March 10th, 2017

IME

FLIR Systems, Inc.

Current Price: $36.44 Price Target: $37.58

Rating: Neutral
Ticker: FLIR Action Recommended: HOLD

Investment Thesis
Key Statistics
52 Week Price Range $28.26 - $36.69 FLIR Systems is poised for growth as governments continue to shift to
50-Day Moving Average $35.89 preventative defense

Estimated Beta 0.96 With thermal imaging costs continuing to decline, thermal is making a move
into consumer markets and FLIR is capitalizing on this trend
Dividend Yield 1.62%
Under the new presidential administration, proposed increased defense
Market Capitalization (M) $4,970
spending and construction of a new wall on the U.S. border with Mexico will
3-Year Revenue CAGR 25.18% provide FLIR with continued government contracts that drive revenue growth

Trading Statistics Despite this potential upside, the market appears to have considered these
factors into the current price and thus the company received a neutral rating
Diluted Shares Outstanding (M)
139,068 in the final valuation
Average Volume (3-Month) One-Year Stock Chart
739,000
Institutional Ownership 86.30% $40.00 4500000

$35.00 4000000
Insider Ownership 6.05%
3500000
$30.00
EV/EBITDA 2017E 14.62x
3000000
$25.00
Margins and Ratios 2500000
$20.00
Gross Margin (2017E) 53.61% 2000000
$15.00
1500000
EBITDA Margin (2017E) 25.25%
$10.00
1000000
Net Margin (2017E) 16.90%
$5.00 500000
Debt to Enterprise Value 0.10
$0.00 0
Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17
Covering Analyst: Nick Miller
Volume Adjusted Close 50-Day Avg 200-Day Avg
nmiller9@uoregon.edu
1 University of Oregon Investment Group
 University of Oregon Investment Group March 10th, 2017

Overview
FLIR Systems, Inc. is a world leader in developing technologies that enhance
Figure 1: Revenue Growth Projections perception and awareness. FLIR designs, develops, markets, and distributes
solutions that detect people, objects, and substances that the human senses cannot
perceive. The company aims to bring innovative technologies such as thermal
3500000
imaging systems, visible-light imaging systems, locater systems, measurement
3000000 and diagnostic systems, and advanced threat-detection systems into daily life.
FLIR was founded in 1978 and currently employs over 3,000 people across the
2500000 globe. FLIR offers the broadest range of infrared imaging solutions in the world.
The company is organized into the following six operating segments:
Thousands ($)

2000000
Surveillance, Instruments, Security, OEM and Emerging Markets, Maritime, and
1500000 Detection.

1000000
Business Segments
500000
Surveillance 33%
0
2016A 2018E 2020E 2022E 2024E
The Surveillance segment is FLIRs largest operating segment. This segment
provides enhanced imaging and recognition solutions under a commercially
Source: FLIR 10-K and UOIG Spreads developed, military qualified model to a wide variety of military, law
enforcement, public safety, and other government customers around the world.
This includes the protection of borders, troops, and public welfare. Surveillance
Figure 2: FLIR Ranger HRC also develops hand-held and weapon-mounted thermal imaging systems for use
by consumers. These products are sold off-the-shelf or can be customized for
specific applications and range in price from under $1,000 for certain hand-held
and weapon-mounted systems to over $1 million for the most advanced stabilized
multi-spectral targeting systems. Revenue from Surveillance was $532.5 million
in 2016, which represented approximately 33 percent of revenue.

Surveillance thermal systems usually employ cooled infrared detectors and

several other imaging technologies with the goal of tracking people, objects, or
substances from long range in high resolution. Consumers in this segment are
mostly concerned with the products size, weight, power consumption, and cost,
often in that order of importance.
Source: FLIR Website
One key market in this segment is Search and Rescue, where thermal imaging
systems are used in airborne, shipborne, and land-based missions to rescue
Figure 3: Revenues by Segment individuals in danger, distress, or who are wounded or lost in adverse conditions.
Another key market is Force Protection, where military or other personnel are
deployed in hostile areas and require thermal imaging systems and radars in order
7.00%
to detect, identify, and defeat potential threats. Another market that is especially
pertinent today is the Border and Maritime Patrol market. Here FLIRs visible
11.00%
33% light systems are mounted to aircraft, ships, hand-held devices, and fixed-
installation applications in order to surveil an area at night to enforce borders and
prevent smuggling. FLIR also develops easy to use, affordable, and lightweight
15.00%
personal vision thermal and image-intensified cameras, such as monoculars and
hunting scopes, that provide individuals the ability to see at night and stay safe in
various settings. As the cost of thermal imaging continuous to decrease, FLIR is
14.00% able to grow this market and increase the ability of people to obtain these
20%
technological solutions.
Surveillance Instruments
Security OEM & Emerging Markets
Maritime Detection

Source: FLIR 10-K

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 University of Oregon Investment Group March 10th, 2017
Instruments 20%

Figure 4: Instruments Revenue Projections The Instruments segment develops hand-held, fixed mount, and desktop imaging
and measurement products. Thermal imaging camera products detect and measure
heat and surface temperature differences, offering high accuracy, sophisticated
800000 40% diagnostic functionality, and a product range that spans a wide price spectrum.
700000 35%
The Instruments segment's thermal cameras and related products are used by a
growing number of industrial plant professionals, residential construction and
600000 30%
contracting firms, energy production workers, manufacturing equipment and
Thousands ($)

500000 25% production line technicians, tradesmen, and homeowners. This segment provides
400000 20% products for a variety of commercial clients. This includes laboratory and research
300000 15% facilities, oil, power, and chemical production facilities, firefighting locations,
200000 10% factory line facilities where thermal solutions can increase worker safety, and
100000 5% electrical systems analysis firms.
0 0%
Under both the FLIR and Extech brands, the Instruments segment provides a
product line of rugged and reliable test and measurement instruments, such as
moisture meters, electrical test clamp meters, power analyzers, and multi-
Revenues % of Total Revenue functional meters. These measurement instruments are used to evaluate a plethora
of important factors, including voltage, sound, light, heat index, and water quality.
Source: FLIR 10-k and UOIG Spreads Key markets in this segment include Building and HVAC/R, where plumbers,
general contractors, home inspectors and more can use thermal imaging solutions
Figure 5: FLIR TCX Thermal PTZ Camera to identify and measure structural and energy efficiency issues. In the Electrical
market, electricians and mechanical technicians can use FLIR products to retrieve
electrical diagnostics, such as circuit overloads and loose wire connections.
Another key market is Firefighting, where firefighters and other first responders
can use FLIR products to protect themselves and the lives of others through
enhancing their awareness with cameras that can see through smoke.

Security 14%

The Security segment provides solutions for a wide range of applications, from
home and small business to infrastructure and enterprise security. The most
common solutions for clients in this industry are video solutions, where cameras
can provide thermal and other visible spectrum views and often also include video
management systems that, coupled with video analytics software, can enable
Source: FLIR Website efficient and effective safeguarding of assets and people during all hours of the
day and night.

Figure 6: Security Revenue Projections Products in this segment are marketed under both the FLIR brand name as well as
the Lorex brand name. The latter represents the consumer do-it-yourself and
600000 20% small business user. These products are more affordable and still offer a wide
500000 variety of security features. The acquisition of DVTEl, Inc. in 2015 allows FLIR
15% to offer video analytics services as a part of their security systems.
Thousands ($)

400000

300000 10% Key markets in this segment include Utilities, where power plants, electrical
200000 substations, and other large facilities use visible spectrum and thermal imaging
5% cameras for continuous surveillance. Recent rules from the U.S. Nuclear
100000
Regulatory Commission require nuclear facilities to provide around the clock
0 0% surveillance and monitoring of the entirety of their facilities, in addition to the
perimeters. This has opened a new market for FLIRs Security segment.
Commercial and residential consumers utilize FLIR products to protect their
Revenues % of Total Revenue facilities or homes from intruders and hazards, such as fires or flooding.

