Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FLIR > SEC Filings for FLIR > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for FLIR SYSTEMS INC

Form 10-Q for FLIR SYSTEMS INC


5-Nov-2012

Quarterly Report


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" section of the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2011, "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
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. 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 as revenue levels are the most significant indicators of business conditions for each of the respective segments and earnings from operations reflect our ability to manage each of our segments as revenue levels change. 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.
Revenue. Consolidated revenue for the three months ended September 30, 2012 decreased by 10.5 percent, from $371.3 million in the third quarter of 2011 to $332.2 million in the third quarter of 2012. Consolidated revenue for the nine months ended September 30, 2012 decreased by 10.5 percent, from $1,138.9 million in the first nine months of 2011 to $1,019.0 million in the first nine months of 2012. Each of our operating segments, except Integrated Systems, reported decreases in year over year revenues for both the three and nine month periods primarily due to continued reductions in demand for our products from the US Government and Middle East government agencies and weaker world-wide economic conditions. Of the $39.1 million decrease in total revenue for the three months ended September 30, 2012 compared to the same period in 2011, $26.9 million, or 68.8 percent, was related to lower revenues from US Government customers; for the nine month periods, the year over year decline in revenue of $119.9 million included a decline of $83.0 million of revenue from US Government customers. The timing of orders, scheduling of backlog and fluctuations in demand in various regions of the world 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 total annual revenue for 2012 to be between 6 percent to 9 percent lower than 2011 revenue, unexpected changes in economic conditions from key customer markets or other major unanticipated events may cause total revenue, and the mix of revenue between our segments, to vary from quarter to quarter during the year.
The Company expects that the challenging world-wide economic conditions that impacted revenue performance for the three and nine months ended September 30, 2012 will continue to impact the Company's business going forward. More specifically, reduced spending by US Government and Middle East government agencies, the continuing Eurozone crisis and the scheduled year-end expiration of income tax cuts, the temporary payroll tax cut and, in the absence of action by the US Congress to the contrary, potential material reductions in federal spending resulting from the Budget Control Act of 2011 (referred to as the "fiscal cliff"), among other global economic developments, all present challenges for the Company and render predictions regarding future performance difficult to make.


International sales accounted for 44.2 percent and 44.6 percent of total revenue for the quarters ended September 30, 2012 and 2011, respectively and 47.4 percent and 47.5 percent for the nine months ended September 30, 2012 and 2011, respectively. The proportion of our international revenue compared to total revenue will fluctuate from quarter to quarter due to normal variation in order activity across various regions as well as specific factors that may affect one region and not another, but overall we anticipate that revenue from international sales will continue to comprise a significant percentage of total revenue.
Cost of goods sold. Cost of goods sold for the three and nine months ended September 30, 2012 was $158.9 million and $492.9 million, respectively, compared to cost of goods sold for the three and nine months ended September 30, 2011 of $169.4 million and $535.0 million, respectively. The year over year decreases in cost of goods sold primarily relate to the lower year over year revenues and change in product mix. In the three and nine months ended September 30, 2012, costs of goods sold included restructuring charges of $0.3 million and $3.7 million, respectively, primarily for force reductions in our Thermal Vision and Measurement and Detection segments; in the three and nine months ended September 30, 2011, costs of goods sold included restructuring charges of $0.9 million. For the nine months ended September 30, 2011, costs of goods sold included charges of $7.3 million for the amortization of fair value adjustments on inventory acquired through the acquisition of ICx Technologies in 2010. Gross profit. Gross profit for the quarter ended September 30, 2012 was $173.4 million compared to $201.9 million for the same quarter last year. Gross profit for the nine months ended September 30, 2012 was $526.1 million compared to $603.8 million for the same period of 2011. The decrease in gross profit was due to the lower revenue year over year and lower consolidated gross margin. Gross margin, defined as gross profit divided by revenue, decreased from 54.4 percent in the third quarter of 2011 to 52.2 percent in the third quarter of 2012, primarily due to lower absorption of overhead costs in our Commercial Systems division partially offset by product mix. For the first nine months of 2012, gross margin was 51.6 percent compared to 53.0 percent in the same period of 2011 with the decline primarily due to lower factory costs absorption in our Commercial Systems division and the year over year increase in restructuring costs partially offset by the elimination of 2011 amortization expenses related to fair value adjustments on inventory acquired through the acquisition of ICx Technologies in 2010.
Research and development expenses. Research and development expenses for the third quarter of 2012 totaled $29.6 million, compared to $35.2 million in the third quarter of 2011. Research and development expenses for the first nine months of 2012 and 2011 were $103.7 million and $112.3 million, respectively. The decrease in research and development expenses for the three and nine month periods year over year is primarily due to cost containment efforts taken across the Company. Research and development expenses as a percentage of revenue were 8.9 percent and 10.2 percent for the three and nine months ended September 30, 2012, respectively, compared to 9.5 percent and 9.9 percent for the three and nine months ended September 30, 2011, respectively. Research and development expenses are expected to remain at the upper end of our anticipated long-term research and development spending relative to sales due to the current sluggish revenue environment. Over the five annual periods through December 31, 2011, our annual research and development expenses have varied between 8.0 percent and 9.5 percent of revenue.
Selling, general and administrative expenses. Selling, general and administrative expenses were $69.5 million for the quarter ended September 30, 2012, compared to $81.3 million for the quarter ended September 30, 2011. Selling, general and administrative expenses for the first nine months of 2012 and 2011 were $219.2 million and $288.0 million, respectively. The decrease in selling, general and administrative expenses for the third quarter year over year was attributable to cost containment efforts taken across the Company in response to the lower revenues. The decrease in expenses for the nine month periods year over year was primarily due to a $39.0 million litigation settlement incurred in 2011, decreased selling, general and administrative spending in each of our business segments, and lower corporate costs. Selling, general and administrative expenses as a percentage of revenue were 20.9 percent and 21.9 percent for the quarters ended September 30, 2012 and 2011, respectively and 21.5 percent and 25.3 percent for the nine months ended September 30, 2012 and 2011, respectively. Over the past five years, our annual selling, general and administrative expenses have varied between 19.2 percent and 23.8 percent of revenue.
Interest expense. Interest expense for the third quarter and first nine months of 2012 was $3.1 million and $8.9 million, respectively, compared to $1.5 million and $2.3 million for the same periods of 2011. The increase in interest expense for the third quarter and first nine months of 2012 compared to the prior year was due to interest expense associated with the $250 million aggregate principal amount of 3.750% senior unsecured notes due September 1, 2016 issued in August 2011.
Income taxes. The income tax provision of $13.3 million for the three months ended September 30, 2012, represents a quarterly effective tax rate of 19.2 percent. We expect the annual effective tax rate for the full year of 2012 to be 26 percent to 28 percent, excluding discrete items. The effective tax rate is lower than the US Federal tax rate of 35 percent because of the mix of lower foreign jurisdiction tax rates, the effect of federal, foreign and state tax credits and discrete adjustments. The quarterly effective tax rate is significantly lower than the expected annual effective rate due to the recognition of previously unrecognized tax benefits which resulted in a $5.2 million reduction of our income tax provision during the quarter ended September 30, 2012.


