Edgar Filing: FLIR SYSTEMS INC

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2009

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

For the transition period from to

Commission file number 0-21918

FLIR Systems, Inc.

(Exact name of registrant as specified in its charter)

Oregon

93-0708501

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


27700 SW Parkway Avenue, Wilsonville, Oregon		97070
(Address of principal executive offices)		(Zip Code)

(503) 498-3547

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

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

At October 31, 2009, there were 151,782,318 shares of the registrant’s common stock, $0.01 par value, outstanding.

INDEX


	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Income – Three Months and Nine Months Ended September 30, 2009 and 2008 (unaudited)	1

	Consolidated Balance Sheets – September 30, 2009 and December 31, 2008 (unaudited)	2

	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2009 and 2008 (unaudited)	3

	Notes to the Consolidated Financial Statements (unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20

Item 4.	Controls and Procedures	20

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Submission of Matters to a Vote of Shareholders	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

	Signature	23

PART 1. FINANCIAL INFORMATION

Item 1.

Financial Statements

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009		2008
			(As Adjusted)					(As Adjusted)
Revenue	$	285,553	$	276,740		$	835,527	$	774,624
Cost of goods sold		122,736		121,478			353,047		341,969

Gross profit		162,817		155,262			482,480		432,655

Operating expenses:
Research and development		21,294		21,639			66,935		68,296
Selling, general and administrative		52,204		56,973			158,199		167,946

Total operating expenses		73,498		78,612			225,134		236,242

Earnings from operations		89,319		76,650			257,346		196,413

Interest expense		1,238		3,473			5,743		10,900
Other expense (income), net		1,664		(4,956	)		1,732		(8,627	)

Earnings before income taxes		86,417		78,133			249,871		194,140

Income tax provision		26,382		23,354			79,912		58,224

Net earnings	$	60,035	$	54,779		$	169,959	$	135,916


Net earnings per share:
Basic	$	0.40	$	0.39		$	1.14	$	0.98

Diluted	$	0.38	$	0.35		$	1.07	$	0.87


Weighted average shares outstanding:
Basic		151,573		139,211			148,475		138,090

Diluted		160,287		163,124			161,477		162,393

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

FLIR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	September 30, 2009		December 31, 2008
			(As Adjusted)
ASSETS
Current assets:
Cash and cash equivalents	$	403,320	$	289,442
Accounts receivable, net		209,079		239,183
Inventories		221,694		207,487
Prepaid expenses and other current assets		77,059		59,824
Deferred income taxes, net		16,833		16,566

Total current assets		927,985		812,502

Property and equipment, net		138,219		122,304
Deferred income taxes, net		8,152		2,217
Goodwill		239,059		225,685
Intangible assets, net		51,112		56,174
Other assets		31,719		22,195

	$	1,396,246	$	1,241,077


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	55,753	$	47,823
Deferred revenue		21,879		27,554
Accrued payroll and related liabilities		34,856		43,337
Accrued product warranties		8,435		7,826
Advance payments from customers		9,870		19,183
Accrued expenses		23,616		21,978
Accrued income taxes		2,942		—
Other current liabilities		2,588		4,574

Total current liabilities		159,939		172,275

Long-term debt		60,200		182,825
Deferred tax liability, net		6,311		5,983
Accrued income taxes		4,568		5,697
Pension and other long-term liabilities		36,281		29,572

Commitments and contingencies

Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at September 30, 2009, and December 31, 2008		—		—
Common stock, $0.01 par value, 500,000 shares authorized, 151,666 and 141,387 shares issued at September 30, 2009, and December 31, 2008, respectively, and additional paid-in capital		367,226		282,848
Retained earnings		747,049		577,090
Accumulated other comprehensive earnings (loss)		14,672		(15,213	)

Total shareholders’ equity		1,128,947		844,725

	$	1,396,246	$	1,241,077

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

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2009			2008
				(As Adjusted)
Cash flows from operating activities:
Net earnings	$	169,959		$	135,916
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		30,903			34,307
Deferred income taxes		(2,774	)		(2,991	)
Stock-based compensation plans		17,640			15,160
Cash inducement on exchange offer for convertible notes		1,997			—
Other non-cash items		(1,566	)		(67	)
Changes in operating assets and liabilities (net of acquisitions):
Decrease (increase) in accounts receivable		35,911			(36,741	)
Increase in inventories		(8,339	)		(33,623	)
Increase in prepaid expenses and other current assets		(14,897	)		(17,084	)
(Increase) decrease in other assets		(12,098	)		3,476
Increase in accounts payable		6,630			7,164
(Decrease) increase in deferred revenue		(5,933	)		9,080
(Decrease) increase in accrued payroll and other liabilities		(25,975	)		13,876
Increase (decrease) in accrued income taxes		1,505			(679	)
Increase in pension and other long-term liabilities		6,449			1,982

