FLIR Systems, Inc.
FLIR SYSTEMS INC (Form: 10-K, Received: 02/26/2016 16:08:23)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________ 
FORM 10-K
(Mark one)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2015.
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)
Registrant’s telephone number, including area code: (503) 498-3547
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange
on Which Registered
Common Stock, $0.01 par value
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:    None
________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x
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 (§229.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or amendment to this Form 10-K.     ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions 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 Act).     Yes   ¨     No   x
As of June 30, 2015 , the aggregate market value of the shares of voting and non-voting stock of the registrant held by non-affiliates was $4,278,863,278 .
As of February 19, 2016 , there were 137,557,972 shares of the registrant’s common stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant has incorporated by reference into Part III of this Form 10-K, portions of its Proxy Statement for its 2016 Annual Meeting of Shareholders.



FLIR Systems, Inc.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
 
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15



Forward-Looking Statements

This Annual Report on Form 10-K (the “Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 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 “Risk Factors” in Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, 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, economic 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 the Company does 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 the Company updates or corrects one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect to other forward-looking statements.

PART I
ITEM 1.
BUSINESS
GENERAL
FLIR Systems, Inc. (“FLIR,” the “Company,” “we,” “us,” or “our”) is a world leader in developing technologies that enhance perception and awareness. We design, develop, market, and distribute solutions that detect people, objects and substances that may not be perceived by human senses and improve the way people interact with the world around them. We bring these innovative technologies - which include thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and advanced threat-detection solutions - into daily life.
Founded in 1978, FLIR is a pioneer in advanced sensors and integrated sensor systems that enable the gathering, measurement, and analysis of critical information through a wide variety of applications in commercial, industrial, government, and consumer markets worldwide. We offer the broadest range of infrared, also known as thermal, imaging solutions in the world, with products that range from consumer-use thermal camera smartphone accessories to highly advanced aircraft-mounted imaging systems for military and search and rescue applications, with products in between serving a multitude of markets, customers, and applications. As the cost of thermal imaging technology has declined, our opportunities to increase the adoption of thermal technology and create new markets for the technology have expanded. In order to better serve the customers in these markets, we have augmented our thermal product offerings with complementary sensing technologies, such as visible imaging, radar, laser, sonar, chemical sensing, and environmental sensing technologies.
Our goal is to both enable our customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for our shareholders. We create value for our customers by improving personal and public safety and security, providing advanced intelligence, surveillance, reconnaissance, and tactical defense capabilities, facilitating air, ground, and maritime-based situational awareness, enhancing enjoyment of the outdoors, detecting electrical, mechanical and building envelope problems, displaying process irregularities, detecting volatile organic gas emissions, and a variety of other uses of thermal and other sensing technologies.
Our business model and range of solutions allow FLIR to sell products to various end markets, including industrial, original equipment manufacturing ("OEM"), military, homeland security, enterprise, infrastructure, environmental, and consumer. We sell off-the-shelf products in configurations to suit specific customer requirements in an efficient, timely, and affordable manner, and support those customers with training and ongoing support and services. Centered on the design of products for low-cost manufacturing and high-volume distribution, our commercial operating model has been developed over time and provides us with

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a unique ability to adapt to market changes and meet our customers’ needs. Because we aggregate product demand and production across these markets, we are able to generate significant volume - this volume drives down cost, which then increases demand, enabling a virtuous cycle of lower prices and higher unit volumes. Our manufacturing and supply processes are vertically integrated, minimizing lead times, facilitating prompt delivery, controlling costs and ensuring that components satisfy our high quality standards.
We have evolved our product suite over time, expanding our reach into markets that are adjacent to thermal imaging, with the intent of expanding the adoption and channel development for thermal imaging technology. Examples of this evolution include our entrance into the visible-image security and surveillance market, the maritime electronics market, and the traffic monitoring and signal control market. We intend to continue this evolution as we continue to lower the cost of advanced sensing products. As the cost to own thermal technology continues to decline, the application of these sensors is expanding beyond imaging to areas such as data acquisition where thermal sensors can provide important data that can be used for a wide variety of applications.
We believe that FLIR's brand is known for quality, innovation and trust and that customers are drawn to us for products and solutions that are effective, innovative, easy to use, and sold at competitive market prices. We intend to: continue to reduce the cost of thermal technology through higher volumes and new product and process improvements; innovate new applications and form-factors for our technology based on customer feedback; improve the customer experience through improved user-interface, ease-of-use, and software; increase customer loyalty and trust by providing world-class product warranties and support; and improve operational processes to realign resources to be nimble in response to customers’ needs and market trends.
We are organized into the following six operating segments:
Surveillance: The Surveillance segment provides enhanced imaging and recognition solutions under our commercially developed, military qualified ("CDMQ®") model to a wide variety of military, law enforcement, public safety, and other government customers around the world for the protection of borders, troops, and public welfare. Surveillance also develops hand-held and weapon-mounted thermal imaging systems for use by consumers. These products are sold off-the-shelf or can be customized for specific applications and range in price from under $2,000 for certain hand-held and weapon-mounted systems to over $1 million for our most advanced stabilized multi-spectral targeting systems. Revenue from Surveillance was $ 503.0 million in 2015 , which represented approximately 32 percent of consolidated revenue.
Instruments: The Instruments segment provides devices that image, measure, and assess thermal energy, gases, electricity, and other environmental elements for industrial, commercial, and scientific applications under the FLIR and Extech brands. These tools are used by professionals in electrical and mechanical, building envelope, manufacturing plant facility maintenance, petrochemical, utilities, HVAC/R, firefighting, safety and health, and a variety of other sectors. Revenue from Instruments was $ 347.5 million in 2015 , which represented approximately 22 percent of consolidated revenue.
Security: The Security segment develops and manufactures a wide spectrum of cameras and video recording systems for use in commercial, critical infrastructure, and home monitoring applications. The segment sells products under the FLIR and Lorex brands. Revenue from Security was $ 226.6 million in 2015 , which represented approximately 15 percent of consolidated revenue.
OEM & Emerging Markets: The OEM & Emerging Markets segment provides thermal imaging camera cores and components that are utilized by third parties to create thermal and other types of imaging systems. This segment also houses our emerging businesses, including intelligent traffic systems, imaging solutions for the smartphone and mobile devices market, and thermal imaging solutions for commercial-use unmanned aerial systems. Revenue from OEM & Emerging Markets was $ 186.7 million in 2015 , which represented approximately 12 percent of consolidated revenue.
Maritime: The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market under the FLIR and Raymarine brands. The segment provides boats of all sizes a full suite of electronic instruments, control systems, and communications equipment. Revenue from Maritime was $ 177.9 million in 2015 , which represented approximately 11 percent of consolidated revenue.
Detection: The Detection segment offers sensors, instruments, and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives ("CBRNE") threats for military force protection, homeland security, first responders, and commercial applications. Detection has strengths in understanding the nature of sophisticated security threats, the technological potential of advanced detection instruments and systems, and the complex procurement processes of United States and many international government customers. Revenue from Detection was $ 115.3 million in 2015 , which represented 7 percent of consolidated revenue.

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For additional information concerning the Company’s segments, including revenues from external customers, earnings from operations, and total assets by segment presented in accordance with our segment structure, see Note 17 to the Consolidated Financial Statements in Item 8.
Our headquarters are located at 27700 SW Parkway Avenue, Wilsonville, Oregon, 97070, and the telephone number at this location is (503) 498-3547. Information about the Company is available on our website at www.flir.com.

TECHNOLOGY AND CAPABILITIES
Infrared is a portion of the electromagnetic spectrum that is adjacent to the visible spectrum but is invisible to the human eye due to its longer wavelengths. Unlike visible light, infrared radiation (or heat) is emitted directly by all objects above absolute zero in temperature. Thermal imaging systems detect this infrared radiation and convert it into an electronic signal, which is then processed into a video signal and displayed on a video screen. Thermal sensors provide several benefits over ubiquitous visible light-based sensing technologies, including the ability to see in complete darkness, measure temperature remotely and without touching the surface of the object, image through obscurants such as smoke and fog, detect and discriminate living beings in an efficient and reliable way, see over long distances with minimal atmospheric interference, and image many types of otherwise invisible gases. For these reasons we feel the potential of our core technology to grow in prevalence and importance is significant, particularly as the cost to produce the technology continues to decline.
Thermal imaging systems are different than other types of “low light” night vision systems, such as visible light intensification systems used in green or gray sighted night vision goggles, because thermal imaging systems are not adversely affected by the presence of visible light, so they can be used day or night and are not susceptible to rapid changes in visible light levels. Thermal imaging systems are particularly well-suited for security applications involving the early detection of human activity due to the typically large temperature difference found between a human and the surrounding background. Since infrared systems are detecting emitted infrared radiation, they are passive - and thus more covert than certain “active” or “illuminated” infrared systems. Additionally, thermal imaging systems have the ability to measure absolute temperatures remotely, a critical feature for a variety of commercial, industrial, and scientific applications.
An infrared detector, which collects or absorbs infrared radiation and converts it into an electronic signal, is the primary component of thermal imaging systems. The two types of infrared detectors we manufacture and use in our systems are often referred to as “cooled” and “uncooled” detectors. Cooled detectors utilize a mechanical sterling cycle micro-cooler to reduce the operating temperature of the infrared sensor to approximately -200°C. These detectors offer very high sensitivity and spatial resolution for long-range applications or those applications requiring high measurement precision. Cooled detectors, while more sensitive and thus able to see farther, result in a product that is more expensive, heavier, more complex, and uses more power than those using uncooled detectors. Uncooled detectors operate at room temperature and do not require a micro-cooler, resulting in products that are lighter, use less power and are less expensive to produce than those using cooled detectors. The cost of both types of detectors is declining, and we expect to continue reducing costs as volumes rise and the technology advances.
We have expertise in the calibration and repair of our products, and maintain service facilities at many locations worldwide. Each of our service facilities has the capability to perform the complex calibrations required to service thermal imaging systems. We also maintain field service capabilities under the direction of our independent representatives or distributors in certain locations outside the United States.
As our customers have sought, and will continue to seek, new ways to address their needs and requirements in the most cost-effective and efficient manner, we have integrated thermal imaging with complementary technologies such as visible imaging, lasers, radar, and more. The following capabilities and disciplines are integrated into our business and processes:
System Design and Integration

We have developed extensive competencies in the design and integration of numerous capabilities and payloads into integrated systems or sub-systems. Competencies such as stabilization, packaging and systems integration allow us to effectively combine a wide variety of technologies and payloads to suit our customers’ needs. We strive to minimize the size, weight, power consumption, and cost in each of our product designs.

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Radiometry

Our ability to produce thermal imaging systems that can accurately measure temperature remotely is critical in many of our Instruments segment markets. We have demonstrated know-how in designing and producing systems that can measure temperature to within very precise tolerances while maintaining accuracy and stability over time and over a wide range of ambient temperatures. We believe our skills in this area, known as thermal radiometry, offer an important competitive advantage over many of our competitors.
Mechanical Engineering

The design and production of thermal imaging systems involves highly sophisticated mechanical engineering techniques, particularly in the design and assembly of the supporting structures for system components such as detector arrays, micro-coolers, and optics. We also have expertise in designing stabilized assemblies used in our gimbal-mounted products utilizing precise electro-mechanical control, gyroscopes, electronic stabilization, and specialized optical control mechanisms.
Infrared Detector Design Manufacturing

We design and manufacture both cooled and uncooled infrared detector arrays, in high volumes and at low costs. We believe our uncooled vanadium oxide microbolometers and cooled detectors using indium antimonide and indium gallium arsenide are among the highest performing infrared detectors of their type available in the world. Internal design and manufacturing of these detectors provides significant cost and engineering advantages compared with the use of external sources.
Integrated Circuits and Electronic Design

We have significant electronic design capabilities across several specialized areas, including readout-integrated circuit design, signal processing, image processing, and electronics integration. Our design expertise lies in the areas of reliability, low power consumption, and extreme environmental survivability.
Software Development

Software is an increasingly important aspect of our overall engineering and design activity. We offer networking capabilities, video analytics, and advanced firmware in our camera and other sensing systems. Many of our products are supported by a software eco-system that includes dedicated desktop and mobile platform applications. Our products are typically developed with broad compatibility with common industry standards and protocols.
Optical Design, Fabrication and Coating

We design and manufacture sophisticated infrared optics using materials such as silicon, germanium, and zinc selenide that are required to produce a thermal imaging system. This capability allows us to rapidly develop optics optimized for use with our cameras and avoid costs and delays associated with reliance on third-party optics suppliers. We also have the capability to produce silicon wafer-level micro-optics at high volumes and the ability to apply custom multi-layer, vapor-deposited coatings to improve the transmission of the lens materials that are used in infrared systems.
Micro-Coolers

We manufacture some of the industry’s smallest, lightest, and lowest power micro-coolers for use in cooling infrared detectors. Our coolers are especially effective in hand-held applications, where light weight and long battery life are essential.
Lasers and Laser Components

Many of our more sophisticated systems are increasingly being offered with various types of laser payloads, including pointers, illuminators, rangefinders, and designators. We design and manufacture purpose-built laser rangefinders and designators for inclusion in some of our gimbaled multi-sensor systems. We also manufacture certain laser-related materials and components for external customers.

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Tactical Platforms

We develop and manufacture comprehensive and integrated solutions for surveillance, assessment, and response. These platform solutions draw from our Surveillance and Detection products, as well as products sourced outside of the Company. These unmanned and manned networkable mobile and vehicle mounted systems can be deployed in nearly any environment and have provided security at borders, at theme parks, for police and military forces, at national monuments, and at high-profile events, both in the United States and internationally.

RESEARCH & DEVELOPMENT
Our success has been and will continue to be substantially affected by our ability to innovate new products and technologies that both augment our existing offerings and create new avenues for growth. We strive to differentiate ourselves from our competition with our research and development ("R&D") capabilities. Our internally funded R&D expenses were $ 132.9 million , $ 142.8 million , and $ 147.7 million in 2015, 2014 and 2013 , respectively. We intend to continue to have significant internal R&D expenses in the future to provide a continuing flow of innovative and high-quality products to maintain and enhance our competitive position in each of our business segments. In addition to these internally funded activities, we engaged in R&D projects that were reimbursed by government agencies or prime contractors pursuant to development contracts we undertook. We believe our R&D capabilities are most efficiently deployed in a commercial environment, where we are free to innovate to meet market and customer needs, as such, the amount of externally funded R&D work that we undertake has been declining.

COMPETITIVE STRENGTHS
With our decades of experience in developing and marketing infrared sensor products, we have built several unique competitive advantages that are core to our success. We look to leverage these strengths to continue to increase the availability of and uses for advanced sensing technologies and to grow our revenue and profitability:
Commercial Operating Model
A key differentiator of our business model is our commercial approach to technology investment and product strategy. This is characterized by our commercial approach to R&D as described above, as well as our focus on global deployment, innovative marketing communications, superior customer service, rapid product development cycles, innovation of new technologies and unique products, ability to design for large-volume and low-cost production, and control of multiple production inputs through our vertically integrated operations.
Vertically Integrated Manufacturing and Supply
We have built a vertically integrated manufacturing operation that provides control over several key component technologies. Through acquisitions and internal development, we have created this internal supply network that allows for optimized manufacturing throughput, rapid response to changes in customer demand, increased product design flexibility, enhanced product reliability, and independence in designing key components. Further, this integrated approach enables us to lower costs and improve the functionality of critical components so that they work together most efficiently within our products. In comparison to competitors that do not possess a similar level of vertical integration, our model helps us deliver products in a more timely and cost-effective manner as we rely less on third-party suppliers for critical components.
Industry-Leading Market Position
We are a leading developer of advanced, proprietary sensor systems that are highly reliable, accurate, and effective. We strive to develop products that lead in the areas of Size, Weight, Power and Cost ("SWAP-c"). We believe we have achieved significant penetration into many markets, including the government, industrial, commercial, and consumer markets by pioneering new applications and being a "first-mover" in these markets. Having a leading position in the markets we serve allows us to secure new and continuing business while also achieving manufacturing economies of scale. Increased unit volumes work to reduce costs throughout our business, which allows us to create new products that feature lower price points. This creates a virtuous cycle whereby we are able to make advanced sensor technologies more affordable to a wide array of end-users while reducing costs. This established presence across multiple markets enhances our competitive position.

