OREGON
|
0-21918
|
93-0708501
|
(State or other jurisdiction of
incorporation) |
(Commission File Number)
|
(I.R.S. Employer
Identification No.) |
Emerging growth company ⃞
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⃞
|
FLIR SYSTEMS, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
By
|
/s/ Carol P. Lowe
|
|
|
Carol P. Lowe
|
|
|
Executive Vice President and Chief Financial Officer
|
FLIR SYSTEMS, INC.
|
||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME
|
||||||||||||||||
(In thousands, except per share amounts)(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Revenue
|
$
|
434,898
|
$
|
464,712
|
$
|
1,327,223
|
$
|
1,305,650
|
||||||||
Cost of goods sold
|
212,824
|
241,821
|
654,684
|
684,706
|
||||||||||||
Gross profit
|
222,074
|
222,891
|
672,539
|
620,944
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development
|
41,997
|
42,873
|
132,987
|
127,902
|
||||||||||||
Selling, general and administrative
|
91,525
|
92,932
|
296,664
|
280,240
|
||||||||||||
Loss on sale of business
|
-
|
-
|
10,178
|
-
|
||||||||||||
Total operating expenses
|
133,522
|
135,805
|
439,829
|
408,142
|
||||||||||||
Earnings from operations
|
88,552
|
87,086
|
232,710
|
212,802
|
||||||||||||
Interest expense
|
4,042
|
3,819
|
12,086
|
12,744
|
||||||||||||
Interest income
|
(979
|
)
|
(488
|
)
|
(2,591
|
)
|
(1,114
|
)
|
||||||||
Other expense (income), net
|
71
|
(778
|
)
|
229
|
(2,465
|
)
|
||||||||||
Earnings before income taxes
|
85,418
|
84,533
|
222,986
|
203,637
|
||||||||||||
Income tax provision
|
12,267
|
21,004
|
39,077
|
46,124
|
||||||||||||
Net earnings
|
$
|
73,151
|
$
|
63,529
|
$
|
183,909
|
$
|
157,513
|
||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$
|
0.53
|
$
|
0.46
|
$
|
1.33
|
$
|
1.15
|
||||||||
Diluted
|
$
|
0.52
|
$
|
0.46
|
$
|
1.31
|
$
|
1.13
|
||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
138,190
|
137,849
|
138,146
|
137,030
|
||||||||||||
Diluted
|
140,327
|
139,419
|
140,613
|
138,853
|
FLIR SYSTEMS, INC.
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
(In thousands)(Unaudited)
|
||||||||
September 30,
|
December 31,
|
|||||||
2018
|
2017
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
593,335
|
$
|
519,090
|
||||
Accounts receivable, net
|
291,094
|
346,687
|
||||||
Inventories
|
376,542
|
372,183
|
||||||
Assets held for sale, net
|
-
|
67,344
|
||||||
Prepaid expenses and other current assets
|
93,760
|
81,915
|
||||||
Total current assets
|
1,354,731
|
1,387,219
|
||||||
Property and equipment, net
|
250,050
|
263,996
|
||||||
Deferred income taxes, net
|
94,440
|
21,001
|
||||||
Goodwill
|
911,260
|
909,811
|
||||||
Intangible assets, net
|
151,778
|
168,130
|
||||||
Other assets
|
94,626
|
59,869
|
||||||
$
|
2,856,885
|
$
|
2,810,026
|
|||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
95,975
|
$
|
106,389
|
||||
Deferred revenue
|
30,493
|
25,614
|
||||||
Accrued payroll and related liabilities
|
76,747
|
71,310
|
||||||
Accrued expenses
|
35,184
|
37,089
|
||||||
Accrued income taxes
|
30,036
|
64,136
|
||||||
Liabilities held for sale
|
-
|
39,544
|
||||||
Other current liabilities
|
53,508
|
50,851
|
||||||
Total current liabilities
|
321,943
|
394,933
|
||||||
Long-term debt
|
421,632
|
420,684
|
||||||
Deferred income taxes
|
14,696
|
12,496
|
||||||
Accrued income taxes
|
90,231
|
87,483
|
||||||
Other long-term liabilities
|
67,160
|
59,872
|
||||||
Commitments and contingencies
|
||||||||
Shareholders’ equity
|
1,941,223
|
1,834,558
|
||||||
$
|
2,856,885
|
$
|
2,810,026
|
FLIR SYSTEMS, INC.