Source: FLIR 10-k and UOIG Spreads

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University of Oregon Investment Group March 10th, 2017
OEM & Emerging Markets 15%
Figure 7: OEM & EM Revenue Projections The OEM & Emerging Markets segment develops and manufactures thermal and
visible spectrum imaging camera cores and related components. A thermal camera
350000 20%
core is an integrated, plug-and-play camera system that includes both the infrared
300000 or visible spectrum sensor as well as an optical lens. These camera cores are
250000 15% primarily used for machine vision and people counting applications.
Thousands ($)

200000
150000
10% This segment is vertically integrated and enables FLIR to provide camera core
and component products to other FLIR segments. Many third-party OEMs
100000 5% purchase FLIR cores and components and integrate them into their own branded
50000 products.
0 0%
The Emerging Markets portion of the OEM & Emerging Markets segment, which
contains business that the company believes have high-potential but do not yet
Revenues % of Total Revenue have the scale to be defined as their own segment. One key business in this
segment is the Intelligent Traffic Systems business that develops and
manufactures automotive and pedestrian monitoring systems. Another key
Source: FLIR 10-k and UOIG Spreads business that the company believes has some of the strongest growth potential is
the Mobile Products business. Unveiled in more detail at the CES conference in
Figure 8: Raymarine Dragonfly late 2016, these smartphone accessories provide thermal imaging solutions at low
costs and have a wide variety of consumer and commercial applications.

Maritime 11%

FLIRs Maritime segment develops and manufactures a broad range of thermal

imaging and marine electronic products for both recreational and commercial
customers. Boats of all sizes can be equipped with electronic systems such as
multi-function helm displays, navigational instruments, autopilots, radar and
sonar systems, thermal and visible spectrum systems, and communications
equipment. These products are used for sport fishing, cruising, sailing, and general
nautical navigation and are sold under both the FLIR and Raymarine brands.

The primary product offering in this segment is the multifunction navigation

display. MFDs provide visual navigation data from several types of sensors, such
as radar, sonar, and GPS. Products range from simple designs that are aimed
Source: Raymarine Website towards leisure boaters to large commercial fishing vessels that require extensive
navigational technology. All marine instrument products are designed to monitor
boat speed, depth, and wind information. These displays serve as eyes below the
Figure 9: Detection Revenue Projections water, as the products can detect fish, underwater structures, and potential
hazards. The key markets in this segment are the Recreational Boating market and
250000 20%
the Commercial Boating market.
200000
15%
Detection 7%
Thousands ($)

150000
10%
The Detection segment develops and manufactures sensor instruments for the
100000
accurate detection, identification, classification, and suppression of chemical,
5%
50000 biological, radiological, nuclear, and explosives threats for military force
protection, homeland security, and commercial applications. The Detection
0 0%
segment solutions combine multi-threat detection and identification technologies
into single hand-held or desktop instruments. The product line in this segment
includes radiation detectors, explosives trace detectors, mass spectrometers, and
Revenues % of Total Revenue
air monitoring systems that detect aerosolized biological threats and disclosure
sprays.

Source: FLIR 10-k and UOIG Spreads Products in this segment can provide lab-quality confidence in a field-proven,
highly reliable, package. In order to better match the needs of their customers,

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 University of Oregon Investment Group March 10th, 2017
FLIR has collaborated with multiple government agencies for years to identify the
exact needs of their facilities and employees. Government and private sector
Figure 10: Industry Product Segmentation entities are continuously striving to use new ways to address increasingly
sophisticated terrorist threats and through their collaboration with FLIR the
government is able to receive the products they need in order to keep their citizens
safe.

35% Industry
Overview
65%

FLIR operates within the Night Vision Equipment Manufacturing industry. This
industry is composed of companies that manufacture night vision devices and
components. This includes devices that use image intensification, active
Light Amplification Thermal illumination, and thermal vision technology.

Source: IBIS World The Night Vision Equipment Manufacturing industry generated $3.9 billion in
revenue in 2016, 65% of which was generated from thermal imaging and 35%
Figure 11: Federal Defense R&D Spending was generated from light amplification systems. Revenues in this industry are
significantly driven by United States military operations. Revenues surged when
300.0 conflicts in the Middle East caused demand for products from this industry to rise.
Law enforcement, the military, and other government agencies all use imaging
250.0 devices to conduct nighttime combat, criminal tracking, and border protection
missions.
200.0
Billions ($)

150.0
The recession, however, has taken a toll on state and local law enforcement
budgets, as the ability to purchase new vision equipment declined. At the federal
100.0 level, any withdrawal of troops from a war zone, like withdrawing troops from
the Middle East in 2011, lowered the demand for systems produced in this
50.0 industry.
0.0
Over the next five years, the Night Vision Equipment Manufacturing industry is
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015

expected to begin recovering as the defense budget stabilizes and foreign demand
picks up. As a result, revenue is forecasted to increase at an annual rate of 1.9%
Source: IBIS Total
Defense World to $4.3 billion over the five years to 2021. Demand will be bolstered by the need
to replace older and nearly obsolete night vision and thermal devices and to meet
demand created by anti-ISIS operations. Technologies will likely advance along
with rising demand from commercial operators and local and state governments.
Figure 12: Industry Market Share
Competition in this industry is medium. Four of the largest companies in the
industry account for over 40% of the revenue from 2016. Large and niche market
players compete on the basis of continued product innovation. The players are
22% stable, as in the U.S. government and other major buyers have developed solid
relationships with these contractors that erases a need for clients to change their
providers frequently.

8% The key success factors in this industry are technological innovation, reputation,
62.60% research and development, and the labor force. Technological innovation is the
7.10% most important factor as quickly adapting to technological changes and being able
to upgrade products regularly determines whether or not a company will receive
the significant contracts it needs to fuel its growth. Reputation is key because
customers will only purchase such expensive and important equipment from
FLIR Harris L-3 Other brands they find reputable and trustworthy. Significant investment in R&D results
in successful product launches and these investments determine future revenue
Source: IBIS World growth. Finally, a skilled staff is needed in this industry because the equipment is

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 University of Oregon Investment Group March 10th, 2017
all technical and requires significant education in order to produce quality
products.
Figure 13: Changes in U.S. Defense Spending
20
Macro Factors
10

0
United States Military Operations
% Change

-10 Considering that a large portion of the product offerings in the Night Vision
Equipment Manufacturing industry are sold directly to the U.S. Military, any
-20
increase or decrease in military operations would have major effects on the
revenues for players in the industry. Demand reached its all-time high during the
-30
conflicts in the Middle East when high numbers of military personnel were
-40 deployed to the area, bringing thermal and night vision products with them to
2008 2010 2012 2014 2016 2018 2020
enhance their awareness.

United States Immigration Policy

Source: IBIS World
Figure 14: FLIR Border Surveillance Vehicle
FLIR and other major industry players provide significant numbers of products to
the Department of Homeland Security, who uses night vision and thermal
products to control the U.S. borders. If policies are being enacted to decrease
illegal immigration, then the border facilities will receive more funding and will
purchase equipment to monitor the borders at all times. The proposed plan to build
a wall along the length of the border of the U.S. and Mexico would prove
beneficial to the industry because the wall is proposed to have the latest and
greatest of surveillance technology.

Federal Funding for Defense

Defense contractors and government agencies involved in defense make up one

Source: FLIR Website
of the largest markets for the industry. Military personnel use night vision devices
to improve visibility for surveillance, search and rescue operations and
intelligence purposes. In the coming years, federal funding for defense is expected
to increase, representing a potential opportunity for the industry. The current
federal administration aims to directly increase defense spending which would
increase demand for night vision and thermal products.

Trade-Weighted Index
Figure 15: Historical TWI
The TWI measures the strength of the U.S. dollar relative to the currency of its
140 trading partners. When the value of the U.S. dollar declines, exports become
120
attractive and affordable to foreign countries. When foreign countries are able to
purchase U.S. products, demand for night vision and thermal products increases
100
for domestic industry players, like FLIR.
80
TWI

60 Competition
40
The competitive landscape for FLIR and the other industry players is
20 characterized by medium market share concentration. FLIR, Harris, and L-3
0 Communications collectively hold 37.4% of the current market share. Companies
Nov-03
Aug-04
Aug-01

Nov-06
Aug-07
Jun-96

Jun-99

Apr-08

Apr-11

Jun-16
Sep-98

May-05
Feb-06

Sep-15
Mar-00

May-02
Feb-03

Mar-14
Jan-95

Mar-97

Jan-09

Jul-10

Jul-13
Jan-12
Oct-95

Dec-00

Oct-09

Dec-14
Dec-97

Oct-12

in the Night Vision Equipment Manufacturing industry mainly compete on the

basis of product innovation, quality, reliability and price. To stay competitive,
companies must be quick to identify new technologies and applications for night
vision. Companies must then develop these products and supply them at low
Source: FRED prices to the market. Successful industry operators continually develop new
technologies and products that meet evolving customer needs and can better

