Spring 2015

COMPANY OVERVIEW

FLIR Systems, Inc. is the global leader in designing,

developing, marketing, and distributing thermal imaging

systems, visible-light imaging systems, locater systems,

measurement, and diagnostic systems. The company operates

through six segments: Surveillance, Instruments, OEM &

Emerging Markets, Maritime, Security, and Detection. A

breakdown of its 2014 revenue by geographic region is as

follows: the U.S. commercial

market (30%), U.S. government

(20%), Europe (23%) and the

Rest of World markets

respectively (27%).

INVESTMENT THESIS

FLIR is currently trading at a

6.6% discount to its 10-year

average P/E multiple of 22.5x.

This is a result of declining

revenue from FLIRs government systems business since 2011.

Additionally, working capital inefficiencies restricted cash flow

and compressed margins beginning in 2010. However, FLIRs

shift away from reliance on U.S. government spending and

continued emphasis on commercial and consumer applications

will allow consistent top-line growth to return. Growth in

commercial markets will be driven by innovative new products

across an increasingly diversified market, from high-end and

professional imaging products to consumer and amateur

imaging products. Working capital improvement processes,

including heavily-monitored inventory procurement methods

and aligning executive compensation with working capital

management, will re-expand margins, delivering significant

bottom-line growth. Finally, an approaching Presidential

election-year will lead to moderate increases in defense

spending, stabilizing FLIRs government systems segment

through 2016. These catalysts will drive appreciation of FLIRs

P/E multiple to its 10-year average of 22.5x, resulting in a

dividend-adjusted return of 20.58%

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FLIR Systems, Inc. Exchange: NYSE Ticker: FLIR Target Price: $37.17

Nathan Eisenberg: Lead Analyst neisenberg@theowlfund.com Goutham Bollu: Associate Analyst gbollu@theowlfund.com Kyle McGarry: Associate Analyst kmcgarry@theowlfund.com

Sector Outperform Recommendation: BUY Key Statistics:

Price $31.19 52 Week Low $28.32

Return 20.58% 52 Week High $37.42

Share O/S (mm) 139.8 Yield 1.41% Market Cap (mm) $4,363

Enterprise Value $4204

Earnings History:

Quarters EPS Revenue YoY Price

1Q14 $0.25 -28.57% -5.75%

2Q14 $0.33 -5.71% 1.44%

3Q14 $0.39 21.88% 6.41%

4Q14 $0.51 45.71% 6.82%

Earnings Projections:

Year Q1 Q2 Q3 Q4 Total

2014 $0.25 $0.33 $0.39 $0.51 $1.46

2015E $0.32 $0.38 $0.42 $0.53 $1.65

2016E $0.34 $0.44 $0.48 $0.60 $1.89

1-Year Price Chart

All prices current at end of previous trading sessions from date of report. Data is sourced from local exchanges via CapIQ, Bloomberg and other vendors. The William C. Dunkelberg Owl fund does and seeks to do business with companies covered in its research reports.

50%

23%

27%

Geographic Breakdown

UnitedStates

Europe

OtherForeign

Spring 2015

CATALYSTS

OEM and Emerging Products

FLIR ONE

In March of 2014 FLIR announced the first mobile thermal imaging

unit for smartphone users. This first model was a casing that could be

fitted on the iPhone 5 and 5s models only. The casing included a

dedicated battery, not leeching off of the users phone life, and two

cameras, one infrared and the other a traditional optical camera. As with

most first products to market, the FLIR ONE was not widely adopted.

FLIR decided not to scrap the idea of mobile thermal imaging and

announced at the CES conference in January of 2015 its revamped model, available for all iPhones that use the lightning adapter as well as

crucially making it available for Android users. This new model has 4x

the resolution as the previous model, weighs in at 2.75

ounces, or 1/3 the weight of the first model, and

includes automatic tuning for optimal performance

(the previous model had to be tuned manually). The

excitement is not exclusive to the hardware, MSX

technology uses both the optical and thermal cameras

and splices the images taken from both into one,

coherent image that is easier for people to understand. The many uses for the FLIR ONE include camping, car

maintenance, photography, household maintenance, plumbing, and animal observation. Analysts on the street are not

seeing the potential given the lack of adoption of the previous model. We believe that the new model is not only superior

in every way to the previous one that failed to impress, but it will also capture a market more than twice of what last years

model could. Furthermore, the shock value of mobile thermal imaging is still intact with people still raving about the FLIR

ONE on tech review websites, pointing towards the future applications of commercially available, personal thermal

imaging. Shipping in the middle of 2015, we believe that sales of the FLIR ONE will far surpass the figures analysts are

using in their models.