Cash provided by operating activities		199,412			129,776


Cash flows from investing activities:
Additions to property and equipment		(34,523	)		(21,086	)
Proceeds from sale of property and equipment		2,891			—
Business acquisitions, net of cash acquired		(13,148	)		(79,303	)
Other investments		601			(8,320	)

Cash used by investing activities		(44,179	)		(108,709	)


Cash flows from financing activities:
Repayments on credit agreement		—			(19,000	)
Repayment of capital leases and other long-term debt		(23	)		(2,401	)
Cash inducement on exchange offer for convertible notes		(1,997	)		—
Repurchase of common stock		(73,169	)		(40,739	)
Proceeds from shares issued pursuant to stock-based compensation plans		12,969			30,640
Excess tax benefit from stock-based compensation plans		6,005			19,098
Capital contribution		330			—

Cash used by financing activities		(55,885	)		(12,402	)

Effect of exchange rate changes on cash		14,530			(6,243	)


Net increase in cash and cash equivalents		113,878			2,422
Cash and cash equivalents, beginning of period		289,442			203,681

Cash and cash equivalents, end of period	$	403,320		$	206,103

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

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying consolidated financial statements of FLIR Systems, Inc. and its consolidated subsidiaries (the “Company”) are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial position and results of operations for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

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

The Company has performed a review for subsequent events through November 6, 2009.

Note 2. Accounting for Convertible Debt

On January 1, 2009, the Company adopted the provisions of the Financial Accounting Standards Board Accounting Standards Codification Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC Subtopic 470-20”). ASC Subtopic 470-20 requires that issuers of convertible debt instruments that may be settled in cash should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. ASC Subtopic 470-20 was effective for financial statements issued for fiscal years beginning after December 15, 2008 with retrospective application required.

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

The Company has retrospectively applied the provisions of ASC Subtopic 470-20 to its financial statements beginning in 2003. The retrospective application includes the separation of the liability and equity components of the convertible notes, the reallocation of the $6.1 million of issuance costs between the liability and equity components, an increase in interest expense for periods subsequent to issuance to reflect the estimated nonconvertible borrowing rate, and the related tax effects.

ASC Subtopic 470-20 also requires that when debt is extinguished, a gain or loss is recognized for the difference between the fair value of the liability component and its carrying value. The Company’s retrospective application, therefore, also includes the impact of conversions of notes with an aggregate principal amount of $18.6 million prior to January 1, 2009.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Accounting for Convertible Debt – (Continued)

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


	September 30, 2009			December 31, 2008
Liability component:
Principal amount	$	61,489		$	191,419
Unamortized discount		(1,185	)		(7,682	)
Unamortized issuance costs		(142	)		(942	)

	$	60,162		$	182,795

Equity component	$	(115,100	)	$	222

The unamortized discount and issuance costs will be amortized through June 2010. As of September 30, 2009, 5.5 million shares of the Company’s common stock were issuable upon conversion of the remaining notes, valued at $155.0 million as of the closing market price on that day. The $155.0 million is in excess of the principal amount by $93.5 million.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Cash interest (3% coupon)	$	466	$	1,575	$	2,414	$	4,725
Amortization of discount		435		1,400		2,155		4,131
Amortization of issuance costs		53		182		270		547

	$	954	$	3,157	$	4,839	$	9,403

The following table presents the effect of the retrospective application of ASC Subtopic 470-20 and related tax effects made to the Company’s previously reported Consolidated Statements of Income for the three month and nine month period ended September 30, 2008 (in thousands):


	Three Months Ended September 30, 2008						Nine Months Ended September 30, 2008
	As Reported			As Adjusted			As Reported			As Adjusted
Earnings from operations	$	76,650		$	76,650		$	196,413		$	196,413

Interest expense		2,110			3,473			6,880			10,900
Other income, net		(4,956	)		(4,956	)		(8,627	)		(8,627	)

Earnings before income taxes		79,496			78,133			198,160			194,140

Income tax provision		23,863			23,354			59,750			58,224

Net earnings	$	55,633		$	54,779		$	138,410		$	135,916


Net earnings per share:
Basic	$	0.40		$	0.39		$	1.00		$	0.98

Diluted	$	0.35		$	0.35		$	0.87		$	0.87

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Accounting for Convertible Debt – (Continued)

The following table presents the effect of the retrospective application of ASC Subtopic 470-20 and related tax effects made to the Company’s previously reported Consolidated Balance Sheet as of December 31, 2008 (in thousands):


	December 31, 2008
	As Reported		As Adjusted
Deferred income taxes, net	$	5,047	$	2,217
Total assets		1,243,907		1,241,077

Long-term debt		190,318		182,825
Common stock and additional paid-in capital		262,509		282,849
Retained earnings		592,766		577,090
Total shareholders’ equity		840,062		844,725
Total liabilities and shareholders’ equity		1,243,907		1,241,077

The following table presents the effect of the retrospective application of ASC Subtopic 470-20 and related tax effects made to the Company’s previously reported Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 (in thousands):