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 University of Oregon Investment Group
Figure 16: FLIR Properties in Thousands of SqFt
Location
Wilsonville (Portland), Oregon
North Billerica (Boston),
Massachusetts
Tby (Stockholm), Sweden
Elkridge (Baltimore), Maryland
Nashua, New Hampshire
Tallinn, Estonia
Markham (Toronto), Ontario,
Canada
Goleta (Santa Barbara), California
Fareham (Portsmouth), United
Kingdom
Stillwater, Oklahoma
Meer (Antwerp), Belgium
Other
Total
Source: FLIR 10-k
Figure 17: Working Capital Projections
2500000
2000000
Thousands ($)
1500000
1000000
500000
0 thermal imaging and by increasing awareness of the technology. FLIR also
Current Liabilities
Source: FLIR 10-k and UOIG Spreads
March 10th, 2017
integrate third-party devices and systems. The military, which is the largest
market segment, demands high-quality products that are reliable and precise.
FLIR has the largest market share in the industry, at 22.0%. FLIR is able to
Owned Leased compete well in this industry because of their focus on commercial markets such
154 as automobile night vision, marine infrared and high-volume products, such as
cell phones. In addition, FLIRs commercial off-the-shelf model has helped the
133
company reduce manufacturing costs over the past five years. FLIR also invests
205
considerably in Research and Development, which has established their
109 reputation as the leading innovator in the industry.
140
46
Strategic Positioning
27
169 FLIRs recent development of the commercial off-the-shelf model has positioned
the company well for future growth. Seeing an underserved market, FLIR has
63
capitalized on the fact that consumers were unable to utilize the benefits of night
28
vision and thermal imaging. They are able to deliver products to consumers that
12 have both commercial and recreational value at low costs, as the price of thermal
130 561 imaging product development is continuing to decrease.
1040 737
FLIR also has a strong government customer base that is well established and
poised for continued growth. FLIR has formed relationships with the U.S. and
foreign governments that have built a basis for their future contracts. The
combination of both commercial and government customers allows FLIR to
mitigate fluctuations in demand from any particular customer or market.
Finally, FLIR has the strongest reputation in the industry. The company believes
trust is their most valuable asset. FLIR focuses on building trust with stakeholders,
including current and future customers, shareholders, and employees. They
consistently receive contracts from government and commercial entities because
the FLIR brand is associated with quality, value, and reliability.
Business Growth Strategies
FLIRs consistent strategy has enabled strong and steady business performance
while allowing expansion into areas of growth. FLIR plans to leverage key
competitive strengths to continue to drive growth in revenue and profitability. The
company has outlined six key growth strategies: controlling corners, lowering
costs identifying needs, innovation, trust, and financial discipline.
FLIR aims to continue to have strong positions in both the entry-level and high-
performance price points in each market. This will provide the ability to innovate
solutions throughout the full spectrum of each market and sell products for the
broadest customer base in the market. The company intends to make thermal
imaging more accessible to the world by capitalizing on the lowering costs of
intends to maintain growth through strategic acquisitions. FLIRs experienced
management team is able to identify companies that are sound investments and
Current Assets
generates returns by adding these new technologies to the trusted FLIR brand
name. The company has also invested heavily in Research and Development,
which has resulted in industry-leading innovations and a growing patent portfolio
that is focused on both core technologies and emerging businesses.
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 University of Oregon Investment Group March 10th, 2017

Management and Employee Relations

Andrew C. Teich President and CEO
Figure 18: Annual Executive Compensation
Mr. Teich has been President and Chief Executive Officer of the Company since
9,000,000 70% May 2013. He was elected to the Companys Board of Directors in July 2013.
8,000,000
60%
Previously, Mr. Teich was President of the Companys Commercial Systems
7,000,000 Division from January 2010 to May 2013. From April 2006 to January 2010, he
6,000,000
50%
served as President of the Companys Commercial Vision Systems Division.
Compensation ($)

5,000,000 40% From 2000 to 2006, he served as the Senior Vice President of Sales and Marketing
and then as Co-President of the Imaging Division at FLIR. Mr. Teich joined FLIR
4,000,000 30%
as Senior Vice President, Marketing, as a result of FLIRs acquisition of
3,000,000
20% Inframetrics in March 1999. He holds a B.S. in Marketing from Arizona State
2,000,000
University and is an alumnus of the Harvard Business School Advanced
10%
1,000,000 Management Program. Mr. Teich has been a Director of Sensata Technologies
0 0% Inc. since May 2013. Mr. Teichs over 30-year career in the thermal imaging
2011 2012 2013 2014 2015
industry, including the last 16 years with the Company, has enabled him to
Andrew Teich Amit Singhi Thomas Surran CEO % of Total Exec.
develop a comprehensive understanding of the Companys technologies,
operations and markets.
Source: MorningStar
Thomas A. Surran Senior Vice President and COO
Figure 19: Acquisitions Projections
Mr. Surran has served as the Companys Senior Vice President, Chief Operating
450,000 30.00% Officer since January 2014. Mr. Surran previously served as President of the
400,000
25.00%
Companys Commercial Systems Division from May 2013 to January 2014. Mr.
350,000 Surran joined the Company for a second time in December 2009 as the Chief
Thousands ($)

300,000 20.00% Financial Officer of the Commercial Systems Division. From May 2010 until May
250,000 2013, in addition to his Division Chief Financial Officer role, Mr. Surran also
15.00%
200,000 served as Vice President and General Manager of Raymarine, a FLIR company.
150,000 10.00% Mr. Surran received his B.S. from Xavier University and his MBA from the
100,000 University of Chicago.
5.00%
50,000
- 0.00%
Amit Singhi Senior Vice President and CFO

Acquisitions % of Revenue
Mr. Singhi joined FLIR in August 2015 as Senior Vice President, Finance, and
Chief Financial Officer. Prior to joining FLIR, Mr. Singhi was an employee of
Source: FLIR 10-K and UOIG Spreads Ford Motor Company from August 1994 to August 2015, most recently as
Controller of Ford Motor Companys Global Customer Service Division,
Figure 20: Tax Rate Projections Aftermarket Parts & Services since April 2015. He holds an M.B.A. and an M.S.
in Electrical Engineering Systems from the University of Michigan, and a
800000 45% Bachelors of Technology in Electrical Engineering from the Indian Institute of
700000 40% Technology.
35%
600000
Earnings Before Taxes

30%
500000

400000
25% Management Guidance
20%
300000
15% FLIRs management generally is able to follow through with their guidance that
200000
10% they release in their SEC filings and earnings calls. For instance, for fiscal year
100000 5% 2016 management projected that their revenues would lie between $1.5 and $1.6
0
2011A 2013A 2015A 2017E 2019E 2021E 2023E 2025E
0% billion and reported revenues for the year were $1.66 billion. They often talk about
Earnings Before Taxes Tax Rate
macroeconomic trends that have potential to influence their business and how
similar trends have influenced the company in the past.

Going forward, FLIRs management expects revenues for fiscal year 2017 to lie
Source: FLIR 10-K and UOIG Spreads between $1.78 and $1.83 billion. They touched on their recent acquisitions, Prox
Dynamics, in particular, and how these purchases will lead to strong inorganic

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 University of Oregon Investment Group
Figure 21: Prox Dynamics Black Hornet
March 10th, 2017
growth. They touched on their poorly growing Surveillance segment, and they
were very confident in its ability to grow in the future due to business restructuring
and the acquisition of Prox Dynamics. Management highlighted the OEM and
Emerging Market segment as their strongest growing segment as they are
incorporating many new products and markets into this segment, some of which
will be integrated into their own segments in the future. The company is confident
in their ability to reduce Cost of Goods Sold and attributed recent increases as a
percentage of revenue to operational details that came with developing new
products that were launched in fiscal year 2016. Thus, a decrease as a percentage
of revenue in COGS was reflected in the DCF model.

Source: Prox Dynamics Website
Portfolio Strategy
FLIR Systems is not currently held in any of the UOIG portfolios. Due to the final
valuation of nearly fair market value, FLIR is not being pitched to the Tall Firs or
DADCO portfolios. The company is classified as mid cap so it will not be pitched
to the Alumni fund.

Figure 22: 2016 Acquisitions

Recent News
FLIR Launches New Generation of Advanced Thermal Imaging
Cameras for Electro-Mechanical, Plant and Building
30.58% Professionals Yahoo Finance February 16, 2017
FLIR announced three new thermal imaging cameras that can be used in several
different applications, including electrical, mechanical, and building applications.
59.10% These cameras will utilize intelligent interchangeable lenses, laser-assisted
9.91% 0.41% autofocus models, and area measurement functionality. These cameras will be
available for sale in March through both FLIR distribution partners and through
the FLIR.com store.