Road and Traffic Management

FLIR has been developing infrared systems to observe traffic flows and then transmit that information to traffic signals

to help move traffic in an efficient way. With the ever-increasing urbanization that we are experiencing, people are sitting

in more and more traffic, queues at traffic signals are piling up. This not only wastes time but fuel as well, not to mention

the added CO2 emissions, which is harmful for the planet. FLIRs upcoming systems, Trafisense and C-Walk aim to not

only intelligently manage traffic flow but also keep automobiles, cyclists, and pedestrian crossers safe in all conditions at

all times. Little has been released as to the pricing of these systems but a pamphlet from FLIR states that it will be less

than you expect. Very few analysts have picked up on this area of growth, mostly due to the little information surrounding

the systems. We expect to see growth coming from governments in Asia and the Middle East, areas that are known for

being early adopters in civil engineering. We do not see much adoption in the United States, mostly due to the aging

infrastructure. Highway spending in the U.S. will mostly go to the deteriorating asphalt and failing bridges across the

country. However, officials will be looking for any positive news to give to their citizens, especially when it comes to time

savings and the positive environmental impact. The low cost of the systems will enable growth in the U.S. but not near

the levels that will be seen in the Middle East and Asia. We hope to hear more concrete data, contracts, and pricing at the

upcoming SPIE DSS conference on April 20th, 2015 but we believe these systems will be an integral part of the

transportation infrastructure in developed countries for years to come.

Spring 2015

Healthcare

There has been controversy as of late surrounding the

effectiveness of mammograms. One study from the New

England Journal of Medicine found last year that up to

21.9% of women diagnosed and treated for breast cancer

ended up being misdiagnosed and did not have breast

cancer. Some medical professionals are calling for a

multiple approach including the use of thermography.

FLIR was approved by the FDA in 2004 to help doctors

look at skin temperature for a number of screening

techniques. Currently, the FDA and some other medical

professionals advise against the use of thermography citing

that it is not effective enough on its own for breast cancer

screening. We believe that the controversy surrounding

thermography will only help FLIR, at the least it garnered

attention and at the most it will be used alongside

mammography in a multi-step approach to help find

cancerous cells in the near future.

Security

In order to defend something one must detect and be

able to see any possible threats. FLIR expands the

perception of civilians and the military alike, allowing

the user to see what they wouldnt be able to otherwise

because of lack of light or poor weather conditions.

Governments worldwide are experienced increased

threats not only in number but also in complexity. FLIR

systems help detect chemical, nuclear, and biological

threats, all tactics incorporated in terrorist attacks which

has grown at a tremendous rate of 180% over the last 14 years. Global commercial security spending grew 6.8% from

2012-2013 to a level of $201.7 billion and is expected to grow to $240 billion by 2017, backed by the growing middle class

with assets to protect. FLIR released FX Wi-Fi, which condenses hours of thermal security footage to just minutes, making

it easier for homeowners. FLIR is the best positioned infrared imaging company in rising macro trends given its strong

brand name and it being the pioneer in its field, controlling most of the segments in which it operates.

PEER GROUP IDENTIFICATION

Garmin, Ltd (GRMN) o Producer of navigation equipment.

FEI Company (FEIC) o Creates advanced industrial tech

instruments.

L-3 Communications (LLL) o Supplies surveillance and recon systems to

U.S. Government.

TARGET PRICE

FLIR is currently trading at a 6.6% discount to its 10-

year average P/E multiple of 22.5x. Multiplying this

target multiple by NTM EPS of $1.65, we derive a TP

of $37.17. This price appreciation and dividend yield

project a total return of 20.58%

Implied P/E Multiple: 22.53x

Valuation Price Target = $37.17 Projected Return: 20.58%

Spring 2015

Segment Overview

Surveillance

FLIR provides enhanced imaging and recognition solutions

using a commercially developed and military qualified

(CDMQ) model. These systems can be purchased off the

shelf or ordered customized with prices ranging from $2,000

to well over $1,000,000 per system. Typical customers are

military, law enforcement, public safety, and other

government customers. The systems are used for border

patrol, deployed for military use, and for search and rescue

patrols. The systems sold are usually highly sensitive in

nature, the military does not want information about the

technology and designs of the products released to the public.