	Nine Months Ended September 30, 2008
	As Reported			As Adjusted
Net earnings	$	138,410		$	135,916
Depreciation and amortization		30,287			34,307
Deferred taxes		(1,465	)		(2,991	)
Cash provided by operating activities		129,776			129,776

Note 3. Stock-based Compensation

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Cost of goods sold	$	824		$	701		$	2,425		$	1,945
Research and development		1,298			1,325			3,641			3,530
Selling, general and administrative		4,001			3,343			11,574			9,685

Stock-based compensation expense before income taxes		6,123			5,369			17,640			15,160
Income tax benefit		(1,866	)		(1,524	)		(5,287	)		(3,980	)

Total stock-based compensation expense after income taxes	$	4,257		$	3,845		$	12,353		$	11,180

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

As of September 30, 2009, the Company had $38.3 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, to be recognized over a weighted average period of 2.0 years.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Stock-based Compensation – (Continued)

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


	Three Months Ended September 30,			Nine Months Ended September 30,
	2009		2008	2009		2008
Stock Option Awards:
Risk-free interest rate	1.6	%	—	1.5	%	2.8	%
Expected dividend yield	0.0	%	—	0.0	%	0.0	%
Expected term	3.3 years		—	4.3 years		4.1 years
Expected volatility	48.1	%	—	46.9	%	40.8	%

Employee Stock Purchase Plan:
Risk-free interest rate	—		—	0.3	%	1.7	%
Expected dividend yield	—		—	0.0	%	0.0	%
Expected term	—		—	6 months		6 months
Expected volatility	—		—	60.9	%	50.0	%

The fair value of stock-based compensation awards granted and vested, and the intrinsic value of options exercised during the period were (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Stock Option Awards:
Weighted average grant date fair value per share	$	7.63	$	—	$	9.96	$	12.25
Total fair value of awards granted	$	140	$	—	$	10,534	$	7,175
Total fair value of awards vested	$	215	$	177	$	6,924	$	8,243
Total intrinsic value of options exercised	$	6,655	$	12,039	$	17,825	$	76,709

Restricted Stock Unit Awards:
Weighted average grant date fair value per share	$	21.49	$	39.37	$	25.37	$	34.31
Total fair value of awards granted	$	774	$	83	$	16,749	$	18,981
Total fair value of awards vested	$	237	$	364	$	17,047	$	15,371

Employee Stock Purchase Plan:
Weighted average grant date fair value per share	$	—	$	—	$	8.37	$	10.32
Total fair value of shares estimated to be issued	$	—	$	—	$	1,073	$	1,039

The total amount of cash received from the exercise of stock options in the three months ended September 30, 2009 and 2008 was $4.0 million and $3.7 million, respectively, and the related tax benefit realized from the exercise of the stock options was $1.9 million and $4.5 million, respectively. The total amount of cash received from the exercise of stock options in the nine months ended September 30, 2009 and 2008 was $10.4 million and $28.1 million, respectively, and the related tax benefit realized from the exercise of the stock options was $6.1 million and $22.3 million, respectively.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Stock-based Compensation – (Continued)

Information with respect to stock option activity is as follows:


	Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2008	9,218		$	13.34	5.7
Granted	1,057			25.57
Exercised	(1,075	)		9.67
Forfeited	(12	)		22.10

Outstanding at September 30, 2009	9,188		$	15.17	5.7	$	121,314

Exercisable at September 30, 2009	7,640		$	12.83	5.0	$	117,211

Vested and expected to vest at September 30, 2009	9,111		$	15.07	5.7	$	121,109

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


	Shares (in thousands)		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2008	1,356		$	23.98
Granted	660		$	25.37
Vested	(755	)	$	19.50
Forfeited	(22	)	$	26.04

Outstanding at September 30, 2009	1,239		$	27.42

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

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 4. Net Earnings Per Share

The following table sets forth the reconciliation of the numerator and denominator utilized in the computation of basic and diluted earnings per share (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
			(As Adjusted)				(As Adjusted)
Numerator for earnings per share:
Net earnings, as reported	$	60,035	$	54,799	$	169,959	$	135,916
Interest associated with convertible notes, net of tax		404		1,961		3,200		5,815

Net earnings available to common shareholders – diluted	$	60,439	$	56,760	$	173,159	$	141,731


Denominator for earnings per share:
Weighted average number of common shares outstanding		151,573		139,211		148,475		138,090
Assumed exercises of stock options and vesting of restricted shares, net of shares assumed reacquired under the treasury stock method		2,996		4,988		3,297		5,378
Assumed conversion of convertible notes		5,718		18,925		9,705		18,925

Diluted shares outstanding		160,287		163,124		161,477		162,393

The effect of stock options and restricted stock units for the three and nine months ended September 30, 2009 that aggregated 830,000 shares and 663,000 shares, respectively, has been excluded for purposes of calculating diluted earnings per share since the effect would have been anti-dilutive. For the three and nine months ended September 30, 2008, no shares of stock underlying outstanding stock options or restricted stock units were excluded from the calculations of diluted earnings per share.