Image surveillance company lands $50 million contract with US

Prox Dynamics ISD Armasight Point Grey Coast Guard; Shares rise Yahoo Finance February 15, 2017
Source: FLIR 10-k FLIR announced a new contract with the US Coast Guard. This contract involves
the installation of FLIR products on over 2,000 US Coast Guard vessels and will
run a price of $50 million. This led to a rise in price per share of over 8% this day,
Figure 23: Historical Government Revenues balancing out the price depreciation led to missing bottom line estimates for Q4
2016.
1800000 35.0%
1600000 30.0%
Catalysts
1400000
25.0%
Thousands ($)

1200000 Upside
1000000 20.0%
800000 15.0% With the cost of thermal imaging continuously lowering, FLIR is able to take
600000
10.0%
advantage of economies of scale and produce more thermal products and
400000 make them available to more people across the world.
200000 5.0%
0 0.0% President Trumps plan to construct a new wall on the U.S. border with
2011 2012 2013 2014 2015 2016 Mexico would benefit the company significantly as the U.S. government has
used their services for all current borders and a border of this scale will
Government Total % of Revenue
involve the most innovative imaging technology.
Source: FLIR 10-k

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 University of Oregon Investment Group March 10th, 2017
Current U.S. federal administration plans to increase defense spending will
provide steady business for FLIR as technological innovation becomes more
and more essential to defend our country.

The recent acquisition of Prox Dynamics will further FLIRs reputation as

the world leader in imaging technology, as Proxs Black Hornet will be sold
under the FLIR brand name.

Figure 24: FLIR Revenues by Region Downside

1000000 Although the current government administration is determined to increase

900000 defense spending, there is uncertainty when relying on the U.S. government
800000 for sales.
700000
Thousands ($)

600000 Competition in the thermal imaging market is intense and any form of failure
500000 to compete could affect FLIRs business significantly.
400000
300000 FLIR might not be successful in obtaining the necessary export licenses to
200000 conduct operations abroad and the United States government may prevent
100000 proposed sales to foreign governments and customers.
0
2014 2015 2016 As a government supplier, FLIR is subject to a number of procurement rules
and regulations that can severely affect company operations.
United States Europe
Asia Middle East/Africa
Comparable Analysis
Canada/Latin America

Comparable companies in the Night Vision Equipment Manufacturing industry

Source: FLIR 10-k were screened for operating segments, growth, risk, and market capitalization.
The four companies that were chosen best represent FLIRs services, goals, and
size. Many of FLIRs competitors are considerably larger in terms of market
capitalization and thus grow and operate very differently. Cash flow is a
significant measure in this industry and weighting EV/EBITDA is an industry
standard.

Rockwell Collins, Inc. (COL) 40%

Figure 25: Rockwell Collins Logo
Rockwell Collins, Inc. designs, produces, and supports communications and
aviation systems worldwide. Its Commercial Systems segment provides
integrated avionics systems; cabin management systems; data link, high
frequency, very high frequency, and satellite communications systems; landing
sensors, radio navigation, and geophysical sensors, as well as flight management
systems; situational awareness and surveillance systems and products; integrated
flight controls; simulation and training systems; and maintenance, repair, parts,
and after-sales support services, as well as aftermarket used equipment. This
Source: COL Website segment serves original equipment manufacturers of commercial air transport,
business and regional aircraft, commercial airlines, and business aircraft
operators. The companys Government Systems segment provides defense-
related systems, products, and services comprising communications systems and
products; radio navigation products, global positioning system equipment, and
multi-mode receivers; avionics systems for aircraft flight decks. This segment
serves the U.S. Department of Defense, other ministries of defense, other
government agencies, and defense contractors. Yahoo Finance

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University of Oregon Investment Group
Figure 26: National Instruments Logo
Source: NATI Website
Figure 27: L3 Technologies Logo
Source: LLL Website
Figure 28: Cognex Logo
Source: CGNX Website
March 10th, 2017
National Instruments Corporation (NATI) 35%
National Instruments Corporation designs, manufactures, and sells systems to
engineers and scientists worldwide. It offers LabVIEW, a system design software
for measurement, automation, and control; LabVIEW Real-Time and LabVIEW
FPGA, which are software add-ons to LabVIEW; LabVIEW Communications
System Design Suite for wireless prototyping; LabWindows/CVI for creating test
and control applications; and Measurement Studio consisting of measurement and
automation add-on libraries, and additional tools for programmers. The company
also provides software products, such as NI TestStand to test and measure
applications in a manufacturing environment; NI VeriStand software to configure
real-time testing applications; NI DIAdem, which provides users configuration-
based technical data management, analysis, and report generation tools; NI
InsightCM Enterprise for monitoring critical and ancillary rotating equipment;
and NI Multisim circuit design software.Yahoo Finance
L3 Technologies, Inc. (LLL) 25%
L3 Technologies, Inc. provides aerospace systems, and a range of
communication and electronic systems and products used on military and
commercial platforms in the United States and internationally. The company
operates in three segments: Electronic Systems, Aerospace Systems, and
Communication Systems. It offers a range of products and services, including
components, products, subsystems, and systems, as well as related services to
military and commercial customers in business areas, including precision
engagement and training, power and propulsion systems, aviation products and
security systems, sensor systems, warrior systems, and optics, telescopes, and
precision optical subsystems. The company also provides fleet management
sustainment and support, such as procurement, systems integration, sensor
development, modifications, and periodic depot maintenance for intelligence,
surveillance, and reconnaissance, as well as special mission aircraft and airborne
systems; strategic and tactical signals intelligence systems; secure data links;
microwave products; secure terminal and communication network equipment and
encryption management; and communication systems for surface and undersea
vessels, and manned space flights.. Yahoo Finance
Cognex Corporation (CGNX) 0%
Cognex Corporation provides machine vision products that capture and analyze
visual information in order to automate tasks primarily in manufacturing
processes worldwide. The company offers machine vision products, which are
used to automate the manufacturing and tracking of discrete items, such as mobile
phones, aspirin bottles, and automobile tires by locating, identifying, inspecting,
and measuring them during the manufacturing or distribution process. Its products
include VisionPro, a software suite that provides various vision tools for
programming; displacement sensors with vision software for use in 3D
application; In-Sight vision systems that perform various vision tasks, including
part location, identification, measurement, assembly verification, and robotic
guidance; In-Sight vision sensors; ID products, which are used for reading codes
that are applied on discrete items during the manufacturing process, as well as
have applications in logistics automation for package sorting and distribution;
DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for
industrial barcode reading applications; and barcode scanning software
development kits. Yahoo Finance
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 University of Oregon Investment Group March 10th, 2017

Discounted Cash Flow Analysis

Revenue Model
Figure 29: Revenue and COGS Projections
FLIRs income statement breaks down their revenues into the six segments
mentioned earlier: Surveillance, Instruments, Security, OEM & Emerging
3,500,000 Markets, Maritime, and Detection. These segments were created as the company
3,000,000 restructured in 2014 and for this reason, in most cases using historical averages
2,500,000 did not provide feasible revenue projections. Thus, it was necessary to base
2,000,000 growth on management guidance, analyst expectations, and macro trends that
would influence the mobility for the segments.
1,500,000
1,000,000 Revenues in the Surveillance segment were projected as growing fairly steadily
500,000 through the terminal year since the company made significant changes in this
- segment, acquisitions and new products launches, that are expected to revamp the
segment since it experienced decreasing revenues in years past. Instruments
segment revenues were projected off the basis that new product innovations and
increased demand for U.S. manufacturing will allow for major growth in the near
Revenue COGS future and is projected to level out into the terminal year. The Security segment
provides great growth in the projections because significantly more businesses
Source: UOIG Spreads and residences are expected to incorporate security systems as products become
more innovative and affordable. Emerging Markets businesses are expected to
provide long term growth and potentially new business segments which drives the
growth for the OEM & Emerging Markets segment. Increased technological
innovation in the Maritime segment can provide a steady means for the segment
Figure 30: Beta Table to grow into the terminal year. The Detection segment has historically been the
most stable segment and is expected to grow consistently through the terminal
year.
Beta SE Weighting
1-Year Daily 1.03 0.11 10.00%
3-Year Daily 0.96 0.05 90.00% Beta
5-Year Daily 1.01 0.05 0.00%
3 Year Weekly
5 Year Weekly
1.01
0.96
0.14
0.17
0.00%
0.00%
FLIRs estimated beta is 0.96. This was derived from two separate regressions.
3 Year Monthly 0.58 0.33 0.00% The 1-year daily 3-year daily adjusted closing prices were regressed against the
5 Year Monthly 0.53 0.27 0.00%
S&P 500. The 1-year daily beta was weighted to accommodate the high growth
Vasicek - Comps 0.95 0.00%
Vasicek - ETF 0.96 0.00% that FLIR experienced in this time period. The 3-year daily beta received the
Hamada - Comps 0.94 0.00% significantly higher beta because it is the standard measure for beta and tells the
Hamada - ETF
FLIR Systems, Inc. Beta
0.96
0.96
0.00%
best story of the stocks volatility.