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Broad Product Lines
We offer a wide array of sensor products, including infrared imaging cameras and systems, detector cores, visible-light cameras, CBRNE threat detectors, test and measurement instruments, radars, maritime electronics, and related products and solutions. Our customers can buy these products off the shelf or request a customized sensor solution. This ability to serve a variety of customers with disparate needs and specifications allows us to be successful in facilitating the use of advanced sensors in a broad range of applications. We have the ability to rapidly conceive, design, prototype, and manufacture new products to meet the evolving landscapes of the markets we serve. Our development process incorporates significant customer satisfaction and field-use data and results in the rapid creation of new features that are able to address the changing needs of the end-user. This continual evolution of our products has proven successful through our high level of customer retention and revenue and income growth.
Internally Funded Innovation
We have expertise in developing sensing instruments that are both highly advanced from a technical standpoint and commercially viable and salable across multiple types of customers. Since the beginning of 2011 , we have invested $ 707.9 million in internally funded research and development of new technologies and products. Utilizing our own funds for R&D provides us with full ownership of the development process and the end product, and also focuses our R&D teams on projects that will result in products that are commercially viable, yield the highest expected financial return and can be marketed to multiple markets for multiple applications.
Diverse Customer Base
We sell our products to thousands of commercial and government customers for use in a variety of applications and markets worldwide. The buyers and users of our products include United States and foreign governments and government agencies, aerospace and defense contractors, electricians and tradesmen, commercial seaports, first responders, critical infrastructure operators, electrical generation and gas processing plants, heating and air conditioning technicians, building inspectors, food processors, automobile parts manufacturers, commercial and residential security providers, research and lab technicians, manufacturing companies, recreational boaters, and general commercial consumers. We believe that the diversity of our customers, end-user markets, and applications helps to mitigate fluctuations in demand from any particular customer or market. The diversity of our customers and of the end-users of sensor technologies provides us with multiple long-term growth opportunities.
Global Distribution Capabilities
Our core infrared imaging products have expanded from high-end products sold primarily to military customers and niche research firms to everyday tools providing valuable information-gathering and assessment capabilities for a multitude of industrial, government, and commercial entities and consumers. With the widening adoption of these technologies, distribution has become a key advantage to our business globally. We believe our sales and distribution organization is among the largest in the industry and effectively covers the world with a combination of direct sales, third-party representatives and distributors, independent dealers, retail outlets, application engineers, and service and training centers. Internationally, we have invested heavily to build a strong presence to sell and service our products, a key advantage in penetrating certain markets, such as foreign governments. Our sales representatives, including third-party distributors, undergo a comprehensive training program on each product’s technical specifications, functions, and applications. We also continuously update our training programs to incorporate technological and competitive shifts and changes. We sell in many distinct markets and have established specific sales channels for each market. We intend to continue to expand this distribution platform through internal growth and external acquisitions.
Investment in Research and Development and Intellectual Property Platform
We have invested heavily in R&D, resulting in industry-leading innovations and a robust and growing patent portfolio that is focused on our core technologies as well as many of our emerging technologies and businesses. To complement our patent portfolio, we continue to strengthen our key brands by unifying critical design features across product lines, enhancing our worldwide trademark coverage, refining our domain portfolio, and growing brand awareness through social media outlets.

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Consistent Generation and Distribution of Cash Flows
Our earnings, combined with our modest capital expenditure requirements, result in the generation of significant free cash flows. In the years ended December 31, 2015 and 2014 , our net cash provided by operating activities was $ 275.8 million and $226.2 million , respectively. Our operating cash flows have exceeded our net earnings in each of the last five years. This ability to consistently convert revenues into net operating cash provides us significant flexibility in making growth and capital deployment decisions, such as consummating strategic acquisitions, undertaking new product and technology development initiatives, expanding our distribution and marketing presence, making capital investments, paying dividends, and repurchasing shares of our common stock in the open market. Since 2011 , we have utilized approximately $ 245.4 million of cash for acquisitions, $ 799.4 million for share repurchases, $249.8 million for dividends, and $ 281.7 million for capital expenditures. Since we began paying dividends in 2011 , we have annually increased our dividend at a compound annual growth rate of approximately 16 percent.

STRATEGY
Our clear and consistent strategy has enabled strong and steady business performance while allowing expansion into areas of growth. We look to build on our leading position in advanced sensor systems by leveraging our key competitive strengths through a focused corporate strategy that will yield growth in both revenue and profitability. Key elements of the FLIR growth strategy include:
Control the corners
We seek to have strong positions in both the entry-level and high-performance price points in each market we serve. We believe this will provide us with the ability to innovate solutions throughout the full solution spectrum of each market and sell products for the broadest customer base in the market. We believe this approach has created a significant competitive advantage for many of our businesses. Our focus will remain on continuous cost reduction of sensor technology, innovative next-generation solutions for evolving customer needs, and creating virtuous cycles of demand across all of our markets.
Lower costs, increase awareness
We strive to aggressively lower the cost and increase awareness of thermal sensor technology to enable our approach to high-volume markets. The price and awareness of thermal technology have been and continue to be the barriers to broad adoption. By increasing the awareness of thermal imaging, through thoughtful and impactful marketing and solution design, we believe our customers will recognize the benefits of thermal sensing and, as prices decline, recognize the value proposition of infrared technology.
Identify needs
We consistently look to identify customers' needs that can be solved by our capabilities. When we identify such a market need, we invest in research, distribution, product development, and staffing to create the best product solution and most efficient go-to-market strategy. This has allowed us to pioneer several new markets for thermal imaging. Our experience in finding and building these new markets has allowed us to create a repeatable system for continuing to expand the uses and demand for advanced sensor-based technologies.
Brand, distribution, and innovation
We intend to grow the size and our share of the markets we participate in as well as develop markets for our technology that do not currently exist through a strong brand, broad distribution, and highly innovative products and solutions. We invest in brand development to support our goal of being the top brand in thermal sensing, and intend to expand our brand power into new arenas. We have developed and utilize both our own distribution infrastructure and that of hundreds of partners, resulting in a diverse, efficient, and effective platform for selling and delivering our products. We also leverage a strong innovation engine, built from a talented and driven employee base and a willingness to invest in high-return opportunities, to create valuable intellectual property and cutting-edge products.

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Build trust
We believe trust is our most valuable asset. We focus on building trust with stakeholders - including current and future customers, shareholders, employees, and our communities. We build that trust by operating on an uncompromising foundation of ethical behavior and producing products that deliver a differentiated value proposition to our customers. We also build trust by maintaining an effective and open line of communication with our employees, stakeholders, and community members.
Financial discipline
We intend to continue to operate with financial discipline in order to create value for our stakeholders. We believe that the cornerstones to financial discipline are revenue and profit growth. We are focused on growing our top-line revenues and converting that to profits for bottom-line growth. We also intend to focus on continuous improvement through creating process efficiencies, building operational scale, and utilizing robust financial controls. We believe that these factors will ultimately generate superior long-term returns on investment for our shareholders.

BUSINESS SEGMENTS
Surveillance Segment
The Surveillance segment develops and manufactures enhanced imaging and situational awareness solutions for a wide variety of military, law enforcement, public safety, and other government entities around the world. The segment also develops and sells hand-held and mounted scopes for consumers in the hunting and outdoors markets. Our solutions are used to protect borders, conduct search and rescue missions, gather intelligence, and protect critical infrastructure by providing the capability to see over long distances, day or night, through adverse weather conditions, through many obscurants, and from a wide variety of vehicle, man-portable, and fixed-installation platforms.
Surveillance infrared imaging systems typically employ cooled infrared detector and numerous other imaging technologies to identify and track objects from long distances and at high resolution. The Surveillance segment also utilizes uncooled thermal technology to enable markets where size, weight, power consumption, and cost are important considerations. Uncooled Surveillance segment products include hand-held and tripod-mount monoculars and binoculars, weapon sights, and military-vehicle vision systems. We also design and manufacture lasers and laser components, such as rangefinders, illuminators, and target markers.
Our customers require systems that operate in demanding environments such as extreme climatic conditions, battlefield and military environments, or maritime conditions. Systems are often installed onto larger platforms and must be able to integrate with other systems such as aircraft avionics, radars, remote weapon systems, laser systems, command and control centers, and large, broad-based security networks.
We address our core markets through either a commercial, off-the-shelf ("COTS") model or a CDMQ model. The products we develop under the COTS model are applicable to a range of commercial and government customers and markets, including military applications. CDMQ products are specifically designed to meet military specifications. In both the COTS and CDMQ product development models, we use internally generated funds for research and development, and we generally own all rights to the products and their design.
Markets
Search and rescue
Thermal imaging systems are used in airborne, shipborne, and land-based missions to rescue individuals in danger, distress, or who are wounded or lost in adverse conditions. These systems are in use today by organizations such as the United States Army, United States Air Force, United States Coast Guard, United States Marine Corps, United States Air National Guard, and many international customers.
Force protection
In instances where military or other personnel are deployed in hostile areas, thermal imaging systems and radars mounted on towers or other platforms are deployed to detect, identify, and defeat potential threats at an early stage. Our systems are deployed for this purpose by the United States Army, United States Marine Corps, and other organizations worldwide.

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Border and maritime patrol         
Our systems are used in airborne, shipborne, hand-held and fixed-installation applications for border and maritime surveillance, particularly at night, to enforce borders and monitor coastal waters, to support national fishing boundaries and to prevent smuggling. Our cameras are currently deployed along numerous borders worldwide, including in the United States, Europe, and the Middle East.
Surveillance and reconnaissance
High-definition thermal imaging systems are used in surveillance and reconnaissance applications for the precise positioning of objects or people from substantial distances and for enhanced situational awareness, particularly at night or in conditions of reduced or obscured visibility. We also offer high-resolution, frequency-modulated, continuous-wave radars that enable wide-area surveillance capable of detecting potential threats before they cross a perimeter. These systems can be installed on fixed platforms, manned-mobile platforms, and unmanned aerial systems.
Airborne law enforcement         
We are a leader in the supply of stabilized airborne thermal imaging systems for federal, state, and local law enforcement agencies. This type of equipment gives those agencies the ability to track suspects, locate lost persons, and provide situational awareness to officers on the ground.
Targeting                 
We offer several products that provide precise target location and designation capabilities in applications ranging from man-portable devices to high-definition, multi-spectral, stabilized airborne laser designator systems.
Drug interdiction             
Thermal imaging systems enable government agencies to expand their drug interdiction and support activities by allowing 24/7 wide-area surveillance and detection capabilities. Our systems are in use by the United States Customs Service, United States Drug Enforcement Agency and United States Federal Bureau of Investigation, as well as by similar foreign government agencies.
Personal vision                 
We develop easy to use, affordable, and lightweight personal vision thermal cameras, such as monoculars and hunting scopes, that provide people the ability to see at night and stay safe in various settings. They enhance people’s enjoyment of the outdoors by enabling them to keep track of their camping party, see and track animals, and navigate during deteriorated weather conditions. We believe the personal vision systems market is very large and is becoming increasingly accessible as we reduce the price of advanced thermal imaging products.
Sales and Distribution
Our Surveillance business has a direct sales staff and a network of independent representatives and distributors covering major government markets worldwide. Included in this organization are technical and customer support staff in the United States, Europe, the Middle East, and Asia Pacific regions who provide application development, technical training, and operational assistance to direct and indirect sales personnel as well as to customers.
The Surveillance segment typically has the highest backlog of our segments relative to revenue and in absolute terms. At December 31, 2015 , the Surveillance segment had a total backlog of $309 million . Backlog represents orders that have been received for products, contract research and development, or other services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
Surveillance segment customers generally consist of United States and foreign government agencies, including civilian, military, paramilitary, and police forces, as well as defense contractors and aircraft manufacturers. A substantial portion of Surveillance segment consolidated revenue is derived from sales to United States and foreign government agencies, and our business will continue to be substantially dependent upon such sales. We expect revenue outside the United States to continue to account for a significant portion of our Surveillance segment's revenue. The Surveillance segment is susceptible to some seasonality in its orders primarily based on the United States government budget year end. The result is that the third quarter tends to exhibit the largest amount of orders for our Surveillance segment. However, fiscal policy trends, increased revenue from outside the United States, budget delays, and general economic trends can overshadow this seasonality in any given year.

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Competition
The Surveillance segment operates in a highly competitive market. Many of our competitors in the government sector are well-established contractors for various governments and have more financial and other resources than we possess. The principal competitive factors in the government markets include technical innovation, agency relationships, product quality and reliability, price, and ability to deliver. We believe we compete successfully in these markets with our best-in-class technologies, our products’ abilities to outperform customer requirements and competitors’ products, our lower-priced solutions that result from our CDMQ operating model, and our service and support functions that exist in the field and near the customer. Our current principal competitors in the Surveillance markets include divisions of BAE Systems, DRS (a Finmeccanica company), Elbit Systems, General Dynamics, L-3 Communications, Lockheed Martin, Raytheon, Sagem, Sofradir, and Thales.

Instruments Segment
The Instruments segment develops hand-held, fixed mount, and desktop imaging and measurement products. Thermal imaging camera products detect and measure heat and surface temperature differences, offering high accuracy, sophisticated diagnostic functionality, and a product range that spans a wide price spectrum. The Instruments segment's thermal cameras and related products are utilized by a growing number of industrial plant professionals, residential construction and contracting firms, energy production workers, manufacturing equipment and production line technicians, tradesmen, and homeowners.
The Instruments segment offers a broad range of cooled and uncooled thermal products, with thermal cameras for laboratory and research and development applications; optical gas imagers for oil, power, and chemical production applications; highly ruggedized cameras for firefighters that are used for fire attack, overhaul, and search-and-rescue operations; fixed and pan-tilt thermal cameras for factory line automation and plant safety monitoring; and multiple lines of professional and mid-level thermal cameras for building analysis, predictive maintenance, and electrical systems analysis.
Under our FLIR and Extech brands, the Instruments segment provides a comprehensive line of rugged and reliable test and measurement instruments, such as moisture meters, electrical test clamp meters, power analyzers, and multi-functional meters. These measurement instruments are used to evaluate electrical and environmental factors, including voltage, sound, light, heat index, and water quality. Leveraging our low-cost thermal sensors, we augment and enhance these familiar tools used in many industrial and commercial trades with Infrared Guided Measurement ("IGM"). IGM allows users to more efficiently address issues by first discovering via a thermal image the precise area of over-heating, moisture damage, or air ingress, allowing them to then apply the relevant sensor, such as voltage, current, spot temperature, or moisture probe, at the point of concern.
Markets
Building and HVAC/R             
Thermal imaging cameras are increasingly used by building and home inspectors, roofing specialists, plumbers, general contractors, and real estate firms to evaluate and measure the integrity of buildings by quickly revealing structural problems, such as air leaks and missing insulation, to help ensure efficient use of energy and other resources. Heating, ventilation, air conditioning, and refrigeration ("HVAC/R") and mechanical contractors use thermal cameras and test and measurement equipment to ensure comfort in residences and workplaces by discovering, monitoring, and documenting airflow, leaks, and temperatures in ductwork and other forms of heating/cooling distribution systems. Hand-held test and measurement tools are used to measure airflow, humidity, carbon monoxide levels, light, sound, and other environmental factors.
Electrical             
Electricians and mechanical technicians utilize thermal cameras and test and measurement equipment to quickly conduct electrical diagnostics, such as identifying circuit overloads, finding loose wire connections, and measuring currents, all without having to touch dangerous components. From overheating electrical circuits to corroded connections, thermal cameras and test meters provide the diagnostic functions needed to verify correct installations, quickly trace the source of problems, and enable efficient electrical systems. Hand-held test and measurement tools are used to measure currents, voltage, resistance, continuity, and other electrical parameters.
Predictive maintenance         
Thermal imaging systems are used for monitoring the condition of mechanical and electrical equipment. Such monitoring enables factory and plant maintenance technicians to quickly reveal equipment faults, manifested as hot or cold spots, so they can be

