate or designated beneficiary. If the Company terminates the Agreement without Cause, the Company would be required to continue to pay Mr. Lewis an amount equal to his base salary in effect at the time of termination for a period equal to the greater of 18 months or the remaining term of the Agreement plus a bonus in an amount not less than one year’s base salary. In addition, if the Company terminates the Agreement without Cause, all options and other equity awards granted to Mr. Lewis would immediately vest. If Mr. Lewis’s employment is terminated at a time when a successor as CEO has been identified, he will be paid through termination and will be eligible to receive a prorated award under the Company’s annual incentive plan then in effect. The Agreement also provides that Mr. Lewis will be entitled to all benefits made available to other executive officers and specifies the time periods during which options granted after the date of the Agreement may be exercised after termination of the Agreement. The foregoing description of the Employment Agreement with Mr. Lewis does not purport to be complete and is qualified in its entirety by the full text of the agreement, which is filed as an exhibit to this Report and is incorporated herein by reference.

Stephen M. Bailey . On May 5, 2010, the Company entered into an Employment Agreement with Stephen M. Bailey pursuant to which Mr. Bailey is employed by the Company as Senior Vice President, Finance and Chief Financial Officer. The Agreement constitutes an amendment and restatement of the Employment Agreement between Mr. Bailey and the Company dated as of May 6, 2009. The Agreement is for a term ending May 31, 2010, and provides for a minimum annual base salary of $400,000. Pursuant to the Agreement, Mr. Bailey will also be eligible for bonuses, incentive payments, and grants of stock options as determined by the Compensation Committee of the Company’s Board of Directors. The foregoing description of the Employment Agreement with Mr. Bailey does not purport to be complete and is qualified in its entirety by the full text of the agreement, which is filed as an exhibit to this Report and is incorporated herein by reference.

 

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In addition, on May 5, 2010, the Company entered into a Professional Services Agreement with Stephen M. Bailey pursuant to which Mr. Bailey will provide services as needed for up to eight hours per week for 1) consultation regarding transition and historical matters relating to the Company’s business, and 2) advise the Company on the development of a Company-wide risk management program. The Professional Services Agreement is for a term beginning on June 1, 2010 and ending on May 31, 2011, and provides for a monthly payment of $12,500 with the possibility of additional payments if Mr. Bailey agrees to take on additional special projects requested by the Company. The foregoing description of the Professional Services Agreement with Mr. Bailey does not purport to be complete and is qualified in its entirety by the full text of the agreement, which is filed as an exhibit to this Report and is incorporated herein by reference.

 

Item 6. Exhibits

 

Number

 

Description

10.1   Executive Employment Agreement between FLIR Systems, Inc. and Earl R. Lewis dated as of May 5, 2010. 1
10.2   Executive Employment Agreement between FLIR Systems, Inc. and Stephen M. Bailey dated as of May 5, 2010. 1
10.3   Professional Services Agreement between FLIR Systems, Inc. and Stephen M. Bailey dated as of May 5, 2010. 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.

 

1 This exhibit constitutes a management contract or compensatory plan or arrangement.

 

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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     May 7, 2010  

/ 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)

 

19

Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

 

PARTIES:      FLIR Systems, Inc.   (“Company”)  
    

27700 SW Parkway Avenue

Wilsonville, OR 97070

   
    

Earl R. Lewis

87 Pinckney Street

Boston, MA 02114-4303

  (“Executive”)  

EFFECTIVE DATE: January 1, 2010

RECITALS:

The Company wishes to obtain the services of Executive for the duration of this Agreement, and the Executive wishes to provide his services for such period, all upon the terms and conditions set forth in this Agreement.

Therefore, in consideration of the mutual promises contained herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Base Salary ” means regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments.

1.2 Board means the Board of Directors of the Company.

1.3 Cause means Executive committed any one or more of the following: (i) willful gross misconduct in the performance of any material duties under this Agreement that results in material damage to the Company, and if such misconduct is susceptible of cure, the failure to effect such cure within thirty (30) days after written notice from the Board of such misconduct is given to Executive; (ii) material use of alcohol or illegal drugs which materially interferes with the performance of Executive’s duties hereunder and materially damages the Company; (iii) theft, embezzlement, fraud, misappropriation of funds, other willful acts of dishonesty or the willful and material violation of any material law, ethical rule or fiduciary duty relating to Executive’s employment by the Company that materially damages the Company; (iv) a felony or any act involving moral turpitude; (v) the willful and material violation of any confidentiality or proprietary rights agreement between Executive and the Company that materially damages the Company; or (vi) the willful and material violation of Company policy or procedure, or breach of any material provision of this Agreement, that materially damages the Company, and if such violation or breach is susceptible of cure, the failure to effect such cure within thirty (30) days after written notice from the Board of such violation or breach is given to Executive.


1.4 Disability means for purposes of Section 4.5, the inability of Executive to perform his duties under this Agreement, with or without reasonable accommodation, because of physical or mental incapacity for a continuous period of five (5) months, as determined by the Board. For purposes of Section 3.3, Disability means total and permanent disability as defined in Internal Revenue Code section 22(e)(3).

1.5 FLIR shall mean FLIR Systems, Inc., and its wholly owned subsidiaries.

ARTICLE II

EMPLOYMENT, DUTIES AND TERM

2.1 Employment . Upon the terms and conditions set forth in this Agreement, the Company hereby employs Executive as President and Chief Executive Officer, and Executive accepts such employment. During the term of this Agreement, Executive will continue to work with the Board in its efforts to identify an individual to serve as Executive’s successor as President and/or Chief Executive Officer.

2.2 Duties . Executive shall devote his full-time and best efforts to the Company and to fulfilling the duties of Chief Executive Officer, which shall include such duties as may from time to time be assigned him by the Board, provided that such duties are reasonably consistent with Executive’s education, experience and background. Executive shall comply with the Company’s policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. Executive shall also be permitted to serve on outside boards, commissions and partnerships to the extent such service does not conflict with the provisions of this Agreement.