Segment Operating Results
Thermal Vision and Measurement
Thermal Vision and Measurement operating results are as follows (in millions):

                            Three Months Ended         Nine Months Ended
                              September 30,              September 30,
                             2012         2011         2012         2011
Revenue                  $   149.5      $ 161.0     $   447.9     $ 470.8
Earnings from operations      42.9         47.2         109.7       131.4
Operating margin              28.7 %       29.3 %        24.5 %      27.9 %
Backlog, end of period                                    167         166

Revenue for the three and nine months ended September 30, 2012 decreased by 7.1 percent and 4.9 percent, respectively, compared to the same periods of 2011. The decrease in the three month period is primarily due to lower revenues from all of our thermography product lines partially offset by increases for the cores and components product line and personal vision system cameras. For the nine month period, the decrease is attributable to lower revenues in the cores and components product line and our thermography product lines. The revenue declines were experienced in all geographies due to world-wide economic weaknesses and lower demand from cores and components customers in the United States. The decline in earnings from operations for both the three months and nine months ended September 30, 2012 compared to the same periods in 2011 was primarily due to the flow through of lower revenues and lower absorption of factory costs partially offset by efforts to control and reduce operating expenses. Backlog at September 30, 2012 was essentially flat compared to September 30, 2011; however, backlog increased by $9 million during the three months ended September 30, 2012.
Raymarine
Raymarine operating results are as follows (in millions):

                                   Three Months Ended         Nine Months Ended
                                     September 30,              September 30,
                                    2012         2011         2012         2011
Revenue                         $    31.7      $ 35.4      $   125.4     $ 136.2
Earnings (loss) from operations       0.4        (2.8 )          9.9        11.8
Operating margin                      1.2 %      (8.0 )%         7.9 %       8.7 %
Backlog, end of period                                             6           7

Revenue for the three and nine months ended September 30, 2012 decreased by 10.7 percent and 7.9 percent, respectively, compared to the same periods of 2011, primarily due to weak market conditions in Europe. The increase in earnings from operations for the three months ended September 30 , 2012 compared to the same period of 2011 was primarily due to an approximate one-third reduction of operating expenses offsetting the decline in year over year revenue. The decrease in earnings from operations for the nine months ended September 30, 2012 compared to the same period in the prior year was primarily due to the reduced sales partially offset by cost control efforts that have yielded lower 2012 operating expenses.
Surveillance
Surveillance operating results are as follows (in millions):

                            Three Months Ended         Nine Months Ended
                              September 30,              September 30,
                             2012         2011         2012         2011
Revenue                  $   115.9      $ 139.8     $   350.0     $ 431.2
Earnings from operations      39.2         51.9         115.0       149.7
Operating margin              33.9 %       37.1 %        32.8 %      34.7 %
Backlog, end of period                                    289         294


Revenue for the three and nine months ended September 30, 2012 decreased by 17.1 percent and 18.8 percent, respectively, compared to the same periods of 2011, primarily due to decreases in revenue from US Government customers. The decline in revenues and the change in product mix of the segment, partially offset by a decrease in operating expenses, resulted in the decline in earnings from operations for both the three and nine month periods ended September 30, 2012, compared to the same periods in 2011.