Tax Rate
Source: UOIG Spreads
FLIR receives significant tax deductions and exemptions due to their foreign
involvement and significant business operations with the U.S. government. The
tax rate used in the model reflects the historical average tax rate, which comes to
about 22%, reflects continuing foreign operations, and accommodates a decrease
Figure 31: Beta Sensitivity Table in the corporate tax rate from the current U.S. government administration. FLIRs
2016 tax rate was abnormally high due to a European Union ruling stating that
Implied Price Undervalued/(Overvalued)
Belgium had been practicing unfair tax methods.
Terminal Growth Rate Terminal Growth Rate
1.49% 1.74% 1.99% 2.24% 2.49%
0.86 $38.39 $39.47 $40.64 $41.92 $43.32 Capital Expenditures and Acquisitions
Adjusted Beta

0.91 $36.65 $37.62 $38.68 $39.82 $41.06

0.96 $35.06 $35.93 $36.88 $37.90 $39.01
1.01 $33.58 $34.38 $35.23 $36.15 $37.15
CAPEX was projected based on historical averages and revenue growth. Although
1.06 $32.22 $32.94 $33.71 $34.54 $35.44 FLIR is likely to make acquisitions every three to four years, acquisitions are
impossible to predict in terms of the size and timing of the acquisition. There
would also be dramatic changes in cash flow that could affect the validity of the
Source: UOIG Spreads valuation. For these reasons, a constant percentage of total revenues was used.

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 University of Oregon Investment Group
Figure 31: Final Valuation
Final Valuation
Discounted Cash Flow
Comparables Analysis
Implied Price
Current Price
Undervalued
Source: UOIG Spreads
March 10th, 2017
Recommendation
As the world leader in thermal imaging technolgoy, FLIR is a strongly positioned
company with great backlog and established customer relationships. As the
demand for technological innovation in the military and overall defense market
$36.88 90.00%
will continue to increase, FLIR will be able to capitalize on this trend and will
$43.85 10.00% serve this market successfully. FLIRs recent acquisition of Prox Dynamics will
$37.58 further this revenue growth as the Black Hornet is one of the most popular imaging
$36.44 devices on the market. With the proposal to construct a wall costing $15 billion
3.12% more government contracts will arrive as FLIR is the number one player in the
surveillance industry. After launching products that will make thermal imaging
available to more consumers, FLIR is poised for growth as more people will
become aware and will be able to access FLIR products. However, the market has
taken these factors into account with todays price. Weighting discounted cash
flow analysis 90% and comparable analysis 10%, an implied price of $37.58 was
reached and is therefore a HOLD is recommended for the Tall Firs, DADCO, and
Alumni Fund portfolios.
UOIG 13
University of Oregon Investment Group March 10, 2017

Appendix 1 Comparable Analysis

Comparables Analysis FLIR COL National
NATI LLL CGNX
FLIR Systems, Rockwell Collins, Instruments L3 Technologies, Cognex
($ in thousands) Inc. Inc. Corporation Inc. Corporation
Stock Characteristics Max Min Median Weight Avg. 40.00% 35.00% 25.00% 0.00%
Current Price $169.81 $32.15 $88.29 $92.51 $36.44 $97.02 $32.15 $169.81 $79.55
Beta 1.28 0.91 0.94 0.93 0.96 0.91 0.95 0.93 1.28
Size
Short-Term Debt 740,000 - 249,500 420,750 15,000 740,000 - 499,000 -
Long-Term Debt 3,143,000 - 703,500 1,347,300 513,070 1,382,000 25,000 3,143,000 -
Cash and Cash Equivalent 361,349 79,641 246,142 287,599 361,349 340,000 285,283 207,000 79,641
Non-Controlling Interest 74,000 - - 18,500 - - - 74,000 -
Preferred Stock - - - - - - - - -
Diluted Basic Shares 139,334 79,969 110,929 119,330 139,334 132,549 132,336 79,969 89,522
Market Capitalization 13,579,526 4,254,609 9,990,721 10,027,971 5,077,335 12,859,942 4,254,609 13,579,526 7,121,499
Enterprise Value 17,088,526 3,994,326 10,841,900 11,526,922 5,244,056 14,641,942 3,994,326 17,088,526 7,041,858
Growth Expectations
% Revenue Growth 2017E 8.54% 1.70% 2.81% 3.80% 8.54% 1.70% 6.66% 3.14% 2.47%
% Revenue Growth 2018E 8.30% 5.02% 6.45% 6.16% 8.30% 5.02% 6.87% 7.01% 6.04%
% EBITDA Growth 2017E 28.96% 7.50% 8.82% 9.54% 28.96% 7.50% 8.82% 13.82% 8.82%
% EBITDA Growth 2018E 8.40% 4.42% 6.28% 5.50% 8.40% 5.43% 4.42% 7.14% 7.43%
% EPS Growth 2017E 76.02% (1.82%) 5.35% 12.06% 76.02% (1.82%) 34.78% 2.44% 8.26%
% EPS Growth 2018E 10.69% 1.85% 7.87% 5.54% 9.55% 1.85% 8.60% 7.13% 10.69%
Profitability Margins
Gross Margin 69.85% 12.92% 47.66% 40.46% 53.61% 31.95% 69.85% 12.92% 63.37%
EBIT Margin 22.02% 9.13% 14.55% 13.40% 22.02% 18.57% 10.53% 9.13% 18.58%
EBITDA Margin 25.25% 12.92% 20.36% 18.86% 25.25% 23.98% 17.25% 12.92% 23.48%
Net Margin 22.76% 7.94% 9.04% 8.81% 16.26% 10.06% 7.94% 8.03% 22.76%
Credit Metrics
Interest Expense 169,000 - 32,000 67,850 15,251 64,000 - 169,000 -
Debt/EV 0.21 - 0.08 0.11 0.10 0.14 0.01 0.21 -
Leverage Ratio 2.60 - 0.88 1.35 1.16 1.64 0.11 2.60 -
Interest Coverage Ratio 29.87 - 4.14 10.13 29.87 20.16 - 8.28 -
Operating Results
Revenue $10,840,000 $694,350 $3,345,000 $5,320,500 $1,804,192 $5,380,000 $1,310,000 $10,840,000 $694,350
Gross Profit $1,719,000 $440,000 $1,157,529 $1,357,870 $967,263 $1,719,000 $915,058 $1,400,000 $440,000
EBIT $999,000 $129,000 $564,000 $695,400 $397,219 $999,000 $138,000 $990,000 $129,000
EBITDA $1,400,000 $163,000 $758,000 $945,100 $455,530 $1,290,000 $226,000 $1,400,000 $163,000
Net Income $870,000 $104,000 $349,500 $470,300 $293,290 $541,000 $104,000 $870,000 $158,000
Capital Expenditures $210,000 $44,425 $123,500 $145,249 $54,126 $193,000 $44,425 $210,000 $54,000
Multiples
EV/Revenue 10.14x 1.58x 2.89x 2.55x 2.91x 2.72x 3.05x 1.58x 10.14x
EV/Gross Profit 16.00x 4.37x 10.36x 7.99x 5.42x 8.52x 4.37x 12.21x 16.00x
EV/EBIT 54.59x 13.20x 23.10x 20.31x 13.20x 14.66x 28.94x 17.26x 54.59x
EV/EBITDA 43.20x 11.35x 14.94x 13.78x 11.51x 11.35x 17.67x 12.21x 43.20x
EV/(EBITDA-Capex) 64.60x 13.06x 18.18x 16.63x 13.06x 13.35x 22.00x 14.36x 64.60x
Market Cap/Net Income = P/E 45.07x 15.61x 32.34x 27.73x 17.31x 23.77x 40.91x 15.61x 45.07x