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repaired before they fail. This increases equipment productivity and avoids catastrophic failures or major damage, which reduces operating expenses by lowering repair costs and reducing downtime. Improved functionality of image analysis software, smaller size and weight, and simplicity of system operation are critical factors for this well-established market segment. Hand-held test and measurement tools are used to measure airflow, humidity, carbon monoxide levels, sound, vibration and other environmental factors.
Firefighting                 
Thermal imaging is a well-known technology in the firefighting market, with firefighters and first responders worldwide utilizing thermal imaging cameras for protecting their own life and saving the lives of others. Thermal imaging technology allows first responders to assess conditions of a space prior to and after entry by providing them the ability to see through most forms of smoke. This also allows them to search for people and animals and identify fire hot spots in burning buildings or smoke filled environments. Providing the ability to measure temperatures in a non-contact mode from a safe distance helps firefighters to protect themselves against dangerous phenomena like roll-overs and flash-overs.
Research and science             
High-end thermal imaging systems provide the unique ability to detect very small differences in temperature. This capability is useful in industrial R&D, where developers study, see, and quantify the heat dissipation, stress tolerance, and thermal characteristics of their materials, components, and products. At colleges and universities, instructors use thermal imagery to help students visualize the theories of heat transfer and thermodynamics, improving student comprehension of key concepts, and for both fundamental and applied research. In the defense sector, cooled thermal imaging cameras are used in the development of firearms, ammunition, guided missiles, and aircraft.
Oil and gas production             
Thermal imaging cameras can visualize and pinpoint certain gas leaks. In industrial, utility, and oil and gas refinery settings, optical gas imagers visually reveal plumes of gases such as SF6 (Sulfur Hexafluoride), hydrocarbons, carbon monoxide and carbon dioxide from a safe distance. Optical gas imaging cameras can continuously scan installations in remote areas or in zones that are difficult to access. Continuous monitoring allows the user to be informed when a dangerous or costly gas leak appears. Typical examples are monitoring pipelines, petrochemical industry and offshore operations.
Manufacturing process control         
Temperature consistency is critical to the quality of many manufactured components, materials, and products, including metals, plastics, paper, and glass. Thermal cameras, both fixed and mobile, help factories ensure product quality and identify other defects in both products and in the manufacturing process itself through the continuous monitoring of the production line, resulting in higher output and nearly perfect quality control. Other users of thermal cameras in the manufacturing sectors include worker safety and fire prevention, analysis of welding and fastening effectiveness, food inspection, packaging quality, and electronic and mechanical component manufacturing, ranging in size from small hybrid integrated circuits to jet engines.
Sales and Distribution
Our Instruments business has a direct sales staff and a network of distributors and retailers covering major markets worldwide, including technical and customer support staff in the United States and internationally who provide application development, technical training, and operational assistance to direct and indirect sales personnel as well as to customers. Dedicated staffs of business development managers for the firefighting, science, optical gas imaging and automation markets assist the distribution channel with application development, technical training, and operational assistance. With a focused sales organization and specialized sales teams that serve the specific R&D market, we have been successful at building and leveraging strong relationships with various research institutes and universities worldwide.
At December 31, 2015 , the Instruments segment had a total backlog of $27 million . Backlog represents orders that have been received for products or services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
Instruments segment customers are found around the world in commercial, government, trades, educational, research, agricultural, and non-professional/consumer segments. They include utility companies, electrical contractors, building inspectors, damage restoration contractors, first responders, universities, and numerous commercial enterprises. Given the high-value nature of many of our thermography-related instruments, our thermography products’ revenues tend to be correlated with seasonal trends, in

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particular capital spending trends. In general, customers in markets like predictive maintenance and R&D are sensitive to the broad economy because our cameras are viewed as capital expenditure items. We expect revenue outside the United States to continue to account for more than half of our Instrument segment revenue.
Competition
The Instruments segment operates in highly competitive markets. The primary competitive factors include brand reputation, technical innovation, product breadth, functionality, quality, reliability, and price. We believe we compete successfully in these markets with our innovative products, multi-function capabilities, our high value-to-price ratio, and our service and support functions. Our current principal competitors in the Instruments segment's markets include Danaher, Testo, Seek Thermal, SATIR, OPGAL, Infratec, Guide Infrared, and Nippon Avionics for thermal imaging cameras. The test and measurement products compete with products from Danaher, Testo, Gossen Metrawatt, Textron, General Tools, Ideal Industries, and others. The firefighting camera products compete primarily with Bullard, ISG/Scott, Argus, Dräger, and MSA.

Security Segment
The Security segment provides security solutions for a multitude of applications, from home and small business monitoring to enterprise and infrastructure security. The segment develops video security solutions for use in commercial, critical infrastructure, and home security applications. These solutions include thermal and visible-spectrum cameras, digital and networked video recorders, and related video management systems ("VMS") software and video analytics software accessories that enable the efficient and effective safeguarding of assets at all hours of the day and night and during adverse weather conditions.
Our video security cameras are marketed under the FLIR brand name, for thermal and professional-grade visible spectrum cameras, and the Lorex brand name, for the consumer do-it-yourself ("DIY") and small business user. Security segment cameras come in indoor/outdoor, fixed, pan/tilt, and dome configurations, are network-ready, available with a variety of lens options, and provide analog and digital video outputs. Our MPX (Megapixel over Coax) products allow customers to upgrade security systems to high-definition resolution using an existing coax cable that may already be present, saving the time and money of rewiring their building. With our recent acquisition of DVTEL, Inc., we offer a full spectrum of end to end security systems complete with video analytics and advanced VMS capability. This acquisition also strengthens our presence in the enterprise portion of the security market. In addition, our security products comply with several industry standards, can be integrated with dozens of video management systems and video analytics providers, and are accessible remotely on Apple iOS, Android, PC, or Mac devices through our FLIR Cloud service.
Markets
Utilities                     
Power plants, electrical substations, and water facilities utilize visible spectrum and thermal imaging cameras to provide continuous surveillance day or night. Our cameras are integrated with video analytics to provide automated alarm notification. At electrical substations, our thermal products provide protection against materials theft and acts of sabotage, and provide notifications when connections switchgear and transformers reach dangerous operating temperatures.
Nuclear power                 
Recent rules from the United States Nuclear Regulatory Commission require nuclear facilities to provide continuous 24-hour surveillance, observation, and monitoring of their perimeter and control areas. Our thermal security cameras are well suited for this requirement, providing true 24/7 monitoring capability even during most adverse weather conditions.
Petrochemical                 
Our thermal security cameras help petrochemical facilities meet the United States Department of Homeland Security's new Chemical Facility Anti-Terrorism Standards. Thermal security cameras are highly effective in meeting the standards' requirements for monitoring a facility's perimeter, securing applicable assets, and solidifying a deter, detect, and delay strategy.
Ports and borders             
Our long range thermal and visible security cameras provide "beyond the fence" situational awareness and advanced warning capabilities. Airport and border authorities around the world utilize our thermal security cameras to help keep people and equipment safe, operating day and night, in nearly all weather or lighting conditions.

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Commercial and residential                 
FLIR’s full-spectrum security solutions offer a comprehensive line of thermal and visible cameras to protect commercial facilities. Our products are also used in a wide range of home applications that may include the use of thermal, visible or image intensified cameras as well as network video recorders and other peripheral equipment.
Sales and Distribution
Our Security segment sales organization specializes in delivering complete solutions for thermal and visible security. Our Lorex products are sold through both brick and mortar and online retail outlets. Commercial and professional-grade security products utilize direct sales, a network of independent reps, and distributors covering major markets worldwide.
At December 31, 2015 , the Security segment had a total backlog of $16 million . Backlog represents orders that have been received for products or services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
Our Security segment serves a broad customer base that is expanding every year. Our visible-spectrum solutions are purchased by high-end critical infrastructure users, security hardware distributors, systems integrators, contractors, and homeowners. Thermal security cameras are currently sold in all global regions, with most customers falling into the high-end critical infrastructure category. However, recent volume production of our thermal camera cores has allowed us to drop the cost of thermal security cameras to a point where it is an affordable option for many commercial security networks.
Competition
The Security segment operates in highly competitive markets. Many of our competitors are well-established brands. Key competitive factors include technical innovation, analytics, video monitoring, system integration and compatibility, price, and ability to deliver. Our competitive advantages include our broad line of thermal camera offerings, which combined with our DIY consumer product line offers both high- and low-end solutions to our customers. Our current principal competitors include Axis Communications, Bosch, Hikvision, Dahua, Infinova, Avigilon, Sony, Samsung, Q-see, and Panasonic.

OEM & Emerging Markets Segment
The OEM & Emerging Markets segment develops and manufactures thermal imaging camera cores and related components. A thermal camera core is an integrated, plug-and-play camera system that includes the infrared sensor as well as the related image processing electronics and an optical lens. We offer cooled and uncooled cores that are based on long wave infrared (LWIR), mid-wave infrared (MWIR), and short wave infrared (SWIR) sensors. We also sell to third parties thermal sensors and readout integrated circuit ("ROIC") products, which are used to convert pixel-level information into digital information, essential in the design of infrared, visible, ultra violet, and X-Ray sensors.
Our vertically integrated manufacturing capability, built over many years, enables us to provide thermal camera core and component products to other FLIR segments at low cost as well as sell cores and components to third party customers. Our cores and components are designed for easy and efficient integration into higher levels of product assembly. Third party OEMs integrate these cores and components into their own branded products. We operate under this model so to aggregate the largest amount of volume possible, which lowers our total cost to produce camera cores and components.
The OEM & Emerging Markets segment also houses our Emerging Markets businesses, which are businesses that are identified as high-potential but do not yet have the scale to represent their own segment. Included in Emerging Markets is our Intelligent Traffic Systems business, which develops and manufactures software-enabled automotive and pedestrian monitoring and control systems, our Mobile products business, makers of thermal imaging accessories for the smartphone market, and our commercial Unmanned Aerial Systems ("UAS") business, which provides thermal cameras and cores for use on or integration into UAS systems, which are often referred to as “drones.”

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Markets
OEM                 
We supply cooled and uncooled thermal camera cores, sensors, and ROICs on an OEM basis to an array of manufacturers of finished products in both the military and commercial spaces. These customers require a product at a lower level of integration than a fully developed thermal imaging system. Examples of major applications in this segment are automotive, firefighting, UAS, military, digital X-ray, and security.
Mobile                 
Leveraging our ability to produce thermal sensors at a low cost and with low size, weight, and power consumption, we created a line of personal thermal imaging cameras that attach to smartphones. The mass adoption of smartphones has driven significant growth in the development of tools that extend the utility of these devices, and our FLIR ONE TM products do this by empowering consumers with thermal imaging on their phones. We believe that the potential of thermal imaging as a tool for consumers provides this segment with an emerging opportunity for growth.
Intelligent Transportation             
Visible and thermal imaging helps transportation departments all over the world monitor vehicles and pedestrians in urban environments, detect incidents on highways and in tunnels, collect traffic data, control traffic signals, and ensure the safety on public roads and railways. These systems are able to detect vehicles and use the information to control traffic lights in order to improve traffic flow. While road-embedded magnetic loops have historically been the primary technology for analyzing intersections and roadways, visible and thermal imaging are increasingly being used for this application. Thermal imaging technology has shown to be highly effective at detecting the presence of vehicles as it is not impeded by darkness, colors, shadows, direct sunlight, light from oncoming traffic, or weather effects. We believe that the value of these solutions in terms of improved traffic flow, fuel conservation, and public safety is significant.
Sales and Distribution
We employ a direct sales force for selling and distributing our OEM cores and components, while our lower-cost cores are also available at electronics components distributors. The majority of our Mobile market sales are generated through wholesale channels, which include national and regional consumer electronics chains, large online retailers, and specialty retailers. We also sell our Mobile products directly to consumers through our own network of e-commerce websites. In addition, we sell our products to independent distributors in various countries where we generally do not have direct sales operations, and through licensees. A dedicated staff of business development managers for the Intelligent Traffic products assists the distribution channel, made up of traffic control systems integrators and engineering consultants, with application development, technical training, and operational assistance.
At December 31, 2015 , the OEM & Emerging Markets segment had a total backlog of $140 million . Backlog represents orders that have been received for products, contract research and development, or other services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
Typical OEM customers include makers of military aircraft and vehicles, automotive safety equipment, firefighting equipment, security cameras, hunting equipment, unmanned aerial systems, and maritime equipment. Our OEM sales personnel maintain direct relationships with most of these customers. We sell our Mobile products to a diverse group of consumers, including homeowners, outdoors people, and technology enthusiasts. Customers for our Intelligent Traffic products are traffic and public transportation authorities in cities and municipalities all over the world who deploy thermal imaging cameras and other equipment in urban areas, on highways, in tunnels, and on bridges.
Competition
While our market share in OEM cores and components is estimated to be nearly 50 percent based on independent industry research, we view the thermal OEM market as highly competitive. We believe the key drivers of success in these markets are: technological proficiency in imaging sensors, product quality, product cost, and scalability of operations. We believe we are well positioned to operate in this competitive environment given our demonstrated ability to innovate high-quality sensors at low cost due to our vertically-integrated operating model, our advanced R&D capabilities, and our broad product offering. Our primary competitors

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in the OEM space are ULIS, DRS, L-3, and BAE Systems. In Mobile products, our competitors include Seek Thermal and Opgal. In the Intelligent Traffic product space, our major competitors include Image Sensing Systems, Iteris, and Citilog.

Maritime Segment
The Maritime segment develops and manufactures a broad range of thermal imaging and marine electronic products for recreational and commercial customers globally. The segment provides boats of all sizes a full suite of electronic systems including multi-function helm displays, navigational instruments, autopilots, radars, sonar systems, thermal and visible imaging systems, and communications equipment. These products are utilized for general navigation, sport fishing, cruising, and sailing.
Our primary product offering is multifunction navigation displays ("MFDs"). Our MFDs are designed to provide boaters visual navigation data from multiple sensors, including GPS, autopilot, sonar, and radar. We have several lines of MFD products, serving leisure and fishing boats of all sizes, in saltwater or freshwater environments. Our Dragonfly ® product line addresses the MFD needs of the small-boat recreational fishermen, including kayakers and freshwater bass anglers, while our larger MFDs serve large saltwater boat end-users. We also integrate our MFDs to use and control thermal and visual cameras, onboard entertainment products, engine instruments, and data services like satellite weather. Recognizing the importance of mobile devices to boaters, we offer Wi-Fi enabled MFDs along with mobile apps that give boaters access to the MFD and sensors from anywhere on board the vessel.
Our marine instrument products are dedicated displays and sensors for monitoring depth, boat speed, and wind information. Our sonar solutions are engineered to serve the needs of both the inland and saltwater fishing customers. These sonars serve as fishermen’s eyes below the water so they can detect fish, locate underwater structure, and identify the habitat of the fish they are trying to catch. We also offer autopilot solutions that provide precision steering control for open water passages. To keep boaters connected, we offer several communication products, such as VHF marine radios for ship-to-ship and ship-to-shore communications, and our automatic identification system (AIS) solutions enable the wireless exchange of navigation status between vessels and vessel-monitoring centers. The Maritime segment’s thermal camera solutions are designed to enhance a boater’s overall situational awareness in limited visibility and are used primarily to identify other vessels, navigation aids, and hazards. Thermal maritime cameras are also utilized for search and rescue and local law enforcement surveillance operations.
We market our Maritime segment products under both the FLIR and Raymarine brands. FLIR-branded maritime products consist of thermal cameras designed for recreational, commercial, and first-responder vessels. The Raymarine line of marine electronics is designed and marketed primarily to recreational boaters and light-commercial customers.
Markets
Recreational Boating             
The recreational boating market, which represents the majority of our sales, is comprised of fresh and saltwater fishing, sport/cruising, and sailing. Our core MFD products are engineered to address the needs of all three segments. We also develop products specifically for strategic markets and customers, such as Dragonfly® sonars for freshwater fishermen, wind instruments for sailors, and vessel automation for boat builders.
Commercial Maritime             
The commercial maritime market is comprised of light commercial, heavy commercial, and light-defense segments. We address these commercial markets with both our thermal maritime cameras and our marine electronics systems.
Sales and Distribution
Our Maritime segment sells products worldwide through a network of aftermarket distributors, technical dealers, boat builders/OEMs, and retailers. We have a dedicated business development team to address the unique requirements of our OEM boat-builder channel. With our OEM boat builders, we differentiate ourselves by providing full system solutions. We also add value to our boat-building partners through technical installation training of the OEM factory staff. In the United States, we devote special teams to the retail channel so we can address this channel’s dynamic and unique merchandising and promotional needs. Our sales team is supported by technical support teams and applications engineers. The technical teams provide customer support and conduct regular training sessions with our technical dealer and OEM customers.