2.3 Term . The term of this Agreement shall be until January 1, 2012, unless earlier terminated in accordance with Article IV. This Agreement may be extended by mutual agreement of the parties.

 

2


ARTICLE III

COMPENSATION AND EXPENSES

3.1 Base Salary . For all services rendered under this Agreement during the term of Executive’s employment, the Company shall pay Executive a minimum annual Base Salary of $825,000.

3.2 Bonus . Executive shall be eligible for bonuses, incentive payments and other awards as determined by the Board or the Compensation Committee of the Board (the “Committee”) in accordance with the FLIR Systems, Inc. 2007 Executive Bonus Plan then in effect, as amended from time to time.

3.3 Stock Options . Executive shall annually be eligible for grants of options to purchase shares of FLIR stock, based upon achievement of objectives and for such quantity of options as determined by the Board. All such grants, including all past and future grants, shall be subject to the terms and conditions set forth in the option agreements between Executive and the Company associated with each such grant. In the event of any inconsistency between this Agreement and the option agreements, the terms and conditions of the option grants shall take precedence.

3.4 Personal Time Off . Executive shall earn personal time off during the term of his employment in accordance with the Company’s policies regarding paid time off that are applicable to the Company’s executive officers.

3.5 Benefits . Executive shall be eligible to participate in all Company-sponsored health and welfare benefit plans made available to other executives of the Company for so long as he is employed by the Company.

3.6 Supplemental Employee Retirement Plan . The Company shall make all contributions to its Supplemental Employee Retirement Plan (“SERP”) on behalf of Executive for each plan year in accordance with the SERP then in effect, as amended from time to time.

3.7 Business Expenses . The Company shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses reasonably incurred by Executive in performing his duties as an employee of the Company, provided that Executive accounts promptly for such expenses to the Company in the manner prescribed from time to time by the Company.

3.8 Taxes and Withholding . All amounts payable to Executive under this Agreement shall be net of amounts required to be withheld by law. To the extent there is any tax consequence to Executive in connection with payment for work between two states, Executive’s Base Salary shall be grossed up to cover the tax consequence to Executive.

 

3


ARTICLE IV

EARLY TERMINATION

4.1 Early Termination . This Article sets forth the terms for early termination of Executive’s employment with the Company.

4.2 Termination for Cause . The Company may terminate Executive’s employment for Cause immediately upon written notice from the Board to Executive. In the event of termination for Cause pursuant to this Section 4.2, Executive shall be paid Executive’s Base Salary through the date of termination at the rate then in effect, and (without regard to any language that may be inconsistent in any option grant) for any option granted on or after the date of this Agreement Executive shall have the lesser of three (3) months from such termination or the remaining option term in which to exercise his vested stock options.

4.3 Termination Without Cause . Either Executive or the Company may terminate Executive’s employment without Cause on no less than thirty (30) days written notice from or to the Board. In the event Executive terminates his employment without Cause pursuant to this Section 4.3, Executive shall be paid his Base Salary through the date of termination. In the event the Company terminates the Executive’s employment without Cause pursuant to this Section 4.3, the Company shall pay to Executive: (i) continuation of Executive’s Base Salary in effect at the time of termination for a period of eighteen (18) months or for the duration of the remaining term of the Agreement, whichever is greater, in accordance with the Company’s regular payroll practices; (ii) all equity awards granted to Executive shall immediately vest; and (iii) Executive shall be entitled to an additional severance payment in an amount equal to one (1) year’s Base Salary, which amount shall be paid promptly at termination.

 

4


4.4 Termination in Connection with Transition . In the event Executive’s employment terminates at a time when a successor as Chief Executive Officer has been identified by Executive and the Board, the following provisions shall apply:

(a) The Executive shall be paid his Base Salary through the date of termination.

(b) The Executive shall be eligible to receive a prorated Performance Award under the Company’s annual incentive plan in effect for the year in which such a termination occurs. The amount of the Performance Award payable in any such year shall be determined by the Committee. In the event the Executive does not agree with the amount as determined by the Committee, the dispute shall be resolved in accordance with Section 6.5, below.

The prorated Performance Award payable under this Section 4.4(b), if any, shall be paid as soon as is practicable following the Executive’s termination and the determination, in the ordinary course, of the Company’s performance for the relevant Performance Period; provided , however , that in all events, any such prorated Performance Award will be paid no later than March 15 th of the year following the year in which the termination takes place.

Capitalized terms in this Sections 4.4(b) are defined terms in the Company’s 2007 Executive Bonus Plan.

Any Performance Award made under this Section 4.4(b) is not considered Compensation as defined in the SERP.

(c) For avoidance of doubt, in the event of a termination that is contemplated by this Section 4.4, the Executive shall not, as is contemplated by Section 8 of the version of the Company Corporate Governance Principles that is in effect as of the date hereof, be required to tender a resignation from the Board.

4.5 Termination in the Event of Death or Disability . In the event Executive’s employment terminates as a result of the death or Disability of Executive, the following provisions shall apply:

(a) In the event of Executive’s death, the Company shall pay all accrued wages owing through the date of termination, plus an amount equal to one year’s Base Salary. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to the Company by Executive, (2) in the absence of such designation, to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive’s estate. The amount shall be paid as a lump sum as soon as practicable following the Company’s receipt of notice of Executive’s death, but in no event later than December 31 of the year of death if Executive dies between January 1 and October 31. If Executive dies in November or December, such payment shall be made in January of the year following the year of death.

 

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(b) In the event of Disability, Base Salary shall be paid through the final day of the fifth (5 th ) month referenced in the definition of “Disability.”