Surveillance makes up 32% of the companys revenue;

revenue from this segment declined 7.4% YoY due to a fewer

U.S. Government funded customers.

Instruments

Instruments are devices that image, measure, and gasses thermal energy, gases, and other environmental elements. These

devices are used in industrial, commercial, and scientific applications such as laboratory studies of thermodynamics as well

as development of firearms, ammunition, etc. The FLIR and Extech brands sell these devices in commercial applications

to help pinpoint gas leaks in pipelines and facilities as well as monitor quality control to help factories pinpoint

manufacturing defects in heat-sensitive processes before they occur, saving batches. The Instruments segment is expanding

in terms of revenue, growing 4.9% YoY and represents 23% of the total business.

OEM and Emerging Products

The Original Equipment Manufacturer and Emerging Products segment provides thermal imaging camera cores and

components that are then sold to third parties for use in thermal imaging systems. These products are seen in traffic

management systems, aerial drones, Readout Integrated Circuits (ROICs), pan/tilt tripod and mounting systems, and

mobile devices. The ROICs are used mostly in astronomy but are also found in any scientific instrument that needs to

observe wavelengths. Pan/tilt systems are used for surveillance domestically and in the military as well as commercial,

providing a 360 degree view gyrostabilized platform to mount thermal and optical cameras on. Mobile devices use the

newest, smallest, and most powerful thermal imaging core, Lepton which is used on helmet cameras, weapon mounted

displays, and commercial use in the FLIR ONE as discussed previously. This segment makes up 15% of FLIR and has

seen revenues increase 9.5% from 2013, mostly due to increased shipments to U.S. customers. This growing segment also

boasts the highest operating margin of the segments at 28.4%. We foresee this segment to continue to grow and represent

an even larger portion of the company.

Maritime

The development and manufacturing of imaging instruments for both recreational and commercial boats falls under the

Maritime segment. The company sells under the FLIR and Raymarine brands, the former focusing on commercial and

slat-water whereas the latter focuses on small fresh-water systems. The systems use navigation (GPS), autopilot, sonar,

radar, thermal and visible optics, communications, and Wi-Fi. These systems are not solely for but do help fishermen not

only navigate their boat but also locate fish. This segment accounts for 13% of revenue, this segments revenue increased

1.9% YoY due to more deliveries in Europe.

Spring 2015

Security

This segments is used in homes, ports, airports, petrochemical facilities, nuclear

plants, warehouses, businesses and its products are used to detect possible theft,

random acts of violence, and terrorism in all conditions at any time of the day and

night. Traditional security measures are very cumbersome and expensive, and

often create ways for people to break in, such as additional lighting creating

shadows. FLIR offers many options, many of which include systems that

incorporate optical, thermal, radar, alarm, and pan/tilt technology. The high-end

systems incorporate multiple cameras operating at different lens lengths, offering

detection of man-sized beings up to 11 miles away. On the other end of the

spectrum, Lorex provides low-cost mass-market solutions mostly for home and

retail security. This segment is FLIRs fastest growing, increasing its revenues 27%

from 2013, representing 12% of the whole company.

Detection

The smallest segment of FLIR, accounting for 6% of total revenues and saw a 5%

revenue decrease YoY, the Detection segments offers sensors, instruments, and

platforms for the identification of chemical, biological, radiological, nuclear, and

explosive threats. These platforms are used by homeland security, the military, and

first responders.

INDUSTRY OVERVIEW

Infrared & Thermal Imaging

The infrared and thermal imaging market was a $3.4bn market in 2014. With

expectations of +15% CAGR through 2020, the industry is expected to expand to

over $8.4bn. Once dominated by military spending, the infrared and thermal

imaging markets are shifting rapidly towards the commercial sector. Commercial

applications for these imaging products and services vary widely, from industrial

manufacturing, security and automotive maintenance to photography. This

commercial shift is also creating a demand for low end and entry-level imaging

products, creating a high-volume market allowing diversified firms with these

technologies to counteract more cyclical revenue drivers such as military spending.

Thanks to the declining cost of these technologies, products such as thermal-

imaging cameras

(and smartphone

attachments) and

thermal detection

security cameras

are now available

to mass-market

consumers.