UOIG 14
University of Oregon Investment Group March 10, 2017

Appendix 2 Discounted Cash Flows Valuation

Discounted Cash Flow Analysis

($ in thousands) 2011A 2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Total Revenue 1,544,062 1,405,358 1,496,372 1,530,654 1,557,067 1,662,167 1,804,192 1,954,018 2,112,176 2,278,185 2,451,487 2,631,478 2,817,550 3,009,134 3,205,770
% YoY Growth 11.21% (8.98%) 6.48% 2.29% 1.73% 6.75% 8.54% 8.30% 8.09% 7.86% 7.61% 7.34% 7.07% 6.80% 6.53%
Cost of Goods Sold 637,245 610,459 696,566 723,036 753,972 837,533 836,929 900,597 967,187 1,036,404 1,107,925 1,181,416 1,256,543 1,333,001 1,410,539
% Revenue 41.27% 43.44% 46.55% 47.24% 48.42% 50.39% 46.39% 46.09% 45.79% 45.49% 45.19% 44.90% 44.60% 44.30% 44.00%
Gross Profit $906,817 $794,899 $799,806 $807,618 $803,095 $824,634 $967,263 $1,053,420 $1,144,989 $1,241,781 $1,343,562 $1,450,063 $1,561,007 $1,676,133 $1,795,231
Gross Margin 58.73% 56.56% 53.45% 52.76% 51.58% 49.61% 53.61% 53.91% 54.21% 54.51% 54.81% 55.10% 55.40% 55.70% 56.00%
Selling General and Administrative Expense 368,947 292,500 322,739 331,995 313,544 322,435 354,194 387,560 423,202 461,073 501,107 543,222 587,334 633,358 681,231
% Revenue 23.89% 20.81% 21.57% 21.69% 20.14% 19.40% 19.63% 19.83% 20.04% 20.24% 20.44% 20.64% 20.85% 21.05% 21.25%
Depreciation and Amortization 77,498 59,715 62,796 57,245 49,534 57,513 58,312 58,846 60,871 64,180 68,617 74,064 80,431 87,647 95,658
% Revenue 5.02% 4.25% 4.20% 3.74% 3.18% 3.46% 3.23% 3.01% 2.88% 2.82% 2.80% 2.81% 2.85% 2.91% 2.98%
% of PP&E 40.98% 32.06% 29.67% 24.46% 20.05% 21.10% 21.46% 21.27% 21.09% 20.91% 20.73% 20.55% 20.36% 20.18% 20.00%
Research and Development 147,177 137,354 147,696 142,751 132,892 147,537 157,539 172,056 187,531 203,942 221,255 239,430 258,427 278,207 298,739
% Revenue 9.53% 9.77% 9.87% 9.33% 8.53% 8.88% 8.73% 8.81% 8.88% 8.95% 9.03% 9.10% 9.17% 9.25% 9.32%
Restructuring Expense - 2,000 25,832 16,383 1,361 1,431 - - - - - - - - -
% Revenue 0.00% .14% 1.73% 1.07% .09% .09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Earnings Before Interest & Taxes $313,195 $303,330 $240,743 $259,244 $305,764 $295,718 $397,219 $434,959 $473,385 $512,586 $552,583 $593,346 $634,815 $676,921 $719,603
% Revenue 20.28% 21.58% 16.09% 16.94% 19.64% 17.79% 22.02% 22.26% 22.41% 22.50% 22.54% 22.55% 22.53% 22.50% 22.45%
Interest Expense 5,487 11,659 14,091 14,593 14,086 18,071 15,251 16,518 17,854 19,258 20,723 22,244 23,817 25,437 27,099
% Revenue .36% .83% .94% .95% .90% 1.09% .85% .85% .85% .85% .85% .85% .85% .85% .85%
Interest Income 1,273 1,582 1,058 1,405 1,167 1,402 1,525 1,652 1,785 1,926 2,072 2,224 2,381 2,543 2,710
% Revenue .08% .11% .07% .09% .07% .08% .08% .08% .08% .08% .08% .08% .08% .08% .08%
Other Expense, Net (2,098) 1,341 (1,276) (3,473) (12,601) 3,092 - - - - - - - - -
% of Revenue .14% (.10%) .09% .23% .81% (.19%) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Earnings Before Taxes 311,079 291,912 228,986 249,529 305,446 275,957 380,443 416,790 453,745 491,403 529,789 568,878 608,617 648,941 689,795
% Revenue 20.15% 20.77% 15.30% 16.30% 19.62% 16.60% 21.09% 21.33% 21.48% 21.57% 21.61% 21.62% 21.60% 21.57% 21.52%
Less Taxes (Benefits) 88,427 66,556 51,971 49,268 63,760 109,331 87,152 95,479 103,945 112,571 121,365 130,320 139,423 148,660 158,019
Tax Rate 28.43% 22.80% 22.70% 19.74% 20.87% 39.62% 22.91% 22.91% 22.91% 22.91% 22.91% 22.91% 22.91% 22.91% 22.91%
Net Income $221,474 $222,398 $177,015 $200,261 $241,686 $166,626 $293,290 $321,311 $349,800 $378,831 $408,424 $438,559 $469,194 $500,280 $531,776
Net Margin 14.34% 15.83% 11.83% 13.08% 15.52% 10.02% 16.26% 16.44% 16.56% 16.63% 16.66% 16.67% 16.65% 16.63% 16.59%
Add Back: Depreciation and Amortization 77,498 59,715 62,796 57,245 49,534 57,513 58,312 58,846 60,871 64,180 68,617 74,064 80,431 87,647 95,658
Add Back: Interest Expense*(1-Tax Rate) 3,927 9,001 10,893 11,712 11,146 10,911 11,757 12,734 13,764 14,846 15,976 17,148 18,361 19,610 20,891
Operating Cash Flow $302,899 $291,114 $250,704 $269,218 $302,366 $235,050 $363,359 $392,890 $424,436 $457,857 $493,016 $529,771 $567,986 $607,537 $648,324
% Revenue 19.62% 20.71% 16.75% 17.59% 19.42% 14.14% 20.14% 20.11% 20.09% 20.10% 20.11% 20.13% 20.16% 20.19% 20.22%
Current Assets 793,149 843,507 767,255 807,827 814,729 803,308 841,747 900,043 983,045 1,071,120 1,164,086 1,261,724 1,360,073 1,470,083 1,580,389
% Revenue 51.37% 60.02% 51.27% 52.78% 52.32% 48.33% 46.66% 46.06% 46.54% 47.02% 47.48% 47.95% 48.27% 48.85% 49.30%
Current Liabilities 231,530 239,492 261,515 294,557 320,651 346,712 338,443 385,709 412,264 439,636 467,665 496,191 524,346 554,111 583,241
% Revenue 14.99% 17.04% 17.48% 19.24% 20.59% 20.86% 18.76% 19.74% 19.52% 19.30% 19.08% 18.86% 18.61% 18.41% 18.19%
Net Working Capital $561,619 $604,015 $505,740 $513,270 $494,078 $456,596 $503,304 $514,334 $570,781 $631,485 $696,421 $765,533 $835,726 $915,972 $997,148
% Revenue 36.37% 42.98% 33.80% 33.53% 31.73% 27.47% 27.90% 26.32% 27.02% 27.72% 28.41% 29.09% 29.66% 30.44% 31.10%
Change in Working Capital 42,396 (98,275) 7,530 (19,192) (37,482) 46,708 11,030 56,447 60,704 64,936 69,112 70,193 80,245 81,176
Capital Expenditures 41,946 58,089 52,061 61,262 68,234 35,940 54,126 61,063 68,646 76,889 85,802 95,391 105,658 116,604 128,231
% Revenue 2.72% 4.13% 3.48% 4.00% 4.38% 2.16% 3.00% 3.13% 3.25% 3.38% 3.50% 3.63% 3.75% 3.88% 4.00%
Acquisitions 27,182 105,909 20,073 - 92,260 419,203 9,021 9,770 10,561 11,391 12,257 13,157 14,088 15,046 16,029
% Revenue 1.76% 7.54% 1.34% 0.00% 5.93% 25.22% .50% .50% .50% .50% .50% .50% .50% .50% .50%
Unlevered Free Cash Flow $233,771 $84,720 $276,845 $200,426 $161,064 (182,611) $253,504 $311,027 $288,782 $308,874 $330,021 $352,110 $378,046 $395,642 $422,888
Discounted Free Cash Flow $235,047 $267,385 $230,187 $228,276 $226,146 $223,716 $222,707 $216,103 $214,167