4.6 Entire Termination Payment . The compensation provided for in this Article IV shall constitute Executive’s sole remedy for early termination of Executive’s employment. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and the Company or under any policy in effect at, preceding or following the date of termination except that, in the event that Executive’s employment terminates for any reason, the vested benefits accrued under tax-qualified retirement plans, if any, and the Supplemental Executive Retirement Plan (SERP) will be paid as such plans are ordinarily payable upon a termination of employment.

ARTICLE V

CONFLICT OF INTEREST

5.1 During the term of employment with the Company, Executive will engage in no activity or employment which may conflict with the interests of the Company, and will comply with the Company’s policies and guidelines pertaining to business conduct and ethics.

ARTICLE VI

GENERAL PROVISIONS

6.1 Successors and Assigns . Except as otherwise provided in Article VI, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, administrators, executors, legatees, and heirs. In that this Agreement is a personal services contract, it shall not be assigned by Executive.

6.2 Notices . All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address as set forth at the beginning of this Agreement (if to Company, to the attention of the General Counsel). Either party may change its address, by notice to the other party given in the manner set forth in this Section. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the third (3rd) business day thereafter or when it is actually received, whichever is sooner.

 

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6.3 Caption . The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

6.4 Governing Law and Jurisdiction . The validity, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without regard to its choice of laws provisions.

6.5 Mediation . In the case of any dispute arising under this Agreement which cannot be settled by reasonable discussion, the parties agree that, prior to commencing any proceeding, they will first engage the services of a professional mediator agreed upon by the parties and attempt in good faith to resolve the dispute through confidential nonbinding mediation. Each party shall bear one-half (  1 / 2 ) of the mediator’s fees and expenses and shall pay all of its own attorneys’ fees and expenses related to the mediation. This Section 6.5 shall not apply to any action to enforce Executive’s obligations under a confidentiality or proprietary rights agreement.

6.6 Indemnification . If Executive is made a party or identified as a witness to any threatened or pending action, suit, or proceeding (whether civil, criminal, administrative or investigative) in any matter concerning or relating to Executive’s service to or actions or omissions on behalf of the Company as an employee or agent thereof, then the Company shall, to the maximum extent permitted by law, and in addition to any such right granted to or available to Executive under the Company’s Charter, By-Laws or standing or other resolutions or agreements, defend, indemnify and hold Executive harmless against all expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement. The Company shall, upon Executive’s request, promptly advance or pay any amounts for reasonable costs, charges, or expenses (including any legal fees and expenses incurred by Executive) subject to indemnification hereunder or in furtherance of such right, subject to a later determination as to Executive’s ultimate right to receive indemnification. Executive’s right to indemnification will survive until the expiration of all applicable statutes of limitations, without regard to the earlier cessation of Executive’s employment or any termination or expiration of this Agreement.

6.7 Attorney Fees . In the event of any suit, action or arbitration to interpret or enforce this Agreement, the prevailing party shall be entitled to recover its attorney fees, costs and out-of-pocket expenses at trial and on appeal.

6.8 Construction . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

6.9 Waivers . No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any

 

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single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law.

6.10 Modification . This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto.

6.11 Section 409A. Any reimbursement of expenses under this Agreement (including, for example, under Section 3.7) shall occur not later than March 15 of the year following the year in which the expense was incurred. Any amount of expenses eligible for reimbursement, or in-kind benefit provided, during a calendar year shall not affect the amount of expenses eligible for reimbursement, or in-kind benefit to be provided, during any other calendar year. The right to any reimbursement or in-kind benefit pursuant to this Agreement shall not be subject to liquidation or exchange for any other benefit. In the event Executive is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code at the time of the termination of Executive’s employment, any payments on termination due hereunder (other than accrued salary and vacation pay) which are considered deferred compensation and are payable during the six (6) month period beginning on Executive’s termination will be deferred and paid, together with interest at eight percent (8%), in a lump sum six (6) months and one (1) day after the date of termination (or, if earlier, upon Executive’s death).

It is the intention of the parties that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to Executive under Section 409A of the Internal Revenue Code and any guidance issued thereunder. Notwithstanding any provision of this Agreement to the contrary, this Agreement shall be interpreted, applied and (to the minimum extent necessary) amended so that it does not fail to meet, and is operated in accordance with, the requirements of that Section. Any reference in this Agreement to Section 409A of the Internal Revenue Code shall also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to that Section by the U.S. Department of the Treasury or the Internal Revenue Service.

6.12 Entire Agreement . Except as set forth in Section 3.3, this Agreement constitutes the entire agreement between the parties and supersedes all prior or contemporaneous oral or written understandings, statements, representations or promises with respect to its subject matter. This Agreement was the subject of negotiation between the parties and, therefore, the parties agree that the rule of construction requiring that the agreement be construed against the drafter shall not apply to the interpretation of this Agreement.

6.13 Status of Prior Executive Employment Agreements . The parties acknowledge that this Agreement constitutes an amendment and restatement of the prior Executive Employment Agreements between the Executive and the Company, with effective dates of November 1, 2000, January 1, 2002, January 1, 2003, January 1, 2004, January 1, 2005, January 1, 2006, January 1, 2007, January 1, 2008 and January 1, 2009, and does not effect a termination of any such prior Agreement.

 

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6.14 Counterparts . This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

Signed this 5th day of May, 2010.

 

EARL R. LEWIS

    FLIR SYSTEMS, INC.
/s/ Earl R. Lewis     By:   /s/ Angus L. Macdonald
    Title:   Chairman of the Compensation Committee

 

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Exhibit 10.2

EXECUTIVE EMPLOYMENT AGREEMENT

 

PARTIES:

   FLIR Systems, Inc.    (“Company”)
   27700 SW Parkway Avenue
Wilsonville, Oregon 97070
  
  

Stephen M. Bailey

16740 SW Pinot Place

Hillsboro, Oregon 97123

   (“Executive”)

EFFECTIVE DATE: January 1, 2010

RECITALS:

The Company wishes to obtain the services of Executive for the duration of this Agreement, and the Executive wishes to provide his services for such period, all upon the terms and conditions set forth in this Agreement.