Note 5. Fair Value of Financial Instruments

As of September 30, 2009, the Company had $298.7 million of cash equivalents. The Company has categorized its cash and cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets, in accordance with Accounting Standards Codification Topic 820 “Fair Value Measurements and Disclosures.” The Company does not have any other financial assets or liabilities that are measured at fair value.

As of September 30, 2009, the Company had $60.2 million of convertible notes included in long-term debt. The fair value of the convertible notes, estimated based on quoted market prices of the convertible notes, as of September 30, 2009 was $156.8 million.

Note 6. Accounts Receivable

Accounts receivable are net of an allowance for doubtful accounts of $2.5 million and $1.3 million at September 30, 2009 and December 31, 2008, respectively.

Note 7. Inventories

Inventories consist of the following (in thousands):


	September 30, 2009		December 31, 2008
Raw material and subassemblies	$	134,997	$	129,108
Work-in-progress		47,121		40,325
Finished goods		39,576		38,054

	$	221,694	$	207,487

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 8. Property and Equipment

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

Note 9. Goodwill

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


	Government Systems		Thermography			Commercial Vision Systems			Total
Balance, December 31, 2008	$	12,802	$	102,313		$	110,570		$	225,685
Business acquisitions		—		1,323			8,585			9,908
Other		—		(585	)		(8	)		(593	)
Currency translation adjustments		448		3,381			230			4,059

Balance, September 30, 2009	$	13,250	$	106,432		$	119,377		$	239,059

Note 10. Intangible Assets

Intangible assets are net of accumulated amortization of $49.9 million and $43.5 million at September 30, 2009 and December 31, 2008, respectively.

Note 11. Accrued Product Warranties

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Accrued product warranties, beginning of period	$	8,095		$	7,961		$	7,826		$	6,594
Amounts paid for warranty services		(2,444	)		(1,880	)		(6,996	)		(5,879	)
Warranty provisions for products sold		2,784			1,883			7,454			7,249
Other		—			—			151			—

Accrued product warranties, end of period	$	8,435		$	7,964		$	8,435		$	7,964

Note 12. Credit Agreements

At September 30, 2009, the Company had no borrowings outstanding under its Credit Agreement, dated October 6, 2006, with Bank of America, N.A., Union Bank of California, N.A., U.S. Bank National Association and other Lenders, and $11.7 million of letters of credit outstanding, which reduces the total available credit.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 13. Long-Term Debt

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


	September 30, 2009			December 31, 2008
				(As Adjusted)
Convertible notes	$	61,489		$	191,419
Issuance cost and discount of the convertible notes		(1,327	)		(8,624	)
Other long-term debt		38			30

	$	60,200		$	182,825

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

In addition, in July 2009, convertible notes with an aggregate principal amount of $30.1 million were converted into 2.7 million shares of the Company’s common stock. The Company recognized a gain of $0.3 million from the extinguishment of the notes, which is reported in other expense (income), net.

Note 14. Shareholders’ Equity

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


Common stock and additional paid-in capital, December 31, 2008 (as adjusted)	$	282,848
Income tax benefit of common stock options exercised		6,113
Common stock issued pursuant to stock-based compensation plans, net		8,260
Stock-based compensation expense		17,556
Repurchase of common stock		(73,169	)
Conversion of convertible debt		125,288
Capital contribution		330

Common stock and additional paid in capital, September 30, 2009	$	367,226

During the nine months ended September 30, 2009, the Company repurchased 3,231,700 shares of the Company’s common stock under the February 2009 repurchase authorization by the Company’s Board of Directors pursuant to which the Company is authorized to repurchase up to 20.0 million shares of the Company’s outstanding common stock through open market purchases, privately negotiated transactions including accelerated stock repurchase agreements, or in such other manner as will comply with the provisions of the Securities Exchange Act of 1934. The February 2009 repurchase authorization will expire in February 2011.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 15. Comprehensive Earnings

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009		2008
			(As Adjusted)					(As Adjusted)
Net earnings	$	60,035	$	54,779		$	169,959	$	135,916
Translation adjustment		22,745		(43,803	)		29,885		(17,592	)

Total comprehensive earnings	$	82,780	$	10,976		$	199,844	$	118,324

Note 16. Contingencies

In June 2007, the Company was named as a nominal defendant in a shareholder derivative action filed in the United States District Court for the District of Oregon: Kathleen Edith Sommers v. Earl R. Lewis, et al. The Sommers complaint alleged that certain stock options granted by the Company were improperly dated, purported to assert claims under various common law theories and under the federal securities laws and alleged the Company is entitled to damages from various individual defendants on a variety of legal theories. Following orders of dismissal entered on June 16, 2008 and February 12, 2009, the court entered a judgment dismissing the amended complaint with prejudice on February 19, 2009. This ruling was appealed to the United States Court of Appeals for the Ninth Circuit. On September 9, 2009, plaintiff stipulated to a dismissal of her appeal with prejudice. On September 10, 2009, an Order to this effect was entered by the Court of Appeals. This case is now concluded.