|
||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||||||||||
(In thousands)(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Cash flows from operating activities:
|
||||||||||||||||
Net earnings
|
$
|
73,151
|
$
|
63,529
|
$
|
183,909
|
$
|
157,513
|
||||||||
Income items not affecting cash:
|
||||||||||||||||
Depreciation and amortization
|
16,308
|
18,418
|
49,363
|
53,426
|
||||||||||||
Deferred income taxes
|
(1,270
|
)
|
(2,187
|
)
|
1,919
|
(2,337
|
)
|
|||||||||
Stock-based compensation arrangements
|
10,562
|
9,891
|
24,962
|
24,745
|
||||||||||||
Change in accrued income taxes
|
(2,684
|
)
|
11,995
|
(35,762
|
)
|
(6,647
|
)
|
|||||||||
Other activity impacting operating cash flows
|
26,432
|
2,436
|
51,452
|
(17,364
|
)
|
|||||||||||
Cash provided by operating activities
|
122,499
|
104,082
|
275,843
|
209,336
|
||||||||||||
Cash flows from investing activities:
|
||||||||||||||||
Additions to property and equipment, net
|
(7,230
|
)
|
(8,208
|
)
|
(20,665
|
)
|
(31,834
|
)
|
||||||||
Proceeds from sale of business
|
-
|
-
|
25,920
|
-
|
||||||||||||
Business acquisitions, net of cash acquired
|
(7,971
|
)
|
-
|
(22,166
|
)
|
-
|
||||||||||
Other investments
|
(6,000
|
)
|
-
|
(15,500
|
)
|
2,859
|
||||||||||
Cash used by investing activities
|
(21,201
|
)
|
(8,208
|
)
|
(32,411
|
)
|
(28,975
|
)
|
||||||||
Cash flows from financing activities:
|
||||||||||||||||
Repayments of credit agreement and long-term debt
|
-
|
(86,250
|
)
|
-
|
(97,500
|
)
|
||||||||||
Repurchase of common stock
|
-
|
-
|
(99,957
|
)
|
-
|
|||||||||||
Dividends paid
|
(22,121
|
)
|
(20,763
|
)
|
(66,451
|
)
|
(61,776
|
)
|
||||||||
Proceeds from shares issued pursuant
|
||||||||||||||||
to stock-based compensation plans
|
7,294
|
37,196
|
24,184
|
44,231
|
||||||||||||
Tax paid for net share exercises and issuance of
|
||||||||||||||||
vested restricted stock units
|
(2,550
|
)
|
(483
|
)
|
(14,663
|
)
|
(9,505
|
)
|
||||||||
Other financing activities
|
(1
|
)
|
(8
|
)
|
(12
|
)
|
(13
|
)
|
||||||||
Cash used by financing activities
|
(17,378
|
)
|
(70,308
|
)
|
(156,899
|
)
|
(124,563
|
)
|
||||||||
Effect of exchange rate changes on cash
|
1,473
|
7,804
|
(12,288
|
)
|
19,814
|
|||||||||||
Net increase in cash and cash equivalents
|
85,393
|
33,370
|
74,245
|
75,612
|
||||||||||||
Cash and cash equivalents:
|
||||||||||||||||
Beginning of period
|
507,942
|
403,591
|
519,090
|
361,349
|
||||||||||||
End of period
|
$
|
593,335
|
$
|
436,961
|
$
|
593,335
|
$
|
436,961
|
FLIR SYSTEMS, INC.
|
||||||||||||||||
OPERATING SEGMENT PERFORMANCE
|
||||||||||||||||
(In thousands)(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
SEGMENT REVENUE
|
||||||||||||||||
Industrial
|
$
|
177,151
|
$
|
170,942
|
$
|
536,231
|
$
|
490,463
|
||||||||
Government and Defense
|
171,955
|
169,734
|
492,313
|
453,630
|
||||||||||||
Commercial
|
85,792
|
124,036
|
298,679
|
361,557
|
||||||||||||
SEGMENT EARNINGS FROM OPERATIONS
|
||||||||||||||||
Industrial
|
$
|
56,046
|
$
|
54,391
|
$
|
159,597
|
$
|
144,256
|
||||||||
Government and Defense
|
53,878
|
52,605
|
145,608
|
124,078
|
||||||||||||
Commercial
|
10,441
|
14,314
|
42,280
|
39,777
|
||||||||||||
SEGMENT OPERATING MARGIN
|
||||||||||||||||
Industrial
|
31.6
|
%
|
31.8
|
%
|
29.8
|
%
|
29.4
|
%
|
||||||||
Government and Defense
|
31.3
|
%
|
31.0
|
%
|
29.6
|
%
|
27.4
|
%
|
||||||||
Commercial
|
12.2
|
%
|
11.5
|
%
|
14.2
|
%
|
11.0
|
%
|
FLIR SYSTEMS, INC.