Therefore, in consideration of the mutual promises contained herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Base Salary ” means regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments.

1.2 Board means the Board of Directors of the Company.

1.3 Cause means Executive committed any one or more of the following: (i) willful gross misconduct in the performance of any material duties under this Agreement that results in material damage to the Company, and if such misconduct is susceptible of cure, the failure to effect such cure within thirty (30) days after written notice from the Board and/or the Company’s Chief Executive Officer of such misconduct is given to Executive; (ii) material use of alcohol or illegal drugs which materially interferes with the performance of Executive’s duties hereunder and materially damages the Company; (iii) theft, embezzlement, fraud, misappropriation of funds, other willful acts of dishonesty or the willful and material violation of any material law, ethical rule or fiduciary duty relating to Executive’s employment by the Company that materially damages the Company; (iv) a felony or any act involving moral turpitude; (v) the willful and material violation of any confidentiality or proprietary rights agreement between Executive and the Company that materially damages the Company; or (vi) the willful and material violation of Company policy or procedure, or breach of any material provision of this Agreement, that materially damages the Company, and if such violation or breach is susceptible of cure, the failure to effect such cure within thirty (30) days after written notice from the Board and/or Chief Executive Officer of such violation or breach is given to Executive.


1.4 Change of Control means the occurrence of a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of the Company, as determined in accordance with this Section 1.4. In determining whether an event shall be considered a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of the Company, the following provisions shall apply:

(a) A “change in the ownership” of the Company shall occur on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, as determined in accordance with Treasury Regulation §1.409A-3(i)(5)(v).

(b) A “change in the effective control” of the Company shall occur on the date on which a majority of the members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment or election, as determined in accordance with Treasury Regulation §1.409A-3(i)(5)(vi).

(c) A “change in the ownership of a substantial portion of the assets” of the Company shall occur on the date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, as determined in accordance with Treasury Regulation §1.409A-3(i)(5)(vii). A transfer of assets shall not be treated as a “change in the ownership of a substantial portion of the assets” when such transfer is made to an entity that is controlled by the shareholders of the Company, as determined in accordance with Treasury Regulation §1.409A-3(i)(5)(vii)(B).

1.5 Disability means for purposes of Sections 4.5 and 4.6, the inability of Executive to perform his duties under this Agreement, with or without reasonable accommodation, because of physical or mental incapacity for a continuous period of five (5) months, as determined by the Board.

ARTICLE II

EMPLOYMENT, DUTIES AND TERM

2.1 Employment . Upon the terms and conditions set forth in this Agreement, the Company hereby employs Executive as Senior Vice President, Finance and Chief Financial Officer, and Executive accepts such employment.

 

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2.2 Duties . Executive shall devote his full-time and best efforts to the Company and to fulfilling the duties of Chief Financial Officer, which shall include such duties as may from time to time be assigned him by the Board and Chief Executive Officer, provided that such duties are reasonably consistent with Executive’s education, experience and background. Executive shall comply with the Company’s policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. Executive shall also be permitted to serve on outside boards, commissions and partnerships to the extent such service does not conflict with the provisions of this Agreement.

2.3 Term . The term of this Agreement shall be until May 31, 2010, unless earlier terminated in accordance with Article IV. This Agreement may be extended by mutual agreement of the parties.

ARTICLE III

COMPENSATION AND EXPENSES

3.1 Base Salary . For all services rendered under this Agreement during the term of Executive’s employment, the Company shall pay Executive a minimum annual Base Salary of $400,000.

3.2 Bonus . Executive shall be eligible for bonuses, incentive payments and other awards as determined by the Board or the Compensation Committee of the Board (the “Committee”) in accordance with the FLIR Systems, Inc. 2007 Executive Bonus Plan then in effect, as amended from time to time.

3.3 Equity Awards . Executive shall annually be eligible for grants of equity awards as determined by the Board. All such grants, including all past and future grants, shall be subject to the terms and conditions set forth in the grant agreements between Executive and the Company associated with each such grant. In the event of any inconsistency between this Agreement and the grant agreements, the terms and conditions of the grant agreements shall take precedence.

3.4 Personal Time Off . Executive shall earn personal time off during the term of his employment in accordance with the Company’s policies regarding paid time off that are applicable to the Company’s executive officers.

3.5 Benefits . Executive shall be eligible to participate in all Company-sponsored health and welfare benefit plans as made available to other executives of the Company and notwithstanding any provision herein to the contrary, following termination for a reason other than Cause the Company will pay Executive’s COBRA premiums for continuation of coverage in any Company-sponsored group health benefit plans for Executive and any of Executive’s dependents eligible to participate in the plans until the earliest of (a) 18 months, (b) such time as Executive obtains comparable benefits through employment or otherwise and (c) age 65.

 

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3.6 Supplemental Employee Retirement Plan . The Company shall make all contributions to its Supplemental Employee Retirement Plan (“SERP”) on behalf of Executive for each plan year in accordance with the SERP then in effect, as amended from time to time.

3.7 Business Expenses . The Company shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses reasonably incurred by Executive in performing his duties as an employee of the Company, provided that Executive accounts promptly for such expenses to the Company in the manner prescribed from time to time by the Company.

3.8 Taxes and Withholding . All amounts payable to Executive under this Agreement shall be net of amounts required to be withheld by law. To the extent there is any tax consequence to Executive in connection with payment for work between two states, Executive’s Base Salary shall be grossed up to cover the tax consequence to Executive.

ARTICLE IV

EARLY TERMINATION

4.1 Early Termination . This Article sets forth the terms for early termination of this Executive’s employment with the Company.