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At December 31, 2015 , the Maritime segment had a total backlog of $28 million . Backlog represents orders that have been received for products or services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
Our FLIR maritime thermal cameras are supplied to an array of commercial customers including tugboats, work boats, and passenger vessels. Both FLIR and Raymarine maritime-branded thermal cameras are supplied to recreational sport fishing and cruising powerboat customers. Raymarine’s primary end consumers include freshwater and saltwater fishing boat owners, cruising power boats, and sailboat owners. In the fishing segment, Raymarine customers include kayakers, bass boat owners, bay boats, center consoles, and offshore sport fish boat owners. The cruising segment includes owners of sport boats, cruisers, and trawlers. Sailing customers include owners of day sailors, racers, cruising yachts and multi-hull sailboats.
Our Maritime segment also supplies thermal cameras to maritime first responders and maritime law enforcement organizations around the globe, including the United States Coast Guard. Our cameras are used by marine divisions of city fire and police departments along with local fish and wildlife enforcement organizations.
Competition
Our Maritime segment operates in a highly competitive market for marine electronics. Like consumer electronics, delivering innovative features and lower price points are critical to the success of our marine electronics products. Consumers typically purchase marine electronics as a system of products from one brand, so it is critical that we deliver a competitive offering in each of our product lines. Our primary marine electronic competitors include Garmin, Navico, Furuno, and Humminbird.

Detection Segment
Our Detection segment develops and manufactures field-ready sensor instruments and integrated platform solutions for the accurate detection, identification, classification, and suppression of chemical, biological, radiological, nuclear, and explosives ("CBRNE") threats for military force protection, homeland security, and commercial applications.
Detection segment solutions combine multi-threat detection and identification technologies into single hand-held or desktop instruments. Product lines include hand-held and fixed radiation detectors, hand-held and desktop explosives trace detectors, desktop and portable mass spectrometers, and continuous air monitoring devices for aerosolized biological threats and disclosure sprays. The segment also manufactures integrated systems of multiple pieces of equipment to create turn-key solutions used by first responders for the detection, identification, sample collection, decontamination, marking, and hazard reporting of CBRNE threats.
Our products utilize mission-based user interfaces to expedite decision-making for field operators and advanced technicians. Our advanced CBRNE detection instruments provide lab-quality confidence in a field-proven, highly reliable, and ruggedized package. Customers around the world use our products for forensic analysis, military reconnaissance, force protection, public security, law enforcement, emergency response, environmental monitoring, building and event security, teaching, and research.
The Detection segment leverages an established technical R&D organization that enables the business to offer smart, simple, and reliable products that meet the evolving needs of government and commercial security providers. With many years of experience working in collaboration with multiple government agencies, the Detection segment has developed relationships with various government decision-makers and has substantial knowledge of the governmental procurement process.
Markets
Government and private sector entities continue to seek new ways to address increasingly sophisticated terrorist threats and to respond to other security risks, natural disasters, and unintentional incidents that threaten public safety. Our multi-purpose products meet the requirements for a broad range of end-users and end uses.
We offer biological air monitors that are used by various governmental agencies for security at facilities and events. Our explosives detection products are used to identify military-grade explosives and homemade explosive devices in a wide array of military and

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public safety applications, such as screening high-risk individuals at checkpoints and identifying improvised explosive device (IED) makers, and our radiation products protect the public by warning of radionuclide exposure.
Sales and Distribution
The Detection segment sells products worldwide primarily through a combination of a direct sales force and a distributor network, but also utilizes third-party sales representatives, value-added resellers, and systems integrators. With a centralized sales organization and specialized sales teams that serve specific markets, we have been successful at building and leveraging strong relationships with key decision-makers at various government agencies and commercial entities. Some Detection segment products are designed as components or sub-systems that are incorporated into third-party products or systems.
The Detection segment derives a portion of its revenue, approximately 13 percent in 2015 , from funding received from agencies of the United States government pursuant to research projects. The revenue recognized under these contracts represents reimbursement by the customer for time periods ranging from several months to several years. Our participation in these and other development programs has culminated in the development of a number of commercial products. In general, our contracts with the United States government permit us to retain all rights to patents emerging from the funded R&D efforts.
At December 31, 2015 , the Detection segment had a total backlog of $ 82 million . Backlog represents orders that have been received for products, contract research and development, or other services for which a contractual agreement is in place and delivery or performance is expected to occur within 12 months.
Customers
The Detection segment sells its products, systems, and services to a broad base of federal, state, and local government customers, to all branches of the United States military, foreign militaries, private sector businesses and commercial ports both in the United States and internationally. Using a regionally deployed sales force, the business sells to agencies of the United States government, such as the Departments of Homeland Security, Defense, and Energy, as well as the Transportation Security Administration, the Federal Bureau of Investigation, NASA, the Secret Service, the Coast Guard, and agencies of multiple state and local governments in the United States. Similar to our Surveillance segment, the Detection segment experiences some seasonality in its orders due to the United States government budget year end.
Competition
The markets in which the Detection segment competes are dynamic and highly competitive. Success in these markets depends on our ability to develop new technologies to meet rapidly evolving customer needs, reduce production and development costs, integrate with third-party devices and systems, establish and foster relationships with key government and commercial customers, and recruit highly technical personnel. The Detection segment competes in various markets with companies such as Agilent Technologies, Canberra Industries, Safran, SAIC, Smiths Detection, Thermo Fisher Scientific, and United Technologies.

SALES, MARKETING, CUSTOMER SUPPORT AND TRAINING
Our sales and distribution organization covers the world with a combination of direct sales, third-party representatives and distributors, system integrators, independent dealers, retail outlets, application engineers, and service and training centers. Internationally, we have invested heavily to build a strong presence to sell and service our products, a key advantage in penetrating certain markets, such as foreign governments. Our sales representatives, including third-party distributors, undergo a comprehensive training program on each product’s technical specifications, functions, and applications. We also continuously update our training programs to incorporate technological and competitive shifts and changes. We sell in many distinct markets and have established specific sales channels for each market.
Our primary marketing activities include online advertising, participating in trade shows, partner sponsorships, optimizing our website for search keywords so that prospects searching for imaging and sensing solutions online find FLIR quickly, press releases about new products and company developments, social media outreach, and cooperative advertising.
We offer a strong product warranty coupled with responsive support accessible via phone, web, and e-mail, and our localized support locations for high-end systems helps us stand out in our markets.

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Our Infrared Training Center ("ITC") offers training, certification, and re-certification in all aspects of thermography, including specialized instruction in building diagnostics, roofing, electrical, mechanical, research and science, and optical gas imaging. Online courses cover the basics of thermal camera operation and reporting software. The ITC is also the premier sponsor of InfraMation, thermal imaging’s leading users conference which is typically held annually.

MANUFACTURING
We manufacture many of the critical components for our products, including but not limited to infrared detectors, gimbals, pan-tilts, optics and coatings, laser sub-systems, and micro-coolers, and develop much of the software and middleware for our systems. This vertical integration minimizes lead times, facilitates prompt delivery of our products, controls costs, and ensures that these components satisfy our quality standards. We purchase other parts pre-assembled, including certain detectors, coolers and optics, circuit boards, cables, and wire harnesses. These purchased and manufactured components are then assembled into finished systems and tested at one of our primary production facilities located in the United States, Sweden, Estonia, and Canada. Certain components and finished goods, including some of our visible-spectrum cameras, test and measurement products and maritime electronics, are produced by contract manufacturers.
Our manufacturing operations are, from time to time, audited by certain customers, which include several major aircraft manufacturers, and have been certified as meeting their quality standards. Substantially all of our manufacturing locations are either ISO 9001:2000 or :2008 certified with certain locations having higher certifications.

INTELLECTUAL PROPERTY
To support our focus on being an innovation leader in our key markets and protect our proprietary information, we rely on a combination of patent, trademark, copyright, and trade secret rights, a strong Internet domain presence, confidentiality agreements, joint development agreements, and contractual provisions. Over the past several years we have intensified our efforts to protect our innovations through increased United States and international patent filings, and to strengthen our core brands through thoughtful trademark procurement and domain portfolio refinement. We will continue to actively develop our intellectual property and intend to emphasize initiatives that will further promote innovation and leadership in marketable technologies. We cannot, however, be certain or give any assurance that we can secure patent or trademark protection on all our innovations, maintain our competitive advantage or that competitors will not develop similar or superior capabilities.

GOVERNMENT REGULATION
Thermal technology is controlled for export, re-export and retransfer by the United States government. Depending on the technology, the export of infrared products may be controlled by the United States Department of State or the Bureau of Industry and Security. In general, the more sophisticated the technology and the higher the performance of the product, the more restrictive are the licensing requirements. Licensing requirements differ from country to country, end user to end user and differ with product performance and field of intended use. The export of some of our products are controlled by the International Traffic and Arms Regulation ("ITAR").
As a United States government supplier, we must comply with specific procurement regulations and other requirements and are subject to routine audits and investigations by United States government agencies. If we fail to comply with these rules and regulations, the results could include: reductions in the value of contracts; contract modifications or termination; the assessment of penalties and fines; and/or suspension or debarment from United States government contracting or subcontracting for a period of time or permanently.


18


EMPLOYEES
As of December 31, 2015 , we had 3,003 employees of which 1,726 were located in the United States and 1,277 located outside of the United States. We have generally been successful in attracting highly skilled technical, marketing, and management personnel. None of our employees in the United States are represented by a union or other bargaining group. Certain employees in Europe are represented by unions and workers councils whose contracts are subject to periodic renegotiations. We believe our relationships with our employees, unions and workers councils are generally good.

ENVIRONMENTAL MATTERS
Our operations are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to the discharge, treatment, storage, disposal and remediation of certain materials, substances, and wastes used in our operations. We continually assess our obligations and compliance with respect to these requirements. We have also assessed the risk for environmental contamination for our various manufacturing facilities, including our acquired businesses and facilities and, where appropriate, have obtained indemnification from the sellers of those businesses and facilities.
We believe that our current operations are in substantial compliance with all existing applicable environmental laws and permits. Operating and maintenance costs associated with environmental compliance are a normal, recurring part of our operations. Historically, these costs have not been material.

AVAILABLE INFORMATION
Our Internet website address is www.flir.com. This Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and other required filings are available through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Report.

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ITEM 1A.
RISK FACTORS
The following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company. If we are unable to adequately respond to these risks and uncertainties, our business, financial condition and results of operations could be materially adversely affected. Additionally, we cannot be certain or give any assurance that any actions taken to reduce known risks and uncertainties will be effective.

 
Risks, Uncertainties and Other Factors Related to Our Business
We depend on the United States government for a material portion of our business and changes in government spending could adversely affect our business
We derive significant revenue from contracts or subcontracts funded by United States government agencies. A significant reduction in the purchase of our products by these agencies or contractors for these agencies would have an adverse effect on our business. For the fiscal years ended December 31, 2015, 2014 and 2013 , approximately 20 percent, 20 percent and 24 percent, respectively, of our revenues were derived directly or indirectly from sales to the United States government and its agencies. The funding of contracts awarded to us depends on the overall United States government budget and appropriations process, which is beyond our control. In addition, at its discretion, the United States government may change its spending priorities and/or terminate, reduce or modify contracts.
Substantial uncertainty exists in the spending levels and priorities of the United States government, particularly with respect to military expenditures. Continued and further reductions in military spending could have a material adverse effect on our results from operations.
As a United States government supplier, we are subject to a number of procurement rules and regulations
Government contractors must comply with specific procurement regulations and other requirements and are subject to routine audits and investigations by United States government agencies. In addition, violations of unrelated laws and statutes can lead to debarment and other penalties. If we fail to comply with procurement rules and regulations and other laws and statutes, the results could include: reductions in the value of contracts; contract modifications or termination; the assessment of penalties and fines; and/or suspension or debarment from United States government contracting or subcontracting for a period of time or permanently. An adverse action by the United States government could also result in lost sales to non-governmental customers who might disqualify us as a result of such adverse action.
Operating margins may be negatively impacted by reduction in sales or by a change in the mix of products sold
Our expense levels are based, in part, on our expectations regarding future sales and these expenses are largely fixed in the short term. Some expenses, such as those related to research and development activities, would likely be maintained in the event of a sales downturn in order to maintain and enhance the long-term competitiveness of the Company. We maintain inventories of finished goods, components and raw materials at levels we believe are necessary to meet anticipated sales. Accordingly, we may not be able to reduce our costs in a timely manner to compensate for any unexpected shortfall between forecasted and actual sales. Any significant shortfall of sales may result in us carrying higher levels of inventories of finished goods, components and raw materials thereby increasing our risk of inventory obsolescence and corresponding inventory write-downs and write-offs. Our fixed costs, including facilities and information technology costs, compliance and public company costs, and depreciation and amortization related to previous acquisitions and capital expenditures, are significant and are difficult to reduce in the short term. Our operating margins vary by product and substantial changes in the mix of products sold could also have a negative impact on our operating margins.
We may experience impairment in the value of our tangible and intangible assets
Our industry is subject to rapid changes in technology, which may result in unexpected obsolescence or impairment of our assets. As of December 31, 2015 , our intangible assets, including goodwill, totaled $737.6 million and represented approximately 31 percent of our total assets. Most of these intangibles are the result of acquisitions in which the purchase price exceeded the value of the tangible assets acquired. We amortize certain of these intangibles over their anticipated useful life and review goodwill for

20


impairment annually or more frequently if warranted by events. To date we have not experienced any impairment of our intangible assets, but there can be no assurance that we will not experience such impairment in the future. In addition, certain of our tangible assets such as inventory and machinery and equipment may experience impairment in their value as a result of such events as the introduction of new products, changes in technology or changes in customer demand patterns. We depreciate our machinery and equipment at levels we believe are adequate; however, there can be no assurance that there will not be a future impairment that may have a material impact on our business, financial condition and results of operations.
We face risks from international sales and business activities
We market and sell our products worldwide and international sales have accounted for, and are expected to continue to account for, a significant portion of our revenue. For the years ended December 31, 2015, 2014 and 2013 , international sales accounted for 47 percent, 49 percent and 50 percent, respectively, of our total revenue. We also manufacture certain products and subassemblies in Europe and we have several contract manufacturing agreements with third parties in Europe and in Asia. Our international business activities are subject to a number of risks, including:
the imposition of and changes to governmental licensing restrictions and controls impacting our technology and products;
restrictions and prohibitions on the export of technology and products;
trade restrictions;
difficulty in collecting receivables and governmental restrictions with respect to currency;
inadequate protection of intellectual property;
labor union activities;
changes in tariffs and taxes;
restrictions on repatriation of earnings;
restriction on the importation and exportation of goods and services;
risks, costs, impacts and obligations associated with the United States Foreign Corrupt Practices Act ("FCPA"), and other anti-bribery and anti-corruption laws applicable to us, and costs and penalties from violations of such laws and related regulations;
difficulties in staffing and managing international operations; and
political and economic instability.

No assurance can be given that these factors will not have a material adverse effect on our future international sales and operations and, consequently, on our business, financial condition and results of operations. Furthermore, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations include import and export laws, anti-competition laws, anti-corruption laws, such as the FCPA and the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, data privacy requirements, tax laws, and accounting, internal control and disclosure requirements. Violations of these laws and regulations could result in civil and criminal fines, penalties and sanctions against us, our officers or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, business and results of operations. In certain foreign jurisdictions, there is a higher risk of fraud or corruption and greater difficulty in maintaining effective internal controls and compliance programs. Although we have implemented policies and procedures designed to promote compliance with applicable laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies or applicable laws and regulations. In addition, our international contracts may include industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or other financial obligations, known as offset obligations, and may provide for penalties if we fail to meet such requirements. The impact of these factors is difficult to predict, but one or more of them could have a material adverse affect on our financial position, results of operations, or cash flows.