|
||||||||||||||||
GAAP TO NON-GAAP RECONCILIATION
|
||||||||||||||||
(In thousands, except per share amounts)(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2018
|
2017
|
2018
|
2017
|
|||||||||||||
Gross profit:
|
||||||||||||||||
GAAP gross profit
|
$
|
222,074
|
$
|
222,891
|
$
|
672,539
|
$
|
620,944
|
||||||||
Amortization of acquired intangible assets
|
3,480
|
3,704
|
11,016
|
10,906
|
||||||||||||
Purchase accounting adjustments
|
-
|
-
|
-
|
1,992
|
||||||||||||
Restructuring charges
|
2,167
|
-
|
2,168
|
-
|
||||||||||||
Other
|
(280
|
)
|
1,088
|
101
|
3,088
|
|||||||||||
Adjusted gross profit
|
$
|
227,441
|
$
|
227,683
|
$
|
685,824
|
$
|
636,930
|
||||||||
Gross margin:
|
||||||||||||||||
GAAP gross margin
|
51.1
|
%
|
48.0
|
%
|
50.7
|
%
|
47.6
|
%
|
||||||||
Cumulative effect of non-GAAP Adjustments
|
1.2
|
%
|
1.0
|
%
|
1.0
|
%
|
1.2
|
%
|
||||||||
Adjusted gross margin
|
52.3
|
%
|
49.0
|
%
|
51.7
|
%
|
48.8
|
%
|
||||||||
Earnings from operations:
|
||||||||||||||||
GAAP earnings from operations
|
$
|
88,552
|
$
|
87,086
|
$
|
232,710
|
$
|
212,802
|
||||||||
Amortization of acquired intangible assets
|
5,824
|
|
7,102
|
17,909
|
20,854
|
|||||||||||
Purchase accounting adjustments
|
-
|
|
-
|
-
|
1,992
|
|||||||||||
Restructuring charges
|
3,842
|
|
542
|
5,138
|
642
|
|||||||||||
Acquisition related expenses
|
2,545
|
|
526
|
5,394
|
1,864
|
|||||||||||
Loss on sale of business
|
-
|
|
-
|
10,178
|
-
|
|||||||||||
Executive transition costs
|
1,803
|
|
4,802
|
4,011
|
10,533
|
|||||||||||
Export compliance matters
|
3,715
|
|
-
|
18,715
|
-
|
|||||||||||
Other
|
(280
|
)
|
|
1,088
|
1,685
|
3,088
|
||||||||||
Adjusted earnings from operations
|
$
|
106,001
|
$
|
101,146
|
$
|
295,740
|
$
|
251,775
|
||||||||
Operating margin:
|
||||||||||||||||
GAAP operating margin
|
20.4
|
%
|
18.7
|
%
|
17.5
|
%
|
16.3
|
%
|
||||||||
Cumulative effect of non-GAAP Adjustments
|
4.0
|
%
|
3.0
|
%
|
4.7
|
%
|
3.0
|
%
|
||||||||
Adjusted operating margin
|
24.4
|
%
|
21.8
|
%
|
22.3
|
%
|
19.3
|
%
|
||||||||
Net earnings:
|
||||||||||||||||
GAAP net earnings
|
$
|
73,151
|
$
|
63,529
|
$
|
183,909
|
$
|
157,513
|
||||||||
Amortization of acquired intangible assets
|
5,824
|
7,102
|
17,909
|
20,854
|
||||||||||||
Purchase accounting adjustments
|
-
|
-
|
-
|
1,992
|
||||||||||||
Restructuring charges
|
3,842
|
542
|
5,138
|
642
|
||||||||||||
Acquisition related expenses
|
2,545
|
526
|
5,394
|
1,864
|
||||||||||||
Loss on sale of business
|
-
|
-
|
10,178
|
-
|
||||||||||||
Executive transition costs
|
1,803
|
4,802
|
4,087
|
10,533
|
||||||||||||
Export compliance matters
|
3,715
|
-
|
18,715
|
-
|
||||||||||||
Other
|
(280
|
)
|
1,088
|
1,685
|
3,088
|
|||||||||||
Estimated tax benefit of non-GAAP adjustments
|
(3,820
|
)
|
(3,709
|
)
|
(13,252
|
)
|
(9,937
|
)
|
||||||||
Discrete tax items, net
|
(6,431
|
)
|
(1,148
|
)
|
(7,750
|
)
|
(5,804
|
)
|
||||||||
Adjusted net earnings
|
$
|
80,349
|
$
|
72,732
|
$
|
226,013
|
$
|
180,745
|
||||||||
Earnings Per Diluted Share:
|
||||||||||||||||
GAAP earnings per diluted share
|
$
|
0.52
|
$
|
0.46
|
$
|
1.31
|
$
|
1.13
|
||||||||
Cumulative effect of non-GAAP Adjustments
|
0.05
|
0.06
|
0.30
|
0.17
|
||||||||||||
Adjusted earnings per diluted share
|
$
|
0.57
|
$
|
0.52
|
$
|
1.61
|
$
|
1.30
|
||||||||
Weighted average diluted shares outstanding:
|
140,327
|
139,419
|
140,613
|
138,853
|
·
|
the comparability of our ongoing operating results over the periods presented;
|
·
|
the ability to identify trends in our underlying business; and
|
·
|
the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
|
·
|
Amortization of acquired intangible assets. GAAP accounting requires that intangible assets are recorded at fair value as of the date of acquisition and amortized over their estimated useful lives. The timing and magnitude of our acquisition transactions and maturities of the businesses acquired will cause our operating results to vary from period to period, making comparison to past performance difficult for investors.