4.2 Termination for Cause . The Company may terminate this Agreement and Executive’s employment for Cause immediately upon written notice from the Board and/or the Company’s Chief Executive Officer to Executive. In the event of termination for Cause pursuant to this Section 4.2, Executive shall be paid Executive’s Base Salary through the date of termination at the rate then in effect, and (without regard to any language that may be inconsistent in any option grant) for any option granted on or after the date of this Agreement Executive shall have the lesser of three (3) months from such termination or the remaining option term in which to exercise his vested stock options.

4.3 Termination Without Cause . Either Executive or the Company may terminate this Agreement and Executive’s employment without Cause on no less than thirty (30) days written notice from or to the Chief Executive Officer. In the event Executive terminates his employment without Cause pursuant to this Section 4.3, Executive shall be paid his base salary through the date of termination. In the event the Company terminates the Executive’s employment without Cause pursuant to this Section 4.3 except for a termination described in section 4.4, the Company shall pay to Executive: (i) continuation of Executive’s Base Salary in effect at the time of termination for a period of eighteen (18) months or for the duration of the remaining term of the Agreement, whichever is greater, in accordance with the Company’s regular payroll practices; (ii) all equity awards granted to Executive shall immediately vest; and (iii) Executive shall be entitled to an annual bonus (in lieu of any bonus for the year of termination otherwise set forth in Section 3.2) in an amount not less than sixty percent (60%) of one (1) year’s Base Salary, which amount shall be paid promptly at termination.

 

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4.4 Termination in Connection with Transition . In the event Executive’s employment terminates at a time when a successor as Chief Financial Officer has been identified who will assume such office immediately following the termination of the Executive’s employment, the following provisions shall apply:

(a) The Executive shall be paid his Base Salary through the date of termination.

(b) The Executive shall be eligible to receive a Performance Award prorated at fifty (50) percent under the Company’s annual incentive plan in effect for the year in which such a termination occurs. The amount of the Performance Award payable in any such year shall be determined by the Committee. In the event the Executive does not agree with the amount as determined by the Committee, the dispute shall be resolved in accordance with Section 6.5, below.

The prorated Performance Award payable under this Section 4.4(b), if any, shall be paid as soon as is practicable following the Executive’s termination and the determination, in the ordinary course, of the Company’s performance for the relevant Performance Period; provided , however , that in all events, any such prorated Performance Award will be paid no later than March 15 th of the year following the year in which the termination takes place.

Capitalized terms in this Section 4.4(b) are defined terms in the Company’s 2007 Executive Bonus Plan.

Any Performance Award made under this Section 4.4(b) is not considered Compensation as defined in the SERP.

4.5 Termination Following Change of Control . If a Change of Control occurs during the term of this Agreement and either (i) Executive’s employment is terminated by the Company for a reason other than Cause within sixty (60) days before the Change of Control or one hundred eighty (180) days after the Change of Control or (ii) Executive terminates his employment due to Good Reason by delivery of a notice to the Company within one hundred eighty (180) days after the Change of Control setting forth the conditions that constitute Good Reason, then Executive will be entitled to the benefits provided in this Section 4.5 in lieu of any benefits otherwise payable under Sections 4.3, 4.4 or 4.6; provided that Executive shall not be entitled to such benefits if such termination is due to Executive’s death or Disability. As used in this paragraph, Good Reason means, without Executive’s express written consent, the occurrence of any of the following conditions: (i) a material reduction in Executive’s base compensation; (ii) a material diminution in Executive’s authority, duties, or responsibilities; or (iii) a relocation of Executive’s primary employment duties by more than 50 miles; provided , however , that the occurrence of any such condition shall not constitute Good Reason unless Executive provides notice to the Company of the existence of such condition not later than the earlier to occur of (A) 90 days after the initial existence of such condition and (B) 180 days after the date of the Change of Control, and the Company shall have failed to remedy such condition within 30 days after receipt of such notice.

In the event Executive becomes eligible for benefits under this Section 4.5, Executive will receive (i) any benefits to which Executive is entitled pursuant to and in accordance with the terms of any plan of the Company then in effect and any existing contract between Executive and the Company, and (ii) the following benefits, conditioned upon Executive signing a release of

 

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claims in a form reasonably satisfactory to the Company not later than twenty-one (21) calendar days after the date of Executive’s termination:

(a) Executive’s unvested equity awards will immediately vest and become exercisable; and

(b) a lump sum payment in an amount equal to Executive’s Cash Compensation received by Executive from the Company for the two (2) most recent taxable years ending before the date upon which the Change of Control occurred, payable upon the latest of (i) thirty (30) calendar days from the date Executive’s employment terminates, (ii) thirty (30) calendar days from the date of the Change of Control or (iii) the expiration of any applicable revocation period under the release, but in no event later than March 15th of the year following the year in which the termination of employment occurs. As used in this paragraph, Cash Compensation means Executive’s Base Salary and Performance Award payment, in each case including any amounts deferred in the Company’s 401(k) plan and deferred compensation plan.

Notwithstanding any other provision of this Agreement, if any payment or benefit Executive would receive pursuant to a Change of Control of the Company (each a “Payment” and collectively the “Payments”) could constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), then the Company shall reduce the Payments so that the maximum amount of the Payments shall be One Dollar ($1.00) less than the amount that would cause the Payments to be subject to the excise tax imposed by Section 4999 of the Code.

If a reduction in Payments is necessary under Section 4.5, reduction shall occur in the following order unless Executive elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of cash payments and then cancellation of accelerated vesting of equity awards. A nationally recognized, independent accounting firm selected by the Company shall perform the calculations required by this Agreement. The Company shall bear all reasonable expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with supporting documentation, to the Company and Executive promptly after the date on which Executive’s right to a Payment is triggered (if requested at that time by Executive or the Company) or such other time as requested by Executive or the Company, including a reasonable time prior to the Payment trigger date. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon Executive and the Company.