Risks

Product mix The company has been growing the complexity of its business through acquisitions. Its operating margins vary by product and substantial changes in the mix of products sold could have a negative impact on operating margins. Government spending FLIR depends on the United States government for a material portion of its income and changes in government spending could adversely affect its business. Additionally, at its discretion, the United States government may change its spending priorities and or terminate, reduce or modify contracts. Security In the course of business as a United

States government contractor, FLIR

faces security threats and technology

disruptions, including threats to its IT

infrastructure, in attempts to gain

access to proprietary or classified

information.

Economic Moat

Pricing Power

FLIR has a narrow, stable economic

moat of pricing power. It would be

very difficult for a competitor to

challenge its global leader position in

thermal and infrared imaging, which

includes: R&D innovation, customer

relationships and market share in many

of its commercial and government

business segments.

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$2,000

$4,000

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$8,000

$10,000

2014 2015E 2016E 2017E 2018E 2019E 2020E

Infrared & Thermal Imaging Market Size

Spring 2015

U.S. Defense Spending

U.S. defense spending is cyclical in nature. In addition to tracking

the size and scope of U.S. military involvement, it is often impacted

by political positioning and the parties in charge. For instance,

emphasizing strong national defense is seen as a required stance for

most politicians and in particular, ones running for presidential

office. Thus, presidential election campaign years often see a surge

in defense budgets. Following two years of declining defense

spending ($711bn FY11 to $640bn FY13) after reduction in

military engagement in the Middle East, experts expect defense

spending to rise through 2016 on election-year politics and

heightened threats to security abroad, including: Islamic State of

Iraq & Syria (ISIS), prolonged Ukrainian conflict and troop

extensions in south-central Asia. This increase would likely come despite budget sequestration, thanks to contingency

funds allocated for emergency events. Proposed by President Obama, both parties are expected to support the measure.

Following a Republican victory in the 2014 midterm elections, defense spending has become an issue of focus surrounding

the 2016 presidential elections. Historically strong on national defense, Republicans have reiterated their stance on the

need for a well-funded military, seeking to balance the budget through cuts on social programs over defense. While

defense spending has largely become a micro-dispute over a few billion dollars here or there (on a +$0.5tn/year base), a

Republican victory in the 2016 elections would likely prolong the cyclical upswing of defense spending through 2020.

Global Defense Spending

Global military expenditures fell 1.9% in 2013 to $1.75tn, led by

decreased consumption in Western countries, particularly in N.

America and Europe. This is in stark contrast to recent trends in

defense spending in emerging and developing countries. For instance,

China, Russia and Saudi Arabia, the three largest defense spenders

after the U.S. (11%, 5% and 3.8%, respectively), all saw substantial

growth in military expenditures. Growth in military expenditures by

region in FY 13 were:

Middle East 4% growth to $150bn

Africa 8.3% growth to $45bn

Asia 3.6% growth to $407bn

Drones & Thermographic Inspection

Unmanned aerial vehicles (UAV), more commonly referred to as drones, are undeniably one of the most anticipated

technological devices of the moment. Experimental grocery and aerial post delivery services notwithstanding, there are

proven areas of growth in the employ of drone technology, particularly in engineering, construction, industrial and

agricultural settings. One such example is thermographic inspection, in which an aerial-specific thermal-imaging camera is

attached to a drone, offering a birds-eye view useful for a wide range of commercial applications, such as site appraisal,

conditions monitoring, plant and systems design, as well as a number of inefficiency (e.g. power use) and quality

management detection and analysis tools.

While still currently heavily regulated, commercial drone flights were given official sanction this year, with full adoption

and safety regulation expected by 2017. Following this receptive regulatory environment, the drone market is expected to

grow at a CAGR of 19% through 2020, outpacing the slower-growing but already sizable defense drone market.

Spring 2015

FINANCIALS

Revenue

FLIR recognizes revenue in six distinct segments: Surveillance,

Instruments, OEM and Emerging Markets, Maritime, Security, and

Detection. FLIR recorded FY 14 revenues of $1,531mm, a 2.3%

increase YoY and clocking in a five-year CAGR of 5.94%. The

exception to this trend occurred in FY 12, with revenues down almost

9% YoY, following 11.2% growth in FY 11. This was a result of

decreased revenues in FLIRs government systems segment, which

was impacted by defense spending cuts following the official end of

the Iraq War. Moving forward, management has guided revenue

growth of 1-4.5% in FY 15, due to a 3 point impact on FX. Even with

negative FX translation, we believe this to be a conservative figure,

and estimate revenue growth of 4-6% in FY 15 as FLIR benefits from

a more attractive global defense spending environment as well as

continued growth in commercial-oriented segments.