We face risks from currency fluctuations
Historically, currency fluctuations have affected our operating results. Changes in the value of foreign currencies in which our sales or costs incurred are denominated have in the past caused, and could in the future cause, fluctuations in our operating results. We seek to reduce our exposure to currency fluctuations by denominating, where possible, our international sales in United States dollars, by balancing expenses and revenues in various currencies and by undertaking limited hedging of forecasted currency

21


exposures. With respect to international sales denominated in United States dollars, a decrease in the value of foreign currencies relative to the United States dollar could make our products less price competitive.
We may not be successful in obtaining the necessary export licenses to conduct operations abroad and the United States government may prevent proposed sales to foreign governments and customers
Export and other licenses are required from United States government agencies under the ITAR, the Export Administration Act, the Trading with the Enemy Act of 1917, and the Arms Export Control Act of 1976 and other similar laws and regulations for the sale, use and export of many of our products. We can give no assurance that we will be successful in obtaining these licenses. The aftermath of 9/11, the rise of terrorism and the changing geopolitical environment, and heightened tensions with other countries (which shift and evolve over time), has led to heightened government scrutiny of export licenses for products in our markets and has resulted in lengthened review periods for our license applications, including in countries where we have historically made significant sales. Failure to obtain or delays in obtaining these licenses would prevent or delay us from selling our products outside the United States and could have a material adverse effect on our business, financial condition and results of operations.
General economic conditions may adversely affect our business, operating results and financial condition
Our operations and performance depend significantly on worldwide economic conditions and their impact on levels of capital investment and consumer spending. Economic factors that could adversely influence demand for the Company’s products include uncertainty about global economic conditions leading to reduced levels of investment, changes in government spending levels and/or priorities, the size and availability of government budgets, customers’ and suppliers’ access to credit, consumer confidence and other macroeconomic factors affecting government, industrial or consumer spending behavior.
In recent years, our performance has been negatively impacted by reduced spending by United States government agencies, global economic weakness, and the Eurozone crisis. Continuation of the conditions that led to reduced spending and potential further reductions in spending globally by either consumers or government agencies could have a material adverse effect on our business, financial condition and results of operations.
Our primary markets are volatile and unpredictable
Our business depends on the demand for our products and solutions in a variety of commercial, industrial and government markets. In the past, the demand for our products in these markets has fluctuated due to a variety of factors, some of which are beyond our control, including:
the timing, number and size of orders from, and shipments to, our customers, as well as the relative mix of those orders;
variations in the volume of orders for a particular product or product line in a particular fiscal quarter;
the size and timing of new contract awards;
the timing of the release of government funds for procurement of our products; and
the timing of orders and shipments within a given fiscal quarter.

Seasonal fluctuations in our operating results result from:
the seasonal pattern of contracting by the United States government and certain foreign governments;
the desire of customers to take delivery of equipment prior to fiscal year ends due to funding considerations; and
the tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration.

Competition in our markets is intense and our failure to compete effectively could adversely affect our business
Competition in the markets for our products is intense. The speed with which companies can identify new applications for thermal imaging, develop products to meet those needs and supply commercial quantities at low prices to the market are important competitive factors. We believe the principal competitive factors in our markets are product performance, price, customer service and training, product reputation, and effective marketing and sales efforts. Many of our competitors have greater financial, technical, research and development, and marketing resources than we do. All of these factors, as well as the potential for increased competition from new market entrants, require us to continue to invest in, and focus on, research and development and new product innovation.

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No assurance can be given that we will be able to compete effectively in the future and a failure to do so could have a material adverse effect on our business, financial condition and results of operations.
Our products may suffer from defects or errors leading to substantial product liability, damage or warranty claims
We include complex system designs and components in our products that may contain errors or defects, particularly when we incorporate new technology into our products or release new versions. If any of our products are defective, we might be required to redesign or recall those products or pay substantial damages or warranty claims. Such an event could result in significant expenses including expenses arising from product liability and warranty claims, disrupt sales and affect our reputation and that of our products, which could have a material adverse effect on our business, financial condition and results of operations. As we expand our presence into new markets, we may face increased exposure to product liability claims. We maintain product liability insurance but cannot be certain that it will be sufficient or will continue to be available on acceptable terms.
Risks, Uncertainties and Other Factors Related to Our Technology and Intellectual Property
Our inability to protect our intellectual property and proprietary rights and avoid infringing the rights of others could harm our competitive position and our business
Our ability to compete successfully and achieve future revenue growth depends, in part, on our ability to protect our proprietary technology and operate without infringing the rights of others. To accomplish this, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements and contractual provisions to protect our proprietary rights. Many of our proprietary rights are held in confidence as trade secrets and are not covered by patents, making them more difficult to protect. Although we currently hold worldwide patents covering certain aspects of our technologies and products, and we are actively pursuing additional patents, we cannot be certain that we will obtain additional patents or trademarks on our technology, products and trade names. Furthermore, we cannot be certain that our patents or trademarks will not be challenged or circumvented by our competitors or that measures taken by us to protect our proprietary rights will adequately deter their misappropriation or disclosure. Any failure by us to meaningfully protect our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Moreover, because intellectual property does not necessarily prevent our competitors from entering the markets we serve, there can be no assurance that we will be able to maintain our competitive advantage or that our competitors will not develop capabilities equal or superior to ours.
Litigation over patents and other intellectual property is common in our industry. We have been the subject of patent and other intellectual property litigation in the past and cannot be sure that we will not be subject to such litigation in the future. Similarly, there exists the possibility we will assert claims in litigation to protect our intellectual property. Lawsuits defending or prosecuting intellectual property claims and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort of our personnel. An adverse determination in a patent suit or in any other proceeding in which we are a party could subject us to significant liabilities, result in the loss of intellectual property rights we claim or impact our competitive position. Additionally, an adverse determination could require us to seek licenses from third parties. If such licenses are not available on commercially reasonable terms or at all, our business, financial condition and results of operations could be adversely affected.
Our future success will depend on our ability to respond to the rapid technological change in the markets in which we compete, our ability to introduce new or enhanced products and enter into new markets
The markets in which we compete are characterized by rapid technological developments and frequent new product introductions, enhancements and modifications. Our ability to develop new products and technologies that anticipate changing customer requirements, reduce costs and otherwise retain or enhance our competitive position in existing and new markets will be an important factor in our future results from operations. We will continue to make substantial capital expenditures and incur significant research and development costs to improve our manufacturing capability, reduce costs, and develop and introduce new products and enhancements. If we fail to develop and introduce new products and technologies in a timely manner, our business, financial condition and results of operations would be adversely affected. In addition, we cannot be certain that our new products and technologies will be successful or that customers will accept any of our new products.

23


Our business could be negatively impacted by cybersecurity threats and other security threats and technology disruptions
We face certain security threats and technology disruptions, including threats to our information technology infrastructure, attempts to gain access to our or our customers’ proprietary or classified information, threats to the physical security of our facilities and employees, threats of terrorism events, and failures of our technology tools and systems. We are subject to laws and rules issued by various agencies concerning safeguarding and maintaining infrastructure and physical security and information confidentiality. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with information technology systems for certain customers and other third parties, for which we face similar security threats as for our own. In particular, cybersecurity threats-which include, but are not limited to, computer viruses, spyware and malware, attempts to access information, denial of service attacks and other electronic security breaches-are persistent and evolve quickly. Such threats have increased in frequency, scope and potential impact in recent years. Further, a variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support our critical functions. These technologies, as well as our products, are subject to failure and the user’s inability to have such technologies properly supported, updated, expanded or integrated into other technologies and may contain open source and third party software which may unbeknownst to us contain defects or viruses that pose unintended risks to our customers. These risks if not effectively mitigated or controlled could materially harm our business or reputation. While we believe that we have implemented appropriate measures and controls, there can be no assurance that such actions will be sufficient to prevent disruptions to critical systems, unauthorized release of confidential information or corruption of data.
We require user names and passwords in order to access our information technology systems. We use encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to our data or accounts. These security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our information technology systems. These security systems cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise impact the use of our information technology systems. Moreover, if a security breach of our information technology system affects our computer systems or results in the release of personally identifiable or other sensitive information of customers, business partners, employees and other third parties, our reputation and brand could be materially damaged, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation and potential liability.
Although we have in the past and continue to be subject to cybersecurity threats and other security threats and technology disruptions, to date none has had a material impact on our business, financial condition or results of operations. Nonetheless, in the future, these types of events could disrupt our operations and customer and other third party information technology systems. They also could require significant management attention and resources, negatively impact our reputation among our customers and the public and challenge our eligibility for future work on sensitive or classified systems, which could have a material adverse effect on our business, financial condition and results of operations.
Risks, Uncertainties and Other Factors Related to Our Corporate Structure and Organization
Our future success depends in part on attracting and retaining key senior management and qualified technical, sales and other personnel
Our future success depends in part on the efforts and continued services of our key executives and our ability to attract and retain qualified technical, sales and other personnel. Significant competition exists for such personnel and we cannot assure the retention of our key executives, technical and sales personnel or our ability to attract, integrate and retain other such personnel that may be required in the future. We cannot assure that employees will not leave and subsequently compete against us. If we are unable to attract and retain key personnel, our business, financial condition and results of operations could be adversely affected.
We must successfully manage a complex global organization
As we have grown, the size and scope of our worldwide operations have also increased substantially. We currently design, manufacture and market numerous product lines in locations worldwide. Significant management time and effort is required to

24


effectively manage the increased complexity of the business and our failure to successfully do so could have a material adverse effect on our business, financial condition and results of operations. Our inability to continue to manufacture our products at one or more of our facilities as a result of, for example, a prolonged power outage, earthquake, fire or other natural disaster, or labor or political unrest, could prevent us from supplying products to our customers and could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to successfully integrate recent or future acquisitions into our operations, thereby disrupting our business and harming our financial condition and results of operations
We have made ten acquisitions of various sizes in the past five years. The integration of businesses, personnel, product lines and technologies can be difficult, time consuming and subject to significant risks. For example, we could lose key personnel from companies that we acquire, incur unanticipated costs, lose major sources of revenue, fail to integrate critical technologies, suffer business disruptions, fail to capture anticipated synergies, fail to establish satisfactory internal controls, or incur unanticipated liabilities. Any of these difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and decrease our revenue.
We frequently evaluate strategic opportunities available to us and it is likely that we will make additional acquisitions in the future. Such acquisitions may vary in size and complexity. Any future acquisitions are subject to the risks described above. Furthermore, we might assume or incur additional debt or issue additional equity securities to pay for future acquisitions. Additional debt may negatively impact our results and increase our financial risk, and the issuance of any additional equity securities could dilute our then existing shareholders’ ownership. No assurance can be given that we will realize anticipated benefits of any future acquisitions, or that any such acquisition or investment will not have a material adverse effect on our business, financial condition and results of operations.
We have indebtedness as a result of the issuance of our 3.75 percent senior unsecured notes (the “Notes”) and borrowings against our term loan, and we are subject to certain restrictive covenants under our unsecured credit facility and the indenture governing the Notes which may limit our operational and financial flexibility
Our ability to meet our debt service obligations and comply with the financial covenants under our credit facility will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. Our inability to meet our debt service obligations or comply with the required covenants could result in a default under the credit facility or indenture. In the event of any such default, under the credit facility, the lenders thereunder could elect to declare all outstanding debt, accrued interest and fees under the facility to be due and immediately payable. In the event of any such default under our indenture, either the trustee or the holders of at least 25 percent of the outstanding principal amount of the Notes could declare the principal amount of all of the Notes to be due and payable immediately.
We may not be able to refinance our indebtedness on favorable terms, if at all. Our inability to refinance our indebtedness could materially and adversely affect our liquidity and our ongoing results of operations.

Our ability to refinance indebtedness, including the Notes which we expect to refinance in 2016, will depend in part on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond our control. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest expense. A refinancing of our indebtedness, including the Notes, could also require us to comply with more onerous covenants and further restrict our business operations. Our inability to refinance our indebtedness or to do so upon attractive terms could materially and adversely affect our business, results of operations, financial condition and cash flows, and make us vulnerable to adverse industry and general economic conditions.

Changes in our effective income tax rate may have an adverse effect on our results of operations
We are subject to taxes in the United States and numerous foreign jurisdictions, including Belgium, where a number of our subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our future effective tax rate could be affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in the enforcement environment, and changes in tax laws or their interpretations, including in the United States and in foreign jurisdictions. For example, in January 2016, the European

25


Commission announced a decision concluding that certain rules under Belgian tax legislation are deemed to be incompatible with European Union regulations on “state aid.” As a result of this decision, the European Commission has directed the Belgian Government to recover past taxes from certain entities, which we expect to include one of our Belgian subsidiaries regarding the amount of taxes applicable to us during a three year period ending in July 2015. Negotiations are ongoing between the Belgian Government and the European Commission to agree on a methodology to calculate the applicable amounts for each company impacted by the decision. Furthermore, the decision may be appealed before the General Court of the European Union by the Belgian Government and by companies which are directly affected by the decision. Although no demand for payment or other official notice has been received by us to date, we are currently reviewing the matter, including the potential impact to the 2016 tax provision, and expect to take actions necessary to preserve our rights, including reducing or eliminating the amount determined to be “state aid.” We expect that the ultimate amount owed, if any, will be determined after litigation and/or negotiation and such amount could be material.
Our future effective tax rate may be adversely affected by a number of additional factors including:
the jurisdictions in which profits are determined to be earned and taxed;
the resolution of issues arising from tax audits with various tax authorities;
changes in the valuation of our deferred tax assets and liabilities;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes;
changes in available tax credits;
changes in share-based compensation expense;
changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles;
changes in foreign tax rates or agreed upon foreign taxable base; and/or
the repatriation of earnings from outside the United States for which we have not previously provided for United States taxes.

Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, the United States Internal Revenue Service (“IRS”) and other tax authorities regularly examine our income tax returns. Our financial condition and results of operations could be adversely impacted if any assessments resulting from the examination of our income tax returns by the IRS or other taxing authorities are not resolved in our favor.
State of Oregon law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if the transaction would benefit our shareholders
Other companies may seek to acquire or merge with us. An acquisition or merger of our Company could result in benefits to our shareholders, including an increase in the value of our common stock. Some provisions of our Articles of Incorporation and Bylaws, including our ability to issue preferred stock without further action by our shareholders, as well as provisions of the State of Oregon law, may discourage, delay or prevent a merger or acquisition that a shareholder may consider favorable.

ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.


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ITEM 2.    PROPERTIES
At December 31, 2015 , we conducted manufacturing, research and development, and sales and administration in 79 facilities worldwide. Of these, we owned 7 facilities with approximately 713 thousand square feet and leased 24 facilities with approximately 330 thousand square feet in the United States, and we owned 7 facilities with approximately 330 thousand  square feet and leased 41 facilities with approximately 291 thousand square feet outside the United States, primarily in Europe. Our headquarters is located in Wilsonville, Oregon.
Our major facilities include the following locations:
Location
Owned
 
Leased
 
(Square feet in Thousands)
Wilsonville (Portland), Oregon
154

 

North Billerica (Boston), Massachusetts
133

 

Täby (Stockholm), Sweden
205

 

Elkridge (Baltimore), Maryland

 
109

Nashua, New Hampshire
140

 

Tallinn, Estonia
46

 

Markham (Toronto), Ontario, Canada
27

 

Goleta (Santa Barbara), California
169

 

Fareham (Portsmouth), United Kingdom
63

 

Stillwater, Oklahoma

 
35

Meer (Antwerp), Belgium

 
12

Other
106

 
465

Total
1,043

 
621

Our reportable segments operate out of facilities as follows:
Surveillance: Wilsonville, Oregon; North Billerica, Massachusetts; Täby, Sweden; Elkridge, Maryland; and 14 facilities in the United States and 7 facilities located outside the United States.
Instruments: Täby, Sweden; Nashua, New Hampshire; Tallinn, Estonia; and 2 facilities in the United States and 19 facilities located outside the United States.
Security: Markham, Ontario, Canada and 1 facility in the United States and 19 facilities outside the United States.
OEM & Emerging Markets: Goleta, California and 1 facility in the United States and 13 facilities located outside the United States.
Maritime: Fareham, United Kingdom and 1 facilities in the United States and 18 facilities located outside the United States.
Detection: Stillwater, Oklahoma; Elkridge, Maryland; and 6 facilities in the United States and 3 facilities located outside the United States.
We believe all of our properties are suitable for their intended use, adequate to meet our current and near-term business needs, and in good condition. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.

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ITEM 3.
LEGAL PROCEEDINGS

FLIR Systems, Inc. and its subsidiary, Indigo Systems Corporation (now known as FLIR Commercial Systems, Inc.) (together, the “FLIR Parties”), were named in a lawsuit filed by Raytheon Company (“Raytheon”) on March 2, 2007 in the United States District Court for the Eastern District of Texas. Raytheon's complaint, as amended, asserted claims for tortious interference, patent infringement, trade secret misappropriation, unfair competition, breach of contract and fraudulent concealment. The FLIR Parties filed an answer to the complaint on September 2, 2008, in which they denied all material allegations. On October 27, 2010, the FLIR Parties and Raytheon entered into a settlement agreement that resolved the patent infringement claims (the "Patent Claims") pursuant to which the FLIR Parties paid $3 million to Raytheon and entitles the FLIR Parties to certain license rights in the patents that were the subject of the Patent Claims.  On October 28, 2014, a four-week trial began with respect to Raytheon's remaining claims of misappropriations of trade secrets and claims related to 31 alleged trade secrets. On November 24, 2014, a jury in the United States District Court for the Eastern District of Texas rejected Raytheon’s claims and determined that 27 of the alleged trade secrets were not in fact trade secrets and that neither Indigo, prior to its acquisition by FLIR Systems, Inc., nor FLIR Systems, Inc. infringed any of the trade secrets claimed and awarded Raytheon no damages.  The court has yet to rule on any post-trial motion seeking to modify the jury verdict or on the FLIR Parties' motion for an award of attorney’s fees in the amount of $28 million as a prevailing party under the Texas Theft Liability Act.  The matter remains ongoing and is subject to appeal and the Company is unable to estimate the amount or range of potential loss or recovery, if any, which might result if the final determination of this matter is favorable or unfavorable, but an adverse ruling on the merits of the original claims against the FLIR Parties, while remote, could be material.