4.6 Termination in the Event of Death or Disability . In the event Executive’s employment terminates as a result of the death or Disability of Executive, the following provisions shall apply:

(a) In the event of Executive’s death, the Company shall pay all accrued wages owing through the date of termination, plus an amount equal to one year’s Base Salary. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to the Company by Executive, (2) in the absence of such designation, to the surviving spouse, or (3) if there is no

 

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surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive’s estate. The amount shall be paid as a lump sum as soon as practicable following the Company’s receipt of notice of Executive’s death but in no event later than December 31 of the year of death if Executive dies between January 1 and October 31. If Executive dies in November or December, such payment shall be made in January of the year following the year of death.

(b) In the event of Disability, Base Salary shall be paid through the final day of the fifth (5 th ) month referenced in the definition of “Disability.”

4.7 Entire Termination Payment . The compensation provided for in this Article IV shall constitute Executive’s sole remedy for early termination of Executive’s employment. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and the Company or under any policy in effect at, preceding or following the date of termination except that, in the event that Executive’s employment terminates for any reason, the vested benefits accrued under tax-qualified retirement plans, if any, and the Supplemental Executive Retirement Plan (SERP) will be paid as such plans are ordinarily payable upon a termination of employment.

ARTICLE V

CONFLICT OF INTEREST

5.1 During the term of employment with the Company, Executive will engage in no activity or employment which may conflict with the interests of the Company, and will comply with the Company’s policies and guidelines pertaining to business conduct and ethics.

ARTICLE VI

GENERAL PROVISIONS

6.1 Successors and Assigns . Except as otherwise provided in Article VI, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, administrators, executors, legatees, and heirs. In that this Agreement is a personal services contract, it shall not be assigned by Executive.

6.2 Notices . All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address as set forth at the beginning of this Agreement (if to Company, to the attention of the General Counsel). Either party may change its address, by notice to the other party given in the manner set forth in this Section. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the third (3 rd ) business day thereafter or when it is actually received, whichever is sooner.

 

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6.3 Caption . The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

6.4 Governing Law and Jurisdiction . The validity, construction and performance of this Agreement shall be governed by the laws of the State of Oregon, without regard to its choice of laws provisions.

6.5 Mediation . In the case of any dispute arising under this Agreement which cannot be settled by reasonable discussion, the parties agree that, prior to commencing any proceeding, they will first engage the services of a professional mediator agreed upon by the parties and attempt in good faith to resolve the dispute through confidential nonbinding mediation. Each party shall bear one-half (  1 / 2 ) of the mediator’s fees and expenses and shall pay all of its own attorneys’ fees and expenses related to the mediation. This Section 6.5 shall not apply to any action to enforce Executive’s obligations under a confidentiality or proprietary rights agreement.

6.6 Indemnification . If Executive is made a party or identified as a witness to any threatened or pending action, suit, or proceeding (whether civil, criminal, administrative or investigative) in any matter concerning or relating to Executive’s service to or actions or omissions on behalf of the Company as an employee or agent thereof, then the Company shall, to the maximum extent permitted by law, and in addition to any such right granted to or available to Executive under the Company’s Charter, By-Laws or standing or other resolutions or agreements, defend, indemnify and hold Executive harmless against all expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement. The Company shall, upon Executive’s request, promptly advance or pay any amounts for reasonable costs, charges, or expenses (including any legal fees and expenses incurred by Executive) subject to indemnification hereunder or in furtherance of such right, subject to a later determination as to Executive’s ultimate right to receive indemnification. Executive’s right to indemnification will survive until the expiration of all applicable statutes of limitations, without regard to the earlier cessation of Executive’s employment or any termination or expiration of this Agreement.

6.7 Attorney Fees . In the event of any suit, action or arbitration to interpret or enforce this Agreement, the prevailing party shall be entitled to recover its attorney fees, costs and out-of-pocket expenses at trial and on appeal.

6.8 Construction . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

6.9 Waivers . No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law.

 

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6.10 Modification . This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto.

6.11 Section 409A. Any reimbursement of expenses under this Agreement (including, for example, under Section 3.7) shall occur not later than March 15 of the year following the year in which the expense was incurred. Any amount of expenses eligible for reimbursement, or in-kind benefit provided, during a calendar year shall not affect the amount of expenses eligible for reimbursement, or in-kind benefit to be provided, during any other calendar year. The right to any reimbursement or in-kind benefit pursuant to this Agreement shall not be subject to liquidation or exchange for any other benefit. In the event Executive is a “specified employee” within the meaning of Section 409A of the Code at the time of the termination of Executive’s employment, any payments on termination due hereunder (other than accrued salary and vacation pay) which are considered deferred compensation and are payable during the six (6) month period beginning on Executive’s termination will be deferred and paid, together with interest at eight percent (8%), in a lump sum six (6) months and one (1) day after the date of termination (or, if earlier, upon Executive’s death).

It is the intention of the parties that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to Executive under Section 409A of the Code and any guidance issued thereunder. Notwithstanding any provision of this Agreement to the contrary, this Agreement shall be interpreted, applied and (to the minimum extent necessary) amended so that it does not fail to meet, and is operated in accordance with, the requirements of that Section. Any reference in this Agreement to Section 409A of the Code shall also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to that Section by the U.S. Department of the Treasury or the Internal Revenue Service.

6.12 Entire Agreement . Except as set forth in Section 3.3, this Agreement constitutes the entire agreement between the parties and supersedes all prior or contemporaneous oral or written understandings, statements, representations or promises with respect to its subject matter. This Agreement was the subject of negotiation between the parties and, therefore, the parties agree that the rule of construction requiring that the agreement be construed against the drafter shall not apply to the interpretation of this Agreement.

6.13 Status of Prior Executive Employment Agreement . The parties acknowledge that this Agreement constitutes an amendment and restatement of the prior Executive Employment Agreements between the Executive and the Company, with effective dates of January 1, 2007, January 1, 2008, and January 1, 2009, and does not effect a termination of such prior Agreements.