UOIG 15
University of Oregon Investment Group March 10, 2017

Appendix 3 Revenue Model

Revenue Model
($ in thousands) 2011A 2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Surveillance 577,552 560,165 554,567 519,982 503,045 532,477 568,977 611,651 655,340 699,810 744,797 790,017 835,161 879,902 923,897
% Growth (13.97%) (3.01%) (1.00%) (6.24%) (3.26%) 5.85% 6.85% 7.50% 7.14% 6.79% 6.43% 6.07% 5.71% 5.36% 5.00%
% of Total Revenue 37.40% 39.86% 37.06% 33.97% 32.31% 32.04% 31.84% 31.69% 31.50% 31.27% 31.02% 30.74% 30.45% 30.14% 29.81%
Instruments 715,103 339,029 337,531 354,124 347,476 336,140 380,200 418,220 457,055 496,231 535,221 573,451 610,315 645,191 677,450
% Growth 13.56% (52.59%) (.44%) 4.92% (1.88%) (3.26%) 13.11% 10.00% 9.29% 8.57% 7.86% 7.14% 6.43% 5.71% 5.00%
% of Total Revenue 46.31% 24.12% 22.56% 23.14% 22.32% 20.22% 21.27% 21.67% 21.97% 22.17% 22.29% 22.31% 22.25% 22.10% 21.86%
Security 194,982 141,005 179,090 226,575 240,010 249,848 282,328 316,611 352,343 389,087 426,328 463,480 499,896 534,889
% Growth 100.00% (27.68%) 27.01% 26.51% 5.93% 4.10% 13.00% 12.14% 11.29% 10.43% 9.57% 8.71% 7.86% 7.00%
% of Total Revenue 13.87% 9.42% 11.70% 14.55% 14.44% 13.98% 14.63% 15.22% 15.74% 16.20% 16.59% 16.90% 17.12% 17.26%
OEM & Emerging Markets 178,294 183,975 199,096 186,722 243,678 259,205 269,573 282,666 298,819 318,456 342,112 370,459 404,329 444,762
% Growth 100.00% 3.19% 8.22% (6.22%) 30.50% 6.37% 4.00% 4.86% 5.71% 6.57% 7.43% 8.29% 9.14% 10.00%
% of Total Revenue 12.69% 12.29% 13.01% 11.99% 14.66% 14.50% 13.97% 13.58% 13.35% 13.26% 13.31% 13.51% 13.85% 14.35%
Maritime 171,489 52,013 189,076 192,636 177,948 185,725 196,267 205,099 215,061 226,275 238,881 253,044 268,949 286,815 306,892
% Growth 64.73% (69.67%) 263.52% 1.88% (7.62%) 4.37% 5.68% 4.50% 4.86% 5.21% 5.57% 5.93% 6.29% 6.64% 7.00%
% of Total Revenue 11.11% 3.70% 12.64% 12.59% 11.43% 11.17% 10.98% 10.63% 10.34% 10.11% 9.95% 9.85% 9.81% 9.82% 9.90%
Detection 79,918 80,875 90,218 85,726 115,301 124,137 132,746 143,366 154,016 164,577 174,922 184,917 194,427 203,315 211,448
% Growth 238.64% 1.20% 11.55% (4.98%) 34.50% 7.66% 6.94% 8.00% 7.43% 6.86% 6.29% 5.71% 5.14% 4.57% 4.00%
% of Total Revenue 5.18% 5.75% 6.03% 5.60% 7.41% 7.47% 7.43% 7.43% 7.40% 7.35% 7.28% 7.20% 7.09% 6.96% 6.82%
Total Revenue $1,544,062 $1,405,358 $1,496,372 $1,530,654 $1,557,067 $1,662,167 $1,787,243 $1,930,237 $2,080,749 $2,238,054 $2,401,363 $2,569,869 $2,742,791 $2,919,448 $3,099,338
% Growth 11.21% (8.98%) 6.48% 2.29% 1.73% 6.75% 7.52% 8.00% 7.80% 7.56% 7.30% 7.02% 6.73% 6.44% 6.16%

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Appendix 4 Working Capital Model

Working Capital Model
($ in thousands) 2011A 2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Total Revenue $1,544,062 $1,405,358 $1,496,372 $1,530,654 $1,557,067 $1,662,167 $1,787,243 $1,930,237 $2,080,749 $2,238,054 $2,401,363 $2,569,869 $2,742,791 $2,919,448 $3,099,338

Current Assets
Accounts Receivable 325,370 335,163 286,573 354,658 326,098 352,020 377,369 396,624 430,594 466,420 503,966 543,088 582,047 625,502 668,577
Days Sales Outstanding A/R 76.91 87.29 69.90 84.57 76.44 77.30 77.07 75.00 75.53 76.07 76.60 77.14 77.67 78.20 78.74
% of Revenue 21.07% 23.85% 19.15% 23.17% 20.94% 21.18% 21.11% 20.55% 20.69% 20.84% 20.99% 21.13% 21.22% 21.43% 21.57%
Inventory 336,051 381,378 344,719 320,605 393,092 371,371 363,426 414,351 449,720 486,925 525,807 566,193 606,253 650,816 694,780
Days Inventory Outstanding 192.48 228.65 180.63 161.85 190.30 161.84 160.00 170.00 172.28 174.56 176.84 179.12 181.40 183.68 185.96
% of Revenue 21.76% 27.14% 23.04% 20.95% 25.25% 22.34% 20.33% 21.47% 21.61% 21.76% 21.90% 22.03% 22.10% 22.29% 22.42%
Prepaid Expenses and Other Current Assets 104,285 96,006 97,574 93,691 95,539 79,917 94,861 102,537 110,533 118,889 127,564 136,515 145,303 155,086 164,642
Days Prepaid Expense Outstanding 24.65 25.00 23.80 22.34 22.40 17.55 19.37 19.39 19.39 19.39 19.39 19.39 19.39 19.39 19.39
% of Revenue 6.75% 6.83% 6.52% 6.12% 6.14% 4.81% 5.31% 5.31% 5.31% 5.31% 5.31% 5.31% 5.30% 5.31% 5.31%
Total Current Assets $793,149 $843,507 $767,255 $807,827 $814,729 $803,308 $835,656 $913,512 $990,846 $1,072,234 $1,157,337 $1,245,796 $1,333,604 $1,431,404 $1,527,999
% of Revenue 51.37% 60.02% 51.27% 52.78% 52.32% 48.33% 46.76% 47.33% 47.62% 47.91% 48.19% 48.48% 48.62% 49.03% 49.30%
Long Term Assets
Net PP&E Beginning 189,119 186,269 211,615 234,041 247,094 272,629 271,785 262,718 261,693 267,525 279,303 296,329 318,061 344,075 374,042
Capital Expenditures 41,946 58,089 52,061 61,262 68,234 35,940 39,117 44,204 49,761 55,793 62,300 69,277 76,721 84,623 92,980
Acquisitions 27,182 105,909 20,073 - 92,260 419,203 8,936 9,651 10,404 11,190 12,007 12,849 13,714 14,597 15,497
Depreciation and Amortization 77,498 59,715 62,796 57,245 49,534 57,513 57,120 54,881 54,334 55,205 57,280 60,396 64,420 69,252 74,808
% of PP&E 40.98% 32.06% 29.67% 24.46% 20.05% 21.10% 21.02% 20.89% 20.76% 20.64% 20.51% 20.38% 20.25% 20.13% 20.00%
Net PP&E Ending 186,269 211,615 234,041 247,094 272,629 271,785 262,718 261,693 267,525 279,303 296,329 318,061 344,075 374,042 407,711
Total Current Assets & Net PP&E $979,418 $1,055,122 $1,001,296 $1,054,921 $1,087,358 $1,075,093 $1,098,375 $1,175,206 $1,258,371 $1,351,537 $1,453,666 $1,563,857 $1,677,679 $1,805,446 $1,935,710
% of Revenue 63.43% 75.08% 66.91% 68.92% 69.83% 64.68% 61.46% 60.88% 60.48% 60.39% 60.54% 60.85% 61.17% 61.84% 62.46%
Current Liabilities
Accounts Payable 84,190 94,156 85,730 98,173 139,540 114,225 127,725 137,496 146,933 156,660 166,610 176,714 186,402 197,149 207,384
Days Payable Outstanding 19.90 24.52 20.91 23.41 32.71 25.08 26.08 26.00 25.77 25.55 25.32 25.10 24.87 24.65 24.42
% of Revenue 5.45% 6.70% 5.73% 6.41% 8.96% 6.87% 7.15% 7.12% 7.06% 7.00% 6.94% 6.88% 6.80% 6.75% 6.69%
Deferred Revenue 24,046 29,465 28,844 27,878 31,933 34,420 47,026 37,093 39,986 43,009 46,147 49,385 52,564 56,103 59,560
Days Deferred Revenue Outstanding 5.68 7.67 7.04 6.65 7.49 7.56 9.60 7.01 7.01 7.01 7.01 7.01 7.01 7.01 7.01
% of Revenue 1.56% 2.10% 1.93% 1.82% 2.05% 2.07% 2.63% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92%
Accrued Payroll and Related Liabilities 49,475 41,506 62,069 62,065 54,806 52,874 65,143 96,512 99,609 102,376 104,736 106,616 107,952 108,692 108,793
% of Revenue 3.20% 2.95% 4.15% 4.05% 3.52% 3.18% 3.64% 5.00% 4.79% 4.57% 4.36% 4.15% 3.94% 3.72% 3.51%
Accrued Product Warranties 13,370 13,169 14,665 13,538 13,406 - 15,675 17,482 18,845 20,270 21,749 23,275 24,841 26,441 28,070
% of Revenue .87% .94% .98% .88% .86% 0.00% .88% .91% .91% .91% .91% .91% .91% .91% .91%
Advance Payments from Customers 13,219 12,150 25,414 28,276 33,848 - 26,126 14,477 17,799 21,505 25,606 30,112 35,030 40,364 46,119
% of Revenue .86% .86% 1.70% 1.85% 2.17% 0.00% 1.46% .75% .86% .96% 1.07% 1.17% 1.28% 1.38% 1.49%
Accrued Expenses 41,183 32,772 39,316 51,810 40,930 34,022 41,801 50,466 54,401 58,513 62,783 67,189 71,710 76,328 81,032
% of Revenue 2.67% 2.33% 2.63% 3.38% 2.63% 2.05% 2.34% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61%
Accrued Income Taxes 2,161 11,943 663 4,586 201 51,017 5,225 19,302 18,636 17,708 16,494 14,969 13,113 10,910 8,347
% of Revenue .14% .85% .04% .30% .01% 3.07% .29% 1.00% .90% .79% .69% .58% .48% .37% .27%
Other Current Liabilities 3,886 4,331 4,814 8,231 5,987 60,154 7,838 6,964 7,507 8,074 8,663 9,271 9,895 10,532 11,181
% of Revenue .25% .31% .32% .54% .38% 3.62% .44% .36% .36% .36% .36% .36% .36% .36% .36%
Total Current Liabilities $231,530 $239,492 $261,515 $294,557 $320,651 $346,712 $336,558 $379,792 $403,716 $428,116 $452,787 $477,531 $501,507 $526,520 $550,487
% of Revenue 14.99% 17.04% 17.48% 19.24% 20.59% 20.86% 18.83% 19.68% 19.40% 19.13% 18.86% 18.58% 18.28% 18.03% 17.76%