Government Systems

Surveillance

FLIRs surveillance segment reported revenues of $492mm in FY 14, a 7.4% decrease from FY 13, primarily due to

further reductions in demand from the U.S. government. However, Q4 revenues were better than expected, growing 8%

YoY driven by demand for integrated surveillance systems. This segment represents 32.1% of FY 14 total revenue, down

from 50.4% of FY 10 total revenue. Despite YoY declines since 2010, surveillance backlog grew 5% to $295mm. We

believe surveillance revenues to be bottoming out as defense spending firms up.

Detection

The Detection segment reported revenues of $26mm, surpassing analyst expectations thanks to first delivery of FLIRs

integrated chemical, biological, radiological, nuclear, and explosives (CBRNE) threat response system as part of the U.S.

militarys DR SKO program. FLIR was awarded the first full-grade CBRNE production order in Q4 of FY 14 of $27mm

for 2015 delivery.

Commercial Businesses

Security

The Security segment reported revenues of $56mm, a 27% increase YoY. High demand drove three consecutive quarters

of +30% growth in FY 14. FLIRs diverse product offering, including high-end thermal cameras and retail security cameras

(Lorex) saw strong growth. FLIR will expand this segment further in 2015 with the release of several new security products.

FLIRs market leadership is expected to sustain Security as its fastest growing segment over the next years.

Instruments

The Instrument segment reported revenues of $354.1mm in FY 14, a 4.9% increase YoY. This growth was driven by

strong sales in test and measurement products as well as automatic cameras, particularly products released in late 2013 and

2014. Launch of the TG-165 handheld IR thermometer in Q4 set a segment record for most units sold. Growth in these

instruments more than offset weaker demand from building maintenance end markets.

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Revenue

Spring 2015

OEM & Emerging Markets

OEM & Emerging Markets segment reported revenues of $226.9mm in FY 14, a 9.5% increase YoY. Strong demand for

uncooled camera cores and newly introduced mobile accessories drove revenue in this segment. Launch of Muon in Q3,

a next-gen uncooled core developed for thermal product OEMs to assist in processing and packaging, supported growth

in this segment. The second iteration of FLIR ONE was introduced at CES in January and is expected to help drive

continued growth in this segment in 2015.

Maritime

The Maritime segment reported revenues of $192.6mm in FY 14, a 1.9% increase YoY. Growth was tempered by a below

average Q4 as a result of heavy pricing pressure from competitors over the holiday season. FLIR was also caught off-

guard by stronger than expected demand for its professional-grade maritime imaging products and unable to meet demand.

This segment released new versions of several maritime products at CES, including the newest Dragonfly and Pro

Fishfinder imaging systems. These products are expected to drive strong growth in the Maritime segment in 2015.

Margins

FLIR recorded gross, EBITDA and net income margins of 49.1%,

21.8% and 13.1%, respectively in FY 14. Margins have compressed

significantly since 2009, following consistent declines in its

government systems business largely due to defense budget cuts.

Additionally, FLIR struggled with working capital inefficiencies

beginning in 2010 through most of 2013. A particular issue during

this period was inventory management, as inventory averaged

33.4% of current assets, nearly ten points higher than 2009s

average. Management has acknowledged this operating weakness

and has been working since 2013 to improve working capital

efficiency. In particular, FLIR has focused on improving

procurement processes and aligning executive compensation with

working capital management. This has proven effective thus far, as

inventory turnover has improved from its 2012 low of 1.87 to 2.35 in 2014. Additionally, operating margins improved

across all business segments in 2014. Management has targeted a turnover ratio of 3.5 which would put it back in line

with its peers. We expect FLIR to continue to unlock cash trapped in inventory through these efforts.

Surveillance

Operating margin for the Surveillance segment was 23% in FY 14, a 30bps increase YoY. Q4 saw particularly strong

operating margin expansion to 29.1%, a 390bps increase QoQ.