The Company and its subsidiary, Indigo Systems Corporation, (together, the “FLIR Parties”) were named in a lawsuit filed by Raytheon Company on March 2, 2007 in the United States District Court for the Eastern District of Texas. On August 11, 2008, Raytheon Company was granted leave to file a second amended complaint. The complaint, as amended, asserts claims for tortious interference, patent infringement, trade secret misappropriation, unfair competition, breach of contract and fraudulent concealment. The FLIR Parties filed an answer to the second amended complaint and counterclaims on September 2, 2008, in which they denied all material allegations. On August 31, 2009, the court entered an order granting the FLIR Parties’ motion for summary judgment on Raytheon’s trade secret misappropriation claim based on the FLIR Parties’ statute of limitations defense. Raytheon has abandoned all of its other claims except its patent claims which are currently set for trial to commence on April 19, 2010. The Company intends to vigorously defend itself in this matter and is unable to estimate the amount or range of potential loss, if any, which might result if the outcome in this matter is unfavorable.

Note 17. Income Taxes

As of September 30, 2009, the Company had approximately $5.4 million of net unrecognized tax benefits of which all $5.4 million would affect the Company’s effective tax rate if recognized. The Company anticipates a portion of its net unrecognized tax benefits will be recognized within 12 months as the result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of statute of limitations.

The Company classifies interest and penalties related to uncertain tax positions as income tax expense. As of September 30, 2009, the Company had approximately $0.5 million of accrued interest related to uncertain tax positions.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 17. Income Taxes – Continued

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


		Tax Years:
US Federal		1999 – 2008
State of Oregon		1999 – 2008
State of Massachusetts		2002 – 2008
State of California		2003 – 2008
Sweden		2002 – 2008
United Kingdom		2006 – 2008
Germany		2003 – 2008
France		2006 – 2008

Note 18. Operating Segments and Related Information

Operating Segments

Operating segment information is as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenue – External Customers:
Government Systems	$	162,985		$	151,743		$	485,552		$	397,004
Thermography		69,933			79,161			200,641			239,400
Commercial Vision Systems		52,635			45,836			149,334			138,220

	$	285,553		$	276,740		$	835,527		$	774,624

Revenue – Intersegments:
Government Systems	$	5,001		$	4,918		$	16,169		$	25,420
Thermography		2,975			2,416			8,331			6,096
Commercial Vision Systems		4,314			6,279			14,198			17,467
Eliminations		(12,290	)		(13,613	)		(38,698	)		(48,983	)

	$	—		$	—		$	—		$	—

Earnings from operations:
Government Systems	$	71,802		$	64,166		$	217,597		$	159,753
Thermography		18,265			16,702			49,591			47,886
Commercial Vision Systems		11,728			10,134			36,298			29,412
Other		(12,476	)		(14,352	)		(46,140	)		(40,638	)

	$	89,319		$	76,650		$	257,346		$	196,413


	September 30, 2009		December 31, 2008
Segment assets (accounts receivable, net and inventories):
Government Systems	$	266,440	$	273,821
Thermography		101,439		112,728
Commercial Vision Systems		62,894		60,121

	$	430,773	$	446,670

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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

Revenue and Long-Lived Assets by Geographic Area

Information related to revenue by significant geographical location, determined by the end customer, is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
United States	$	161,207	$	190,556	$	496,480	$	495,459
Europe		59,516		51,521		167,242		172,295
Other foreign		64,830		34,663		171,805		106,870

	$	285,553	$	276,740	$	835,527	$	774,624

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


	September 30, 2009		December 31, 2008
United States	$	339,714	$	318,183
Europe		116,037		105,813
Other foreign		4,358		2,362

	$	460,109	$	426,358

Major Customers

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
US Government	$	125,067	$	118,455	$	375,310	$	308,818

Note 19. Business Acquisitions

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

In June 2009, the Company acquired all of the outstanding stock of Salvador Imaging, Inc. (“Salvador”), a leading provider of high-performance visible and low light imaging systems, for approximately $13.1 million in cash. The Company has recorded $2.9 million of identifiable intangible assets and $8.6 million of goodwill in the Commercial Vision Systems business segment.

The operating results of these acquisitions are included in the Company’s results of operations since their respective dates of acquisition. The goodwill recognized on both of these acquisitions is not deductible for United States tax purposes.

These acquisitions are not significant, as defined in Regulation S-X of the Securities and Exchange Commission, compared to the Company’s overall financial position. Accordingly, pro forma financial statements of the combined entities are not presented.