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Appendix 5 Discounted Cash Flows Valuation Assumptions

Discounted Free Cash Flow Assumptions Considerations

Tax Rate 22.91% Terminal Growth Rate 1.99%
Risk Free Rate 2.61% Terminal Value 6,767,891 Avg. Industry Debt / Equity 10.76%
Beta 0.96 PV of Terminal Value 3,285,800 Avg. Industry Tax Rate 25.34%
Market Risk Premium 6.00% Sum of PV Free Cash Flows 2,063,734 Current Reinvestment Rate 33.43%
% Equity 90.58% Firm Value 5,349,534 Reinvestment Rate in Year 2025E 23.77%
% Debt 9.42% Total Debt 539,219 Implied Return on Capital in Perpetuity 8.36%
Cost of Debt 3.48% Cash & Cash Equivalents 328,106 Terminal Value as a % of Total 61.4%
CAPM 8.39% Market Capitalization 5,138,421 Implied 2016A EBITDA Multiple 15.1x
WACC 7.85% Fully Diluted Shares 139,334 Implied Multiple in Year 2025E 4.0x
Terminal Risk Free Rate 3.17% Implied Price $ 36.88 Free Cash Flow Growth Rate in Year 2025E 6%
Terminal CAPM 8.95% Current Price $ 36.44
Terminal WACC 8.36% Undervalued 1.20%

Final Valuation
Discounted Cash Flow $36.88 90.00%
Comparables Analysis $43.85 10.00%
Implied Price $37.58
Current Price $36.44
Undervalued 3.12%

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Discounted Free Cash Flow Assumptions Considerations

Tax Rate 22.91% Terminal Growth Rate 1.99%
Risk Free Rate 2.61% Terminal Value 6,767,891 Avg. Industry Debt / Equity 10.76%
Beta 0.96 PV of Terminal Value 3,285,800 Avg. Industry Tax Rate 25.34%
Market Risk Premium 6.00% Sum of PV Free Cash Flows 2,063,734 Current Reinvestment Rate 33.43%
% Equity 90.58% Firm Value 5,349,534 Reinvestment Rate in Year 2025E 23.77%
% Debt 9.42% Total Debt 539,219 Implied Return on Capital in Perpetuity 8.36%
Cost of Debt 3.48% Cash & Cash Equivalents 328,106 Terminal Value as a % of Total 61.4%
CAPM 8.39% Market Capitalization 5,138,421 Implied 2016A EBITDA Multiple 15.1x
WACC 7.85% Fully Diluted Shares 139,334 Implied Multiple in Year 2025E 4.0x
Terminal Risk Free Rate 3.17% Implied Price $ 36.88 Free Cash Flow Growth Rate in Year 2025E 6%
Terminal CAPM 8.95% Current Price $ 36.44
Terminal WACC 8.36% Undervalued 1.20%

Final Valuation
Discounted Cash Flow $36.88 90.00%
Comparables Analysis $43.85 10.00%
Implied Price $37.58
Current Price $36.44
Undervalued 3.12%

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Appendix 6 Sensitivity Analysis

Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate
1.49% 1.74% 1.99% 2.24% 2.49% 1.49% 1.74% 1.99% 2.24% 2.49%
0.86 $38.39 $39.47 $40.64 $41.92 $43.32 0.86 5.35% 8.31% 11.53% 15.04% 18.87%
Adjusted Beta

Adjusted Beta
0.91 $36.65 $37.62 $38.68 $39.82 $41.06 0.91 0.58% 3.25% 6.13% 9.27% 12.68%
0.96 $35.06 $35.93 $36.88 $37.90 $39.01 0.96 (3.80%) (1.39%) 1.20% 4.01% 7.06%
1.01 $33.58 $34.38 $35.23 $36.15 $37.15 1.01 (7.85%) (5.67%) (3.32%) (0.79%) 1.94%
1.06 $32.22 $32.94 $33.71 $34.54 $35.44 1.06 (11.59%) (9.61%) (7.49%) (5.21%) (2.74%)

Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate
1.49% 1.74% 1.99% 2.24% 2.49% 1.49% 1.74% 1.99% 2.24% 2.49%
6.85% $35.75 $36.63 $37.57 $38.59 $39.70 6.85% (1.90%) 0.51% 3.10% 5.91% 8.96%
7.35% $35.40 $36.27 $37.22 $38.24 $39.35 7.35% (2.86%) (0.46%) 2.14% 4.95% 7.99%
WACC

WACC
7.85% $35.06 $35.93 $36.88 $37.90 $39.01 7.85% (3.80%) (1.39%) 1.20% 4.01% 7.06%
8.35% $34.73 $35.60 $36.55 $37.57 $38.68 8.35% (4.70%) (2.30%) 0.30% 3.11% 6.15%
8.85% $34.41 $35.28 $36.23 $37.25 $38.36 8.85% (5.58%) (3.17%) (0.57%) 2.23% 5.28%

Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate
1.49% 1.74% 1.99% 2.24% 2.49% 1.49% 1.74% 1.99% 2.24% 2.49%
17.91% $34.96 $35.84 $36.78 $37.79 $38.89 17.91% -4.05% -1.66% 0.92% 3.71% 6.74%
Tax Rate

Tax Rate
20.41% $35.01 $35.88 $36.83 $37.85 $38.95 20.41% -3.93% -1.53% 1.06% 3.86% 6.90%
22.91% $35.06 $35.93 $36.88 $37.90 $39.01 22.91% -3.80% -1.39% 1.20% 4.01% 7.06%
25.41% $35.10 $35.98 $36.93 $37.96 $39.07 25.41% -3.67% -1.26% 1.35% 4.16% 7.22%
27.91% $35.15 $36.03 $36.98 $38.01 $39.13 27.91% -3.55% -1.12% 1.49% 4.31% 7.38%

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Appendix 7 Sources
BusinessWire
Company SEC Filings
Company Websites
FactSet
FLIR Investor Presentations
FRED
Google Finance
IBIS World
Morningstar
S&P Capital IQ
U.S. Bureau of Economic Analysis
Yahoo! Finance

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