|
·
|
Purchase accounting adjustments. Included in our GAAP financial measures are purchase accounting adjustments, required by GAAP to adjust inventory balances to fair value at the time of acquisition. These non-cash charges are not reflective of our ongoing operations and can vary significantly in any given period driven by variability in our acquisition activity.
|
·
|
Acquisition related expenses. Included in our GAAP financial measures are acquisition related expenses, consisting of external expenses resulting directly from acquisition related activities, including due diligence, legal, valuation, tax and audit services. The timing and nature of our acquisition activity can vary significantly from period to period impacting comparability of operating results from one period to another. These transaction-specific costs can vary significantly in amount and timing and are not indicative of our core operating performance.
|
·
|
Restructuring charges. Included in our GAAP financial measures are restructuring charges which are primarily for employee compensation resulting from reductions in employee headcount and facilities exit and lease termination costs in connection with Company reorganization and restructuring activities. We believe that excluding these costs provides greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and facilitates comparison with the results of other companies in our industry.
|
·
|
Loss on sale of business. We recognized a loss, representing the difference between the carrying value and expected sales proceeds, associated with the divestiture of the retail and SMB portion of the Security segment. We excluded this loss for purposes of calculating certain non-GAAP measures. This adjustment facilitates an alternative evaluation of our current operating performance and comparisons to past operating results consistent with the metrics reviewed by management
|
·
|
Executive transition costs. Executive transition costs primarily include costs associated with separation and severance agreements of the Company’s former CEO, COO and other former members of the executive management team; professional services expenses associated with the transition of the former CEO and CFO including recruitment fees, legal services and other related costs, as well as sign-on cash bonus payments to the current CEO and others reporting to the CEO; partially offset by benefits associated with stock compensation reversals for share-based awards forfeited upon the departures of the former CEO, COO, CFO and other former members of the executive management team.
|
·
|
Export compliance matters. Export Compliance Matters refer to costs incurred for compliance and remediation activities to address and improve certain historical practices associated with U.S. and international trade control laws and regulations. Such costs include a DDTC estimated penalty associated with an administrative agreement with the U.S. Department of State (the “Consent Agreement”), expenses associated with retention of a Special Compliance Officer, remedial actions and new or enhanced compliance program initiatives and implementations as required by the terms of the Consent Agreement or otherwise necessary to remedy and achieve full compliance with U.S. and international trade control laws and regulations. These costs are excluded from our non-GAAP measures because they are not representative of the ongoing operating costs of our compliance programs and are exclusive of sustaining costs we have incurred and expect to incur during and beyond the term of Consent Agreement.
|
·
|
Other. Other charges include product remediation charges associated with certain SkyWatch™ surveillance towers and certain long-term contract adjustments related to contracts completed by companies acquired by FLIR prior to their acquisition. We exclude other charges from our non-GAAP measures because we do not believe such costs are representative of our ongoing operations.
|
·
|
Estimated tax effect of non-GAAP adjustments. This amount adjusts the provision for income taxes to reflect the effect of the previously listed non-GAAP adjustments on non-GAAP net income. We estimate the tax effect of the adjustment items by applying the Company's overall estimated effective tax rate, excluding significant discrete items, to the pretax amount.
|
·
|
Discrete tax items, net. Included in our GAAP financial measures are income tax expenses and benefits related to discrete events or transactions that are not representative of the Company's estimated tax rate related to ongoing operations. These discrete tax items can vary significantly from period to period impacting the comparability of our earnings from one period to another. Discrete tax items include charges and reversals of provisions associated with certain unrecognized tax benefits, benefits or charges associated with the windfalls or shortfalls resulting from vesting and exercise activity of share-based compensation, benefits associated with the reversal of previously recorded valuation allowances against certain deferred tax assets, and other discrete items not included in the annual effective tax rate associated with our ongoing operations. We exclude discrete tax items from our non-GAAP measures because we do not believe such expenses or benefits reflect the performance of our ongoing operations.
|