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 20. Subsequent Event

On October 19, 2009, the Company acquired all of the outstanding stock of OmniTech Partners, Inc., Optical Systems Technology, Inc. and Keystone Applied Technologies, Inc., operating together as a provider in the development and manufacturing of weapon-mounted image intensified and fused image intensified/thermal imagers, for approximately $42.0 million in cash.

Item 2.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of FLIR Systems, Inc. and its consolidated subsidiaries (“FLIR” or the “Company”) that are based on management’s current expectations, estimates, projections, and assumptions about the Company’s business. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors including, but not limited to, those discussed in the “Risk Factors” in Part II, Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, and elsewhere in this Report as well as those discussed from time to time in the Company’s other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions. Such forward-looking statements speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report, or for changes made to this document by wire services or Internet service providers. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.

Results of Operations

Revenue. Revenue for the three months ended September 30, 2009 increased by 3.2 percent, from $276.7 million in the third quarter of 2008 to $285.6 million in the third quarter of 2009. Revenue for the nine months ended September 30, 2009 increased 7.9 percent, from $774.6 million in the first nine months of 2008 to $835.5 million in the first nine months of 2009. World-wide revenues for both the three and nine month periods were impacted by currency translation as the US dollar was stronger in 2009 compared to the same periods of 2008. The effects of exchange rates decreased our consolidated revenue for the third quarter and first nine months of 2009 by 1.9 percent and 5.0 percent, respectively, over the same periods of 2008.

Government Systems revenue increased $11.2 million, or 7.4 percent, from $151.7 million in the third quarter of 2008 to $163.0 million in the third quarter of 2009. Government Systems revenue for the nine months ended September 30, 2009 increased $88.5 million, or 22.3 percent, from $397.0 million in the first nine months of 2008 to $485.6 million in the first nine months of 2009. The increase in Government Systems revenue in the third quarter and the first nine months of 2009 compared to the same periods in 2008 was primarily due to an increase in unit sales of our large-gimbaled systems.

Thermography revenue decreased $9.2 million, or 11.7 percent, from $79.2 million in the third quarter of 2008 to $69.9 million in the third quarter of 2009. Thermography revenue for the nine months ended September 30, 2009 decreased $38.8 million, or 16.2 percent, from $239.4 million in the first nine months of 2008 to $200.6 million in the first nine months of 2009. The decrease in Thermography revenue in both the three and nine month periods was primarily due to lower demand for high-value products and currency translation. The effects of exchange rates decreased Thermography revenue for the third quarter and first nine months of 2009 by 1.7 percent and 6.7 percent, respectively, over the same periods of 2008.

Commercial Vision Systems revenue increased $6.8 million, or 14.8 percent, from $45.8 million in the third quarter of 2008 to $52.6 million in the third quarter of 2009. Commercial Vision Systems revenue for the nine months ended September 30, 2009 increased $11.1 million, or 8.0 percent, from $138.2 million in the first nine months of 2008 to $149.3 million in the first nine months of 2009. The increase in Commercial Vision Systems revenue in the third quarter and first nine months of 2009 compared to the same periods in 2008 was primarily due to increased unit sales in our cores and components product lines. The effects of exchange rates decreased Commercial Vision Systems revenue for the third quarter and first nine months of 2009 by 2.4 percent and 3.7 percent, respectively, over the same periods of 2008.

The timing of deliveries against large contracts, especially for our Government Systems and Commercial Vision Systems products, can give rise to quarter-to-quarter and year-over-year fluctuations in the mix of revenue. Consequently, year-over-year comparisons for any given quarter may not be indicative of comparisons using longer time periods. While we currently expect an overall increase in total annual revenue for 2009 of between 2 percent and 7 percent, the mix of revenue between our three business segments and within certain product categories in our business segments will vary from quarter to quarter.

As a percentage of revenue, international sales were 43.5 percent and 31.1 percent for the quarters ended September 30, 2009 and 2008, respectively, and 40.6 percent and 36.0 percent for the nine months ended September 30, 2009 and 2008, respectively. The increase in international revenue as a percentage of total revenue is primarily due to the weakened economic conditions in the United States in 2009 as compared to 2008. While the percentage of revenue from international sales will continue to fluctuate from quarter to quarter partially due to the timing of shipments under international and domestic government contracts, management anticipates that revenue from international sales will continue to comprise a significant percentage of total revenue.

At September 30, 2009, we had an order backlog of $608 million. Backlog in the Government Systems, Thermography and Commercial Vision Systems divisions was $487 million, $28 million and $93 million, respectively. Backlog is defined as orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months.

Gross profit. Gross profit for the quarter ended September 30, 2009 was $162.8 million compared to $155.3 million for the same quarter last year. Gross profit for the nine months ended September 30, 2009 was $482.5 million compared to $432.7 million for the same period of 2008. As a percentage of revenue, gross profit increased from 56.1 percent in the third quarter of 2008 to 57.0 percent in the third quarter of 2009, and from 55.9 percent in the first nine months of 2008 to 57.7 percent in the first nine months of 2009. The increase in gross profit as a percentage of revenue for both the three and nine month periods in 2009 was primarily due to cost and production efficiencies related to increased volume, product mix and lower production costs in Sweden.