Detection

Operating margin for the Detection segment was 12.8% in FY 14, a 290bps increase YoY. Q4 margins were 20.7% as a

result of FLIRs first CBRNE order fulfillment. Margins are expected to expand moderately again in 2015 due to higher

government demand.

Security

Security segment operating margins grew to 13.9% in FY 14, a 160bps increase YoY. Q4 margins were especially strong

at 18.3% as a result of seasonal retail demand and new product sales. Margins are expected to continue expansion in 2015

as Security sees continues to see high demand.

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30.0%

40.0%

50.0%

60.0%

70.0%

2009 2010 2011 2012 2013 2014 2015E

Margins

Gross EBITDA Net

Spring 2015

Instruments

The Instruments segment recorded 27.9% operating margins in FY 14, a 390bps increase YoY. Once again, Q4 margins

saw marked expansion, this time as a result of TG-165s successful launch.

OEM & Emerging Markets

OEM & Emerging Markets segment operating margins also expanded in FY 14 to 28.4%, a 290bps increase YoY. Keeping

in line with FLIR Q4 operating margin trends, OEM & EM recorded 32.7% margin, a 400bps increase QoQ on uncooled

core and mobile attachments demand.

Maritime

Maritime operating margins were 12.7% in FY 14, a 90bps increase YoY. This is despite a slight contraction in Q4

operating margins (100bps YoY) as a result of seasonal pricing pressures.

Debt

FLIR has a debt principal payment of $250mm in 2016. FLIRs total debt reaches $384mm with $14mm in interest

payments. The company also has an unused revolver credit line of $150mm. FLIR has an interest coverage ratio of 24.33x,

which shows it is more than capable of fulfilling its short-term debt obligations. Additionally, FLIR has a current ratio of

4.33x and a quick ratio of 3.29x. FLIR holds an investment grade of BBB-, which is due to its relatively small size compared

to non-financial, investment grade companies.

Shareholder Returns

FLIR recorded a 10% increase in dividend yield to $0.44 in FY 14.

The dividend grew at a three-year CAGR of 22.36%. This dividend

carries a payout ratio of 26.5% and gives the capacity of FLIR to grow

it, giving shareholders higher yield as free cash flow improves. FLIR

is also committed to returning value to shareholders via its share

repurchase programs. FLIR has spent approximately $712mm buying

back around 28.1 million shares in the past 5 years and authorized a

new buyback program that spans 15 million shares over 2 years.

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10.0%

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2011 2012 2013 2014

Payout Ratio

Spring 2015

Free Cash Flow

Cash flows from operations totaled $226mm in FY 14, down

over 30% from FY 13. This includes the impact of a restructuring

initiative completed in Q3 as well as higher than average accounts

receivable from the government systems segments (Surveillance

& Detection). This is expected to reverse in 1H FY 15. Excluding

FY 14, CFFO grew at a 6.9% CAGR of 6.9% since 2009. CFFO

is expected to grow 48.5% in 2015 as accounts receivable

normalize and growth segments drive net income. Following

FY 14 CFFO contraction, free cash flow fell over 30% YoY.

Excluding FY 14, FCF grew at an 8.13% CAGR since 2009. FCF

is expected to grow 44.1% in 2015 as CFFO rebounds. CAPX

has increased at a 7.9% CAGR since 2010, a small but important

component of FLIRs continued growth. Management is intent on returning value to shareholders and will use free cash

flow to continue to increase yield and share repurchase programs as it finds its share price attractive.

R&D Spending

FLIRs R&D spending has grown to $142.8 million, which represents a 9.35% 5-year CAGR. This continued increase in

research and development should enable FLIR to continue innovating emerging imaging technologies, particularly ones

with commercial and consumer applications.

Earnings

FLIRs EPS stayed largely flat since 2010. EPS hit its 5-year low

of $1.36 in 2013, with modest growth in 2014. 2014 top line

growth came in at $1.53 billion, a 2% increase YoY. Looking

forward, management expects top line growth to increase to $1.6

Billion and an EPS of $1.70, representing growth of 11%.

FLIR Comparables Analysis

It is very difficult to find direct comparable companies to FLIR,

the only companies that do exactly what it does are small private companies. We have identified three companies that are

direct competitors in a certain segment and operate in a similar manner; the average of the three is comparable to FLIR.