On October 22, 2014, the Company initially contacted the United States Department of State Office of Defense Trade Controls Compliance (“DDTC”), pursuant to International Traffic in Arms Regulation (“ITAR”) § 127.12(c), regarding the unauthorized export of technical data and defense services to dual and third country nationals in at least four facilities of the Company.  On April 27, 2015, the Company submitted its initial report to DDTC regarding the details of the issues raised in the October 22, 2014 submission.  DDTC subsequently notified the Company that it was considering administrative proceedings under Part 128 of ITAR and requested a tolling agreement, which the Company executed on June 16, 2015. DDTC continues its review and the Company is unable to reasonably estimate the time it may take to resolve the matter or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with this matter. However, an unfavorable outcome could potentially be material to the financial condition and results of operations of the Company in the period in which such an outcome becomes estimable or known.

We are also subject to other legal proceedings, claims and litigation arising in the ordinary course of business. We make a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe we have recorded adequate provisions for any probable and estimable losses. While the outcome of such matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our financial position, results of operations or cash flows.



ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.

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PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of the Company has been traded on the NASDAQ Global Market since June 22, 1993, under the symbol “FLIR.” The following table sets forth, for the quarters indicated, the high and low closing sales price for our common stock as reported on the NASDAQ Global Select Market, a segment of the NASDAQ Global Market.
 
2015
 
2014
 
High
 
Low
 
High
 
Low
First Quarter
$
33.97

 
$
29.80

 
$
36.00

 
$
29.00

Second Quarter
31.93

 
30.09

 
37.23

 
33.42

Third Quarter
31.99

 
27.06

 
35.14

 
31.34

Fourth Quarter
30.56

 
26.01

 
34.32

 
28.36

At December 31, 2015 , there were approximately 92 holders of record of our common stock and 137,350,023 shares outstanding. During the year ended December 31, 2014 , we paid dividends quarterly at the rate of $0.10 per share for a total of $56.5 million . During the year ended December 31, 2015 , we paid dividends quarterly at the rate of $0.11 per share for a total of $61.4 million . We currently intend to continue to pay cash dividends to holders of our common stock for the foreseeable future, but such payment remains at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, and other factors our Board of Directors deems relevant.
The graph below shows a comparison of the five-year cumulative total shareholder return for the Company’s common stock with the cumulative total returns on the Standard & Poor’s (“S&P”) 500 Index and the S&P 500 Electronic Equipment & Instruments Index for the same five-year period. The data used for this graph assumes that $100 was invested in the Company and in each index on December 31, 2010 , and that all dividends were reinvested.


29


The stock performance graph was plotted using the following data:
 
2010
 
2011
 
2012
 
2103
 
2014
 
2015
FLIR Systems, Inc.
$
100.00

 
$
84.99

 
$
76.66

 
$
104.73

 
$
113.81

 
$
100.29

S&P 500 Index
100.00

 
102.11

 
118.45

 
156.82

 
178.28

 
180.75

S&P 500 Electronic Equipment Instruments &
Components Index
100.00

 
76.14

 
85.71

 
121.71

 
149.77

 
139.59

During 2015 , we repurchased approximately 4.2 million shares for a total of approximately $123.2 million . The following table summarizes our 2015 common stock repurchase activities:
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced  Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased at December 31, 2015 Under the Plans or Programs
May 1 to May 31, 2015
1,000,000

 
$
31.43

 
1,000,000

 
 
August 1 to August 31, 2015
970,869

 
$
28.74

 
970,869

 
 
September 1 to September 30, 2015
1,198,000

 
$
28.42

 
1,198,000

 
 
December 1 to December 31, 2015
1,000,000

 
$
29.81

 
1,000,000

 
 
Total
4,168,869

 
$
29.55

 
4,168,869

 
10,831,131


All share repurchases are subject to applicable securities laws, and are at times and in amounts as management deems appropriate. All shares of our common stock repurchased in 2015 were repurchased under authorization by our Board of Directors, granted on February 5, 2015, pursuant to which we were authorized to repurchase up to 15.0 million shares of our outstanding common stock in the open market or through privately negotiated transactions. This authorization will expire on February 5, 2017.



30


ITEM 6.    SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data.”
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands, except per share amounts)
 
Statement of Income Data:
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,557,067

 
$
1,530,654

 
$
1,496,372

 
$
1,405,358

 
$
1,544,062

 
Cost of goods sold
803,506

 
780,281

 
759,362

 
670,174

 
714,743

 
Gross profit
753,561

 
750,373

 
737,010

 
735,184

 
829,319

 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
132,892

 
142,751

 
147,696

 
137,354

 
147,177

 
Selling, general and administrative
313,544

 
331,995

 
322,739

 
292,500

 
368,947

(1  
)  
Restructuring expenses
1,361

 
16,383

 
25,832

 
2,000

 

 
Total operating expenses
447,797

 
491,129

 
496,267

 
431,854

 
516,124

 
Earnings from operations
305,764

 
259,244

 
240,743

 
303,330

 
313,195

 
Interest expense
14,086

 
14,593

 
14,091

 
11,659

 
5,487

 
Interest income
(1,167
)
 
(1,405
)
 
(1,058
)
 
(1,582
)
 
(1,273
)
 
Other (income) expense, net
(12,601
)
 
(3,473
)
 
(1,276
)
 
1,341

 
(2,098
)
 
Earnings from continuing operations before income taxes
305,446

 
249,529

 
228,986

 
291,912

 
311,079

 
Income tax provision
63,760

 
49,268

 
51,971

 
66,556

 
88,427

 
Earnings from continuing operations
241,686

 
200,261

 
177,015

 
225,356

 
222,652

 
Loss from discontinued operations, net of tax

 

 

 
(2,958
)
 
(1,178
)
 
Net earnings
$
241,686

 
$
200,261

 
$
177,015

 
$
222,398

 
$
221,474

 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.73

 
$
1.42

 
$
1.24

 
$
1.49

 
$
1.41

 
Discontinued operations

 

 

 
(0.02
)
 
(0.01)
 
Basic earnings per share
$
1.73

 
$
1.42

 
$
1.24

 
$
1.47

 
$
1.40

 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.72

 
$
1.39

 
$
1.22

 
$
1.47

 
$
1.38

 
Discontinued operations

 

 

 
(0.02
)
 
(0.01
)
 
Diluted earnings per share
$
1.72

 
$
1.39

 
$
1.22

 
$
1.45

 
$
1.38

 
_______________
 
 
 
 
 
 
 
 
 
 
(1) Selling, general and administrative expenses for 2011 include the payment of a $39.0 million litigation settlement.
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
2015
 
2014
(As reclassified)
 
2013
 
2012
 
2011
 
 
(in thousands)
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Working capital
$
702,169

 
$
990,771

 
$
1,033,216

 
$
923,679

 
$
1,000,339

(2  
)  
Total assets
2,406,400

 
2,349,311

 
2,343,359

 
2,190,655

 
2,149,114

(2  
)  
Short-term debt
264,707

 
15,041

 
15,064

 
374

 
136

 
Long-term debt, excluding current portion
93,750

 
357,986

 
372,528

 
248,319

 
247,861

 
Total shareholders’ equity
1,649,515

 
1,609,773

 
1,613,380

 
1,599,901

 
1,579,029

 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.44

 
$
0.40

 
$
0.36

 
$
0.28

 
$
0.24

 
(2) Working capital and total assets for 2014 have been adjusted for reclassification of deferred tax assets related to the adoption of Accounting Standards Update No. 2015-17. See Note 1 to the Consolidated Financial Statements in Item 8 for further information. 2011, 2012 and 2013 were not adjusted.
 

31


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a world leader in sensor systems that enhance perception and awareness. We were founded in 1978 and have since become a premier designer, manufacturer, and marketer of thermal imaging and other sensing products and systems. Our advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a wide variety of applications in commercial, industrial, and government markets worldwide.
Our goal is to both enable our customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for our shareholders. We create value for our customers by providing advanced surveillance and tactical defense capabilities, improving personal and public safety and security, facilitating air, ground, and maritime navigation, enhancing enjoyment of the outdoors, providing infrastructure inefficiency information, conveying pre-emptive structural deficiency data, displaying process irregularities, and enabling commercial business opportunities through our continual support and development of new thermal imaging data and analytics applications. Our business model meets the needs of a wide range of customers – we sell off-the-shelf products to many markets and also offer a variety of system configurations to suit specific customer requirements. Centered on the design of products for low cost manufacturing and high volume distribution, our commercial operating model has been developed over time and provides us with a unique ability to adapt to market changes and meet our customers’ needs.
This Management's Discussion and Analysis of Financial Condition and Results of Operations is prepared and reported based on our reporting structure of six operating segments. For a more detailed description of our segments, see "Business Segments" within Item 1.
International revenue accounted for approximately 47 percent, 49 percent and 50 percent of our revenue in 2015, 2014 and 2013 , respectively. We anticipate that international sales will continue to account for a significant percentage of revenue in the future. We have exposure to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the United States dollar relative to other currencies. Factors contributing to this variability include significant manufacturing activity in Europe, significant sales denominated in currencies other than the United States dollar, and cross currency fluctuations between such currencies as the United States dollar, euro, Swedish kronor and British pound sterling. The impact of those fluctuations is reflected throughout our consolidated financial statements, and primarily due to the United States dollar strengthening in 2015, there was a meaningful impact on our results of operations in 2015 , including a reduction of approximately $63 million in revenue and reductions in the carrying values of our foreign net assets when translated from foreign currencies to United States dollars.
We experience fluctuations in orders and sales due to seasonal variations and customer sales cycles, such as the seasonal pattern of contracting by the United States and certain foreign governments, the desire of customers to take delivery of equipment prior to fiscal year ends due to funding considerations, and the tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration. Such events have resulted and could continue to result in fluctuations in quarterly results in the future. As a result of such quarterly fluctuations in operating results, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance.
We expect that macroeconomic factors, including reduced spending by United States government agencies and economic weaknesses in certain geographic markets, will continue to present challenges for us and render predictions regarding future performance difficult to make.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, goodwill, warranty obligations, contingencies and income taxes on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.

32


Revenue recognition. Revenue is recognized when persuasive evidence of an arrangement exists, upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection, passage of title and risk of loss to the customer as indicated by the contractual terms and fulfillment of all significant obligations.
We design, market and sell our products primarily as commercial, off-the-shelf products. Certain customers request different system configurations, generally based on standard options or accessories that we offer. In general, our revenue arrangements do not involve acceptance provisions based upon customer specified acceptance criteria. In those circumstances when customer specified acceptance criteria exist, revenue is deferred until customer acceptance if we cannot demonstrate that the system meets those specifications prior to shipment. For any contracts with multiple elements (i.e., training, installation, additional parts, etc.) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we use an estimated selling price for purposes of allocating the total arrangement consideration among the elements. In addition, judgments are required in evaluating the credit worthiness of our customers. Credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured.
Allowance for doubtful accounts. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Credit limits are established through a process of reviewing the financial history and stability of each customer. Where appropriate, we obtain credit rating reports and financial statements of the customer when determining or modifying their credit limits. We regularly evaluate the collectability of our trade receivable balances based on a combination of factors. When a customer’s account balance becomes past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results or financial position or other material events impacting their business, we record a specific allowance to reduce the related receivable to the amount we expect to recover given all information presently available. Actual write-offs during the past three years have not been material to our results of operations.
We also record an allowance for all other customers based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers. As of December 31, 2015 , our accounts receivable balance of $326.1 million is reported net of allowances for doubtful accounts of $6.9 million . We believe our reported allowances at December 31, 2015 are adequate. If the financial conditions of those customers were to deteriorate, however, resulting in their inability to make payments, we may need to record additional allowances that would result in additional selling, general and administrative expenses being recorded for the period in which such determination is made.
Inventory. Our policy is to record inventory write-downs when conditions exist that indicate that our inventories are likely to be in excess of anticipated demand or are obsolete based upon our assumptions about future demand for our products and market conditions. We regularly evaluate the ability to realize the value of our inventories based on a combination of factors including the following: historical usage rates, forecasted sales or usage, product end of life dates, estimated current and future market values and new product introductions. Purchasing requirements and alternative usages are evaluated within these processes to mitigate inventory exposure. When recorded, our write-downs are intended to reduce the carrying value of our inventories to their net realizable value and establish a new cost basis. As of December 31, 2015 , our inventories of $393.1 million are stated net of inventory write-downs. If actual demand for our products deteriorates or market conditions are less favorable than those that we project, additional inventory write-downs may be required in the future.
Goodwill. Goodwill represents the excess purchase price of an acquired enterprise or assets over the estimated fair value of identifiable net assets acquired. We assess goodwill for potential impairment at the reporting unit level during the third quarter of each year, or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value. We may assess qualitative factors to make this determination, or bypass such a qualitative assessment and proceed directly to testing goodwill for impairment using a two-step process. Qualitative factors we may consider include, but are not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments and entity specific factors such as strategies and financial performance. If there are indicators that goodwill has been impaired we proceed to a two-step impairment test, whereby the first step is comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value of a reporting unit exceeds its fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded. Our impairment test in the current year did not indicate an impairment of goodwill in any of our reporting units.

33


Product warranties. Our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time, generally twelve to twenty-four months, at no cost to our customers. Our policy is to record warranty liabilities at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements at the time that revenue is recognized. We believe that our recorded liability of $16.5 million at December 31, 2015 is adequate to cover our future cost of materials, labor and overhead for the servicing of our products sold through that date. If actual product failures or material or service delivery costs differ from our estimates, our warranty liability would need to be revised accordingly.
Contingencies. We are subject to the possibility of loss contingencies arising in the normal course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals and disclosures should be adjusted.
Income taxes.   We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future. In making that determination, on a jurisdiction by jurisdiction basis, we estimate our future taxable income based upon historical operating results and external market data. Future levels of taxable income are dependent upon, but not limited to, general economic conditions, competitive pressures and other factors beyond our control. As of December 31, 2015 , we have determined that a valuation allowance against our deferred tax assets of $2.6 million is required. If we should determine that we may be unable to realize our deferred tax assets to the extent reported, an adjustment to the deferred tax assets would be recorded in the period such determination is made.

We are subject to income taxes in the United States and in numerous foreign jurisdictions, and in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. While we believe the positions we have taken are appropriate, we have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by the tax authorities. We record a benefit on a tax position when we determine that it is more likely than not that the position is sustainable upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions that are more likely than not to be sustained, we measure the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it is effectively settled, using information that is available at the reporting date. We review the tax reserves as circumstances warrant and adjust the reserves as changes in available facts arise that affect our potential liability for additional taxes.


34


Consolidated Operating Results
The following table sets forth for the indicated periods certain items as a percentage of revenue:
 
Year Ended December 31, (1)
 
2015
 
2014
 
2013
Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
51.6

 
51.0

 
50.7

Gross profit
48.4

 
49.0

 
49.3

Operating expenses:
 
 
 
 
 
Research and development
8.5

 
9.3

 
9.9

Selling, general and administrative
20.1

 
21.7

 
21.6

Restructuring expenses
0.1

 
1.1

 
1.7

Total operating expenses
28.8

 
32.1

 
33.2

Earnings from operations
19.6

 
16.9

 
16.1

Interest expense
0.9

 
1.0

 
0.9

Interest income
(0.1
)
 
(0.1
)
 
(0.1
)
Other (income) expense, net
(0.8
)
 
(0.2
)
 
(0.1
)
Earnings before income taxes
19.6

 
16.3

 
15.3

Income tax provision
4.1

 
3.2

 
3.5

Net earnings
15.5
 %
 
13.1
 %
 
11.8
 %
_______________  
(1)
Totals may not recompute due to rounding.

The following discussion of operating results provides an overview of our operations by addressing key elements in our Consolidated Statements of Income. The “Segment Operating Results” section that follows describes the contributions of each of our business segments to our consolidated revenue and earnings from operations for 2015, 2014 and 2013 . Given the nature of our business, we believe revenue and earnings from operations (including operating margin percentage) are most relevant to an understanding of our performance at a segment level. Additionally, at the segment level we disclose backlog, which represents orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months.