Research and development expenses. Research and development expenses for the third quarter of 2009 totaled $21.3 million, compared to $21.6 million in the third quarter of 2008. Research and development expenses for the first nine months of 2009 and 2008 were $66.9 million and $68.3 million, respectively. The decrease in research and development expenses was due to cost containment efforts in response to current economic conditions and currency translation. As a percentage of revenue, research and development expenses were 7.5 percent and 7.8 percent for the three months ended September 30, 2009 and 2008, respectively, and 8.0 percent and 8.8 percent for the nine months ended September 30, 2009 and 2008, respectively.

Selling, general and administrative expenses. Selling, general and administrative expenses were $52.2 million for the quarter ended September 30, 2009, compared to $57.0 million for the quarter ended September 30, 2008. Selling, general and administrative expenses for the first nine months of 2009 and 2008 were $158.2 million and $167.9 million, respectively. The decrease in selling, general and administrative expenses was due to cost containment efforts in response to current economic conditions and currency translation. Selling, general and administrative expenses as a percentage of revenue were 18.3 percent and 20.6 percent for the quarters ended September 30, 2009 and 2008, respectively, and 18.9 percent and 21.7 percent for the nine months ended September 30, 2009 and 2008, respectively.

Interest expense. Interest expense for the third quarter and first nine months of 2009 was $1.2 million and $5.7 million, respectively, compared to $3.5 million and $10.9 million for the same periods of 2008. Interest expense is primarily attributable to the accrual of interest on the convertible notes that were issued in June 2003 and the amortization of the discounts recorded on the notes and the costs related to the issuance of the notes. The decrease in interest expense in 2009 compared to the same period of 2008 is primarily due to the conversion of some of our outstanding convertible notes in the fourth quarter of 2008 and the third quarter of 2009 and the exchange of a portion of the convertible notes pursuant to the Company’s exchange offer in the first quarter of 2009.

Other income/expense. For the quarter and nine months ended September 30, 2009, we recorded other expense of $1.7 million and $1.7, respectively, compared to other income of $5.0 million and $8.6 million for the same periods of 2008. Other expense in 2009 and other income in 2008 primarily consist of interest income earned on short-term investments and foreign currency transaction gains and losses.

Income taxes. The income tax provision of $79.9 million for the nine months ended September 30, 2009, represents an effective tax rate of 32.0 percent for that period. We expect the annual effective tax rate for the full year of 2009 to be approximately 32 percent to 33 percent. The effective tax rate is lower than the US Federal tax rate of 35 percent because of foreign tax rates and the effect of federal, foreign and state tax credits.

Liquidity and Capital Resources

At September 30, 2009, we had cash and cash equivalents on hand of $403.3 million compared to $289.4 million at December 31, 2008. The increase in cash and cash equivalents was primarily due to cash provided from operations, offset by the purchase of shares of our outstanding common stock, capital expenditures and business acquisitions.

Cash used in investing activities of $44.2 million for the nine months ended September 30, 2009 primarily related to capital expenditures and the acquisition of Salvador. Cash used in investing activities of $108.7 million for the nine months ended September 30, 2008 includes the acquisitions of Cedip Infrared Systems and Ifara Tecnologias, S.L. for $79.3 million, capital expenditures and other investments.

Cash used in financing activities of $55.9 million for the nine months ended September 30, 2009 primarily related to the repurchase of 3.2 million shares of our common stock, partially offset by cash provided from our stock-based compensation plans. Cash used in financing activities of $12.4 million for the nine months ended September 30, 2008 primarily related to the repurchase of 1.4 million shares of our common stock and the repayment of borrowings under the Credit Agreement, partially offset by cash provided from our stock-based compensation plans.

On October 6, 2006, we entered into the Credit Agreement, which provides for a $300 million, five-year revolving line of credit. We have the right, subject to certain conditions including approval of additional commitments by qualified lenders, to increase the line of credit by an additional $150 million until October 6, 2011. The Credit Agreement includes a $100 million sublimit multicurrency option, permitting us and certain of our designated subsidiaries to borrow in Euro, Swedish Kronor, Sterling and other agreed upon currencies.