Detection
Detection operating results are as follows (in millions):

                                   Three Months Ended         Nine Months Ended
                                     September 30,              September 30,
                                    2012          2011        2012         2011
Revenue                         $    15.4       $ 21.2     $   50.5      $ 56.3
Earnings (loss) from operations       1.1          2.0          0.8        (4.9 )
Operating margin                      7.3 %        9.4 %        1.6 %      (8.7 )%
Backlog, end of period                                           24          35

Revenue for three months ended September 30, 2012 decreased by 27.3 percent compared to the same period of 2011, primarily due to two significant sales in 2011 and to lower research and development contract revenues as the segment has eliminated some of its locations. For the nine months, the decrease in revenue is primarily due to lower research and development contract revenues partially offset by a slight increase in product revenues. Earnings from operations decreased for the three month period year over year due to the decline in revenues partially offset by reductions in operating expenses. The loss from operations for the nine months ended September 30, 2011 included the amortization of fair value adjustments on inventory of $4.2 million. The elimination of the inventory adjustment and lower operating expenses partially offset by lower revenues were the main factors contributing to the improvement in operating results for the nine month period year over year. Integrated Systems
Integrated Systems operating results are as follows (in millions):

                            Three Months Ended         Nine Months Ended
                              September 30,              September 30,
                             2012          2011         2012         2011
Revenue                  $    19.7       $ 13.9     $    45.1      $ 44.4
Earnings from operations       1.3          0.3           1.3         0.1
Operating margin               6.8 %        2.1 %         2.8 %       0.3 %
Backlog, end of period                                     79          45

Revenue for the three and nine months ended September 30, 2012 increased by 42.2 percent and 1.6 percent, respectively, compared to the same periods of 2011, primarily due to revenue from a large program that was recognized in the third quarter of 2012. Backlog at September 30, 2012 reflects an increase of approximately $34 million compared to September 30, 2011 due to several large program contracts booked in the second and third quarters of 2012.

Liquidity and Capital Resources
At September 30, 2012, we had a total of $424.5 million in cash and cash equivalents, $212.0 million of which was in the United States and $212.5 million at our foreign subsidiaries, compared to $263.6 million in the United States and $177.2 million at our foreign subsidiaries at December 31, 2011. The decrease in cash and cash equivalents was primarily due to $129.0 million spent for the repurchase of 5.9 million shares of our common stock, capital expenditures of $39.2 million, and dividends paid of $32.0 million during the period, partially offset by cash provided from operations and cash proceeds from our stock-based compensation programs.
Cash provided by operating activities totaled $172.7 million for the nine months ended September 30, 2012 primarily due to net earnings, adjusted for non-cash charges for depreciation and amortization and stock-based compensation, and net collections of our accounts receivable, partially offset by net increases in other working capital components.


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. 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 8, 2016. The Credit Agreement allows us and certain designated subsidiaries to borrow in US dollars, euro, Swedish Kronor, pound sterling and other agreed upon currencies. The Credit Agreement requires us to pay a commitment fee on the amount of unused credit at a rate, based on the Company's leverage ratio, which ranges from 0.25 percent to 0.40 percent. The Credit Agreement contains two financial covenants that require the maintenance of certain leverage ratios with which we were in compliance at September 30, 2012. The five-year revolving line of credit available under the Credit Agreement is not secured by any of our assets. At September 30, 2012, we had no amounts outstanding under the Credit Agreement and the commitment fee on the amount of unused credit was 0.25 percent. We had $9.7 million of letters of credit outstanding at September 30, 2012, which reduced the total available credit under the Credit Agreement.
On August 19, 2011, we issued $250 million aggregate principal amount of our 3.750% 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 semiannually in arrears on March 1 and September 1, which commenced March 1, 2012. The proceeds from the Notes are being used for general corporate purposes, which may include working capital and capital expenditure needs, business acquisitions and repurchases of our common stock.
A Swedish subsidiary has a 30 million Swedish Kronor (approximately $4.6 million) line of credit. At September 30, 2012, 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. Cash used by financing activities of $152.8 million for the nine months ended September 30, 2012 primarily related to the repurchase of 5.9 million shares of our common stock and the payment of dividends, partially offset by cash provided from our stock-based compensation plans.
On February 9, 2011, our Board of Directors authorized the repurchase of up to 20.0 million shares of our outstanding common stock. As of September 30, 2012, there were approximately 7.9 million shares still remaining for repurchase under this authorization, which expires on February 9, 2013.
We believe that our existing cash combined with the cash we expect 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.

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, 2011. As described in Note 1 to the Consolidated Financial Statements included in the Form 10-K, the determination of fair value for stock-based compensation awards requires the use of management's estimates and judgments. Contractual Obligations
As of September 30, 2012, there have been no material changes to our contractual obligations outside the ordinary course of our business since December 31, 2011.

  Add FLIR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FLIR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.