6.14 Counterparts . This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

Signed this 5th day of May, 2010.

 

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STEPHEN M. BAILEY

    FLIR SYSTEMS, INC.

/s/ Stephen M. Bailey

    By:  

/s/ Angus L. Macdonald

    Title:  

Chairman of the Compensation Committee

 

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Exhibit 10.3

LOGO

FLIR SYSTEMS, INC.

PROFESSIONAL SERVICES AGREEMENT

This Professional Services Agreement (the “Agreement”) is made as of the date last signed below in Wilsonville, County of Clackamas, State of Oregon,

between

FLIR Systems, Inc. (hereinafter, the “Company” or “FLIR”), a corporation having offices at 27700 SW Parkway Avenue, Wilsonville, Oregon 97070

and

Stephen M. Bailey, an individual residing at 16740 SW Pinot Place, Hillsboro, OR 97123 (hereinafter, the “Consultant”) (individually, a “Party” and together, the “Parties”).

1. SCOPE OF WORK TO BE PERFORMED . FLIR desires to retain Consultant and Consultant agrees to provide services as needed for up to eight (8) hours per week in performing the following tasks:

 

   

Be available to the Company for consultation regarding transition and historical matters relating to the Company’s business.

 

   

Advise the Company on the development of a Company-wide risk management program to include an analysis that (i) identifies the Company’s risk areas, (ii) describes Company’s present risk mitigation strategies, and (iii) provides recommendations for risk management strategy modification and implementation steps.

As may be required pertaining to the above tasks, Consultant will submit a written report to his supervisor, the Company’s Chief Executive Officer (“Supervisor”).

2. TERMS OF PAYMENT . FLIR shall pay Consultant in accordance with the following terms upon receipt of monthly invoices:

 

   

Base: $12,500 to be paid monthly on the 10 th business day of each month (the “Base Fee”), by direct deposit to Consultant’s designated bank account.

   

Additional: In the event Supervisor requests that Consultant perform additional special project work, and Consultant agrees to perform such additional work, Consultant shall be paid $300 per hour up to the agreed upon number of hours for the additional work.

3. REIMBURSEMENT OF EXPENSES . FLIR shall reimburse Consultant for any expenses paid or incurred by Consultant in the normal course of performing the tasks or special projects. In the event that Consultant travels on behalf of the Company, travel hours will be counted toward the weekly number of hours set forth in Paragraph 1, above. Travel expenses will be reimbursed in accordance with FLIR’s travel policy as previously applied to Consultant as an officer of FLIR.


4. EQUIPMENT, TOOLS, MATERIALS, OR SUPPLIES . FLIR shall provide Consultant with a laptop computer and appropriate access to the FLIR network. Consultant shall supply, at Consultant’s expense, all other equipment, tools, materials, and/or supplies to accomplish the scope of work to be performed.

5. FEDERAL, STATE AND LOCAL PAYROLL TAXES . Neither federal, nor state, nor local income tax nor payroll tax of any kind shall be withheld or paid by FLIR on behalf of Consultant with respect to payments received by Consultant under terms of this Agreement. Consultant shall not be treated as an employee with respect to the services performed hereunder for Federal or state tax purposes.

6. NOTICE TO CONSULTANT REGARDING TAX DUTIES AND OTHER LIABILITIES . Consultant understands that Consultant is responsible to pay, according to law, Consultant income tax for services performed under this Agreement. If Consultant is not a corporation, Consultant further understands that Consultant may be held liable for self-employment (Social Security) tax, to be paid by Consultant according to law for payments under this Agreement. Further, Consultant shall indemnify and hold FLIR harmless from any and all losses, injuries, or damages caused by Consultant’s negligence, reckless or intentional acts or omissions unless incurred within the scope of work or special projects to be performed on behalf of FLIR within the meaning of this Agreement. Consultant will show upon request a policy of insurance to cover any negligent acts committed by Consultant.

7. BENEFITS . Except as may be provided in that certain Employment Agreement between Consultant and FLIR dated January 1, 2009 (the “Employment Agreement”), and other defined employee benefits granted prior to Consultant termination by qualified retirement, Consultant is not eligible for, and shall not participate in, any employee pension, health, or other benefit plan, of FLIR.

8. WORKERS’ COMPENSATION . No workers’ compensation insurance shall be obtained by FLIR concerning Consultant. Consultant shall comply with all applicable workers’ compensation laws concerning Consultant , and shall provide to FLIR a certificate of Workers’ Compensation Insurance or similar upon request.

9. TERM OF AGREEMENT . The term of this Agreement shall commence on June 1, 2010 and terminate at 11:59 p.m. on May 31, 2011.

10. TERMINATION WITHOUT CAUSE . Without cause, either Party may terminate this Agreement after giving fourteen (14) calendar days prior written notice to the other of intent to terminate without cause. The Parties shall deal with each other in good faith during the 14-day period after any notice of intent to terminate without cause has been given.

11. TERMINATION WITH CAUSE . With reasonable cause, either Party may terminate this Agreement effective immediately upon providing written notice of termination for cause. Reasonable cause shall include, but not limited to:

 

  a. Material violation of this Agreement; or

 

  b. Any act exposing the other Party to liability to others for personal injury or property damage.


In addition to the provisions of Paragraphs 10 and 11, FLIR shall have the absolute right to terminate this Agreement immediately upon the occurrence of any one of the following events:

 

  i. FLIR being obliged under law to terminate this Agreement.

 

  ii. Consultant:

 

   

becomes employed, controlled or managed by any other person, body or corporation without prior written consent of Supervisor;

 

   

fails to comply with or observe any law, or government regulation, or becomes involved in legal proceedings or activities which may prejudice or harm the business or good name of FLIR; or

 

   

becomes suspended, disbarred or disqualified form conducting transactions, including U.S. Government contracts.