FEI Company makes instruments used in manufacturing that find small defects, similar to FLIRs Instruments segment.

Garmin is a producer of navigation equipment and is the closest competitor in the Maritime segment. L-3 Communications

supplies surveillance and reconnaissance systems and is comparable to FLIRs Surveillance segment.

Equity Enterprise

Market Market Revenue EBITDA EPS Gross EBITDA Debt/

Company (TICKER) 04/12/2015 Value Value LTM NTM LTM NTM Growth Growth Growth Margin Margin Equity ROE ROA

FLIR US Equity 31.20$ 4,362.55$ 4,204.16$ 21.04 18.92 12.53 8.17 3.80 20.68 27.20 49.02% 22.68% 13.08% 23.17 12.43 8.53 17.76 18.81 BBB

LLL US Equity 126.04$ 10,435.66$ 14,007.66$ 16.02 16.41 10.46 10.75 (6.21) 10.81 (22.69) 9.40% 10.97% 5.55% 73.49 11.97 4.84 6.10 42.36 BBB-

GRMN US Equity 46.66$ 8,950.09$ 6,178.49$ 15.11 15.07 9.84 8.10 3.93 26.74 3.82 55.89% 26.74% 12.69% - 10.31 7.61 -- - --

FEIC US Equity 78.94$ 3,303.16$ 2,855.10$ 26.53 22.19 19.27 12.33 (1.34) 18.06 (0.33) 46.86% 18.06% 10.99% - 9.92 7.39 -- - --

Median 16.0 16.4 10.5 10.7 (1.34) 18.06 (0.33) 47.94% 20.37% 11.84% - 10.31 7.39 6.1 -

Mean 19.2 17.9 13.2 10.4 (1.21) 18.54 (6.40) 40.29% 19.61% 10.58% 24.50 10.73 6.61 6.1 14

Debt/Capital

Credit

Rating

Capitalization

Stock

Price

Valuation Multiples Growth Rates Margins Leverage

P/E Multiple EBITDA Profit

Margin

Interest

Coverage

0

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2009 2010 2011 2012 2013 2014 2015E

Cash Flows

FCF CFFO CAPX

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2010 2011 2012 2013 2014 2015E

EPS

Spring 2015

Discounted Cash Flow Statement Assumptions

We are forecasting 2015 sales growth of 5%, slightly above managements guidance, which we believe to be conservative.

Following 2015, we continued sales growth at mid-high single-digit rates in 2016 and 2017. This is a result of expected

incremental revenue from commercial business segments, as well as stabilization of government systems revenues. From

2018 out, we are projecting sales growth to step down from high single-digit rates to 4% in 2021, reflecting our view that

FLIR will remain an innovator and market leader in infrared and thermal imaging. We are also projecting slight margin

expansion across the board as efficiency processes further improve margins. All other assumptions were derived from

long-term averages or management guidance, e.g. plans to return capital to shareholders.

Valuation

FLIR is currently trading at a 6.6% discount to its 10-year average P/E multiple. This is due to declining revenue from

government systems segments as well as working capital inefficiencies trapping value. As FLIR continues to innovate the

thermal and infrared imaging market and grow its commercial business with new product applications for all end markets,

from consumer to industrial, it will see growth offset reduced U.S. government procurement. Additionally, entering a

Presidential election-year cycle will see moderate gains in defense spending, providing short term mitigation of this business

risk. Finally, FLIRs ongoing working capital improvement processes will drive a return to efficiency and strong financial

performance evident through continued margin expansion.

Spring 2015

APPENDIX

DCF Assumptions

FLIR Historical P/E

1-Year

Spring 2015

3-Year

5-Year

Spring 2015

10-Year

FLIR to Comp Group

3-Year

Spring 2015

5-Year

Spring 2015

DISCLAIMER

This report is prepared strictly for educational purposes and should not be used as an actual investment guide.

The forward-looking statements contained within are simply the authors opinions. The writer does not own any

FLIR Systems, Inc. stock.

TUIA STATEMENT

Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his

tireless dedication to educating students in real-world principles of economics and business, the William C.

Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,

practical learning experience. Managed by Fox School of Business graduate and undergraduate students with

oversight from its Board of Directors, the WCD Owl Funds goals are threefold:

Provide students with hands-on investment management experience

Enable students to work in a team-based setting in consultation with investment professionals.

Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs

and partial scholarships for student participants.