35


Revenue . Revenue for 2015 totaled $1,557.1 million , an increase of 1.7 percent from 2014 revenue of $1,530.7 million . Year over year revenue growth was primarily due to increases in our Security and Detection segments, partially offset by declines in our Surveillance, Instruments, OEM & Emerging Markets, and Maritime segments. The revenue increase was negatively impacted by year over year changes in foreign currency rates, particularly in our Instruments and Maritime segments. On a constant currency basis, revenue for 2015 would have been an increase of approximately 5.8 percent over 2014 revenue.
Revenue for 2014 totaled $1,530.7 million , an increase of 2.3 percent over 2013 revenue of $1,496.4 million . Most of our operating segments reported increases in year over year revenues. Revenue from the United States government customers declined by $44.5 million from 2013 to 2014.
International revenue in 2015 totaled $734.2 million , representing 47.2 percent of revenue. This compares with international revenue in 2014 which totaled $747.0 million , representing 48.8 percent of revenue, and $740.7 million in 2013 , representing 49.5 percent of revenue. While the sales mix between United States and international sales may fluctuate from year to year, we expect revenue from customers outside the United States to continue to comprise a significant portion of our total revenue on a long-term basis.
Cost of goods sold. Cost of goods sold for the years ended December 31, 2015 and 2014 was $803.5 million and $780.3 million , respectively. The increase is primarily due to the increase in revenues year over year as discussed above and changes in product mix.
Cost of goods sold in 2014 was $780.3 million , compared to cost of goods sold of $759.4 million in 2013 . The year over year increase in cost of goods sold primarily relates to the higher year over year revenues and changes in product mix. For the years ended December 31, 2014 and 2013, cost of goods sold included $0.6 million and $1.7 million, respectively, of inventory write downs related to our restructuring activities.
Cost of goods sold includes materials, labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies, outside processing and inbound freight costs. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving and inspection costs.
Gross profit . Gross profit for the year ended December 31, 2015 was $753.6 million compared to $750.4 million in 2014 . Gross margin, defined as gross profit divided by revenue, decreased slightly from 49.0 percent in 2014 to 48.4 percent in 2015 primarily due to changes in product mix and the negative impact of year over year changes in foreign currency rates.
Gross profit for the year ended December 31, 2014 was $750.4 million compared to $737.0 million in 2013 . Gross margin decreased from 49.3 percent in 2013 to 49.0 percent in 2014 .
Research and development. Research and development expenses were $132.9 million , or 8.5 percent of revenue, in 2015 , compared to $142.8 million , or 9.3 percent of revenue, in 2014 , and $147.7 million , or 9.9 percent of revenue, in 2013 .
We believe that spending levels are sufficient to support the development of new products and the continued growth of the business. We expect research and development expenses to be approximately 8 to 10 percent of revenue on a long-term basis.
Selling, general and administrative expenses. Selling, general and administrative expenses were $313.5 million , or 20.1 percent of revenue, in 2015 compared to $332.0 million , or 21.7 percent of revenue, in 2014 and $322.7 million , or 21.6 percent of revenue, in 2013 . The decrease in selling, general and administrative expenses in 2015 compared to 2014 was primarily due to a $15.6 million decrease in corporate expenses primarily related to 2014 legal expenses incurred for litigation matters and costs of a regulatory settlement. The increase in selling, general and administrative expenses in 2014 compared to 2013 was primarily due to increases in marketing spending and a $13.8 million increase in corporate expenses due to the 2014 factors previously mentioned. While selling, general and administrative expenses may be affected in the future by acquisitions with different cost structures, we anticipate selling, general and administrative expenses to increase at a slower rate than revenue in our existing businesses.

36


Restructuring expenses. During the years ended December 31, 2015, 2014 and 2013, we recorded net pre-tax restructuring expenses totaling $1.4 million, $17.0 million and $27.5 million, respectively. Of the restructuring expenses recorded in 2014, $16.4 million was recorded in operating expenses and $0.6 million was recorded in costs of goods sold. Of the restructuring expenses recorded in 2013, $25.8 million was recorded in operating expenses and $1.7 million was included in costs of goods sold. In the fourth quarter of 2013, we initiated a realignment plan that included closing six not-to-scale sites in the United States and Europe and a transfer of those operations to larger facilities. We also consolidated our optics and laser manufacturing businesses to better realize the benefits of vertical integration in these areas. The benefits from these actions are reflected in our operating results. As of December 31, 2015, we have completed the majority of the actions in our realignment plan.
Interest expense. Interest expense totaled $14.1 million , $14.6 million and $14.1 million for the years ended December 31, 2015, 2014 and 2013 , respectively. Interest expense is primarily attributable to the $250 million aggregate principal amount of 3.75 percent senior unsecured notes due September 1, 2016 and the amortization of the costs related to the issuance of the notes and the $150 million term loan that was drawn on April 5, 2013.
Other (income) expense, net. Other income totaled $12.6 million, $3.5 million and $1.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. The increase in other income during the year ended December 31, 2015 is primarily attributed to the gain on the sale of our cost basis investment in a private technology company.
Income taxes. Our income tax provision was $63.8 million , $49.3 million and $52.0 million in 2015, 2014 and 2013 , respectively. The effective tax rates for 2015, 2014 and 2013 were 20.9 percent , 19.7 percent and 22.7 percent , respectively. The mix in taxable income between our United States and international operations has a significant impact on our annual income tax provision and effective tax rates. Our effective tax rate is lower than the United States federal tax rate of 35 percent because of lower foreign tax rates, the effect of foreign, federal and state tax credits and other discrete items. In 2015, the discrete items included a $12.1 million release of a previously recorded tax valuation allowance, and in 2014, the discrete items included a $9.4 million release of previously recorded unrecognized tax benefits that were no longer required due to closure of the applicable statute. We expect the effective tax rate for 2016 to be approximately 26 percent excluding discrete items.
At December 31, 2015 , we had United States tax net operating loss carry-forwards totaling approximately $4.6 million which expire between 2019 and 2031 . In addition, we have various state net operating loss carry-forwards totaling approximately $39.2 million which expire between 2016 and 2033 . The federal and state net operating losses were primarily generated by ICx Technologies, Inc. prior to being acquired by us in 2010. Finally, we have various foreign net operating loss carry-forwards totaling approximately $71.1 million , a portion of which expire between 2018 and 2033 and a portion of which have an indefinite carry-forward period.
Tax benefits as described above are recorded as assets when the benefits are more likely than not to be recognized. To the extent that we assess the realization of such assets to not be more likely than not, a valuation allowance is required to be recorded. As of December 31, 2015 , we have determined that a valuation allowance against our deferred tax assets of $2.6 million is required, primarily related to certain acquired net operating losses. A review of all available positive and negative evidence is considered, including past and future performance, the market environment in which we operate, utilization of tax attributes in the past, length of carry-back and carry-forward periods, and evaluation of potential tax planning strategies, when evaluating whether the deferred tax assets will be realized.
On January 11, 2016, the European Commission announced a decision concluding that certain rules under Belgian tax legislation are deemed to be incompatible with European Union regulations on state aid. As a result of this decision, the European Commission has directed the Belgian Government to recover past taxes from certain entities, reflective of disallowed state aid, which the Company expects to impact one of its subsidiaries covering a three-year period which concluded with the expiration of an agreement in July 2015. Negotiations are ongoing between the Belgian Government and the European Commission to agree on a methodology to calculate the applicable amounts for each company impacted by the decision. Although the Company has not received a request for payment or other official notice, the Company has evaluated the potential impact of the European Commission's decision in accordance with FASB ASC Topic 740, "Income Taxes," noting the recent decision could significantly increase the Company's unrecognized tax benefits within the next twelve months. However, due to the ongoing negotiations and uncertainty surrounding the calculation methodology and litigation process, the Company is currently unable to estimate the range of the potential increase. While the Company is unable to estimate the range of potential impact on unrecognized tax benefits, such impact could be material to the 2016 tax provision.

37


Segment Operating Results
We have six operating segments. Effective January 1, 2015, the Personal Vision Systems Product line was transferred from the OEM & Emerging Markets segment to the Surveillance segment. The results for those two segments for the years ended December 31, 2014 and 2013 have been reclassified to conform to the presentation for the year ended December 31, 2015. The following discusses the operating results of each of our segments for that three year period.
Surveillance
Surveillance operating results are as follows (in millions, except percentages):
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
 
 
(as reclassified)
 
(as reclassified)
Revenue
$
503.0

 
$
520.0

 
$
554.6

Earnings from operations
145.6

 
127.2

 
135.6

Operating margin
29.0
%
 
24.5
%
 
24.4
%
Backlog
309

 
297

 
282

Surveillance revenue decreased by 3.3 percent in 2015 compared to 2014 , primarily due to the continued reductions in demand from United States government funded customers and decreases in airborne and integrated systems product line revenues, partially offset by an increase in revenues in the land product line. Earnings from operations increased by 14.5 percent primarily due to lower operating expenses and higher gross margins, partially offset by the decrease in revenues. During the year ended December 31, 2015, Surveillance had restructuring charges of $0.2 million, compared to $5.2 million in 2014.
Revenue decreased by 6.2 percent in 2014 compared to 2013 , primarily due to the reductions in demand from United States government funded customers. Earnings from operations decreased by 6.1 percent primarily due to the lower revenues, partially offset by cost savings generated as a result of restructuring activities. In 2013, Surveillance had restructuring charges of $5.4 million.
Instruments
Instruments operating results are as follows (in millions, except percentages):
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
347.5

 
$
354.1

 
$
337.5

Earnings from operations
112.4

 
99.0

 
81.1

Operating margin
32.3
%
 
27.9
%
 
24.0
%
Backlog
27

 
35

 
27

Instruments segment revenue for the year ended December 31, 2015 decreased by 1.9 percent compared to the year ended December 31, 2014 . The year over year decrease in revenue was primarily due to a revenue decline in the Americas region, partially offset by an increase in the Asia Pacific region; on a product line basis, declines in our higher end thermography and in our optical gas imaging product lines were partially offset by increases in our science, test and measurement, and fire product lines. Revenues for the year ended December 31, 2015 were also negatively impacted by year over year changes in currency exchange rates. On a constant currency basis, Instruments revenues in 2015 increased by 4.9 percent compared to 2014. The increase in earnings from operations for the year ended December 31, 2015 compared to the year ended December 31, 2014 is primarily due to lower restructuring expenses and costs savings associated with restructuring activities. As a large portion of segment expenses are incurred in Europe, the segment experienced a favorable impact on its operating expenses from the changes in foreign currency rates which largely offset the associated decline in revenues in that region. During the year ended December 31, 2015, Instrument had restructuring charges of $1.2 million compared to $11.0 million in the year ended December 31, 2014.

38


Instruments segment revenue for the year ended December 31, 2014 increased by 4.9 percent , compared to the year ended December 31, 2013 . The year over year increase in revenue is primarily due to increased deliveries in most geographic regions and across most product lines, particularly for products introduced late in 2013 and in 2014. The increase in earnings from operations for the year ended December 31, 2014 compared to 2013 is primarily due to higher revenues, lower restructuring expenses and cost savings generated from those restructuring activities. During 2013, the segment incurred restructuring charges of $15.5 million.
 
Security
Security operating results are as follows (in millions, except percentages):
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
226.6

 
$
179.1

 
$
141.0

Earnings from operations
28.1

 
24.9

 
17.3

Operating margin
12.4
%
 
13.9
%
 
12.3
%
Backlog
16

 
18

 
10

Security segment revenue for the year ended December 31, 2015 increased by 26.5 percent over the year ended December 31, 2014. The increase was primarily due to increased deliveries across all product families and in the Americas and Europe geographic regions. The increase of earnings from operations of 13.1 percent was primarily due to the increase in revenues, partially offset by increases in sales and marketing support operating expenses.
Security segment revenue for the year ended December 31, 2014 increased by 27.0 percent compared to the prior year primarily due to increased deliveries in all product families and expanded distribution. The increase in earnings from operations in 2014 of 43.4 percent over 2013 was primarily due to the increase in year over year revenues, partially offset by increased marketing, customer technical support and product development expenses. The increase in backlog was primarily due to an increase in orders from international customers which often have longer delivery times.

OEM & Emerging Markets
OEM & Emerging Markets operating results are as follows (in millions, except percentages):

 
Year Ended December 31,
 
2015
 
2014
 
2013
 
 
 
(as reclassified)
 
(as reclassified)
Revenue
$
186.7

 
$
199.1

 
$
184.0

Earnings from operations
41.1

 
50.2

 
39.3

Operating margin
22.0
%
 
25.2
%
 
21.3
%
Backlog
140

 
129

 
129

OEM & Emerging Markets segment revenue decreased by 6.2 percent in 2015 compared to 2014 , primarily due to the loss of approximately $8.8 million in 2014 revenue from our former optical components group which was sold in August 2014 and the negative impacts of changes in currency exchange rates. Earnings from operations declined in 2015 compared to 2014 primarily due to the decrease in revenue and lower gross margins, partially offset by lower operating expenses.
Revenue increased by 8.2 percent in 2014 compared to 2013 , primarily due to increased deliveries to customers in the United States, particularly of uncooled camera cores and newly introduced mobile accessories. Earnings from operations increased by 28.0 percent due to the increase in revenues and cost savings from restructuring activities.

39


Maritime
Maritime operating results are as follows (in millions, except percentages):
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
177.9

 
$
192.6

 
$
189.1

Earnings from operations
13.6

 
24.5

 
22.3

Operating margin
7.6
%
 
12.7
%
 
11.8
%
Backlog
28

 
17

 
11


Maritime segment revenue for the year ended December 31, 2015 decreased by 7.6 percent compared to 2014 primarily due to the negative impact of year over year changes in currency exchange rates in the Europe and Asia Pacific regions. On a constant currency basis, 2015 revenue increased by 2.2 percent compared to 2014. Since the majority of the segment's costs of goods sold are incurred in United States dollars, those costs did not receive the favorable impact of changes in currency exchange rates. Consequently, the decrease in earnings from operations in 2015 compared to 2014 was primarily due to the revenue decline.
Maritime segment revenue for the year ended December 31, 2014 increased by 1.9 percent compared to the same period of 2013 primarily due to higher deliveries in Europe and year over year unit volume increases from Raymarine-branded product lines.

Detection
Detection operating results are as follows (in millions, except percentages):
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
115.3

 
$
85.7

 
$
90.2

Earnings from operations
26.9

 
11.0

 
8.9

Operating margin
23.3
%
 
12.8
%
 
9.9
%
Backlog
82

 
51

 
30

Detection segment revenue for the year ended December 31, 2015 increased by 34.5 percent compared to the prior year. The increase in revenue was primarily due to increased deliveries of our CBRNE threat response systems and related spare parts and services against orders received in the second half of 2014 on a large program with the United States government. The increase in earnings from operations and operating margin were primarily due to the increases in revenues and higher gross margins. The increase in backlog was primarily due to additional orders for our CBRNE threat response systems that were received in the first and fourth quarters of 2015.
Detection segment revenue for the year ended December 31, 2014 decreased by 5.0 percent compared to 2013 . The decline in year over year revenue in 2014 compared to 2013 was primarily due to reduced deliveries to United States customers across most product lines. The increase in earnings from operations in 2014 was primarily due to realizing the benefit in 2014 from restructuring measures taken in 2013. The increase in backlog was due to a large contract with the United States government that had deliveries in 2015.