Under the Credit Agreement, borrowings will bear interest based upon the prime lending rate of the Bank of America or Eurodollar rates with a provision for a spread over Eurodollar rates based upon the Company’s leverage ratio. The Eurodollar interest rate was 1.037 percent and the prime lending rate was 3.25 percent at September 30, 2009. These rates were 2.175 percent and 3.25 percent, respectively, at December 31, 2008. The Credit Agreement requires us to pay a commitment fee on the amount of unused credit at a rate, based on our leverage ratio, which ranges from 0.175 percent to 0.325 percent. At September 30, 2009 and December 31, 2008, the commitment fee rate was 0.175 percent. The Credit Agreement contains five financial covenants that require the maintenance of certain leverage ratios, in addition to minimum levels of EBITDA and consolidated net worth, a maximum level of capital expenditures and, commencing December 31, 2009, a minimum liquidity of cash and availability under the Credit Agreement. The Credit Agreement is collateralized by substantially all assets of the Company. At September 30, 2009 and December 31, 2008, we had no borrowings outstanding under the Credit Agreement and were in compliance with all of its financial covenants. We had $11.7 million and $12.5 million of letters of credit outstanding under the Credit Agreement at September 30, 2009 and December 31, 2008, respectively, which reduces the total available credit thereunder.

A Sweden subsidiary has a 30 million Swedish Kronor (approximately $4.3 million) line of credit with an interest rate at 0.95 percent at September 30, 2009. At September 30, 2009, the Company had no amounts outstanding on this line of credit. The 30 million Swedish Kronor line of credit is secured primarily by accounts receivable and inventories of the Sweden subsidiary and is subject to automatic renewal on an annual basis.

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

On February 5, 2009, we commenced an exchange offer for any and all of the outstanding convertible notes. The offer was made pursuant to an Offer to Exchange and related documents, each dated February 5, 2009, and the completion of the offer was subject to conditions described in the offer documents. Holders who elected to exchange their notes in this offer and whose notes were accepted for exchange by us received 90.1224 shares of our common stock and a cash payment of $20 per $1,000 principal amount of notes. The offer expired on March 9, 2009. Notes with an aggregate principal amount of $99.9 million were exchanged pursuant to the exchange offer for approximately 9.0 million shares of the Company’s common stock and approximately $2.0 million in cash.

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

As of September 30, 2009, notes with an aggregate principal value of $148.5 million have been converted into 13.4 million shares of the Company’s common stock.

On January 1, 2009, we adopted the provisions of the Financial Accounting Standards Board Accounting Standards Codification Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC Subtopic 470-20”). ASC Subtopic 470-20 requires that issuers of convertible debt instruments that may be settled in cash should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. ASC Subtopic 470-20 was effective for financial statements issued for fiscal years beginning after December 15, 2008 with retrospective application.

Accordingly, we have retrospectively applied the provisions of ASC Subtopic 470-20 to our financial statements beginning in 2003. The retrospective application includes the separation of the liability and equity components of the convertible notes, the reallocation of the $6.1 million of issuance costs between the liability and equity components, an increase in interest expense for periods subsequent to issuance to reflect the estimated nonconvertible borrowing rate, and the related tax effects.

We believe that our existing cash combined with the cash we anticipate to generate from operating activities and our available credit facilities and financing available from other sources will be sufficient to meet our cash requirements for the foreseeable future. We do not have any significant capital commitments for the current year nor are we aware of any significant events or conditions that are likely to have a material impact on our liquidity.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Codification Topic 105, “Generally Accepted Accounting Principles” (“ASC Topic 105”), which establishes the FASB Accounting Standards Codification^TM (the “Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The Company has adopted ASC Topic 105, which is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), which provides amendments to the criteria in Subtopic 605-25, “Revenue Recognition – Multiple-Element Arrangements,” for separating consideration in multiple-deliverable arrangements and expands the disclosures related to multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Accordingly, the Company will adopt ASU 2009-13 on January 1, 2011. The Company’s adoption of ASU 2009-13 is not expected to have a material impact on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”), which changes the accounting model for revenue arrangements that include both tangible products and software elements. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Accordingly, the Company will adopt ASU 2009-13 on January 1, 2011. The Company’s adoption of ASU 2009-13 is not expected to have a material impact on its consolidated financial statements.

Critical Accounting Policies and Estimates

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

Contractual Obligations

As of September 30, 2009, our contractual obligations on our long-term debt 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	$	61,525	$	20	$	16	$	—	$	61,489
Interest on long-term debt		26,133		1,845		3,689		3,689		16,909

There have been no other material changes to our contractual obligations outside the ordinary course of our business since December 31, 2008.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

As of September 30, 2009, the Company has not experienced any changes in market risk exposure that would materially affect the quantitative and qualitative disclosures about market risk presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2009, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e). Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

There has been no material change in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed with the Securities and Exchange Commission on February 27, 2009.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2009, the Company repurchased the following shares:


Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 to July 31, 2009	1,120,000	$	21.40	1,120,000

Total	1,120,000	$	21.40	1,120,000	16,768,300

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

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

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Shareholders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


Number		Description
31.1		Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.

31.2		Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.

32.1		Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.

32.2		Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				FLIR SYSTEMS, INC.

Date November 9, 2009				/s/ STEPHEN M. BAILEY
				Stephen M. Bailey
				Sr. Vice President, Finance and Chief Financial Officer
				(Principal Accounting and Financial Officer and Duly Authorized Officer)

Large accelerated filer

Accelerated file

Non-accelerated filer

Smaller reporting company