12. NON-WAIVER . The failure of either Party to exercise any of its rights under this Agreement for a breach thereof shall not be deemed to be a waiver of such rights or a waiver of any subsequent rights.

13. NO AUTHORITY TO BIND . Consultant has no authority to enter into contracts or agreements on behalf of FLIR. This Agreement does not create a partnership or other business relationship between the Parties, other than Consultant’s role as an independent contractor providing services to FLIR.

14. DECLARATION BY THE CONSULTANT . Consultant declares that Consultant (i) has complied with all applicable federal, state and local laws regarding business permits, certificates and licenses that may be required to carry out the work to be performed under this Agreement, and (ii) will comply with all such laws which are or may pertain to FLIR’s business and the services to be performed by Consultant.

 

15. PROPRIETARY INFORMATION .

 

  a. FLIR shall retain all title, right and interest it possesses in any drawings, information, data, reports, specifications or documentation, whether of a technical, financial or business nature (hereinafter “Proprietary Data”) furnished to Consultant by FLIR. For purposes of this Agreement, Proprietary Data shall include such data disclosed in tangible form or in oral or intangible form.

 

  b. Consultant agrees that the Proprietary Data shall not be used or reproduced for any purposes whatsoever except for the performance of services under this Agreement. Consultant further agrees not to disclose to any third party, by any means, whatsoever, any FLIR Proprietary Data Consultant may have obtained in the performance of services under this Agreement, without the prior written permission of an officer of FLIR.


  c. Any information which is proprietary to Consultant and which is disclosed to FLIR hereunder shall be deemed to have been disclosed as a part of the consideration for this Agreement, and FLIR shall have full right to its use as FLIR deems fit.

 

  d. Any information contained in, and the ownership of all reports and documents developed, acquired or performed by Consultant in connection with this Agreement, shall remain the sole property of FLIR, shall be held in confidence by Consultant, and shall not be reproduced, used or disclosed to others by Consultant. The obligation of this Paragraph 15.d shall survive any termination hereof.

 

  e. Except for Paragraph 15.d, Consultant’s obligations with respect to this Paragraph 15 shall remain in effect for a period of seven (7) years from the date of termination of this Agreement. At FLIR’s request, Consultant shall certify in writing the return and/or destruction of all Proprietary Data.

16. CONFLICT OF INTEREST . During the term of this Agreement and for a period of one (1) year from the date of termination, Consultant agrees to refrain from engaging in activities which are in conflict with FLIR’s interest or derive any benefit from the information disclosed to Consultant as a result of this Agreement. To the extent such activities are not in conflict with FLIR’s interests, Consultant shall, with the prior written consent of Supervisor, be free to engage in activities on behalf of other entities involved in businesses similar to that of FLIR.

17. NOTICES . Any notice required or permitted to be given in connection with this Agreement shall be given in writing and shall be delivered either (i) by hand to the Party, or (ii) by certified mail, return receipt requested to the Party at the Party’s address stated herein, or (iii) by facsimile with proof of transmission. Any Party may change its address stated herein by giving notice of the change in accordance with this Paragraph 17. For FLIR, notice shall be given as follows:

FLIR Systems, Inc.

Attn: General Counsel

27700 SW Parkway Avenue

Wilsonville, OR 97070

Fax: (503) 498-3911

18. ASSIGNABILITY . Consultant may not assign, subcontract, or otherwise transfer any right or obligation it has, or may acquire, under this Agreement to any other entity without FLIR’s prior written approval. Any such assignment, subcontracting or transfers approved shall also be conditioned upon acceptance by the assignee, subcontractor and/or transferee of the terms and conditions hereof.

19. MEDIATION AND ARBITRATION . In the case of any dispute arising under this Agreement which cannot be settled by reasonable discussion (a “Dispute”), the parties agree that, prior to commencing any proceeding to enforce any rights under this Agreement, they will first engage the services of a professional mediator agreed upon by the parties and attempt in good


faith to resolve the dispute through confidential nonbinding mediation. Each party shall bear one-half (  1 / 2 ) of the mediator’s fees and expenses and shall pay all of its own attorneys’ fees and expenses related to the mediation.

If any Dispute cannot be resolved by mediation, such Dispute shall be settled by arbitration before a single arbitrator in Portland, Oregon or such other location on which the parties may agree administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its Commercial Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of FLIR and Consultant. Consultant and FLIR acknowledge that this Agreement evidences a transaction involving interstate commerce. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.

20. CHOICE OF LAW . Any dispute under this Agreement or related to this Agreement shall be decided in accordance with the laws of the State of Oregon, without regard to its choice of laws provisions.

21. ENTIRE AGREEMENT . This is the entire Agreement of the Parties relating to the consulting relationship between the Parties; provided , however , that the provisions of the Employment Agreement relating to Consultant’s employment and post-employment rights and obligations, specifically Paragraphs 3.5, 3.6, 4.4 as amended, 4.7, and Article VI of said Employment Agreement, shall remain in full force and effect.

22. SEVERABILITY . If any part of this Agreement shall be held unenforceable, the rest of this Agreement will nevertheless remain in full force and effect.

23. AMENDMENTS . This Agreement may be supplemented, amended or revised only in writing as mutually agreed by the Parties.

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IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DATE FIRST ABOVE STATED.

 

FLIR SYSTEMS, INC.    CONSULTANT

/s/ Angus L. Macdonald

  

/s/ Stephen M. Bailey

Signature    Signature

Angus L. Macdonald

  

Stephen M. Bailey

Printed Name    Printed Name

Chairman of the Compensation Committee

  

 

Title    Title

May 5, 2010

  

May 5, 2010

Date    Date

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     May 7, 2010                                   

/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     May 7, 2010                                      

/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 March 31, 2010 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     May 7, 2010                              

/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 March 31, 2010 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     May 7, 2010                          

/s/ S TEPHEN M. B AILEY

  Stephen M. Bailey
  Chief Financial Officer