40


Liquidity and Capital Resources
At December 31, 2015 , we had a total of $472.8 million in cash and cash equivalents, $129.6 million of which was in the United States and $343.2 million at our foreign subsidiaries, compared to cash and cash equivalents at December 31, 2014 of $531.4 million , of which $164.1 million was in the United States and $367.3 million at our foreign subsidiaries. We intend to indefinitely reinvest the cash at our foreign subsidiaries in operations and other activities outside the United States. The decrease in cash and cash equivalents in 2015 was primarily due to $123.2 million spent for the repurchase of our common stock, $92.3 million spent on the acquisition of DVTEL, Inc., $68.2 million spent on capital expenditures and dividends paid of $61.4 million, partially offset by cash provided from operations of $275.8 million.
Cash provided by operating activities in 2015 totaled $275.8 million compared to $226.2 million in 2014 and $355.0 million in 2013 . The increase in cash provided from operations in 2015 compared to 2014 was primarily due to the increase in net earnings. The decrease in cash provided from operations in 2014 compared to 2013 was primarily related to lower net collections of accounts receivable.
Cash used for investing activities for the year ended December 31, 2015 totaled $134.8 million , consisting of $92.3 million, net of cash acquired, for the acquisition of DVTEL, Inc. and capital expenditures of $68.2 million, partially offset by $25.6 million of proceeds from the sale of an investment in a third party. Cash used for investing activities for the year ended December 31, 2014 totaled $49.3 million, consisting of capital expenditures of $61.3 million, offset by $12.0 million of proceeds from the sale of certain tangible assets and intellectual property related to the design and manufacturing of non-thermal micro-optics. Capital expenditures in 2015 and 2014 included $33.0 million and $19.1 million, respectively, for building improvements for our new facility in Goleta, California. Cash used for investing activities for the year ended December 31, 2013 totaled $72.1 million, primarily consisting of capital expenditures of $52.1 million and $20.1 million for business acquisitions. Capital expenditures in 2013 included equipment purchases in the OEM & Emerging Markets segment related to the development of our new Lepton camera core.
Cash used by financing activities for the years ended December 31, 2015 and 2014 totaled $166.5 million and $152.0 million , respectively, primarily consisting of the repurchase of shares of our common stock and the payment of dividends, partially offset by proceeds from shares issued pursuant to stock-based compensation plans. Cash used in financing activities for the year ended December 31, 2013 totaled $66.1 million , primarily consisting of the payment of dividends and repurchases of our common stock, offset by net borrowings of $138.8 million against our term loan facility.
On February 8, 2011, we signed a Credit Agreement (“Credit Agreement”) with Bank of America, N.A., U.S. Bank National Association, JPMorgan Chase Bank N.A. and other Lenders. The Credit Agreement provides for a $200 million, five-year revolving line of credit. On April 5, 2013, the Credit Agreement was amended to extend the maturity of the revolving credit facility from February 8, 2016 to April 5, 2018 in addition to incorporating a $150 million term loan facility maturing April 5, 2019. We have the right, subject to certain conditions including approval of additional commitments by qualified lenders, to increase the revolving line of credit under the Credit Agreement by an additional $150 million at any time prior to April 5, 2018. The Credit Agreement allows us to borrow in United States dollars, euros, Swedish kronor, British pound sterling, Japanese yen, Canadian dollars, Australian dollars and other agreed upon currencies. The Credit Agreement requires us to pay a commitment fee on the amount of unused revolving commitments at a rate, based on the Company’s total leverage ratio, which ranges from 0.25 percent to 0.40 percent per annum. The Credit Agreement contains two financial covenants that require the maintenance of a total leverage ratio and an interest coverage ratio with which we were in compliance at December 31, 2015 . The five-year revolving line of credit available under the Credit Agreement and the term loan facility thereunder are not secured by any of our assets.
As noted above, the Credit Agreement amendment of April 5, 2013 incorporated a $150 million term loan facility that matures on April 5, 2019. On April 5, 2013 we drew down $150 million under the term loan facility, electing one-month LIBOR as the basis for the interest rate. Interest is accrued at LIBOR plus the scheduled spread and is paid monthly. By entering into interest rate swap agreements, we have effectively fixed the basis for calculating the interest rate on the term loan. The effective interest rate paid is equal to the fixed rate in the swap agreements plus the credit spread then in effect. At December 31, 2015 , the effective interest rate on the term loan was 2.49 percent per annum. Principal payments on the term loan of $3.75 million are made in quarterly installments which commenced on June 30, 2013 and will continue through December 31, 2018 with the final maturity payment on the term loan including any accrued interest due on April 5, 2019.
At December 31, 2015 , we had no revolving loans outstanding under the Credit Agreement and the commitment fee on the amount of unused revolving credit was 0.30 percent per annum. We had $30.1 million and $44.0 million of letters of credit outstanding under the Credit Agreement at December 31, 2015 and 2014 , respectively, which reduced the total available revolving credit under the Credit Agreement.

41


On August 19, 2011, the Company issued $250 million aggregate principal amount of its 3.75 percent senior unsecured notes due September 1, 2016 (the "Notes"). The net proceeds from the issuance of the Notes were approximately $247.7 million, after deducting underwriting discounts and offering expenses, which are being amortized over a period of five years. Interest is payable on the Notes semi-annually in arrears on March 1 and September 1. The proceeds from the Notes have been used for general corporate purposes, including working capital and capital expenditure needs, business acquisitions and repurchases of our common stock. We expect to refinance these Notes in 2016.
United States income taxes have not been provided for on accumulated earnings of certain subsidiaries outside of the United States as we currently intend to reinvest the earnings in operations outside the United States indefinitely. Should we subsequently elect to repatriate such foreign earnings, we would need to accrue and pay United States income taxes, thereby reducing the amount of our cash.
We believe that our existing cash combined with the cash we anticipate generating from operating activities, and our available credit facilities and financing available from other sources, including the expected refinancing of our Notes, will be sufficient to meet our cash requirements for the next twelve months. We do not have any significant commitments nor are we aware of any significant events or conditions that are likely to have a material impact on our liquidity or capital resources.


Off-Balance Sheet Arrangements
As of December 31, 2015 , we leased our non-owned facilities under operating lease agreements. We also leased certain operating machinery and equipment and office equipment under operating lease agreements. Except for these operating lease agreements, we do not have any off-balance sheet arrangements that have or are likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


Contractual Obligations
As of December 31, 2015 , our contractual obligations were as follows (in thousands):
 
Payments Due by Period
 
Total
 
Less than
1 Year
 
1 – 3
Years
 
3 – 5
Years
 
More than
5 Years
Long-term debt, including interest
$
372,001

 
$
273,824

 
$
34,013

 
$
64,163

 
$

Operating leases
14,246

 
5,148

 
6,078

 
2,601

 
419

Licensing rights
1,650

 
550

 
1,100

 

 

Post-retirement obligations
12,503

 
432

 
816

 
784

 
10,471

Other obligations
6

 
5

 
1

 

 

 
$
400,406

 
$
279,959

 
$
42,008

 
$
67,548

 
$
10,890

Principal and interest on long-term debt, operating leases and licensing rights obligations are based upon contractual terms. Actual payments may differ in terms of both timing and amounts.
The Company cannot make a reasonably reliable estimate of the period of potential cash settlement of its unrecognized tax benefits of $15.0 million and, therefore, has not included the unrecognized tax benefits in the table of significant contractual obligations as of December 31, 2015 . For further detail on unrecognized tax benefits, see Note 14 to the Consolidated Financial Statements in Item 8. We did not include approximately $30.1 million of standby letters of credit and performance bonds due to the unlikely event of payment, if any, of amounts under those arrangements.


Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements in Item 8 for a discussion of recent accounting pronouncements.


42


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk
We have assets and liabilities outside the United States that are subject to fluctuations in foreign currency exchange rates. Similarly, certain revenues from products sold in countries outside the United States and costs associated with non-United States operations are denominated in foreign currencies. For more information on our foreign currency translation, see Note 1 to the Consolidated Financial Statements in Item 8. Assets and liabilities located outside the United States are primarily located in Europe. Our investments in subsidiaries outside the United States with functional currencies other than the United States dollar are considered long-term. We currently engage in forward currency exchange contracts and other similar hedging activities to reduce our economic exposure to changes in exchange rates. At December 31, 2015 , exchange contracts with a notional amount of approximately $91.9 million were outstanding. Because we market, sell and license our products throughout the world, we could be adversely affected by weak economic conditions in international markets that could reduce demand for our products.
Our net investment in subsidiaries outside the United States, translated into United States dollars using the period-end exchange rates, was approximately $874.0 million at December 31, 2015 . The potential loss in fair value resulting from a hypothetical 10 percent adverse change in foreign exchange rates would be approximately $87.4 million at December 31, 2015 . The increase in the potential loss in fair value is primarily due to the increase in the net investment of subsidiaries outside the United States. We have no plans to liquidate any of our subsidiaries outside the United States, and therefore, foreign exchange rate gains or losses on our international investments are reflected as a cumulative translation adjustment and do not increase or reduce our reported net earnings.

Interest Rate Risk
Our exposure to changes in market interest rates relates primarily to interest paid on our floating rate long-term debt. Our floating rate long-term debt consists of amounts borrowed under our term loan facility that bears interest at the one-month LIBOR rate plus a scheduled spread. Fluctuations in market interest rates will cause interest expense increases or decreases on such long-term debt.
As our risk management objectives include mitigating the risk of changes in cash flows attributable to changes in the designated one-month LIBOR rate for the term loan facility, we entered into two interest rate swaps for the aggregate notional amount borrowed under the term loan facility and fixed interest rates of 1.016 percent and 0.97 percent effective at the time the term loan was drawn to hedge this exposure. Changes in the cash flows of the interest rate swaps are expected to exactly offset the changes in cash flows attributable to fluctuations in the one-month LIBOR based interest payments. The net effect of these swap agreements is to convert the floating interest rate basis to fixed rates of 1.016 percent and 0.97 percent.
See Liquidity and Capital Resources in Item 7 and Note 3, Note 9, and Note 11 to the Consolidated Financial Statements in Item 8, for additional information on the Company's interest rate risk.


43


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This item includes the following financial information:


44



Report of Independent Registered Public Accounting Firm
The Board of Directors and
Shareholders of FLIR Systems, Inc.:
We have audited the accompanying consolidated balance sheets of FLIR Systems, Inc. (an Oregon Corporation) and subsidiaries as of December 31, 2015 and 2014 , and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015 . These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FLIR Systems, Inc. and subsidiaries as of December 31, 2015 and 2014 , and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015 , in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FLIR Systems, Inc.’s internal control over financial reporting as of December 31, 2015 , based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP
Portland, Oregon
February 26, 2016

45


FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue
$
1,557,067

 
$
1,530,654

 
$
1,496,372

Cost of goods sold
803,506

 
780,281

 
759,362

Gross profit
753,561

 
750,373

 
737,010

Operating expenses:
 
 
 
 
 
Research and development
132,892

 
142,751

 
147,696

Selling, general and administrative
313,544

 
331,995

 
322,739

Restructuring expenses
1,361

 
16,383

 
25,832

Total operating expenses
447,797

 
491,129

 
496,267

Earnings from operations
305,764

 
259,244

 
240,743

Interest expense
14,086

 
14,593

 
14,091

Interest income
(1,167
)
 
(1,405
)
 
(1,058
)
Other (income) expense, net
(12,601
)
 
(3,473
)
 
(1,276
)
Earnings before income taxes
305,446

 
249,529

 
228,986

Income tax provision
63,760

 
49,268

 
51,971

Net earnings
$
241,686

 
$
200,261

 
$
177,015

 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
Basic earnings per share
$
1.73

 
$
1.42

 
$
1.24

Diluted earnings per share
$
1.72

 
$
1.39

 
$
1.22






















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

46


FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

 
Year Ended December 31,
 
2015
 
2014
 
2013
 
 
 
 
 
 
Net earnings
$
241,686

 
$
200,261

 
$
177,015

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Change in minimum liability for pension plans, net of tax effects of $238, $(27) and $1,682, respectively
661

 
(212
)
 
2,961

Fair value adjustment on interest rate swap contracts
(602
)
 
(735
)
 
1,660

Foreign currency translation adjustments
(61,776
)
 
(88,462
)
 
11,838

Total other comprehensive (loss) income
$
(61,717
)
 
$
(89,409
)
 
$
16,459

Comprehensive income
$
179,969

 
$
110,852

 
$
193,474




































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

47


FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for par value)
 
December 31,
 
2015
 
2014
(As reclassified)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
472,785

 
$
531,374

Accounts receivable, net
326,098

 
354,658

Inventories
393,092

 
320,605

Prepaid expenses and other current assets
95,539

 
93,691

Total current assets
1,287,514

 
1,300,328

Property and equipment, net
272,629

 
247,094

Deferred income taxes, net
55,429

 
54,102

Goodwill
596,316

 
553,335

Intangible assets, net
141,302

 
133,212

Other assets
53,210

 
61,240

          Total assets
$
2,406,400

 
$
2,349,311

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
139,540

 
$
98,173

Deferred revenue
31,933

 
27,878

Accrued payroll and related liabilities
54,806

 
62,065

Accrued product warranties
13,406

 
13,538

Advance payments from customers
33,848

 
28,276

Accrued expenses
40,930

 
51,810

Accrued income taxes
201

 
4,586

Other current liabilities
5,987

 
8,231

Current portion, long-term debt
264,694

 
15,000

Total current liabilities
585,345

 
309,557

Long-term debt
93,750

 
357,986

Deferred income taxes
3,623

 
9,193

Accrued income taxes
10,457

 
11,096

Pension and other long-term liabilities
63,710

 
51,706

Commitments and contingencies (Notes 12 and 13)

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at December 31, 2015 or 2014

 

Common stock, $0.01 par value, 500,000 shares authorized, 137,350 and 139,579 shares issued at December 31, 2015 and 2014, respectively, and additional paid-in capital
1,374

 
1,396

Retained earnings
1,773,267

 
1,671,786

Accumulated other comprehensive earnings (loss)
(125,126
)
 
(63,409
)
Total shareholders’ equity
1,649,515

 
1,609,773

          Total liabilities and shareholders' equity
$
2,406,400

 
$
2,349,311


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

48


FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
 
Common Stock and
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Earnings
(Loss)
 
Total
Shareholders'
Equity
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
145,814

 
$
171,546

 
$
1,418,814

 
$
9,541

 
$
1,599,901

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings for the year

 

 
177,015

 

 
177,015

 
Income tax benefit of common stock options exercised

 
551

 

 

 
551

 
Repurchase of common stock
(5,988
)
 
(162,078
)
 

 

 
(162,078
)
 
Common stock issued pursuant to stock-based compensation plans, net
956

 
4,849

 

 

 
4,849

 
Stock-based compensation

 
28,087

 

 

 
28,087

 
Dividends paid

 

 
(51,404
)
 

 
(51,404
)
 
Other comprehensive income

 

 

 
16,459

 
16,459

 
Balance, December 31, 2013
140,782

 
42,955

 
1,544,425

 
26,000

 
1,613,380

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings for the year

 

 
200,261

 

 
200,261

 
Income tax benefit of common stock options exercised

 
12,751

 

 

 
12,751

 
Repurchase of common stock
(4,243
)
 
(122,851
)
 
(16,387
)
 

 
(139,238
)
 
Common stock issued pursuant to stock-based compensation plans, net
3,040

 
37,774

 

 

 
37,774

 
Stock-based compensation

 
30,767

 

 

 
30,767

 
Dividends paid

 

 
(56,513
)
 

 
(56,513
)
 
Other comprehensive loss

 

 

 
(89,409
)
 
(89,409
)
 
Balance, December 31, 2014
139,579

 
1,396

 
1,671,786

 
(63,409
)
 
1,609,773

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings for the year

 

 
241,686

 

 
241,686

 
Income tax benefit of common stock options exercised

 
1,611

 

 

 
1,611

 
Repurchase of common stock
(4,169
)
 
(44,387
)
 
(78,806
)
 

 
(123,193
)
 
Common stock issued pursuant to stock-based compensation plans, net
1,940

 
17,071

 

 

 
17,071

 
Stock-based compensation

 
25,683

 

 

 
25,683

 
Dividends paid

 

 
(61,399
)
 

 
(61,399
)
 
Other comprehensive loss

 

 

 
(61,717
)
 
(61,717
)
 
Balance, December 31, 2015
137,350

 
$
1,374

 
$
1,773,267

 
$
(125,126
)
 
$
1,649,515

 


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

49


FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
Year Ended December 31,
 
2015
 
2014
 
2013
CASH PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
 
Net earnings
$
241,686

 
$
200,261

 
$
177,015

Income items not affecting operating cash flows:
 
 
 
 
 
Depreciation and amortization
49,534

 
57,245

 
62,796

Deferred income taxes
2,863

 
(1,242
)
 
(2,709
)
Stock-based compensation arrangements
25,748

 
30,788

 
27,823

     Gain on sale of certain assets, net
(19,166
)
 
(4,129
)
 

Other non-cash items
7,722

 
(791
)
 
4,564

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
Decrease (increase) in accounts receivable, net
28,258

 
(76,705
)
 
48,640

(Increase) decrease in inventories
(74,816
)
 
11,363

 
35,181

Decrease in prepaid expenses and other current assets
1,858

 
5,754

 
5,434

Decrease (increase) in other assets
(4,333
)
 
(24,261
)